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Kaplan v. Walker

Decided: November 17, 1978.

ROBERT KAPLAN ET AL., PLAINTIFFS-APPELLANTS,
v.
JOHN E. WALKER, DEFENDANT-RESPONDENT



On appeal from Superior Court, Chancery Division, Sussex County.

Conford, Pressler and King. The opinion of the court was delivered by Conford, P.J.A.D.

Conford

The question presented by this appeal is whether the holder of an unperfected security interest in a motor vehicle can prevent the effectuation of the prima facie priority in the vehicle conferred upon the debtor's equity receiver under the Uniform Commercial Code and the Motor Vehicle Law, by invocation of principles of equitable subrogation. We respond to that question in the affirmative.

In April 1975 defendant John E. Walker owned a 1972 GMC Dumpster which was encumbered by a lien in favor of Newton Trust Company for money loaned. The lien was properly perfected by a filing with the Director of the Division of Motor Vehicles pursuant to N.J.S.A. 39:10-11. The loan having fallen in default to the extent of $4,600, the officers of North Jersey Paving and Construction Co. (North Jersey), including the said Walker, arranged in April 1975 with Commercial Trust Company of New Jersey (Commercial

Trust) for a loan to North Jersey with which to pay off the Newton Trust Company debt. The new loan was for $4,922.04, and the proceeds were used to pay off the prior loan. The Newton Trust Company lien was discharged of record but Commercial Trust, although it obtained a note and security agreement executed on behalf of North Jersey, neglected to effect a transfer of the title to North Jersey, to record the lien of Commercial Trust upon the title document for the vehicle, or to record the document with the Director of Motor Vehicles.

On November 6, 1975 O. David Fischer was appointed custodial receiver of the insolvent North Jersey by the Chancery Division. The Commercial Trust note had previously gone into default for $4,880.76. That company then procured from Walker an assignment to it of the bill of sale for the vehicle but the certificate of ownership was never forwarded to the Director of Motor Vehicles for filing. By a prior order in the receivership proceedings title to the dumpster was held to be vested in North Jersey.

The court ordered all of North Jersey's assets to be sold by the receiver at public auction under a stipulation by Commercial Trust that the validity of its lien should be subsequently adjudicated by the court. The vehicle was sold for $10,000, and the court, on motion of the receiver, held that under the Code his interest in the sale proceeds was prior to the lien of Commercial Trust therein. Commercial Trust appeals that determination.

Commercial Trust's primary contention is that under all the circumstances it is entitled to be subrogated to the recorded lien held by Newton Trust Company before it was discharged because Commercial Trust's money was used to pay off the prior lien. It urges that the receiver is in no way unfairly prejudiced by allowing such subrogation or by Commercial Trust's neglect to have its own lien recorded as neither the receiver nor any of the creditors he represents relied upon the state of the title record in their dealings with

the debtor. For reasons to be set forth we are in accord with the position thus advanced.

The perfection of liens on motor vehicles in this State is governed by the Motor Vehicle Law, N.J.S.A. 39:10-8; 39:10-9; 39:10-10; 39:10-11. When a new security interest is created in a motor vehicle it is required that its certificate of ownership together with a financing statement be filed with the Division of Motor Vehicles. The Director makes and files a record of the transaction and issues a certificate of ownership recording the name of the secured party and delivers it to him, a copy going to the owner or buyer. N.J.S.A. 39:10-11(C). While a failure to file the lien does not affect the validity of an instrument creating a lien as between the parties thereto, id. , (I), compliance with the filing requirements of the statute

So far as here pertinent, the Uniform Commercial Code provisions applicable in this situation are set forth in N.J.S.A. 12A:9-301 and N.J.S.A. ...


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