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Party Parrot, Inc. v. Birthdays & Holidays

March 29, 1996


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

Approved for Publication March 29, 1996.

Before Judges Dreier, Kestin *fn1 and Cuff. The opinion of the court was delivered by Dreier, P.j.a.d.

The opinion of the court was delivered by: Dreier

The opinion of the court was delivered by DREIER, P.J.A.D.

Plaintiff appeals from an order vacating an earlier execution order that authorized plaintiff to sell defendant's property to satisfy plaintiff's lien and striking the judgment on which plaintiff's lien was based. Plaintiff has a judgment lien on the affected real property. Subject to a factual issue not presented to us or the trial court, defendant may or may not be able to avoid enforcement of the lien by operation of N.J.S.A. 2A:16-49.1. A lien on the real estate enforced by levy, as opposed to the underlying judgment or indebtedness by defendants for a deficiency, is not subject to discharge or complete avoidance under the provisions of the Bankruptcy Code. If unperfected, however, plaintiff's lien was subject to avoidance under the Code and therefore may now be discharged of record.

On July 29, 1991, plaintiff, The Party Parrot, Inc., filed a complaint against defendants, Birthdays & Holidays, Inc. t/a The Party Parrot, and Wallace Eccleston, Sr., alleging default on a note. Apparently plaintiff sold a business to defendants, who in exchange issued a note promising to pay plaintiff in monthly installments beginning February 1991. The court entered a default judgment in the amount of $117,061.68 plus costs against both defendants on December 5, 1991.

On December 6, 1991, plaintiff obtained and filed with the sheriff a writ of execution ordering the sheriff to levy against the corporate defendant's and the individual defendant's personal property, and if the personal property was insufficient to satisfy the debt, then to levy against their real property. The corporate defendant's inventory was sold at a sheriff's sale on January 8, 1992, resulting in approximately $3000. The court then entered an amended judgment against the individual defendant on May 1, 1992 and granted plaintiff's motion for wage garnishment against defendant on August 7, 1992. We are not told whether there was ever a levy under the writ of execution on the real estate. If there was not, the lien remained unperfected and may be discharged under the statute after one year. If the lien had been perfected by a levy, other problems remain.

On August 14, 1992, defendant Wallace Eccleston, Sr. (defendant) filed a petition in bankruptcy under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C.A. §§ 101-1330 ("the Code") and on December 7, 1992, the Bankruptcy Court issued a discharge of debtor, granting defendant relief. On March 1, 1993, the trustee in bankruptcy filed a notice of intention to sell and/or abandon defendant's real property, to which plaintiff did not object.

On March 21, 1994, plaintiff filed a notice of motion in the Bankruptcy Court to avoid the other liens on defendant's property and to vacate the automatic stay of execution so that plaintiff could proceed as judgment lienholder against defendant's assets. Defendant filed an opposing certification. Plaintiff indicated at oral argument in the Law Division that it subsequently withdrew its bankruptcy motion because a mortgage foreclosure action had been commenced against defendant's realty. Defendant "felt that since the foreclosure would have priority over us, we'd follow that"; however, plaintiff stated in its brief that the Bankruptcy Court returned plaintiff's motion order unsigned because defendant had previously been discharged from bankruptcy.

After the mortgage foreclosure action was apparently abandoned, on July 22, 1994 plaintiff moved before the Law Division for leave to proceed with the sale of defendant's interest in his marital home and to enjoin defendant from transferring that interest. Defendant opposed the motion and moved to remove plaintiff's judgment of record. After extended hearings, the Judge vacated the order to sell defendant's real estate and struck the judgment pursuant to N.J.S.A. 2A:16-49.1. There was no reference in that motion or order concerning the presence or absence of a levy on the real estate under the outstanding writ of execution.

Plaintiff first asserts that because its lien was not discharged in the bankruptcy proceeding, it had the right to proceed against defendant's property under N.J.S.A. 2A:16-49.1.

N.J.S.A. 2A:16-49.1 provides in relevant part:

At any time after 1 year has elapsed, since a bankrupt was discharged from his debts, pursuant to [the Bankruptcy Code], he may apply, upon proof of his discharge, to the court in which a judgment was rendered against him ... for an order directing the judgment to be canceled and discharged of record.... Where the judgment was a lien on real property owned by the bankrupt prior to the time he was adJudged a bankrupt, and not subject to be discharged or released under the provisions of the Bankruptcy [Code], the lien thereof upon said real ...

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