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WARREN-JOEL CORPORATION v. HARRY KIRSCHENBAUM ET AL. (04/19/68)

NEW YORK SUPREME COURT, APPELLATE TERM, FIRST DEPARTMENT


April 19, 1968

WARREN-JOEL CORPORATION, APPELLANT,
v.
HARRY KIRSCHENBAUM ET AL., RESPONDENTS

Appeal from an order of the Civil Court of the City of New York, County of New York, which denied a motion by plaintiff for summary judgment and granted a cross motion by defendants for summary judgment dismissing the complaint.

Hofstadter and Streit, JJ., concur in Per Curiam opinion; Markowitz, J., dissents in opinion.

Author: Per Curiam

 The material facts in this action are not in dispute. On June 22, 1962, defendants purchased various supermarket store fixtures from plaintiff under a conditional sales contract. Payments totaling more than $36,000 (representing approximately 56% of the original purchase price of $63,490.19) were made by defendants up to September 29, 1965, at which time they assigned their assets for the benefit of creditors.

Pursuant to a court order and after newspaper publication thereof, on October 7, 1965, an auction sale of defendants' assets was held by the assignee. At this sale, plaintiff (the conditional vendor itself) purchased defendants' interests in the subject store fixtures for the sum of $100 (subject, of course, to its own conditional sales contract, upon which there was then an unpaid balance of $27,408).

Thereafter, on December 5, 1965, plaintiff resold this equipment to a third party for the sum of $15,750. It is conceded that no notice of this resale was given to defendants. Plaintiff then instituted this action against defendants to recover a $10,000 deficiency, the difference between the amount still unpaid at the time of default and the amount of the resale. This represented the maximum recovery permitted by the jurisdictional limitations of the Civil Court of the City of New York.

In addition to a general denial, defendants' answer set forth an affirmative defense to the effect that plaintiff had failed to give them "the notice required by law of the sale referred to in the complaint, and by reason thereof, defendants are free of liability". The court below accepted such defense, granted summary judgment in favor of defendants, resulting in the pending appeal here.

Appellant argues that respondents, by virtue of their assignment for benefit of creditors, were not entitled to notice of its resale to the third party. It is appellant's contention that the assignee's public auction sale, held on notice prior to the subject resale, had already fulfilled the notice requirements of the then applicable section 79 of the Personal Property Law. This argument

[57 Misc. 2d 451 Page 453]

    --> was expressly rejected by the court below and we are in complete accord.

In our opinion, there can be little doubt that when appellant "purchased" its own equipment at the assignee's sale (or such interests therein as the assignee could convey), this, in effect, accomplished nothing more than the repossession contemplated by section 79 of the Personal Property Law. Consequently, all of the rigid requirements of notice of resale set forth in this statute, among other matters, then became effective and binding upon appellant.

Pursuant to such statute, a conditional vendor who resells repossessed equipment is required to give the original vendee notice of the contemplated resale by various means specifically enunciated therein. As above stated, appellant conceded no such notice was given to respondents. Consequently, this failure, as found below, resulted in the discharge of respondents from all further obligation to appellant. (Manufacturers Hanover Trust Co. v. Goldstein, 25 A.D.2d 405, modfg. 45 Misc. 2d 900.)

Contrary to appellant's contention, although respondents had notice of the assignee's sale, this, in our opinion, is not the sale intended by section 79. As succinctly stated, in part, by Judge Whitman below: "Plaintiff's foreclosure sale is the sale contemplated by Section 79 of the Personal Property Law, not the assignee's sale. The assignee's sale was not a sale of goods at all but purported to be (and could not be anything else but) a sale of the buyer's interest in the goods." (Italics added.)

We do not find any legal support for appellant's argument that section 79 does not apply where there has first been an assignment for the benefit of creditors. Concededly, such assignment constituted a breach of contract and, pursuant to the terms thereof, plaintiff could then repossess all or part of the subject property. Furthermore, this contractual right of repossession could not be impaired by the subsequent insolvency proceedings inasmuch as the assignee for the benefit of creditors merely took such interest in the property as could have been conveyed to him by the debtors-assignors [respondents] (Matter of Pellegrini, 248 App. Div. 526; Matter of Hershcopf Food Corp., 160 N. Y. S. 2d 695). In fact, the machinery may not be "property" of the debtor within the Uniform Conditional Sales Law (see Matter of Lake's Laundry, 79 F. 2d 326, cert. den. 296 U.S. 622).

Thus, it appears that, in reality, there was no need for appellant to "purchase" its own equipment at the assignee's sale for $100. It had the legal right to step in and repossess these fixtures without any bid or payment therefor. The mere fact that it chose not to do so should not now permit it to circumvent and defeat the entire structure of the applicable laws enacted for the protection and benefit of a conditional vendee by simply bidding a nominal sum of $100 against its own lien of more than $27,000.

It is to be noted that while the assignee's sale was subject to appellant's lien, thus effectively precluding any bid other than appellant's nominal one, the latter foreclosure sale, conducted free of such lien, commanded a far higher price. In this respect, respondents' right of redemption, their statutory privilege of preventing a forfeiture of the amount paid by them prior to their default (e.g., Personal Property Law, §§ 77, 78, then in effect) and their right to minimize any deficiency which may have been assessed against them after a proper resale by the conditional vendor are "interests" which were never relinquished or forfeited by them. These "interests", therefore, are entitled to all of the protection afforded by the applicable provisions of the Personal Property Law, including section 79 thereof (see Bankers Trust Co. v. Terll, 35 Misc. 2d 835, 837; see, also, Laufer v. Burghard, 146 Misc. 39, 43).

Appellant, in support of its position that the notice of resale to respondents was not required, has also cited 78 Corpus Juris Secundum (Sales, § 601, subd. c, par. [1]). Unlike applicable New York law, however, this cited section expressly deals only with jurisdiction having no "notice" requirements. Significantly, the section following the cited matter (i.e. 78 C. J. S. Sales, § 601, subd. c, par. [2]) refers to those jurisdictions, similar to New York, with statutory regulations concerning notice of resale. This latter section makes it abundantly clear that failure to give the prescribed statutory notice results in the absolute discharge of the conditional vendee from all further obligation, as found below. (Laufer v. Burghard, supra ; Capitol Dist. L. A. W. Corp. v. Blake, 136 Misc. 651.)

Similarly, appellant's novel assertion that the assignee was respondents' agent is unsupported in law. In a properly conducted sale by an assignee for the benefit of creditors, the latter, in effect, acts as a trustee rather than as agent for either the debtor or any particular creditor (see Matter of Doll Eyes, N. Y. L. J., Nov. 29, 1965, p. 17, col. 4).

In recapitulation, it is our opinion that appellant, having resold the subject property without giving respondents the notice required by section 79 of the Personal Property Law was properly precluded by the court below from recovering any alleged deficiency from them. The order should be affirmed, with $10 costs.

Disposition

Order affirmed, etc.

[57 Misc. 2d 451 Page 455]

    --> Jacob Markowitz, J. (dissenting). I dissent and vote to reverse.

The majority opinion assumes that a repossession as contemplated by section 79 has taken place, and then proceeds to nullify its effect on the ground that procedural precedents were ignored. There is no quarrel with the conclusion of the majority once the fact that a repossession has occurred is accepted. It is my opinion that true analysis of the facts indicates that no such repossession had occurred, or at least a question of fact exists as to whether there was such repossession.

Under the Uniform Conditional Sales Act, a conditional vendor had multiple remedies. He could rescind. He could treat the transaction as an absolute sale and sue for the balance of the price. He could disaffirm and repossess the goods sold. It is not incumbent upon him to resort to one remedy as opposed to any other. In the instant case the seller resorted to means other than actual repossession which were legally available to him. Without taking the property back, it bought, at the assignee's sale, the buyer's interest in the goods and merged it with its own title. It then sold these merged interests to another.

Section 79, if utilized, appears to contemplate a physical retaking by removal from the buyer's premises by means of self help or court decree. If repossession is effected, the buyer's right to redeem is protected by the section. A further protection is afforded by requiring a public sale to fend off unreasonable deficiencies.

Section 79 recognizes a right in the conditional seller to retake the goods when the buyer is in default. This remedy is readily applicable to movable goods such as automobiles, inventories, and the like. It is not practical when applied to trade fixtures such as the refrigeration equipment here in question where the value of repossession as a security factor is diminished. Trade fixtures have more value to a seller on a buyer's default if, as here, they are left in place and sold to the next occupant of the premises. Generally speaking, a rash and hasty repossession of such goods by the conditional seller does more damage to the original buyer, since such items upon removal usually bring in less of a return on resale. Thus the original buyer might find himself liable not only for the cost of removal, but for a deficiency greater than might have otherwise been experienced. To penalize the seller at bar, who acted not only within his legal rights, but also perhaps prudently, by equating what he did to an actual repossession, would add a distortion into the law totally unintended by its drafters. An optional or alternative remedy such as section 79 affords would be totally distorted into a mandatory one -- and one which, when dealing with trade fixtures, might readily result in gross inequities to the buyer.

The purchase by the seller of the buyer's interest resulted merely in a merger of title and was not of itself a repossession within the meaning of section 79. While the record is not quite clear as to this, it might be that in addition to a merger of interests, the seller might have acted in such a manner with respect to the goods which amounted to such exercise of dominion or control over the property which may be considered tantamount to repossession. This is a factual issue and should be reserved for a trial.

If it is found that there was no repossession, the buyer would not be necessarily rendered vulnerable to outrageous deficiencies controlled by the seller. In circumventing section 79 and avoiding a public sale on notice and other safeguards available to the buyer, the seller in the instant case still had the obligation to minimize damages. Inquiry could be made at the trial as to whether the seller reasonably minimized his damages or so controlled the second sale so as to heighten the original buyer's deficiency.

The order below should, therefore, be reversed and the matter be set down for trial on the issues of repossession and damages.

19680419

© 1998 VersusLaw Inc.



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