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Carpenter, Bennett & Morrissey v. Jones

Decided: December 13, 1984.


On appeal from Superior Court of New Jersey Law Division, Essex County.

McElroy and Dreier. The opinion of the court was delivered by Dreier, J.A.D.


[197 NJSuper Page 478] Plaintiff has appealed from a summary judgment granted in favor of defendants. The Law Division determined that the six month period of limitations set forth in N.J.S.A. 12A:6-111

barred plaintiff's claim against an escrow established by a bulk transferee. Plaintiff had given notice to the transferee of a dispute as to the balance due from the transferor and under N.J.S.A. 12A:6-106, the transferee established the escrow in an amount that would satisfy plaintiff's claim.

Plaintiff had sought to recover $138,647.66 from defendants Jones and Elirets Corporation (formerly Sterile Products Inc.) for legal fees and disbursements incurred in connection with multiple matters in which plaintiff had represented these defendants between October 27, 1977 and August 31, 1981. The amount due is in dispute between these parties. Plaintiff asserted that defendant Jones promised in July 1981 that his personal accounts and his corporations' outstanding indebtedness would be satisfied out of funds received from a pending transaction with Dart Industries Inc. Plaintiff further claimed that on Jones' express promise that the fees would be so paid, plaintiff represented Jones and his corporations in the negotiation, drafting and execution of a "product purchase agreement" and "option and royality agreement" granting Dart the right to purchase certain of Elirets' products and an option to purchase Elirets' entire business. The agreements were signed in September 1981.

In March 1983 plaintiff received a bulk sales notice that Dart Industries, Inc. intended to exercise its option to purchase the assets of Elirets. The notice indicated that the debt from Elirets to plaintiff was $2,244.06. Upon receipt of the notice, plaintiff advised Dart Industries, Inc. that the outstanding indebtedness was then $138,647.66. In June or July of 1983 plaintiff's attorney was advised by Dart Industries' attorney that it was doubtful the transaction would be consummated. Plaintiff was told of no date for an anticipated closing.

In October 1983 plaintiff's counsel again spoke to counsel for Dart Industries, requesting a status report on the pending transaction. Counsel for Dart Industries advised plaintiff that the transaction had closed on August 4, 1983, and that $139,000,

a portion of the consideration to be paid by Elirets by Dart, was withheld and had been placed in an escrow account with defendant, New Jersey Savings Bank, to secure plaintiff's disputed claim for services. Plaintiff alleged that this was the first notice it had of such closing. Five months later, on March 14, 1984, plaintiff filed its complaint against Jones and his corporation. Plaintiff also named Dart Industries and New Jersey Savings Bank as nominal defendants so that they would be bound by the judgment with respect to the disposition of the escrowed funds.

Defendant Jones and Elirets filed a motion for partial summary judgment, seeking a release of the fund and a dismissal of the count of plaintiff's complaint seeking payment of the fund, claiming such action as barred by the six-month statute of limitations, N.J.S.A. 12A:6-111. Plaintiff filed a cross motion for summary judgment dismissing the counterclaim and the defense and for a writ of attachment against the escrow account. The trial court granted defendants' motion and denied plaintiff's. On leave granted, plaintiff has appealed these orders.

N.J.S.A. 12A:6-106 defines the duty of a transferee in a bulk sale to apply the proceeds of the sale of the debts of the transferor. Subsection 2 provides:

If any of said debts are in dispute the necessary sum may be withheld from distribution until the dispute is settled or adjudicated.

Subsection 3 provides for pro rata payment if all the debts are not to be paid in full, and subsection 4 (a non-uniform section) permits the discharge of a transferee by an interpleader and notice to all creditors of the payment into court. It is clear that Dart Industries chose to proceed under subsection 2 in ...

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