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Allied Financial Corp. v. Steel Panel Sales Corp.

Decided: December 28, 1964.


Conford, Kilkenny and Lewis. The opinion of the court was delivered by Conford, S.j.a.d.


This is an appeal, by prior leave of this court granted, from the denial by the Law Division of a motion by defendants Financial Associates, Inc. ("Financial" hereinafter), and Leonard Willett, president of Financial, to quash a writ of attachment issued against their several properties.

We have first to pass upon a motion by plaintiff to dismiss the appeal as moot on the ground that less than four months after the attachment a statutory receiver was appointed by the Chancery Division for Financial, thereby rendering the attachment void under N.J.S.A. 14:14-25. It is obvious, however, that this would not render the attachment moot as to the individual defendant, Willett. Insofar as Financial is concerned, it appears that it has, along with Willett, filed a counterclaim against plaintiff claiming damages by reason of a wrongful attachment. Since resolution of this appeal will or may bear upon the proper disposition of the counterclaim, and since plaintiff failed to bring on this motion until long after both parties had filed their briefs in this court, we consider the appeal not moot as to Financial and conclude that it would be desirable for us to proceed to determine the merits thereof as to that defendant as well as in relation to Willett.

As required by the revised attachment practice, R.R. 4:77-3 (effective January 2, 1963), this action was begun by the filing of a complaint, and the writ was issued by the court on the basis of a verifying affidavit purportedly constituting "prima facie proof of the cause of action alleged" in the complaint "and of the grounds for issuance of the writ." R.R.

4:77-7. The statutory grounds for the claim of right to attachment in this case are that the action is "founded upon contract, express or implied, due to plaintiff from defendant," and that "defendant fraudulently contracted the debt or incurred the demand." A capias may issue in such case, N.J.S. 2A:15-42(d), and the Attachment Act provides that a writ of attachment may issue where "the facts would entitle plaintiff to an order of arrest before judgment in a civil action," except that "in actions founded upon a tort, an attachment shall not issue against a corporation upon which a summons can be served in this state," N.J.S. 2A:26-2. Financial is a New Jersey corporation and Willett a resident of this State.

The problem, then, before the trial court on the motion to quash was, ostensibly, whether the complaint and affidavits showed an action founded upon contract and that the defendants fraudulently contracted the debt or demand.

The complaint is in three counts. The first count charges a wrongful conspiracy by the above named defendants and defendant Steel Panel Sales Corp. ("Steel Panel" hereinafter) to defraud plaintiff by inducing it to advance money to Steel Panel on the security of false and worthless accounts receivable of that firm. It is asserted that Steel Panel's president came to plaintiff on May 13, 1963 to request financing needed by Steel Panel because its current factor, Financial, "could not extend further credit because of a limitation of funds." On May 14, 1963 Willett "confirmed to plaintiff" the foregoing information and stated his company "would cooperate with any new factor," that Financial had verified 90% of the accounts receivable securing past advances to Steel Panel, and that they were in good order. On May 22, 1963 Willett "conferred with plaintiff," restated that the accounts were good, and discussed an arrangement whereby plaintiff would take over the financing of Steel Panel. On May 23, 1963 Steel Panel requested and received an immediate advance of $5,944.88 from plaintiff, assigning to it certain worthless accounts receivable and "executing an agreement with plaintiff on that date." On May 28, 1963 defendants requested plaintiff

to advance $50,000 to Steel Panel immediately to be used by it to "reduce its indebtedness to Financial," and plaintiff delivered its check for that sum to Steel Panel, accepting as security therefor the assignment of certain accounts receivable supposedly on the books of Steel Panel and "then held by Financial, as security for its previous loans to Steel Panel." The latter corporation endorsed the check and delivered it to Financial, which cashed it. The first count concludes with a recital that "as a result of the aforesaid wrongful conspiracy" plaintiff has suffered damages of $58,604.01 and requests damages and punitive damages.

The second and third counts are headed, "As to Defendants Financial and Willett." The second count repeats the allegations of the first count and recites that Financial and Willett represented to plaintiff that the accounts receivable previously held by Financial on the Steel Panel account were in good order and current and had been verified, audited and confirmed by personal visits to the account debtors. These representations were made, intending that plaintiff rely thereon in advancing moneys to Steel Panel. Plaintiff did rely; the representations were knowingly false and the accounts "fictitious or worthless." By reason of the false representations and plaintiff's reliance plaintiff was damaged in the sum of $58,604.01, and it sought damages and punitive damages.

The third count charges negligence by Financial and Willett in the making of the aforesaid representations of the value of the Steel Panel accounts receivable and alleges consequent damages to plaintiff as a result of such negligence by defendants. Again, damages and punitive damages are sought.

The verifying affidavit of Natelson, treasurer of plaintiff, is annexed to the complaint. This provides factual detail for the assertions in the complaint. Natelson had a telephone conversation with Willett on May 14, 1963 wherein Willett made the statements as to the verification and confirmation of the Steel Panel accounts. On May 22, 1963 Natelson and Willett met in the offices of Financial in Newark "to review and consummate the arrangements pursuant to which plaintiff

did take over the Steel Panel account from Financial." Willett made detailed representations to Natelson concerning the background of the business association between Steel Panel and Financial. The affidavit mentions five payments to Steel Panel by plaintiff. As to each of four of these, in each case less than $6000, the payment is stated to have been made "to Steel Panel against assignment of paper from (or "against paper of") the latter to the plaintiff." As to the fifth payment, the Natelson affidavit describes it thus:

"On May 28, 1963 -- $50,000.00 to Steel Panel in the form of a check payable to the latter but immediately endorsed by the latter and delivered to Financial Associates against assignment of accounts receivable held prior thereto by Financial Associates, reassigned by the latter to Steel Panel, and then immediately reassigned again by Steel Panel to plaintiff, * * *."

The remainder of the Natelson verifying affidavit details the proofs of the falsity of the representations by Willett as to the soundness of the Steel Panel accounts.

On motion by defendants to quash the writ, supported by an affidavit of Willett admitting conferences with Natelson but denying the representations alleged in the complaint and verifying affidavit, plaintiff submitted an "answering affidavit" by Natelson to the following effect:

"That he makes this affidavit in order to supplement his previous affidavit; as a result of the discussions and negotiations with Mr. Willett previously referred to, we agreed that Allied would take over a substantial portion of the Steel Panel accounts, the exact amount of which was to be resolved at a later date, upon reassignment to Allied by Financial Associates of a sufficient amount of the Steel Panel accounts which it then held or by the delivering of new accounts to us directly from Steel Panel. Accordingly, the advances described in Paragraph 5 of my previous affidavit were made by checks issued and delivered by us in New York to Steel Panel's representative against simultaneous delivery to us in New York of either new paper or paper previously assigned to Financial Associates and then reassigned to us. As ...

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