Silco Automatic Vending Co. v. Howells

• Decision Date: 21 June 1968
• Docket Number: No. C--110,C--110
• Citation: 245 A.2d 765,102 N.J.Super. 243
• Parties: , 5 UCC Rep.Serv. 625 SILCO AUTOMATIC VENDING CO., Inc., a New Jersey corporation, Plaintiff, v. Nellie HOWELLS et al., Defendants.
• Court: New Jersey Superior Court

Page 243

102 N.J.Super. 243

245 A.2d 765, 5 UCC Rep.Serv. 625

SILCO AUTOMATIC VENDING CO., Inc., a New Jersey corporation, Plaintiff, v. Nellie HOWELLS et al., Defendants.

No. C--110.

Superior Court of New Jersey, Chancery Division.

June 21, 1968.

Richard Jon Contant, Hackensack, for plaintiff (Contant & Contant, Hackensack, attorneys).

Paul Colvin, Dover, for defendants, Howells and Al's Cozy Inn, Inc.

Sheldon Schiffman, Newark, for defendant, Rose and Harry James, Inc.

MATTHEWS, J.S.C.

Plaintiff sues defendant Al's Cozy Inn, Inc. for breach of contract, seeking damages, and defendant Rose and Harry James, Inc. for the establishment of a constructive trust resulting from defendants' alleged violation of N.J.S. 12A:6--101 et seq., N.J.S.A. Defendant Howells has been joined as an agent of defendant Al's Cozy Inn, Inc., and damages for the aforementioned breach of contract are sought against her in the event this court should hold that the contract in question was entered into by defendant Howells without corporate authority.

Plaintiff conducts a business which includes the extensive management and rental of various coin-operated machines, including cigarette vending, music and game machines. Plaintiff's operating procedure involves what is described as an exclusive lease from a customer of space in the customer's place of business (usually a tavern or restaurant) in which the particular machine is located. As 'rent' for the use of such space, the proceeds of the machine are divided between plaintiff and his lessor at an agreed rate. Plaintiff states that its business depends on the number of locations in which machines are placed, the volume of business therein, and the length of time for which it has the exclusive right to have its machine located in any particular place; the greater the length of time such right exists, the greater stability and profit the plaintiff can rely on. Plaintiff's usual form of lease provides for a five-year term. Apparently it is the practice in the vending machine business, for the purpose of encouraging continued or more active operation of the business, to make loans to the various lessors and often to pay 'bonuses' to said lessors, for the purpose of encouraging continued contractual relations.

During the period which which we are here concerned, defendant Al's Cozy Inn, Inc. operated a tavern business at 507 South 17th Street, Newark. On or about July 19, 1965 defendant Nellie Howells, as agent for defendant Al's Cozy Inn, Inc., entered into a written agreement with plaintiff in which Al's Cozy Inn, Inc. agreed to lease space to plaintiff for the location of a cigarette vending machine in its place of business at the aforementioned location, for a period of five years. In return for the letting, plaintiff agreed to pay said defendant a commission on each pack of cigarettes sold through the machine. Thereafter, plaintiff installed a cigarette vending machine on defendant's premises, supplied cigarettes therefor, and at fixed periods paid Al's Cozy Inn, Inc., through defendant Nellie Howells, the agreed commission rate, and otherwise performed terms of its contract.

On or about August 23, 1965, in consideration of a loan of $350 by plaintiff to Al's Cozy Inn, Inc., the parties entered into a further written contract under which Al's Cozy Inn, Inc. agreed to lease space to plaintiff for the location of a music machine in its aforementioned place of business for a period of five years. Under this latter agreement plaintiff agreed to pay a commission to Al's Cozy Inn, Inc. based upon the use of the machine. Thereafter, plaintiff installed a music machine on the premises, supplied records therefor, and at stated intervals paid Al's Cozy Inn, Inc. the agreed commission rate, and otherwise performed the terms of its contract. The loan has been completely repaid.

Al's Cozy Inn, Inc. is a New Jersey corporation organized during 1958. It operated a tavern and held a liquor license from September 1958 to August 12, 1966, on which date the business and license were sold to co-defendant Rose and Harry James, Inc. During its existence Al's Cozy Inn, Inc. never owned any real estate; it operated its business at 507 South 17th Street, Newark, under a month-to-month tenancy granted by a landlord who is not a party to this action.

Testimony taken during the trial establishes that plaintiff, upon learning that Rose and Harry James, Inc. had contracted to buy the tavern business from Al's Cozy Inn, Inc., sought on several occasions to induce the principals of Rose and Harry James, Inc. to enter into leases for cigarette and amusement machines. Apparently, some negotiations were carried on, but plaintiff was unable to satisfy the new buyers and consequently Rose and Harry James, Inc. entered into cigarette and music leases with a competitor of plaintiff.

At the closing of the sale of the tavern business Rose and Harry James, Inc. received a bill of sale for various chattels included in the sale. Attached to the bill of sale was a form of affidavit which contained provision for a list of creditors, designed to satisfy the requirements of N.J.S. 12A:6--104, N.J.S.A. In the space in which creditors would be listed, Al's Cozy Inn, Inc. placed the word 'None.'

Plaintiff contends that Al's Cozy Inn, Inc. violated the provisions of chapter 6 of Title 12A of the New Jersey Revised Statutes in that no notification was given of its existence as a creditor of that defendant. It also contends that defendant Rose and Harry James, Inc. had sufficient notice of the actual existence of its standing as a creditor of Al's Cozy Inn, Inc. so as to require that Rose and Harry James, Inc. be held a constructive trustee to the extent of the obligation owed by Al's Cozy Inn, Inc. to plaintiff under the aforementioned lease agreements.

As to actual notice on the part of Rose and Harry James, Inc., I find, based on the record before me, that the issue of fact must be resolved against plaintiff. While it may be true that the principals of Rose and Harry James, Inc. probably saw the cigarette machine and a juke box on the premises held by Al's Cozy Inn, Inc., I do not regard that as sufficient notice to the purchaser that plaintiff was probably a creditor of Al's Cozy Inn, Inc. In the testimony elicited before me, it is apparent that no mention was made by any principal of plaintiff who negotiated with the principals of Rose and Harry James, Inc. as to the existence of leases between Al's Cozy Inn, Inc. and plaintiff. All conversations and all negotiations between those parties had to do with the creation of new leases or loan agreements between plaintiff and the purchaser of the tavern business. If anything, such conduct would leave defendant Rose and Harry James, Inc. in a state of believing that no agreements existed between plaintiff and Al's Cozy Inn, Inc., or, at least, that any subsisting agreements were about to be terminated by reason of a sale. For this reason, I conclude that defendant Rose and Harry James, Inc. cannot be held as a constructive trustee, assuming the provisions of N.J.S. 12A:6--101 et seq., N.J.S.A. are applicable to this transaction. See N.J.S. 12A:6--104(3), N.J.S.A.

There is an additional reason why Rose and Harry James, Inc. may not be held as a constructive trustee under the provisions of chapter 6 of Title 12A. I cannot conclude that the sale of a business such as that which is the subject matter of this action, i.e., a tavern business, is covered under the bulk transfer provisions of the Uniform Commercial Code. There are no New Jersey cases directly on point in support of this conclusion.

N.J.S. 12A:6--102(3), N.J.S.A., defines the enterprises subject to the chapter as 'those whose principal business is the sale of merchandise from stock, including those who manufacture what they sell.' The official study comment appended to this section of the code states:

'2. The businesses covered are defined in subsection (3). Notice that they do not include farming nor contracting nor professional services, nor such things as cleaning shops, barber shops, pool halls, hotels, restaurants, and the like whose principal business is the sale not of merchandise but of services. While some bulk sales risk exists in the excluded businesses, they have in common the fact that unsecured credit is not commonly extended on the faith of a stock of merchandise.'

The New Jersey study comment also appended to this section indicates that there was no language in R.S. 46:29--1, N.J.S.A., the prior Bulk Sales Act, which corresponded to N.J.S. 12A:6--102(3), N.J.S.A. Our courts decided at least two cases under the prior law, Van Genderen v. Arrow Bus Lines, 107 N.J.Eq. 217, 151 A. 605 (E. & A. 1930), and Samuelson v. Goldberg, 13 N.J. Misc. 204, 177 A. 260 (Sup.Ct.1935), which held that sellers covered under the act were only those whose business it was to sell stock or merchandise to intending customers who resort to the place where such stock is kept for sale to such persons. Van Genderen involved the sale of a fleet of buses by a transportation company, and Samuelson involved a poultry farmer.

Cases decided in other jurisdictions indicate that the sale in bulk of liquor, wine and cigars will be construed as within the scope of bulk sales laws as a sale of merchandise, depending upon the language used in the particular statute while the sale of equipment comes within the act only if the statutes include 'equipment' as well as merchandise. See Parham v. Potts-Thompson Liquor Co., 127 Ga. 303, 56 S.E. 460 (Sup.Ct.1907); Kolander v. Dunn, 95 Minn. 422, 104 N.W. 371, 483 (Sup.Ct.1905); Marshon v. Toohey, 38 Nev. 248, 148 P. 357 (Sup.Ct.1915); Pritz v. Jones, 117 App.Div. 643, 102 N.Y.S. 549 (App.Div.1907); Seattle Brewing and Malting Co. v....