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Rosner v. Plaza Hotel Associates Inc.

Decided: January 11, 1977.

ANNA ROSNER AND MILDRED CAPLOW, AS SUBSTITUTED TRUSTEES FOR LEO ROSNER, PLAINTIFFS-RESPONDENTS,
v.
PLAZA HOTEL ASSOCIATES, INC., A NEW JERSEY CORPORATION, DEFENDANT-APPELLANT



Crane, Michels and Pressler. The opinion of the court was delivered by Pressler, J.s.c., Temporarily Assigned.

Pressler

The essential question posed by this appeal is whether a secured creditor who perfects his security interest by taking physical possession of the collateral of an insolvent debtor within four months preceding the debtor's execution of an assignment for the benefit of creditors has a right to the collateral superior to that of the assignee. The trial judge so held and the assignee appeals.

This issue arises in a relatively simple factual context. Plaintiffs Anna Rosner and Mildred Caplow, substituted trustees for Leo Rosner, lent defendant Plaza Hotel Associates, Inc. $400,000 in August 1969, evidenced by a note and secured both by a real estate mortgage on defendant's hotel property and a security agreement covering all the hotel personalty. The mortgage was duly recorded and the secured interest perfected by the filing of a financing statement. No continuation statement was, however, thereafter filed, resulting, five years after the initial filing, in a lapse of the effectiveness of the original statement. As a consequence of the lapse, the security interest became unperfected. N.J.S.A. 12A:9-403(2), (3).

Sometime in 1975, and after defendant defaulted in its payments on the note, plaintiffs instituted a mortgage foreclosure action resulting, on July 25, 1975, in a final judgment of foreclosure and sale, which also fixed the amount of the debt in the sum of $400,000 plus interest. Several days later, on July 29, 1975, defendant's attorneys tendered possession of the premises to plaintiffs by turning over the keys thereto and, in writing, describing the existing tenancies and advising plaintiffs to make immediate arrangements to take over the operation of the hotel. Plaintiffs entered into possession on July 30, 1975, permitting defendant, however, at its request, to remain on the premises until August 3, 1975 in order to complete its close-out bookkeeping. On July 31, 1975 defendant executed a deed of assignment of all of its

property to Neil A. Kleinberg, Esq., as assignee for the benefit of its creditors pursuant to N.J.S.A. 2A:19-1 et seq.

The question as to whether the assignee took the personalty subject to plaintiffs' security interest was raised by an order entered in the foreclosure action directing the assignee, in effect, to show cause why the security interest did not have priority over his title.*fn1 The position taken by the assignee was that the financing statement having lapsed, the security interest was rendered not only unperfected but subsequently unperfectable as well. He further argued that even if it could have been perfected by the taking of possession, plaintiffs did not in fact take possession until August 3, 1975, four days after the execution of the deed of assignment, and hence the perfection was too late. Finally, he urges that if the perfection did precede the assignment, it constituted a voidable preference. The trial judge rejected each of these contentions, adjudicating plaintiffs' priority in defendant's personal property. We are satisfied that his determinations were correct.

We agree with the assignee's argument that if plaintiffs are to prevail, their security interest must have been perfected prior to execution of the deed of assignment. N.J.S.A. 12A:9-301(1)(b) expressly provides that an unperfected security interest is subordinate to the rights of a person who becomes a lien creditor without knowledge thereof. See, generally, Mudge v. Sher-Mart Manufacturing Co. , 132 N.J. Super. 517 (App. Div. 1975). "Lien creditor" is further defined by N.J.S.A. 12A:9-301 (3) as specifically including an assignee for the benefit of creditors. There is, moreover, nothing in this record to suggest that the Assignee had any actual knowledge of the security interest when the deed of assignment was executed, or, more significantly, and as expressly required by N.J.S.A. 12A:9-301(3),

that all of the creditors represented by the assignee had any actual knowledge thereof. Certainly, none of them can be chargeable with constructive knowledge since, because of the lapse of the financing statement, a Uniform Commercial Code certificate of search would no longer (and in fact did not) report this lien.

We do not agree, however, either that the security interest was not re-perfectable after the lapse or that it was not in fact perfected prior to the execution of the deed of assignment. There is no question that it is only an enforceable security interest which is perfectable. A security interest is enforceable against the debtor, that is, it has attached, if either the creditor has possession of the collateral or if the debtor has signed an adequate security agreement. N.J.S.A. 12A:9-203. The original financing statement filed here resulted in the perfection of a security interest which had attached by virtue of the underlying security agreement. The lapse of the effectiveness of the financing statement, while vitiating the perfection, had no effect on the viability of the security agreement itself. Thus, despite the lapse, the security interest continued enforceable against the debtor. Since the attachment of the security interest was thus unaffected by the filing lapse, it could have been reperfected at any time after the lapse in the same manner as if it had never been previously perfected at all, that is, either by a new filing or, in the event of a default, as here, by the taking of possession of the collateral. See N.J.S.A. 12A:9-302(1)(a), 12A:9-305 and 12A:9-503.

The next question is the determination of the date on which plaintiffs took possession. The finding of the trial judge that plaintiffs were at least in constructive possession as of July 30, 1975, the day before the deed of assignment was executed, is fully supported by the evidence which was before him. We would further note, as appears in the record before us, that on August 11, 1975 the assignee himself wrote to ...


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