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BIRMINGHAM SMALL ARMS CO. v. BROOKLYN CYCLE

February 4, 1976

THE BIRMINGHAM SMALL ARMS COMPANY, INCORPORATED, Plaintiff
v.
BROOKLYN CYCLE, INC., Defendant. ANTHONY P. DE SALVATORE, Plaintiff, v. BIRMINGHAM SMALL ARMS COMPANY, INC., and TRIUMPH NORTON, LTD., Defendants



The opinion of the court was delivered by: PLATT

OPINION AND ORDER

 PLATT, D.J.

 Triumph Norton Incorporated (formerly known as The Birmingham Small Arms Company, Incorporated) ("Triumph") moves for an order, pursuant to Rule 56 of the Federal Rules of Civil Procedure, granting summary judgment in its favor upon all claims and counterclaims asserted in the above entitled actions on the grounds that there is no issue as to any material fact and that Triumph is entitled to summary judgment in its favor as a matter of law.

 Facts

 The attorneys for the parties filed a statement and counter-statement of material facts pursuant to General Rule 9(g) of this Court and the following material facts have been agreed upon by reason thereof:

 
1. Triumph is a corporation duly organized and existing under the laws of the State of Delaware with its principal place of business in the State of California. Triumph is the successor corporation to, and was formerly known as, The Birmingham Small Arms Company, Incorporated. Triumph is engaged in the sale of motorcycles, parts and accessories.
 
2. Brooklyn Cycle, Inc. ("Brooklyn Cycle") is a New York corporation with its principal place of business located at 8807 Fourth Avenue, Brooklyn, New York. Brooklyn Cycle was and is engaged in the business of the sale, service and repair of motorcycles in the City and State of New York.
 
3. Anthony P. De Salvatore is, and at all times during the existence of Brooklyn Cycle was, President of Brooklyn Cycle and is owner of 50% of the outstanding shares of Brooklyn Cycle. Mr. De Salvatore was also employed by the New York City Police Department, but his employment with the Police Department terminated in 1971. John L. Pino is, and at all times during the existence of Brooklyn Cycle was, Secretary-Treasurer of Brooklyn Cycle and is owner of 50% of the outstanding shares of Brooklyn Cycle.
 
4. G.A.C. Private Brands, Inc. ("G.A.C.") is a corporation duly organized and existing under the laws of the State of Pennsylvania with its principal place of business in the State of Maryland. G.A.C. is engaged in consumer and business financing. G.A.C. has assigned all rights, title, and interest to any and all claims against Brooklyn Cycle and its officers to Triumph and Triumph has repaid to G.A.C. debts owed to G.A.C. by Brooklyn Cycle.
 
5. On January 16, 1971, Brooklyn Cycle and Triumph entered into an initial written agreement ("dealer sales agreement"). This written dealer sales agreement between Brooklyn Cycle and Triumph was renewed once on January 20, 1972. Exhibits A and B, attached hereto, are true and correct copies of the dealer sales agreements entered into between Brooklyn Cycle and Triumph. Under their terms, each dealer sales agreement commenced October 1 of the year in which it was signed and expired on the next succeeding September 30 unless cancelled or terminated prior to that date by either party. By letter dated January 9, 1973, Triumph notified Brooklyn Cycle that the dealer sales agreement was terminated.
 
6. Triumph and Brooklyn Cycle sought and obtained credit to enable Brooklyn Cycle to finance purchases of motorcycles from Triumph. Triumph assisted Brooklyn Cycle in obtaining such credit from G.A.C. by, among other things, recommending Brooklyn Cycle to G.A.C. and guaranteeing to repay G.A.C. if Brooklyn Cycle defaulted on any loans made to it by G.A.C.
 
7. On November 5, 1971, Brooklyn Cycle and G.A.C. entered into a financing agreement ("Security Agreement") pursuant to which G.A.C. provided floor plan financing to Brooklyn Cycle. Anthony P. De Salvatore signed this Security Agreement on behalf of Brooklyn Cycle. Under the terms of the Security Agreement, G.A.C. advanced money to Brooklyn Cycle to enable Brooklyn Cycle to purchase motorcycles from Triumph. In turn, Brooklyn Cycle agreed to hold motorcycles acquired from Triumph and the proceeds received from the sale of such motorcycles in trust for G.A.C. Exhibit C, attached hereto, is a true and correct copy of the Security Agreement. G.A.C. perfected its security interest in this inventory, equipment, and proceeds by filing a financing statement, signed by Anthony P. De Salvatore, on November 11, 1971, in accordance with the Uniform Commercial Code. Exhibit D, attached hereto, is a true and correct copy of the financing statement.
 
8. In order to carry out the purposes and intent of the Security Agreement, Brooklyn Cycle executed and delivered to G.A.C. an Authorization for Signature Agreement on November 5, 1971. Anthony P. De Salvatore signed this Authorization for Signature Agreement on behalf of Brooklyn Cycle. This Authorization for Signature Agreement authorized G.A.C. to execute, in Brooklyn Cycle's name, trust receipts, promissory notes, and other documents necessary to secure the repayment of the sums of money advanced to Brooklyn Cycle by G.A.C. Exhibit E, attached hereto, is a true and correct copy of the Authorization for Signature Agreement.
 
9. Brooklyn Cycle began operating as a Triumph dealer sales outlet at a location at 163-15 Cross Bay Boulevard, Queens, New York, in 1971.
 
10. Anthony P. De Salvatore had responsibility for conducting the business affairs of Brooklyn Cycle and had primary responsibility for conducting the operations of Brooklyn Cycle's Triumph dealer sales outlet located at 163-15 Cross Bay Boulevard. As part of that responsibility he disbursed, or authorized and approved the disbursement of, funds received by Brooklyn Cycle from the sale of Triumph motorcycles. Mr. De Salvatore disbursed, or authorized and approved the disbursement of, such funds to creditors of Brooklyn Cycle, including but not limited to G.A.C. and to himself.
 
11. During the period February, 1972, through August, 1972, Triumph sold and delivered to Brooklyn Cycle, on or about the dates indicated in Column III, below, the Triumph motorcycles identified in Columns I and II, below. Brooklyn Cycle accepted delivery of these identified motorcycles. These identified motorcycles were not in Brooklyn Cycle's possession on January 6, 1973 when G.A.C., pursuant to the Security Agreement, repossessed Triumph motorcycles in Brooklyn Cycle's possession, since Brooklyn Cycle had sold these identified motorcycles. At the time of delivery of the identified motorcycles, G.A.C. advanced to Brooklyn Cycle the sums of money identified in Column IV, below, to finance Brooklyn Cycle's purchase of the identified motorcycles. The balance of each such advance which Brooklyn Cycle has not repaid to G.A.C., although it is due and owing, is identified in Column V, below.

  I. II. III. IV. V. Model Serial Sal e and Amount of No. No. Delivery Date Advance Balance T100R 4573 2/11/72 $1,071.25 $ 857.00 T120R 31479 2/11/72 1,237.75 990.20 T150T 1312 4 /11/72 1,393.00 1,114.40 T150V 2077 5/17/72 1,449.00 1,4 49.00 T150V 1964 6/ 5/72 1,449.00 1,449.00 TR6R 44963 6/ 9/72 1,164.00 1,164.00 T100R000 57416 6/23/72 1,071.25 1 ,071.25 T100R000 57748 6/23/72 1,071.25 1,071.25 T100R000 57545 6/23/72 1,071.25 1,071.25 T150V 2709 8/ 1/72 1,449.00 1,449.00 T150V 3097 8/ 1/72 1,449.00 1,449.00 $13,135.35

 
12. Each time G.A.C. advanced to Brooklyn Cycle the sum of money identified in Paragraph 11 of this statement to cover the cost of purchasing a Triumph motorcycle, a promissory note containing a promise by Brooklyn Cycle to repay the sum of money identified upon request, plus interest, was executed in accordance with the Security Agreement and the Authorization For Signature Agreement. The copies of the promissory notes attached hereto and identified as Exhibit F are true and correct copies of these promissory notes.
 
13. On or about November 9, 1972, Brooklyn Cycle drew on its account at the Bankers Trust Company and delivered to G.A.C. a check in the amount of $8,807.20, payable to G.A.C. This check was duly endorsed by G.A.C. and was duly presented to the Bankers Trust Company for payment on or about November 14, 1972, and said bank refused payment thereof.

 On the oral argument on September 19, 1975, the attorney for the defendant Brooklyn Cycle conceded that the plaintiff Triumph was entitled to summary judgment in the first of the above-captioned actions in the amount of $13,135.35, plus interest and costs. This concession eliminates the asserted "issue" that no demand was ever made of Brooklyn Cycle for repayment of the sums of money owed to G.A.C. by Brooklyn Cycle.

 A further comparison of the statement and counterstatement under Rule 9(g) submitted by the attorneys for the parties herein reveals that only the following remaining material facts may be in dispute in whole or in part:

 
"1. * * * upon information and belief, Triumph is also engaged in the sale of automobiles, automobile parts and accessories.
 
* * *
 
"3. At all relevant times herein mentioned with respect to this case LEROY BACKITY was the district manager of TRIUMPH for the district wherein BROOKLYN CYCLE maintained its principal place of business (Brooklyn and Queens) and as such was TRIUMPH's only representative who dealt with and came into contact with BROOKLYN CYCLE and who made recommendations with respect to TRIUMPH's policy towards BROOKLYN CYCLE.
 
* * *
 
"16. The sum claimed due and owing to TRIUMPH was not paid to G.A.C. because of the fact * * * TRIUMPH illegally, wrongfully and unlawfully terminated BROOKLYN CYCLE's TRIUMPH franchise and seized all of the TRIUMPH motorcycles which BROOKLYN CYCLE then and there had for sale effectively terminating BROOKLYN CYCLE's franchise in violation of Federal and State Law."

 I -- The Triumph Counterclaim Against DeSalvatore

 Leaving aside for the moment the question of the above-indicated alleged justification for failure to pay Triumph's claim, and the questions of possible set-off and secondary liability, it is clear that summary judgment should also be granted as to Triumph's counterclaim against De Salvatore in its answer and counterclaim in the second of the above-entitled actions. In essence, this counterclaim is for conversion and misapplication of the $13,135.55, plus interest, owed to Triumph.

 As President of Brooklyn Cycle Mr. De Salvatore signed the Security Agreement entered into by Brooklyn Cycle and G.A.C. on November 5, 1971, pursuant to which G.A.C. acquired a security interest in Brooklyn Cycle's inventory and equipment (i.e., the motorcycles) and in all cash and noncash proceeds arising out of the sale of that inventory and equipment.

 While Mr. De Salvatore, as President of Brooklyn Cycle, was supervising its operation, G.A.C. financed the 11 motorcycles identified in paragraph 11 above, which Brooklyn Cycle "sold out of trust", disposed of the motorcycles in the course of business but failed to forward the proceeds which it had agreed to hold in trust to G.A.C. for repayment of the outstanding and then overdue loans. Mr. De Salvatore, with knowledge of G.A.C.'s security interest in the Triumph motorcycles and the proceeds received from the sale thereof, was unquestionably disbursing Brooklyn Cycle's funds to others and to himself.

 By reason thereof, Mr. De Salvatore is unquestionably personally liable for the $13,135.35 loaned and not yet repaid. Santa Barbara v. Avallone & Miele, Inc., 270 N.Y. 1, 199 N.E. 777 (1936); Hinkle Iron Co. v. Kohn, 229 N.Y. 179, 128 N.E. 113 (1920); Armour and Co. v. Celic, 294 F.2d 432 (2d ...


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