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IN RE NEWJER CONTR. CO.

June 28, 1957

In the Matter of NEWJER CONTRACTING COMPANY, Inc., Bankrupt


The opinion of the court was delivered by: FORMAN

The background of the present action is as follows: On September 1, 1955, Newjer, a road building construction company, acquired two Euclid road scrapers from the T. E. Potts Equipment Company of Kenmore, New York, under an agreement entitled 'Contract of Lease'. It was provided therein that Newjer

 'has leased the machinery at a total valuation of $ 105,600.00 payable as follows: $ 3520 cash in hand, * * * and $ 3520 per month for the term of 29 months.'

 The minimum lease period was stipulated to be 12 months and it was

 'understood that the Lessee (Newjer) may purchase the above equipment any time within the lease period by paying the difference between the total valuation and the amount paid in as rental.'

 There were other terms and conditions, among which was a clause reserving title in the lessor and providing that in the event of default or bankruptcy that the entire amount of rental payments shall become due and that the lessor should have the right of possession of the equipment for resale under the provisions of the New York State Uniform Conditional Sales Act. Personal Property Law, McK. Consol.Laws, c. 41, § 60 et seq.

 The contract was assigned to the First National Bank of Buffalo, which subsequently was merged with the petitioning Bank. On September 22, 1955, copies of the contract were filed by petitioner as a conditional sales contract both in its home county of Genesee, New York, and Newjer's home county of Middlesex, New Jersey.

 As of November 1, 1956, when Newjer filed a petition under Chapter X of the Bankruptcy Act, 11 U.S.C. § 501 et seq., Newjer had paid the sum total of $ 30,140, leaving still owing $ 75,460. The equipment was subsequently, on January 7, 1957, appraised as having a value of $ 52,000.

 At the time of the initiating of the Chapter X proceedings, Newjer had been engaged in a road building project on a section of the New York Thruway, with a considerable amount of work remaining to be done. On November 1, 1956, a receiver was appointed under Chapter X, who was later made Trustee in Bankruptcy (hereinafter called the Trustee). He submitted his affidavit of qualification as receiver to the clerk of the court on November 5, 1956. That same day, November 5, 1956, following a telephone conversation between the Trustee and the Bank's attorney, initiated by the latter in which inquiries were made concerning the Trustee's intentions concerning the road scrapers, the Trustee sent him the following letter:

 'Following our telephone conversation I contacted Mr. Freytag (President of Newjer) regarding the continued use of the two Euclid-Carry-all scrapers provided by the T. E. Potts Equipment Co.

 'The scrapers are definitely needed for the continued work on the New York Thru-Way job and accordingly, I request that the present leasehold or time-payment arrangement be continued so that the Newjer Contracting Co., Inc. may have the use of this equipment.'

 Pursuant to the above, the equipment was left with Newjer, which continued to use the two road scrapers up to or about November 21, 1956, when work on the project was stopped because of a snow storm. On December 4, 1956, the Bank petitioned for reclamation of the two road scrapers. On January 2, 1957, Newjer was adjudicated a bankrupt, and on January 9, 1957, reclamation was approved, but decision on compensation for the use of the machinery was deferred. On March 29, 1957, the petition for compensation for use of the machinery was denied, and the petition for review of the Referee's order, and the hearing on the petition, followed in due course.

 The Referee bases his decision on In re Daterson Publishing Co., 3 Cir., 1911, 188 F. 64, and Barth Equipment Co. v. Perlstein, 2 Cir., 1942, 128 F.2d 253. Daterson involved conditional sales agreements covering printing equipment, with monthly payments called rentals. The Court of Appeals denied a rental allowance for the seven month period between the petition for bankruptcy and the actual reclamation, on the theory that this seven month period was necessary in order to determine title in the machines.

 Barth involved restaurant equipment on conditional sales contracts, used at the World's Fair. There, a petition for bankruptcy was filed on August 1, 1940. A petition for reclamation was filed on August 15, 1940, and the matter was adjourned until August 22, 1940, at which time decision was reserved. The Fair closed on October 27, 1940, after which the debtor was adjudicated a bankrupt, and Barth reclaimed his equipment on November 22, 1940. After a sale at public auction, there was a deficiency of approximately $ 1,000, in addition to which the conditional vendors claimed a rental fee from August 1 to October 27. The court held that reclamation is subject to reasonable delay. Further, where the delay was excessive, the vendor does not automatically become a landlord entitled to rent, but must ...


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