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Continental Finance Inc. v. Cambridge Lee Metal Co.

Decided: April 5, 1968.

CONTINENTAL FINANCE, INC., A CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF,
v.
CAMBRIDGE LEE METAL CO., INC., A CORPORATION OF THE STATE OF NEW JERSEY AND UNITED STATES OF AMERICA, DEFENDANTS



Hand, J.s.c.

Hand

This case involves a determination as to the relative priorities between Continental Finance, Inc., and the United States, to an available fund of $10,812 in the above-entitled case. Continental Finance is basing its claim to a first priority upon a security agreement, dated December 19, 1962, between it and Centre Trucking Co., Inc., Newark, New Jersey, providing for the assignment of accounts receivable now in existence or hereafter created or coming into existence for advances to be made by Continental and the filing, on January 11, 1963, of a financing statement executed in connection with the aforementioned security agreement. The United States is basing its claim to priority under the lien accorded it under Title 26 United States Code, Section 6321. The date on which the earliest tax assessments arose was February 4, 1964. Notices of Federal Tax Liens were recorded with the Register of Deeds, Essex County, Newark, New Jersey on February 10, 1964.

The following facts have been stipulated by the parties:

1. On or about December 19, 1962, Continental Finance, Inc. (herein "Continental") entered into a financing arrangement with Centre Trucking Co., Inc. (herein "Centre"), whereby Continental purchased certain accounts receivable and choses in action of Centre.

2. Subsequently, and for valuable consideration, on January 10, 1963, Continental obtained a security interest, as defined under the Uniform Commercial Code, N.J.S.A. 12 A:1-201 (37), in all accounts receivable, all claims against third parties then in existence or thereafter created, together with all personal property, then owned or thereafter acquired, belong to Centre.

3. A Financing Statement, covering said collateral, was filed by Continental with the office of the Secretary of State of New Jersey on January 11, 1963.

4. Relying on its security interest in all of the personal property aforesaid, Continental, after January 10, 1963, continued to advance additional sums of money to Centre.

5. Among the contract rights*fn1 collateralizing Centre's indebtedness to Continental, were the proceeds of an executory contract made on or about October 17, 1962 between Centre and Garden State Steel Company (later named Cambridge Lee Metal Co., Inc.), for the trucking, warehousing, and storage of materials by Centre in consideration for Garden State Steel Company's promise to pay at a fixed rate per ton.

6. All of the contract rights and proceeds, thereof, to be earned by Centre became the property of Continental by virtue of Continental's security interest in said collateral and default under said agreement by Centre.

7. The parties stipulated that prior to the filing of the Federal Tax Lien, February 10, 1964, Continental Finance entered into and obtained a perfected security interest in the aforementioned collateral of Centre.

8. The proceeds of the contract between Centre and Garden State Steel aggregating $10,812 were earned by Centre after the date of filing of the tax lien, to the extent of Continental's liens, were secured by virtue of the said Security Agreement.

9. Pursuant to its Security Agreement Continental continued to advance money to Centre; as of the date of the filing of government tax lien Continental was owed a sum in excess of $50,000, exclusive of interest.

10. The filed tax liens indicate unpaid taxes due to the government from Centre in an amount in excess of $59,000.

11. As of February 4, 1964 and continuing to the present date Continental is owed a sum in excess of the available funds of $10,812 from Centre.

12. Continental nor any of its officers, agents or servants had actual notice of the filed government tax lien prior to the advancement of funds from Continental to Centre, pursuant to the said Security Agreement.

Title 26, United States Code, Section 6321, states the following:

6321 LIEN FOR TAXES

"If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal belonging to such person." August 16, 1954, c. 736, 68 A Stat. 779.

The Federal Tax Lien Act was amended in 1966. The pertinent provisions of the amendment are as follows:

6323 VALIDITY AND PRIORITY AGAINST CERTAIN PERSONS

"(a) PURCHASES, HOLDERS OF SECURITY INTERESTS, MECHANIC'S LIENORS, AND JUDGMENT LIEN CREDITORS. -- The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the ...


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