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LEUMI FINANCIAL CORPORATION v. WYDLER (06/13/69)

SUPREME COURT OF NEW YORK, SPECIAL TERM, NASSAU COUNTY 1969.NY.42020 <http://www.versuslaw.com>; 304 N.Y.S.2d 988; 60 Misc. 2d 1021 June 13, 1969 LEUMI FINANCIAL CORPORATION, PETITIONER,v.WYDLER, BALIN, PARES & SOLOWAY ET AL., RESPONDENTS. AMERICAN BANK & TRUST COMPANY, PETITIONER, V. WYDLER, BALIN, PARES & SOLOWAY ET AL., RESPONDENTS. FRANKEL'S HUNTINGTON, INC., PLAINTIFF, V. SMALLWOOD ESTATES, INC., ET AL., DEFENDANTS Guzik & Boukstein (James D. Stillman of counsel), for petitioners. Wydler, Balin, Pares & Soloway (Harry Seaton of counsel), respondents in person, and for plaintiff. Kulak & Lerner, intervenors-respondents in person, and for Jacob Halperin and another, defendants. Steven B. Derounian, J. Author: Derounian


Steven B. Derounian, J.

Author: Derounian

 The facts in these proceedings are as follows: On or about November 15, 1967 Charles E. Friedgood delivered 13 promissory notes made by one Jacob Halperin and indorsed by Charles E. Friedgood (said notes having a face value of $90,000) to Robert Frankel, the president of Frankel's Huntington, Inc., for which Charles E. Friedgood received the sum of $80,100. Simultaneous with this transfer of notes and payment of $80,100, there was an assignment made and delivered to Frankel of 100% of the stock of Smallwood Estates, Inc., a corporation wholly owned by Charles E. Friedgood and Jacob Halperin, which stock was deposited in escrow with Frankel's attorney, as security for the payment of the series of 13 promissory notes; together with an agreement between Charles E. Friedgood and Jacob Halperin, dated November 14, 1967, in the nature of an estoppel. Frankel thereafter delivered the notes and the agreement between Friedgood and Halperin, confirming the assignment of said notes, and the security agreement with respect to Smallwood Estates, Inc. stock, and assigned his rights to Frankel's Huntington, Inc. (hereinafter referred to as "Frankel's"). The agreement containing the stock assignment provided that, pending payment of the notes, and in event of a default, the holder, after seven days' written notice of the default, had the right to "sell, assign and deliver the whole or any part of the stock, at public or private sale, at the option of such holder, in order to satisfy any of the obligations represented by the unpaid promissory notes, which sale, assignment or delivery, may be made without demand for payment, advertising or notice of the time and place of sale, and on any such sale Frankel, or his assigns, may purchase all or any part of said stock. In the event that the proceeds of such sale are insufficient to satisfy the obligations represented by the unpaid promissory notes and the expenses of the sale, the maker and guarantor of the unpaid promissory notes shall remain liable for the deficiency." The notes turned over to Frankel were made by Jacob Halperin to the order of Charles E. Friedgood, in lieu of balance of an unpaid note due to Charles E. Friedgood from Jacob Halperin in connection with a stock purchase agreement made April 17, 1967.

There was a default in the second payment of the series of these notes, and on or about February 16, 1968 an action was commenced by Frankel's Huntington, Inc. against Halperin and Friedgood to recover the unpaid balance of $81,000 plus interest due on the notes (note No. 1 had been paid by the maker thereof). A companion action was commenced by the said plaintiff Frankel's against Smallwood Estates, Inc., Halperin, and Friedgood, to restrain the transfer of the Smallwood assets. Subsequent to the commencement of this action, and on or about December 4, 1968, a stipulation of settlement was entered into between Frankel's and Halperin and Friedgood (Index Nos. /68 and 10745/68) providing that in the event of defendants' default under the said stipulation (which provided for the installment payment of $73,350, including attorney's fees of $2,250), judgments could then be entered by the plaintiff for the full amount sued upon, giving credit upon execution for any money paid under the stipulation; and the said stipulation included the terms of the original assignment agreement providing for a sale, public or private, by plaintiff, of the stock of Smallwood Estates, Inc. which after assignment to the plaintiff Frankel remained physically held by the plaintiff's attorneys, Wydler, Balin, Pares & Soloway, Esqs., as escrowee. As a result of default by defendants under this stipulation of settlement, on or about March 25, 1969 judgments were entered in the office of the Clerk of the County of Nassau in both actions.

During the spring of 1968, and subsequent to the assignment in the transaction between Frankel and Friedgood, judgments were obtained by petitioners against Halperin and Friedgood.

Restraining notices were served upon respondents (escrowee) by American Bank and Trust Company and Leumi Financial Corporation, petitioners, on or about October 15, 1968 and by Philip Amin on or about January 10, 1969.

The petitioners then brought on the first and second proceedings herein, in which petitioners, judgment creditors, each seek an order pursuant to CPLR 5225 directing the respondent, Wydler, Balin, Pares & Soloway, Esqs., as escrowee, to turn over and deliver to the Sheriff of Nassau County all shares of the capital stock of Smallwood Estates, Inc., which they allege to be owned by judgment debtors Jacob Halperin and/or Charles E. Friedgood, and held by the respondents, pursuant to the loan agreement consummated between Charles E. Friedgood and Frankel's Huntington, Inc. dated November 15, 1967. Petitioners contend that regardless of any question of priority, the stock should be sold by the Sheriff at public sale, the proceeds to be used by petitioners, judgment creditors, and the balance to be given to respondents' principal or to be distributed as the court may direct.

Kulak & Lerner, Esqs., appear as intervenors in the proceeding of American Bank & Trust Company v. Wydler, Balin, Pares & Soloway (Index No. 1911/69), pursuant to order of Mr. Justice William J. Sullivan dated March 17, 1969.

The intervenor claims priority over petitioners but not over respondents. The intervenor is a law firm which alleges a balance due to it from the judgment debtors for various legal services rendered to the judgment debtors personally and/or to the Smallwood corporation in the amount of $27,500. The intervenor alleges that on or about July 3, 1968 the judgment debtors, individually and on behalf of Smallwood Estates, Inc., entered into an agreement with them whereby the stock of Smallwood Estates, Inc. would be turned over to them (after Frankel had been paid) as security for the payment of their bill of $27,500.

In the third proceeding, the petitioner, the judgment creditor, Frankel's Huntington, Inc., seeks an order, pursuant to CPLR 5240, (1) to vacate and set aside two restraining notices, each dated October 15, 1968, issued pursuant to the two judgments obtained by American Bank and Trust Company against Charles E. Friedgood, and Leumi Financial Corporation against Jacob Halperin, et al., served on Wydler, Balin, Pares & Soloway, Esqs., as escrowee; (2) to set aside and vacate, as against the same escrowee, a third-party execution of judgment issued January 10, 1969 by a judgment creditor, Philip Amin, and (3) to direct and permit the same escrowee to release and deliver the escrowed stock of Smallwood Estates, Inc. to their principal, the judgment creditor, Frankel's Huntington, Inc.

There is a cross motion made to the third proceeding, in which the American Bank & Trust Company and Leumi Financial Corporation each seek to vacate and set aside an "ex parte" order and the judgment entered thereon, of Justice Paul J. Widlitz, Supreme Court, Nassau County, dated March 26, 1969, which decreed "that the plaintiff Frankel's Huntington, Inc. may sell, assign or transfer at public auction or private sale the stock of defendant Smallwood Estates, Inc., after seven (7) days written notice thereof to the defendants, and apply the proceeds towards the payment of the judgment entered in the Office of the Clerk of Nassau County on March 25, 1969 in an action entitled 'Frankel's Huntington Inc. against Jacob Halperin and Charles E. Friedgood,' and that any excess, if any, after satisfaction of said judgment, shall be paid to the defendants", because they allege that this order fails to comply with section 9-504 of the Uniform Commercial Code with respect to the manner of conducting the sale; or, in the alternative, to amend said order and judgment so as to provide that the sale of the Smallwood stock be conducted in a reasonable manner with extensive advertising.

All of these proceedings have been referred to Special Term Part III for trial, the Justice in Special Term Part I having held that upon the papers submitted the question of priorities and the rights of the respective claimants could not be determined.

A trial was held in this court on May 13, 1969. Petitioners called three witnesses to make their case: Harry Seaton, Esq., a member of the firm of Wydler, Balin, Pares & Soloway, Esqs., the escrowee; Robert Frankel, the judgment creditor; and Martin Lerner, Esq., a member of the law firm which has intervened in this proceeding.

The questions to be resolved in the first and second ...


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