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Wittner v. Metzger

Decided: February 23, 1962.


Goldmann, Foley and Rosen. The opinion of the court was delivered by Rosen, J.c.c. (temporarily assigned).


In a contract action, tried without a jury in the Superior Court, Law Division, defendants seek to reverse a judgment in favor of plaintiffs in the sum of $13,003.97.

Plaintiffs George Wittner and Henry W. Wittner, copartners, doing business as Merchants Standard Trading Company in New York City (hereinafter referred to as Wittners), and defendants Henry W. Metzger and Louis Metzger, trading as Commercial Union Company in Newark, New Jersey (hereinafter referred to as Metzgers), deal in the factoring and purchase of accounts receivable. Wittners had a master agreement with each of two mercantile companies, Metropolitan Home Equipment Co. (Metropolitan) and Atlas Credit Corp. (Atlas). Pursuant to said agreements, Wittners purchased commercial paper and accounts receivable from Metropolitan and Atlas at a specific rate and percentage basis, in accordance with schedules supplied to them by the two companies. When the schedules were obtained by Wittners, they discounted a certain portion of them and thereupon paid Metropolitan and Atlas. Thereafter, Wittners endeavored to collect on these receivables. Under each master agreement, Wittners purchased the "instruments" listed in the schedules accompanying the master agreements. The instruments consisted of "scheduled notes,

accounts receivable and other collateralized obligations." Wittners and Metzgers entered into two agreements dated August 22, 1950 and September 20, 1950, respectively, providing for their joint participation in the financing of the said instruments. In the Metropolitan agreement Metzgers' participation was 40%, and in the Atlas agreement 50%. In all other relevant respects the agreements are identical.

The agreements provided for Metzgers' participation in the Wittners' "factoring operations" with Metropolitan and Atlas "with respect to schedules," under the master agreements. Copies of the master agreements were to be made available to Metzgers. Wittners were to conduct the factoring transactions solely in their own name, and Metzgers were to refrain from any contact or communication with Metropolitan and Atlas, since the business with the two companies originated with Wittners. Upon Metzgers' request, Wittners were obligated to furnish them with copies of the "documents" and "statements" involved in these factoring transactions and to permit Metzgers to examine Wittners' books respecting the transactions with Metropolitan and Atlas.

In each instance Metzgers accepted a participation share in schedules purchased by the Wittners, in accordance with the percentage figure contained in the agreements, and were to receive the same percentage of remittance from said schedules, less a specified reserve. Wittners were to account at stated intervals to the Metzgers upon receipt of remittances from the "instruments" described in the schedules.

Paragraph 4 of the agreements provided that:

"In the furtherance of our [Metzgers'] participation, you [Wittners] hereby assign to us an undivided 40% [50% in the Atlas agreement] interest in and to said Schedule, and in and to the Instruments, collateral, rights and guarantees held by you with respect to said Schedules; and you shall execute, upon our request, such further documents as may be required to evidence our said interest. In addition you shall make upon your books and records or ledger sheets appropriate notations reciting the percentage of our participation in said Schedules. You shall occupy the status of a trustee for our benefit with respect to said Schedules so participated in by us." (Emphasis supplied)

Wittners further agreed to conduct transactions with Metropolitan and Atlas in accordance with "sound factoring practice * * *." If Wittners sold their factoring business they were to pay Metzgers their participation percentage of the open balance of the Metropolitan and Atlas schedules. The agreements provided that neither party had any proprietary interest in the general business of the other.

Pursuant to the agreements, Wittners did engage in transactions with Metropolitan and Atlas, making the agreed remittances to Metzgers. However, in May 1951 and April 1952, respectively, Metropolitan and Atlas were declared bankrupts in the federal courts in New York. The respective trustees in bankruptcy instituted proceedings in New York against Wittners to have certain accounts receivables and payments thereon, received by Wittners within the four months prior to bankruptcy, declared as preferences and returned to the bankrupt estates. The trustee of Metropolitan sought the sum of $197,000, and the Atlas trustee the sum of approximately $276,800, for total claims in excess of $473,800. The suits were opposed by Wittners, and counsel was retained to defend in each case. The Wittners notified the Metzgers of the pendency of these suits and requested Metzgers to assist in the defense, but the Metzgers remained silent.

The record discloses that the details of the individual accounts receivable purchased by Wittners pursuant to the master agreement were never furnished Metzgers. However, it is conceded that the Metzgers participated in the purchase of the receivables alleged by the bankruptcy trustees to have been preferences, and received their proportionate share of the proceeds collected from said receivables.

Although Wittners denied taking the preferences they ultimately settled the litigation for $2,000 (Metropolitan) and $15,000 (Atlas). Contribution sought by them totals $8,300, $800 representing 40% of the $2,000 Metropolitan settlement and $7,500 representing 50% of the ...

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