Petition — Connelly v. Commercial Trading Co.
Supreme Court brief1979
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Sasa oT
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if JUL $1 1979
Supreme Court of the United | Prates
HABL RODAK, JR, CLERK
In The
+
October Term, 1979
No. 29-160
EUGENE W. CONNELLY,
Petitioner,
VS.
COMMERCIAL TRADING CO., INC.,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
SUPREME COURT OF THE STATE OF NEW YORK
APPELLATE DIVISION - FIRST DEPARTMENT
EUGENE W. CONNELLY
M@memay for Petitioner
P. O. Box 207
10 Bayberry Drive
Plainview, New York 11803
(516) WE 1-6774
2429 LUTZ APPELLATE PRINTERS, INC.
Law and Financial Printing
South River, N.J. New York, N.Y. Philadelphia. Pa. Washington, D.C.
(201) 257-6850 (212) 840-9494 (215) 563-5587 (202) 783-7288
TABLE OF CONTENTS
Page
aN CSS Ge nn 6 che ¥b4-0 65a b 0-0 06s sabe 2
a eee re ee Ne aNeaeccvursciancse 2
ed de weees ewes e 2
SOMEUNOTY FVOVIIONS THVOIVER |... 2.065 c cece cc cs ccc cccces 2
EE Se 3
ARE AY BS Ea a 3
eee tS a sa wasss asses cee’ 8
ee ee sce eb when cesasves 20
The Philadelphia Action American v. Ideal Shoe Co.,
U.S. District Court for Ea. Pa. Civil Action No. 71-
GE 21
SS a ea 23
EE 24
Trial Court's “Findings of Fact and Conclusions of Law”. 25
es ses views ess cc eees 26
The “Affirmation” of the Appellate Division ......... 29
Respondent's Motion For Discontinuance ........... 30
The Uniform Commercial Code .................... 32
il
Contents
Page
Lawsuits Which Resulted From This Infamous (196%)
PN nok RADA baad ES pee ONs Fecbeeed RECORD ate ee 45
Reasons For Granting the Writ) cc... cee cee cree ee eens i}
lL, Serv rrrrrerrrrer Trier Pree rat cern ire reer ri ere if)
Uniform Commercial Code oo... cece reece enerenees 40
CI entree sri a cteeduetncrdcesvanvedescacacs 4|
TABLE OF CITATIONS
Cases Cited:
Citizens Valley Bank v. Pacific Materials Co,, Or, 503 P.2d
4g EET CERO EPO TUTTO Noes RECT PERCEPT CESEE 7
Gould v, Pollock, 68 Misc. 2d 670, aff'd, 71 Mise, 2d 344... 24
Harry Obringer Inc, v. Kass, 28 A.D. 2d TII7 ... eee. ee
POG SC: Oe Pe Oe OU an bcc es ce Co ewnd Vanes tates 25
Kohlmann v. City of New York, 184 N.Y.S. 2d 357, 8 A.D.
MR. =) ng CRU A Gr WEA'e FRR SSSOATA RE CRS Os 60508 400%C W
Levitz v, Robbins Music Corp,, 17 A.D. 2d BOLL... eee 25
Progressive Co, v. Mt. Vernon Clock Corp., 5 A.D. 2d
PE wave bCcvaar cer csaeekecads eandveneberees eek 25, 39
Public Service v. McGrath, 56 A.D. 2d 812 ed ete a 29
“a
Contents
Page
Rosemont Enterprises, Ine. v. Irving, 49 A.D, 2d 446.0... 29
saizman v. Sakofsky, 89 N.Y.S, 2d 39 ..cccccecccccccvcss 9
Statutes Cited:
ee as UR TEEE Us oes Fs Fa ah cad Coe ORS eet es po 2
UCC (1972) Offical Text, General Comment, po xvii... .... 40)
PGMs AUTRE LAT Coe hd PEGE TE ees bien eee OL cn 21
an) ED “Gea cer ous kbs celle eaks cub male cua 7
ty ROR ay Rey eA Seeger Ber A eons oa) 45
Soe ry ein spears teed State Wen eran AL pire ic + 44, 40
EE, 8:00 CN eas EF80 TE een et Ree CURES aa 4,5
Ry Dh, CEOS een R NM, | Caer guentic Mie Ana 4,5
VE SHEE (hb be Kank Na We Bee RoveNe RU Waar Renee ees 44
PR NE 6a ke 8 0 kode hike RA ek PEACOAT ne es 44
Ee AD oT OC cea Thinahemeus cues wakleanuet beeuenad. 40
Us MANNE: cod aNiea hike thondien A A Kishi aK be ek we CRN Aan 6, 33
UCC 9-318 ne EU CE AEE CIV TCT TTT CCR OTECE CLL Tree 42
iv
Contents
Page
Other Authorities Cited:
The International Chamber of Commerce, Brochure No.
ee dg able ie ae ee oe 40
Handbook of the Law Under the Uniform Commercial
Code, (Hornbook Series, White and Summers, West
Pub.) Ch. 23-4, p. 791... ccc cccccccccccccscnseccoes 6
Dillavous and Howard, Principles of Business Law,
(8th Edition, Prentice Hall) Ch. 27, 3-139, p. 399 ...... 7
APPENDIX
Opinions in the Lower Courts ........5-0eee cece rece eeees la
Trial Court’s “Findings of Fact and Conclusions of Law”
ee 2a
The “Non-Order” Memorandum Decision of Judge Rosen-
DEER occ ccc ceveccdscceue upaseeseceessssaseses eens 7a
Order of Judge Grossman Denying Summary Judgment
to Respondent ........ 2. ce cece cece eee eee ence teens 10a
Order of Judge Grossman Granting Motion for Preference
to PetitbOmer occa cacitvecanatuasbeaasehe eee eeeere? 12a
Complaint .........ccccccccccceseccesccccccescescesees l4a
Statutes Involved 2... ccc ccccccccnncccsccescssscccess 22a
—
In The
Supreme Court of the United States
-—
October Term, 1979
No.
COMMERCIAL TRADING CO., INC..,
Respondent,
VS.
AMERICAN EAST INDIA CORPORATION and EUGENE
W. CONNELLY,
Petitioners.
PETITION FOR A WRIT OF CERTIORARI TO THE
SUPREME COURT OF THE STATE OF NEW YORK
APPELLATE DIVISION — FIRST DEPARTMENT
The petitioners, American East India Corporation and
Eugene W. Connelly, proceeding individually, respectfully pray
that a writ of certiorari issue to review the order of the Supreme
Court of the State of New York, Appellate Division, First
Department, entered in the above entitled case on November 21
1978.
2
OPINION BELOW
The findings of fact and conclusions of law of the trial
court, Part 18, Supreme Court of the State of New York, New
York County appears in the Appendix hereto.
The decision of the trial court was affirmed by the
Appeliate Division without opinion.
Subsequent motions for leave to appeal to the C vurt of
Appeals were denied without opinion.
JURISDICTION
The final denial of the New York State Court of Appeals
was entered May 3, 1979. This petition for a writ of certiorari
was filed within 90 days of that date. This Court's jurisdiction ts
invoked under 28 U.S.C. §1257(3).
QUESTIONS PRESENTED
Whether the petitioners are entitled to be heard at trial on
the facts and law of this case.
STATUTORY PROVISIONS INVOLVED
The relevant statutory provision involved in this case is the
Uniform Commercial Code which applicable sections are set
forth in the Appendix, infra.
Pe
STATEMENT OF THE CASE
Preface
Respondent Commercial Trading Co., Inc. (“Commercial”) isa
commercial financing factor, American East India Corporation
(“American”) was an importer of shoes. Eugene W. Connelly
(“Connelly”) was the president of American from activation
(1955) through 1974. On October 17, 1974, all rights of
American in this action were assigned to Connelly. On April 1,
1976, Connelly was added as party defendant. Walker Trading
Corporation (“Walker”), from December 1967 onwards, was a
sales agent of American. Prior to December 1967, Walker was a
shoe importer financed by Commercial.
In| December 1967, sales agent Walker assigned to
American four contracts previously entered into. with shoe
manufacturers in’ Taiwan, Japan and Hong Kong. American
established letters of credit through their bankers in favor of the
shoe manufacturers, American imported the shoes and delivered
them to thirty-seven customers to create accounts receivable of
$163,072.02, of which the two largest were C.R. Anthony Co.,
(“Anthony”) ($66,363.11), and the Ideal Shoe Co. (“Ideal”)
($27,542.40).
By summons and complaint (Appendix, infra, 14a),
Commercial initiated this instant action in April 1968, alleging
(a) that from their former association, Walker was in debt to
Commercial in an amount of $310,000, (b) that Walker owned
the goods imported, and (c) because of previous filings under the
Uniform Commercial Code, Commercial had a security interest
in the proceeds superior to American's interests. Hereinafter, the
lawsuit will be referred to as “New York Action No. 1”,
Respondent Commercial had no standing to initiate the
action, Respondent Commercial never had a security interest in
the proceeds.
4
Under the Uniform Commercial Code, _ petitioner
American's protection was total, absolute and superior.
Respondent Commercial did have properly filed
Walker/Commercial Accounts Receivable Security Agreements
(see Appendix, 14a, par. 5) but neither Walker nor respondent
Commerical held a single document of title.
American held every document of title. In a related case (see
p. 21, infra) a court was to find:
“Summarizing, all the documents involved in the
transaction indicated American as the importer
for its own account.” (400 F. Supp. 153).
That decision referred to the single /dea/ account receivable.
That /deal receivable was one of the 37 accounts receivable at
issue in this instant action. All 37 accounts receivable were
developed from one series of letters of credit, one series of
shipments from manufacturer's contracts assigned to American
by sales agent Walker.
Se er eee
5
“UCC 9-203, Enforceability of Security Interests.
(1)...a security interest is not enforceable
against (he debtor or third parties [emphasis
added] unless:
(a) the collateral is in the possession of the
secured party; or
(b) the debtor has signed a security agreement
which contains a description of the
collateral... .”
“UCC 9-204, When Security Interest Attaches.
(1) A security interest cannot attach until there is
agreement that it attach and value is given and
the debtor has rights in the collateral. It attaches
as soon as all of the events in the preceding
sentence have taken place... .”
Legal iextbooks confirm, explicitly, that under UCC 9-203
Ida) and 9-204, Commercial had neither (a) standing to initiate the
action against American, nor (b) a security interest to maintain
the action:
The complaint in this action (Appendix, infra,
demanded a single “declaratory judgment” as to the “ownership
of said accounts receivable” as a single unit (Appendix, 18a, par.
15). There was no difference between /deal and the other 36,
other than the fact that /dea/ made a secret deal with respondent
Commercial to discount American's invoices which forced
American's independent action.
“Two parties may have an agreement for security
under 9-204(1) and they may reduce it to writing
to the extent necessary to comply with 9-
203(1)(b). Even so, the security interest they
intend to create will not come into being until
two additional events occur: the debtor must
acquire rights in the collateral, and the secured
party must give value. When these events occur,
the security interest will ‘attach’ under 9-204(1),
and not until it thus ‘attaches’ to specific
The 1975 finding (400 F. Supp. 153), carried back to the
1968 complaint, would hold, conclusively, under the Uniform
Commercial Code, UCC 9-203, that respondent Commercial had
no standing to initiate this instant action and, under UCC 9-204,
that at no time did respondent Commercial have a security
interest in the proceeds.
ee ee ee
6
collateral can the interest come into being.”
(Emphasis added.) Handbook of the Law Under
the Uniform Commercial Code, (Hornbook
Series, White and Summers, West. Pub.) Ch. 23-
4, p. 791.
Every document of title to the goods was negotiated to
petitioner American by their bankers, and in that same related
case, supra, the court found:
“In this case, the documents required under the
letter of credit were invoices, a customs invoice
5523 — material breakdown, and ocean bill of
lading with notification to American.
On or about January 24, 1968, these documents
were delivered to American by Bank of
America... .” (400 F. Supp. 151).
Again, respondent Commerical did have their filings, but
petitioner American had total protection under the Uniform
Commercial Code, inferior to nothing.
“UCC 9-309. Protection of Purchasers of
Instruments and Documents.
Nothing in this Article limits the rights of ...a
holder to whom a negotiable document of title
has been duly negotiated and such holders or
purchasers take priority over an earlier security
interesteven though perfected. Filing under this
Article does not constitute notice of the security
interest to such holders or purchasers.”
(Emphasis added.)
Legal textbooks confirm the protection of “possession” over
“filing”:
>
“The possession of the collateral by the secured
Party gives notice of his security interest — hence
no public filing is required.
Possession is the required method of perfection
of a security interest in instruments and is the
optional method in the case of collateral
consisting of goods, negotiable documents of title
and chattel paper. However, possession is the
only method whereby complete protection in
documents and chattel paper can be obtained
since: (1) the rights of holders to whom a
document has been negotiated by the debtor will
prevail over the secured party, even though there
has been a filing.” (Emphasis added.) Dillavous
and Howard, Principles of Business Law, (Sth
Edition, Prentice Hall) Ch. 27 3-139, p. 399.
‘The strong priority of “possession” over “filing”, and
particularly the absuiute protection of UCC 9-309, was evident
in Citizens Valley Bank v. Pacific Materials Co., Or. 503 P.2d
491. A promissory note [UCC 3-104(2)(d)] had been negotiated to
defendant Pacific. Like Commercial in this instant action. the
plaintiff Citizens Bank claimed priority because of an cutie
“filing.” Like American, herein, defendant Pacific claimed
priority because of “possession.” The court held for the
defendant, ruling:
“The defendant counters that ORS 79-3090 does
‘otherwise provide’ and we agree.
ORS 79.3090 states:
‘Nothing in ORS 79.1010 to 79.5070
(Article 9) (added) limits the rights of a
holder in due course of a negotiable
instrument or a holder to whom a
negotiable document of title has been
duly negotiated as provided in ORS
77.5010, or a bona fide purchaser of a
security as provided in ORS 78.3010 and
such holders or purchasers take priority
over an earlier security interest even
though perfected... -
We have found no precedents from other
jurisdictions or any statements by the writers
precisely on this issue. The wording of the
statute, however, seems clear: ‘(S)uch holders or
purchasers take priority over an earlier security
interest even though perfected.
Affirmed.”
This action should have ended, summarily, in April 1968.
Background
Instead, petitioner American's law firm, in total confusion
in the Uniform Commercial Code, “counseled” that respondent
Commercial’s secured interest was superior because Commercial
had “filed”, and American had not. Counsel recommended that
American “settle” (even though respondent Commercial had not
put up a penny to import the goods). Connelly, as president of
American. refused. The following 1s a capsulized summation of
the past tragic eleven years that has gotten us to this point and
date.
1967
Nov. 17 Commercial established final letter of credit (L/C
69401) to end the four-year financing of Walker
imports (1964-67).
So eRe em
Dec
Dec
1968
Jan
heb
heb
heb.
Mar.|
1X
20)
5
14
2k
9
American hired Walker as sales agent,
Commerctal made final bank acceptance
($4,682.13) to end financing.
Commercial took over all) Walker accounts
payable, to pay bills, and close out the account.
With knowledge and cooperation of Commercial,
William Lynn (“Lynn”) president of Walker,
incorporated new company (Walker International
Corporation) with new financing factor (ALC.
Financial) one of whose officers was former
Commercial employee.
Commercial learned of American's imports (supra,
bottom p. 3). Commercial could not check with
Lynn (out of country) but, in the belief Lyan had
obtained temporary financing from American
during interim period of Commercial dropping the
Walker account (December 1967) and ALC.
Financial picking it up (February 1968),
Commercial sent telegrams and letters fo a// Anown
customers of Walker, threatening them with
having to make double payment if they paid any
money against goods received from Walker to any
party other than Commerical.
lynn returned from bar East. Learned of
Commercial’s telegrams and letters from customer
(CR. Anthony). Informed American, for first
time, about Commercial:
Commercial paid Lynn $1,000
Apr. |4
May 20
May 22
Aug. |
1969
Jan. 15
Mar. 7
Mar. 19
May 7
May 22
May 29
June 4
June 10
1970
Jan. 29
Feb. 12
10
Commercial initiated this instant action.
Commercial paid William Lynn, $500.
Commercial conducted deposition of Lynn.
Commercial paid Lynn $2,000.
Commercial continued Lynn deposition.
Lynn deposition.
Lynn deposition. |
Lynn deposition.
Lynn deposition.
Parties agreed to place two largest accounts
(Anthony and Ideal) supra, p. 3) in bank escrow
account subject to withdrawal upon final
judgment or order of court. Anthony money paid
into account, but when Ideal attempted to
discount payment, Connelly refused to permit
money into the account.
Commercial continued Lynn deposition.
Lynn deposition.
Lynn deposition.
Lynn deposition.
Gaetee e-em _—
Feb. 12
Mar. I]
Mar. 26
June II
July 2
1971
Apr. 8
June 3
June 10
Sept. 13
1972
Feb. 8
Ideal paid Commercial $24,000, discounting
American’s invoices by 13%, and received
indemnification in event American sued Ideal.
Commercial conducted deposition of Connelly.
Connelly deposition.
Connelly deposition.
Connelly deposition. For first time, Connelly
learned of Ideal’s secret payment to Commercial
(supra, Feb. 12, 1970).
American initiated action against Ideal (Referred
to as the “The Philadelphia Action” (more infra, p.
21).
Commercial conducted deposition of Henry J.
Baccash (“Baccash”) American's controller.
Baccash deposition.
American sued Commercial for $1.5 million each
in three causes of action — fraud, inducing breach
of contract and conversion (referred to as “New
York Action No. 2”).
American's attorney in Philadelphia handling the
Philadelphia Action requested from American’s
New York attorney all depositions held in New
York Action.
Feb. 9
and 16
Dec. 8
1973
March
Term
12
American's attorney finally held first, and only,
deposition in this case, that of Gerald Grossman
(“Grossman”), vice president and general counsel
of respondent Commercial. Grossman told a story,
later repeated almost word for word in testifying
at the Philadelphia Action trial, that Commercial
financed Walker from 1964 to July 1967; that in
July 1967 Walker applied for two letters of credit
totalling $54,000; that because Walker was heavily
in debt to Commercial, Commercial refused to
establish the letters of credit during the period
July through December 1967, unless Walker put
up $27,000 “margin” to support the credits, which
Walker could not, and did not, do. (400 F. Supp.
149).
Respondent Commercial moved for summary
judgment:
“on the grounds that there is no
defense to such cause of action and
that the same has been established
sufficiently to warrant the Court as
a matter of law in directing
judgment in favor of plaintiff.”
American’s law firm conceded the law, but
defeated the motion by convincing the court that
there were two factual issues for trial (both
subsequently proven in plaintiffs favor).
Respondent Commercial appealed summary
judgment denial to Appellate Division, First
Department. Lower Court was affirmed.
May 15
June
and
onwards
Nov. |
1974
May
July 16
July 18
13
Trial in Philadelphia Action started; seven (7) days
testimony and argument over a 46-day period,
through June 29, 1973. Decision reserved for more
than two yearsand rendered July 16, 1975 (more,
infra, p. 21).
American made independent study of law and
Walker/Commercial financing association from
1964 through December 1967.
With knowledge of attorneys, Connelly obtained
opinion from another law firm. Was told that
action could be dismissed by summary judgment
under UCC 9-309 (supra, p. 6). American’s law
firm refused to move.
Respondent Commercial’s attorney replaced by
Weil, Gotshal & Manges (“Weil Gotshal”).
Connelly, for American, completed year-long
study, prepared and had copies delivered to
attorney and Grossman of Commercial, a
document intended for the New York County
District Attorney, “In Support of a Summons For
Perjury Against Gerald Grossman, V.P.,
Commercial Trading Co., Inc.,” (referred to as
“Perjury Papers”) detailing seventeen (17) perjured
statements of Grossman at his deposition (supra,
p. 12) and Philadelphia Action trial (infra, p. 21).
American's attorneys advised they were with-
drawing from case. Result of association: In 1968
made quick decision, respondent was correct on
Oct. 17
Nov. 24
Dec. 11
1975
July 16
1976
Jan. 31
14
law, so held one deposition in New York Action
No. 1; no depositions in New York Action No 2;
made no effort to get either action to trial —
received legal fees, $81,535.12. Another law firm
was hired (September Ist).
American assigned to Connelly all interests in the
two New York Actions and the Philadelphia
Action.
New York Action No. | — American and
Commercial, moved and cross-moved for
summary judgment (both denied).
New York Action No. 2 — Commercial moved for
summary judgment dismissal (statute of
limitations) (granted).
Perjury Papers — Grossman et al. initiated action
against Connelly et al. ($20,000,000) (more infra,
p. 23).
American dropped second law firm. Three
month’s legal fees, $20,312.50 (retainer me $15,000;
services — $5,312.50). Third law firm hired.
Decision rendered in Philadelphia action (infra,
p. 21).
Respondent Commercial moved for summary
judgment on Anthony escrowed account
receivable (supra, May 29, 1969, p. 10), exhibited
Philadelphia Action decision and _ claimed
collateral estoppel and res judicata.
nr ne
Feb. 20
April |
1977
Nov. 18
1978
Jan. 8
15
American opposed, stressing (a) lawsuit was in 8th
year and trial date was only three weeks away
(February 23, 1976) and (b) exhibited documented
proof from the Perjury Papers to expose the
Grossman perjury which gained Commercial the
favorable decision in the Philadelphia Action.
After three law firms over an eight-year period
had failed to get this action to trial, and in belief it
never would get to trial, through efforts of
attorneys, Connelly moved to be substituted as the
party of interest, replacing American.
Connelly substitution motion granted “to extent of
adding Connelly as party defendant.”
Commercial’s January 31st motion for summary
judgment granted but Signing of order held
pending submission of additional affidavits, and
never signed into order (Appendix, infra, 7a)
(more, infra, p. 24).
Petitioner Connelly moved for trial by preference
(granted).
Over ten-year period, not one attorney informed
petitioners that the answer in the action did not
contain any counterclaims or requests for
affirmative relief of any type.
Prior to assignment to a Trial Part. petitioner
Connelly moved for an order to permit an
amended answer containing a_ counterclaim
(denied).
Feb. 21
April 24
November
Term
16
Case assigned to Trial Part 18, and heard over
three days (more, infra, p. 26).
Final judgment entered, awarding 77.2% _ of
proceeds to petitioner, 22.8% to respondent.
Petitioners appealed to Appellate Division, First
Department of the New York State Supreme
Court limiting the appeal strictly to the law. The
“Questions Involved” stated, in toto:
“the questions involved on_ this
appeal are:
1. Did the plaintiff-respondent have
standing to initiate this action in
1968”
The Uniform Commercial Code says
they did not!
2. Does the _ plaintiff-respondent
have a secured claim on any
proceeds at issue in this action?
The Uniform Commercial Code says
they do not!”
Petitioners “Argument” held strictly to the law,
and the “Questions Involved”:
1. Re “standing”. Petitioners’
Appendix included every document
of title, all in petitioners’ name. As,
at no time, did the respondent, or
Nov. 21
Dec. 5
17
any other party possess the
documents of title, UCC 9-203 was
quoted to “prove” that the
respondent had no standing to
initiate the action (refer supra, p.
4).
2. Re “secured claim”. Petitioners’
Appendix included the letters of
credit established to purchase the
footwear, plus the “instrument”
(bank draft) and documents of title
negotiated to petitioner by the
banks. UCC 9-309 was quoted to
“prove” that “nothing” in the Code
was superior (refer supra, p. 4).
Lower court affirmed, without opinion.
Petitioner moved for reargument in the Appellate
Division, stating that:
“, .. by its decision, the Court:
a. has set a precedent by which the
dishonest can collect commercial-
trade proceeds despite protections
set up by the financial industry to
thwart such attempts;
b. has set a precedent by which the
dishonest can collect commercial-
trade proceeds despite protections
enacted by the New York State
Legislature to thwart such attempts;
c. has ruled contrary to present law:
1979
Jan. Ii
Feb. 5
18
d. has ruled contrary to prior
decision;
¢. has granted an award in excess of
the demands of the © plaintiff's
Complaint, and
f. has permitted a gratis award to
the plaintiff.”
and expanded oneeach point.
Motion for leave to reargue denied,
Petitioner moved for leave to appeal to the New
York Court of Appeals requoting the law that
respondent Commercial had no standing to
initiate this action (UCC 9-203) and “nothing”
was superior to petitioner American's “possession
of the negotiated documents of title (UC C 9-309),
and expanded the petitioner's brief to expose
blatant lies of three attorneys to deceive the
courts:
a. Grossman, general counsel of
Commercial, to gain the favorable
decision in the Philadelphia Action
(infra, p. 21).
b. Respondent Commercial’s
attorney to deceive the trial court
that the Philadelphia Action
decision should be res judicata in
this action to prevent a trial on facts
and law (infra, p. 23).
at sae eet ne
19
c. Respondent Commercial’s
attorney to deceive the Appellate
Division to affirm the trial court
(infra, p. 25).
The laws and lies meant nothing, the motion for
leave to appeal was denied; no opinion.
Motion for reargument to Court of Appeals:
“Purpose of Instant Motion
In a system of practice of law and
court decisions which relies so
heavily on ‘precedent’ decisions, by
denial of appellant's motion for
leave to appeal, this Court has let
stand a decision which denied to the
defendants, and could to future
honest defendants, the protection of
New York State laws created by this
State’s Legislature to protect against
the very type of dishonest practice
perpetrated by the plaintiff, and
their attorneys, to convert proceeds
to which they had no honest, factual
or legal right.
If the laws of this State are to be
respected, and full protection of the
law guaranteed to commercial
interests of this State, the decisions
in the lower courts must be
reversed,”
Motion for reargument denied, no opinion, $20
costs,
20
Interspersed in the above were scores of motions; a number
of additional lawsuits initiated; a referee’s hearing, more -e
twelve postponed trial and pre-trial conference dates — all 0
which could have been, and should have been, avoided if the
protection of the Uniform Commercial Code had been invoked
in 1968 and this lawsuit dismissed aborning by summary
judgment.
Of further importance to the Statement of the Case, and the
possible understanding of this infamous lawsuit, might be the
following:
Proceeds
Although the complaint, par. 8 (Appendix, 16a) stated the
accounts receivable at issue to be “approximately $200,000 , the
_actual breakdown was as follows:
$66,363.11 C.R. Anthony Co. — One account receivable
placed in escrow (supra, p. i0)
$27,542.40 Ideal Shoe Co. — One account receivable, the
subject of the Philadelphia Action (infra, p.
21)
$68,489.96 35 miscellaneous “third person” accounts
collected by Commercial (6) and American
(29)
$162,395.47 total
21
The Philadelphia Action American v. Ideal Shoe Co., US.
District Court for Ea. Pa. — Civil Action No. 71-856
In 1968, after receiving promise of payment, American
shipped, and invoiced, to Ideal $27,542.40 of footwear. Ideal
withheld payment, and in February 1970 made secret payment
($24,000) to Commercial in return for indemnification in event
American sued. American sued in April 1971. |
Trial started May 15, 1973 with seven days testimony and
argument over a 46-day period, through June 29, 1973.
Commercial defended for Ideal. American exhibited documents
of title, and demanded payment. Commercial interjected the
New York Action No. 1, and claimed a right to the proceeds
because of “filing” under the Uniform Commercial Code.
Grossman, general counsel for Commercial, testified and told a
totally perjured story of a huge Walker to Commercial debt: of
Commercial refusing to establish a $54,000 letter of credit
because of Walker's inability to put up $27,000 “margin”; and of
refusing to finance any Walker letters of credit after August 1967
(400 F. Supp. 149) (more, infra, Perjury Papers).
The court deferred a decision for more than two years.
During the interim, Connelly, for American, made a study of the
law and the Walker/Commercial financing history.
On July 16, 1975 the court awarded American $20,471, less
$839.64 for damaged goods ($19,631.36), plus interest.
Commercial was awarded $7,071.40, the court ruling American
had converted a “contract right.” It was a_ rather unique
decision, as “contract rights” can exist only in contracts and no
one from either side could exhibit a contract. Couldn't, for the
simple reason that no contract existed. American had shipped
their goods against a promise to pay. To be actionable, a
contract must be a writing and signed [UCC 2-201 (1)].
22
7-28-75 American’s attorney filed a motion to a
court’s findings of fact, to make additiona
findings of fact for a new trial to the ce
necessary to make such findings, to amen
conclusions of law and to amend the judgment.
7-29-75 American’s attorney served, untimely, a copy of
the motion to amend, etc. on Commercial’s
attorney.
8-1-75 Affidavit of Eugene W. Connelly in support of
plaintiffs motion to amend, etc. delivered to
court’s chambers.
8-1-75 Motion to amend, etc. denied.
8-14-75 Commercial filed notice of appeal to the U.S.C.A.
3rd Cir.
11-7-75 American moved in U.S.C.A. to dismiss appeal by
Commercial “on the grounds that the appeal is
frivolous.”
11-24-75 Commercial filed “Appellant's Motion For
Voluntary Dismissal of Appeal.’
12-10-75 Court granted Commercial’s motion for dismissal
of appeal.
Despite the clear record and facts of Commercial's
withdrawal of their appeal, in a desperate effort to keep this
instant action from going to trial on merits and law and make
the Philadelphia Action decision res judicata in New York, a
Commercial attorney told the trial judge:
23
“May I mention that the Philadelphia decision
had been appealed to the Third Circuit, and the
Third Circuit unanimously affirmed the decision
of Judge Green.” (T24) (400 F. Supp. 141).
To save costs, American did not appeal the 1975 /deal
ruling preferring to recover in this earlier 1968 action in which
the /deal account receivable is a vital part.
Perjury Papers
Connelly’s post-Philadelphia Action trial discovery
disclosed that Grossman had perjured himself at least 17 times at
trial and the single deposition in this action. Where he had
testified at trial (400 F. Supp. 149) that Commercial had refused
to finance a $54,000 letter of credit because of Walker’s inability
to put up $27,000 “margin”, the truth is that Commercial
purchased Walker's accounts receivable, never refused a single
Walker letter of credit for want of “margin” and where
Grossman testified that no letters of credit were financed after
“August of 1967", the truth is that seven were established
totalling $76,500 and, with overdrafts, $157,588.10 financed
against them.
Connelly prepared a paper detailing the perjury. A copy
was sent to Grossman. Grossman initiated an action (details,
infra, p. 36) to have Connelly appear for deposition “to aid
Grossman ...in bringing a cause of action against
Connelly... .” Connelly defaulted on papers intentionally in
order to appear; did appear; produced 56 exhibits to
substantiate the perjury accusations: was deposed on January
29, 1975. To date, no further action has been taken.
24
Summary Judgment
There are thirty-seven (37) accounts receivable at issue in
this action (see Proceeds, supra, p. 20).
On December 8, 1972, respondent Commerical moved =
summary judgment on all thirty-seven accounts receivable.
Motion denied.
On January 31, 1976, respondent Commercial pet =
summary judgment on the single Anthony — mag cae
Motion granted by memorandum decision (Appendix,
never signed into order (J. Rosenberg).
On September 9, 1977, respondent Commercial moved for
summary judgment on “thirty-four (34) ‘third person’ accounts.
Motion denied (J. Grossman).
On November 11, 1977, respondent Commercial again moved
for summary judgment on “thirty-four (34) ‘third person
accounts.” Motion denied (J. Grossman).
Though Judge Rosenberg granted summary ip =
the single Anthony account receivable, he never po ee
decision into an order. Judge Rosenberg retired in : RRs
1976. This action was assigned to Judge Grossman w “ ne
to sign the Judge Rosenberg decision into an order. ( sie
order was entered on first judge’s decision (now ai of rote .
the second judge was not bound by the first judge is ag ti
see. Gould v. Pollack, 68 Misc. 2d 670, aff'd, 71 Misc. 2d 344.
Not only did Judge Grossman refuse to sign the a
Rosenberg decision into an order, but in denying pet ie
Commercial’s November | lih motion for summary Judg
the “third person” accounts, he stated:
25
“Plaintiff renews its cross motion for summary
judgment under the Principles of collateral
estoppel. There is no cause of action in the
complaint seeking recovery under principles of
collateral estoppel and summary judgment is not
available on an unpleaded claim.” Progressive
Co. v. Mt. Vernon Clock C orp., 5 A.D. 2d 166;
Harry Ohringer Inc. v. Kass, 28 A.D. 2d 1117.
“Furthermore, plaintiff had made a motion for
summary judgment on its complaint. It cannot
make successive motions for summary judgment
thereon.” Jerome v. Lewis, 32 A.D.2d 648; Levitz
v. Robbins Music Corp., 17 A.D.2d 801.
Plaintiff-respondent Commercial’s motions for summary
judgment on the single Anthony and 34 “third person” accounts
receivable were based on the decision of Judge Green in the
Philadelphia Action (400 F. Supp. 141). Despite the facts of (a)
Judge Rosenberg not signing his decision into an order, and (b)
the clear, unambiguous, language of Judge Grossman in denying
the summary judgment motions. in a desperate effort to keep
this action from trial on merits and law and have the trial court's
decision affirmed, Commercial’s attorney stated in his
respondent's brief to the Appellate Division:
“Moreover, Judge Green's finding was adhered to
without exception by Mr. Justice Rosenberg, Mr.
Justice Grossman and Mdme. Justice Shainswit
below.”
Trial Court's “Findings of Fact and Conclusions of Law”
(Appendix, infra, 2a).
At trial, the court gagged the petitioner's into limiting
testimony to a single performance (costs to import goods) and
26
barred the petitioners from placing into evidence any /aw and
any exhibits to prove a total secured interest in the proceeds at
issue:
“Proceeding then with the determination of the
sole iss..c (emphasis added) left to be tried, |
urged Mr. Connelly to present his former
company’s costs in filling the Anthony account.”
(Appendix, infra, Sa).
The Findings are replete with (a) statements that are
completely false, (b) statements that are completely opposite
from the truth, and (c) statements of “facts” that simply never
happened. The trial court did not credit the sources for the
“Findings”, but if the statements had been made from the
witness stand, each of them could have been challenged by the
defendants, and the truth brought to surface.
Trial Court’s Decision
The trial court’s Findings (Appendix, infra, 2a) starts:
“This decision finally puts at rest — hopefully
an inordinately complex, 10-year old, series of
lawsuits.”
The court did have an opportunity to put the “10-year old
series of lawsuits” at rest, but failed, tragically. If the court had
opened the trial with:
“Gentlemen, you have been waiting ten years to
get this case to trial, have at it,”
the case could have been over in ten minutes, a minute per year,
or less.
27
“MR. CONNELLY: Your Honor, all | am
saying is that my testimony in this case, if we are
allowed to proceed, will be no longer than five
minutes. I think I could talk for fifteen minutes
and waste your time, whereas five minutes on the
stand could end this whole case.” (136).
The petitioners ask
ed to be heard on the co
m © J >» >
wre: plaint, and were
“MR. CONNELLY: It is because I was
granted a motion for preference for my case to be
heard because there has been no order signed in
this lawsuit. They brought a complaint against
me. Why should they not have to take that
complaint and be heard on it?” (132).
MR. CONNELLY: | read from _ their
complaint, paragraph 15 (Appendia, infra, 18a)
(added) ‘Because of the dispute that presently
exists as aforesaid between plaintiff and
defendant American with respect to the
ownership of said accounts receivable and the
right to receive payment thereof, a judicial
determination of such dispute is desirable and
necessary.’ That is all | am asking for, what their
complaint says.” (134).
The petitioners asked to be heard on the law, and were refused:
“MR. CONNELLY: Yes, Your Honor.
During the year 1977 I sent several letters to
Judge Dudley (Administrative Judge) (added). |
reminded Judge’ Dudley that this case was on the
books for nine years. | suggested to Judge
Dudley that | could get this case off the books
within half an hour to half a day if I could go to
trial. | said the same
28
THE COURT: You have had your trial,
Mr. Connelly.
MR. CONNELLY: | asked for a five minute
trial before Judge Rubin (Assignments Part)
(added).
THE COURT: Mr. Connelly, you have had
three days now. Anything else you want to say?
MR. CONNELLY: | would like to read the
law in (to the record) on which I based my case.
THE COURT: No, sir. All right,
gentlemen.” (T1197).
At the outset, the court obtained confirmation that Judge
Rosenberg’s memorandum decision (Appendix, infra, 7a) had
not been signed into an order:
“THE COURT: Please proceed, counsel.
One thing I want to say, there was no order
entered on Judge Rosenberg’s opinion, am |
correct?
MR. LEMBERGER (plaintiff
attorney): Correct.
THE COURT: There is no decision
therefor. You will have to present to me your
claim and the reasons why you believe the
Philadelphia decision is res judicata. Then we will
have this Defendant present to me, if | choose to
follow the Philadelphia decision. Mr. Connelly
will then present to me his figures on his costs,
and | will do the allocating, if I decide to do it
and follow the Philadelphia decision.
29
MR. LEMBERGER: Your Honor, may |
say | am a little unprepared for this disposition.”
(T37).
The court then bowed to the respondent's refusal to put a
single witness on the stand, refusal to put a single document in
evidence. The petitioners were restricted to three days of
tediously putting cost figures to import shoes on the record. The
petitioners were awarded those costs, the respondent awarded
the profits despite the facts (a) they had not put up a penny to
earn them and (b) had no legal right to them.
Although not to the extent originally intended, the
respondent's attempted conversion coup of 1968 had succeeded —
because the court refused to hear the facts, and refused to hear
any part of the Uniform Commercial Code which provided
specific protection against the very type of commercial thievery
perpetrated by the respondent.
The “Affirmation” of the Appellate Division
The court’s failure to render an opinion raises the
perplexing question: What did they affirm? By its final judgment
the trial court granted respondent Commercial summary
judgment.
Did they affirm that the trial court was correct in
disregarding the prior opinion of Judge Rosenberg that “there is
no cause of action in the complaint seeking recovery under the
principles of collateral estoppel and summary judgment is not
available on an unpleaded claim” (supra, p. 25), but that would
be contrary to Rosemont Enterprises, Inc. v. Irving, 49 A.D. 2d
445 and Public Service v. McGrath, 56 A.D. 2d 812 which held
that “with certain exceptions, not here relevant, a judge should
not generally pass upon or review a matter already passed upon
by another judge of equal authority or coordinate jurisdiction.”
30
Possibly an opinion would have cleared up a glaring
inconsistency. The court had for review, a copy of the trial
transcript, and the trial court’s “Requests for findings, etc.”
(Appendix, infra, 2a). Both will confirm that no respondent witness
testified, no proof or exhibit of any kind was evidenced by the
respondent (nor was a Respondent’s Appendix submitted in the
appeal) and the trial court stated, correctly, in the findings that
the sole issue “tried” was the defendant’s submission of cost
figures to import footwear (supra, p. 25).
But, how could the court reconcile the “findings” with the
final judgment which stated, in pertinent part:
“The issues in this action, which is an action for a
declaratory judgment seeking to declare the
respective rights of the parties with regard to the
receipt of payment of certain accounts receivable
having duly come on to be heard . . . on the 21st,
22nd and 23rd days of February, 1978, and the
issues having been duly tried on those
days ...and the proofs of both parties having
been adduced and their respective counsel having
been heard... ?”
Respondent's Motion For Discontinuance
The trial court was consistent only in its disregard for the
complaint in the action. Where the trial court disregarded the
opinion of Judge Grossman that summary judgment was
unavailable to the respondent in the complaint, the court also
granted the respondent a motion for discontinuance completely
outside the limits of the complaint.
On page 4, the Findings (Appendix, infra, Sa) state:
“On the subsequent trial before me, plaintiff
moved to withdraw all its claims — for an all-
31
encompassing declaratory judgment, injunction
and compensatory damages — except that
relating to a declaration of rights as to the
moneys in the escrow account. | granted that
motion.”
That is not what the court’s ord
Appendix to App. Div.) says: ppellant’s
“The plaintiff above named having moved for
an order discontinuing so much of this action: (1)
as seeks declaratory relief on the first cause of
action except as to the Ideal Shoe Company and
C.R. Anthony Shoe Company accounts; (2) as
seeks injunctive relief, etc. . .
ORDERED that so much of the above entitled
action (1) as seeks declaratory relief on the first
cause of action except as to the ideal Shve
Company and C.R. Anthony Shoe Company
accounts; (2) as seeks injunctive relief — etc.”
Whether the motion was for the “moneys in the escrow
account”, as the Findings say, or the “Ideal Shoe Company and
C.R. Anthony Shoe Company accounts” as the order of
discontinuance says, is immaterial. The court’s granting of the
motion had no substance in the complaint, itself. The complaint
(par. 15) asked for a “judicial determination” as to the
ownership of the accounts receivable — not Ideal, or Anthony
or any of the other 35 — just, ‘who owned the goods?’, period!
The court was bound by the complaint, and ignored it.
Paragraph 15 of the complaint was read to the court (supra ..
27) and ignored, leading to the granting of a motion te
discontinuance for which there was no justification.
32
The Uniform Commercial Code
At every stage of this lawsuit, from receipt of complaint to
trial, the petitioners had total protection under the Uniform
Commercial Code, stymied only by two major calamities, one at
each end; the failure of their original attorneys to understand the
Code, and the refusal of the trial court judge to permit the citing
of the Code (“I would like to read the law on which I based my
case” — “No, sir.” (T37).
In December 1967, sales agent Walker assigned four
footwear manufacturers contracts to American. American
established documentary letters of credit in favor of the
manufacturers, and imported the goods which created the
accounts receivable at issue. The Uniform Commercial Code
says that American had total protection from the moment the
manufacturer’s contracts were assigned, until ten days after
American received or should have received payment from their
customers.
1. The assignment was protected.
“UCC 9-318
(1) ...the rights of an assignee (American) are
subject to:
(a) all the terms of the contract between
the account debtor (manufacturer) and
assignor (Walker).
(4) A term in any contract between an account
debtor and an assignor which prohibits
assignment of an account or contract rights to
which they are parties is ineffective.”
~-
33
2. The contract was protected prior to manufacture.
“UCC 9-106
‘Contract right’ means any right to payment under a
contract not yet earned by performance and not
evidenced by an instrument.”
The “instrument” is the single most important document in
a letter of credit transaction. It is the carrier to which all
documents required by a documentary letter of credit are
attached when negotiated against the letter of credit.
The demands of an “instrument” are covered in UCC 3-
104 (refer Appendix, infra, 23a).
3. The contract was protected after manufacture, prior to
shipment of goods.
“UCC 9-106
Account means any right to payment for
goods...which is not evidenced by an
instrument.”
4. The contract was protected during negotiation between
manufacturer’s bank and American’s bank.
“UCC 9-309
Protection of Purchasers of Instruments and
Documents.
Nothing in this Article limits the rights of a
holder ...to whom a negotiable document of
title has been duly negotiated ...and such
holders or purchasers take priority over an earlier
security interest even though perfected... .”
34
5. American was protected when the documents of title
(bills of lading) were surrendered to take possession of the
footwear.
“UCC 9-305
When Possession by Secured Party Perfects
Security Interest Without Filing.
A security interest in... goods...may be
perfected by the secured party’s taking possession
of the collateral.... A security interest is
perfected by possession from the time possession
is taken without relation back... .”
6. American was protected when the collateral was
delivered to their buyers and invoiced to collect their proceeds.
“UCC 9-306
‘Proceeds’; Secured Party’s Rights on Disposition
of Collateral.
(3) The security interest in proceeds is a
continuously perfected security interest if the
interest in the original collateral was perfected
but it ceases to be a perfected security interest
and becomes unperfected ten days after receipt of
the proceeds by the debtor... .”
Under the Code, a “debtor” is one who “owes payment”, or
one who “owes other performance of the obligation” or the
owner of the collateral with the obligation to complete a
contract to create the ultimate “debtor,” the one who “owes
payment.”
—
35
“UCC 9-105 (d)
‘Debtor’ means the person who owes payment or
other performance of the obligation secured. . . .
Where the debtor and the owner of the collateral
are not the same person, the term ‘debtor’ means
the owner of the collateral... .”
Lawsuits Which Resulted From This Infamous (1968) Action
Which came first, the chicken or the egg?
In 1968, respondent Commercial initiated this action, the
initial step in a plot to convert almost $500,000.
In 1968, petitioner American’s law firm had available the
Uniform Commercial Code to nip that plot in the bud, but did
not use it.
Regardless of which to condemn from this lawsuit, more
than sixteen additional lawsuits have resulted, to date, including
the following:
Supreme Court of New York State — New York County
American East India Corporation v. Commercial
Trading Co.
Ind. No. 21279/71 — $4,500,000 |
Basis: Fraud; inducing breach of contract; conversion.
Disposition: Complaint dismissed, statute of limitations
Connelly v. American East India Corporation
Ind. No. 3202/76 — $28,000
Basis: Breach of assignment agreement
Disposition: Ended in mid-trial stipulation
35
Connelly v. Weil, Gotshal & Manges (“Weil Gotshal”)
Ind. No. 7903/76 — $250,001
Basis: From May 1974, Weil Gotshal took on the
representation of Commercial in New York Action No.
1. While there would seem to be some justification for a
law firm to represent a known guilty defendant, there
would not seem to be any justification for a law firm to
represent a plaintiff engaged in a fraudulent action.
Before Weil Gotshal put a single paper into court for
Commercial, they had received a copy of the Perjury
Papers (supra, p. 23). Within two months, they had seen
the 56 exhibits to support the Perjury Papers and had
conducted a deposition of Connelly on the Perjury
Papers.
When, on January 31, 1976 only three weeks before trial,
Weil Gotshal moved for summary judgment in this
action (supra, p. 24), and exhibited the entire 53-page
memorandum decision of the Philadelphia Action (400
F. Supp. 141) knowing the decision was based on the
perjury of Grossman, Connelly initiated the action
against Weil Gotshal.
Noticed for: “Malpractice resulting in presentations
prejudicial to administration of justice.”
Disposition: Complaint dismissed for failure to state “a
viable cause of action.”
Grossman et al. v. Connelly et al.
Ind. No. 16587/74 — $20,000,000
Noticed for: “Publication by defendants of false
Statements understood by third parties to accuse
plaintiffs of the crime of perjury.”
Disposition: Plaintiff moved (granted) for Connelly to
be deposed to “aid” in preparation of complaint.
Connelly deposed January 29, 1975. No complaint
received to date.
37
Connelly v. William Lynn et al.
Ind. No. 13493/76 — $43,960.68
Noticed for: “Conversion, perjury and collaboration to
detriment of employer.”
Disposition: Mutually agreed settlement.
Connelly v. Commercial Trading Co.
Ind. No. 22472/76 — $163,304.80
Noticed for: “Release of funds” (Funds held by
Commercial to credit of Walker Trading) Mop ey
Disposition: Complaint dismissed, statute of limitations.
Connelly v. Commercial Trading Co.
Ind. No. 22473/76 — $127,695.33
Noticed for: “Release of funds” (Funds held by
Commercial to credit of Walker officers) eae
Disposition: Complaint dismissed, statute of limitations.
Connelly v. Chadbourne, Parke, Whiteside & Wolff
Ind. No. 15995/77 — $4,519,071.40
Basis: Malpractice and negligence in failures to
prosecute New York Actions Nos. | and 2
Disposition: Complaint dismissed, court ruling that
causes of action occurred prior to October 1974
assignment of actions to Connelly.
Connelly v. Leahey & Johnson
Ind. No. 572/78 — $4,515,000 .
Basis: Malpractice and negligence in failures to
prosecute New York Actions Nos. | and 2 .
Disposition: Complaint dismissed, improper service.
Connelly v. Commercial Trading Co.
Ind. No. 5417/78 — $16,750.56
Basis: Recovery of six accounts receivable discontinued
from New York Action No. | trial, Feb. 21, 1978
Disposition: Complaint dismissed — _ statute of
limitations and res judicata
38
Connelly vy. American East India Corp.
Ind. No. 6482/78 — $51.739.40
Noticed for: Release of funds held in trust.
Disposition: Awaiting trial
United States District Court For Eastern Pennsylvania
American East India Corp. y. Ideal Shoe Co.
(“Philadelphia Action”)
C/A 71-856 — $27,542.40
(For details, see supra, p. 21)
Connelly v. Ideal Shoe Co.
C/A 78-304 — $14,142.80
Basis: UCC 9-306 (3); recovery of proceeds lost in
Philadelphia Action.
Disposition: Motion to dismiss complaint on “bars of
res judicata and the statute of limitations” granted, no
Opinion.
Connelly v. Wolf, Block, Schorr & Solis-Cohen
C/A 78-2175 — $32,000
Basis: Malpractice and negligence in prosecution of
Philadelphia Action.
Disposition: Awaiting trial.
REASONS FOR GRANTING THE WRIT
Trial
By the opening sentence of its “Findings of fact...”
(Appendix, infra, 2a):
“This decision finally puts at rest — hopefully —
an inordinately complex, 10-year old, series of
lawsuits,”
39
the trial court certainly must have realized that much more than
this instant action was involved. Rather than hear the parties on
the complaint, and make a strong decision, the court grasped at
a straw of making an unsigned memorandum decision the “law
of the case.” Rather than hear facts and law, the court granted
summary judgment. Rather than accept the decision of an
associate judge, Justice Grossman, that “there is no cause of
action in the complaint seeking recovery under principles of
collateral estoppel and summary judgment” and the prior
decisions in Progressive v. Mt. Vernon Clock and Ohringer v.
Kass that summary judgment is not available on an unpleaded
claim, the court held to the unsigned memorandum decision.
Despite gagging the petitioners to limit testimony of
presenting cost figures to import footwear, and hearing no
respondent witness, the court prepared a six-page “Findings of fact
and conclusions of law,” but gave no source for the findings.
Certainly it is obvious from reading the findings that many of
them came from respondent’s papers filed over a ten-year
period. Certainly the falsity of the Findings could have been
exposed if uttered by a witness.
In 1972, respondent Commercial filed this action as an
equity case, and it was calendared as such, “E-13302.” In
Salzman vy. Sakofsky (89 N.Y.S. 2d 39), it was held that “In an
equity case, in order to effect a disposition on the merits,
findings of fact are essential in decision of court.” Rather than
hear facts to dispose of the case on the merits, the court shut off
all facts and law by granting summary judgment.
In Kohlmann v. City of New York (184 N.Y.S. 2d 357; 8
A.D. 2d 598), it was held that “Parties to a trial, civil or
criminal, have a right to have the case determined on the facts
and law applicable thereto.” While the respondent had no desire
to put a witness on the stand, certainly the petitioners should
have the opportunity to have this case determined on the facts
and law.
Uniform Commercial Code
In dollar volume, the documentary letter of credit is the
largest secured transaction in the world. Millions of dollars
worth are established daily. The yearly volume is in the trillions.
The uniform handling and operation of documentary letters of
credit is controlled by The International Chamber of Commerce
Brochure No. 222. Every documentary letter of credit carries the
statement:
“This credit is subject to the Uniform Customs
and Practice For Documentary Credits (1962
Revision) International Chamber of Commerce,
Brochure No. 222.”
Adherence of the United States banks to those regulations
became effective July 1, 1963. But those rules refer to operation
not protection.
When the framers of the Uniform Commercial Code
undertook their decade-long (1942-52) project, to compile
Article 9, Secured Transactions, they brought in committees of
“hard-headed businessmen and operating bankers.” (UCC 1972
Official Text, General Comment, page xvii). Through their
efforts, Article 9 gives to every party who purchases goods for
resale, financed by a letter of credit, complete protection from
“contract rights’ (UCC 9-106) in a contract prior to
manufacture on through 10 days after collection of “proceeds”
of the sale [UCC 9-306 (3)].
When Governor Rockefeller signed the Uniform
Commercial Code legislative bill into law in 1964, that complete
protection was extended to every user of a letter of credit in New
York State, including the petitioners herein.
When petitioner American established the letters of credit
to create the accounts receivable at issue in this action, they had
Rene A hid es es Ve ee nt wt
4]
every right to the protection of the law. When petitioner
Connelly took assignment of American’s interest in this action,
in October 1974, he did so in the confident belief that when this
case did get to trial, the courts would uphold the law. By the
trial court granting summary judgment to the plaintiff-
respondent, the protection of the law became a mockery. That
mockery could, and should, be obliterated and the protection of
the law returned to this defendant-petitioner and all future
parties who look to the Uniform Commercial Code for
protection.
CONCLUSION
For the foregoing reasons, this petition for a writ of
certiorari should be granted.
Respectfully submitted,
s/ Eugene W. Connelly
femme for Petitioners
A. ane SE He even te =
la
APPENDIX
OPINIONS IN THE LOWER COURTS
STATE OF NEW YORK COURT OF APPEALS
Motion for Leave to Appeal:
No. 116 — February Term, 1979
Decided — April 3, 1979 — Denied; no opinion.
Motion for Reargument:
No. 399 — April Term, 1979
Decided — May 3, 1979 — Denied; no opinion.
SUPREME COURT OF THE STATE OF NEW YORK
APPELLATE DIVISION — FIRST DEPARTMENT
Appeal of Trial Court Decision:
November Term, 1978
Decided — November 21, 1978 — Order 3928 —
Affirmed; no opinion.
Motion for Reargument:
December Term, 1978
Decided — January 11, 1979 — Order M-4323 —
Denied; no opinion.
2a
TRIAL COURT'S “FINDING OF FACT AND
CONCLUSIONS OF LAW”
SUPREME COURT OF NEW YORK
COUNTY OF NEW YORK
Trial Term Part XVIII
Dated and Filed: March 21, 1978
Index No. 10534/72
COMMERCIAL TRADING COMPANY, INC.,
Plaintiff,
-against-
AMERICAN EAST INDIA CORPORATION and EUGENE
W. CONNELLY,
Defendants.
SHAINSWIT, J.:
This decision finally puts at rest — hopefully — an
inordinately complex, 10-year old, series of lawsuits.
The instant complaint was served in April 1968. Plaintiff
Commercial Trading Co., a factoring corporation, had in
essence lent money to the Walker Trading Corp. from February
1964 to July 1967, in return for a security interest in “. . . all
present and future accounts and contract rights” of Walker. The
latter’s business was ordering goods from manufacturers in the
Orient to fill orders it had received from American companies;
plaintiff financed these purchases by taking out letters of credit
3a
Trial Court’s “Finding of Fact and Conclusions of Law”
on the particular transactions. The financing statement was filed
on the first permissible day after enactment of the Uniform
Commercial Code, and was appropriately renewed.
In connection with large orders to Walker from the Ideal
Shoe Co. and C. R. Anthony Co., plaintiff Commercial asked
Walker to provide additional margin (apparently because
plaintiff was becoming generally — and rightly — concerned
about Walker's shaky financial position). To provide this
margin, Walker arranged, between September and December
1967, to assign certain purchase orders — including the Ideal
and Anthony orders — to defendant American East India Corp.,
an export-import company. American was not informed of the
arrangement between Walker and plaintiff. American took over
these transactions, arranging for the financing, manufacturing,
and importing. Then, in February, 1968, Commercial found out
about this, and promptly notified Ideal and Anthony, inter alia,
about its claim of priority. Ideal then paid Commercial, and
Anthony’s payment was placed in an escrow fund (the escrow
agents are Chadbourne, Parke, Whiteside, and Wolff, and
Wachtell, Lipton, Rosen and Katz).
Defendant American sued Ideal in the federal district court
for the Eastern District of Pennsylvania, and plaintiff took over
defense of that suit, under an indemnity arrangement with Ideal.
Somewhat earlier, plaintiff Commercial had brought the instant
suit against American in this Court, seeking (a) a declaratory
judgment establishing its superior interest in the escrow and
other accounts, (b) an injunction prohibiting defendant from
attempting to collect on the various purchase orders, and (c)
compensatory damages for tortious interference with its contract
rights. Finally, American filed its own suit against Commercial
in New York for conversion.
4a
Trial Court’s “Finding of Fact and Conclusions of Law”
The federal action came to trial first, and was decided in
July 1975 (American East India Corp. v. Ideal Shoe Co., 400 F.
Supp. 141). District Judge Green there held that Commercial,
the factoring company (plaintiff here, defendant in the federal
case) had a claim against American, the export-import company
(defendant here, plaintiff in the federal suit) for conversion of its
contract rights, because its legal interest had priority; and that
the measure of damages was the value of the contract before the
expenditure by American. The latter was found by the federal
court to have acted in good faith; as an innocent converter, it
was entitled to recover its expenditures. Commercial thereupon
paid American its expenses on the Ideal account, the appeal was
withdrawn and the matter is now concluded.
On the basis of the federal decision, Commercial moved in
this Court for summary judgment, which was granted on April
1, 1976. Mr. Justice Rosenberg held that the federal ruling
constituted collateral estoppel, and that its findings of fact and
conclusions of law were therefore binding on the Anthony
purchase orders also, both as to liability and as to the measure
of damages. He referred the determination of damages in July
1976 to Special Referee Byer. After hearings, the Referee issued
an order on March 29, 1977, stating that the matter had been
settled before him by division of the $66,363.11 escrow money —
$55,000 was to go to American —. and the exchange of general
releases.
Sometime earlier, American had assigned its claim to its
former president, Eugene Connelly, who had, on motion, been
added as a party defendant to this litigation. Mr. Connelly,
although a party to all the hearings and negotiations, refused to
carry out the settlement by signing releases. Plaintiff chose not
to pursue the settlement, and the case came back on the Court’s
calendar. Mr. Connelly made numerous motions, all
unsuccessful; inter alia, he moved to amend the answer in this
case by adding counterclaims and affirmative defenses; that
motion was denied by Mr. Justice Rubin in January, 1978.
Sa
Trial Court's “Finding of Fact and Conclusions of Law”
On the subsequent trial before me, plaintiff moved to
withdraw all its claims — for an all-encompassing declaratory
judgment, injunction, and compensatory damages — except that
relating to a declaration of rights as to the moneys in the escrow
account. I granted that motion. Proceeding then with the
determination of the sole issue left to be tried, 1 urged Mr.
Connelly to present his former company’s costs in filling the
Anthony account. Mr. Connelly — who appeared pro se — then
testified himself, presenting some supporting documentation.
His testimony was supplemented, on the Court’s request, by that
of Henry Baccash, now president of the import company, and
comptroller at the time of all the events in question, who
appeared as a Court witness.
The actual proof of costs presented by Mr. Connelly was
initially conclusory. However, once it was supplemented by Mr.
Baccash’s testimony, it sufficed to establish total costs of
$51,239.15. These costs consisted of the cost of the goods
(shoes), financing charges, duty charges, ocean shipping and
forwarding charges, and insurance. Mr. Baccash explained how
he had allocated costs to the Anthony orders, and also identified
his handwritten notations on the documentary proof, both
establishing the allocations and stating the particular costs — all
of it, he testified, placed there at the time of the transactions in
1968. He also identified various billings and statements as
attributable to the Anthony orders, based on his own memory
and knowledge. He was an intelligent and careful witness, and |
fully credited his testimony; it more than substantiated Mr.
Connelly’s generalized testimony.
The evidence presented by Mr. Connelly involved 6 of the 7
Anthony purchase orders. It developed that $10,710.00 in the
escrow fund represents the seventh order; Mr. Connelly
conceded that his company had refused to purchase that order,
but sought to claim $2,012.64 from the escrow fund in that
6a
Trial Court's “Finding of Fact and Conclusions of Law”
connection nevertheless, on the ground that American had lent
that sum to Walker, for shipping charges on the seventh order,
after Commercial had declined to finance it and Walker had
done its own financing. That claim is obviously outside the
parameters of Mr. Justice Rosenberg’s order, and in any event
was wholly unsupported by documentary proof; it is therefore
rejected.
The Court notes that Mr. Connelly is an unfortunate figure.
The problems of this litigation have obviously caused him greai
emotional disturbance. Indeed, he stated to the Court that he is
now retired and that this case has become the main interest in
his life. Since defendant company, under his leadership,
innocently lost large sums of money, -ompounded by a decade
of litigation, his bitterness and confusion are understandable.
The Court has therefore made some allowance for the
limitations of his pro se handling of this matter.
Careful analysis of all of the testimony and documentation
lead the Court to the conclusion that there is sufficient basis for
the claimed cost of $51, 239.15. The balance of the $66,363.11 in
escrow may be delivered to plaintiff Commercial.
This decision constitutes the Court's findings of fact and
conclusions of law.
Settle a judgment promptly, declaring the rights of the
parties in connection with the foregoing.
Dated: March 21, 1978
JS.C.
iA ta me
Ta
THE “NON-ORDER” MEMORANDUM DECISION OF
JUDGE ROSENBERG
SUPREME COURT : NEW YORK COUNTY
INDIVIDUAL CALENDAR : PART 6
COMMERCIAL TRADING COMPANY, INC.,
Plaintiff,
-against-
AMERICAN EAST INDIA CORPORATION,
Defendant.
INDEX NO.
10534/72
ROSENBERG, J.:
Motion for summary judgment by the plaintiff is granted.
The decision rendered in an action brought in the U.S.
District Court for the Eastern District of Pennsylvania, Civil
Action No. 71-856, American East India Corporation v. Ideal
Shoe Company constitutes a collateral estoppel here (References
to that decision shall hereinafter read A-l, p. )
Both the plaintiff and the defendant here claimed the right
to be paid by the defendant Ideai in the Pennsylvania action. In
fact, Ideal made payment to the plaintiff Commercial in return
for Commercial’s agreement to indemnify and defend Ideal (A-I,
p. 17, 20). Ideal, defended by Commercial, asserted, and the
Court there accepted, that Commercial may raise the same issues
as defenses as might be asserted in a suit between American and
Commercial (A-I, p. 20-21).
8a
The “Non-Order” Memorandum Decision of Judge Rosenberg
The Court in that decision made extensive reference to the
facts and made both findings of fact and conclusions of law. A
copy of the decision is incorporated herein. Because of the
agreement between Commercial and Ideal, the defense
conducted by Commercial and importantly the admission by
that Court, without objection from American, of the
interposition on behalf of Ideal of all defenses available to
Commercial, a collateral estoppel was effected and the
determination there made is here binding on both parties. The
rules governing the application of the doctrine have been
simplified and plainly enunciated:
“New York law has now reached the point
where there are but two necessary requirements
for the invocation of the doctrine of collateral
estoppel. There must be an identity of issue
which has necessarily been decided in the prior
action and is decisive of the present action and,
second, there must have been full and fair
Opportunity to contest the decision now said to
be controliing.’’ (Schwartz v. Public
Administrator, 24 N Y 2d 65, 71)
In the Pennsylvania action the Court rules that American
was entitled to payment in the amount invoiced Ideal (“the
contract price”, A-I, p. 51) less American’s cost which consisted
of purchase price, bank charges, duty ocean shipping and
forwarding and insurance (A-I, p. 17).
The Court is aware that the Pennsylvania action involved
the “contract right” on the Ideal order alone. An examination
and analysis of the decision demonstrates that the findings of
fact are also binding as to the Anthony purchase order. The
dealings between American and its assignor included both
purchase orders at the same time. The findings of fact and
~ ve ell
9a
The “Non-Order” Memorandum Decision of Judge Rosenberg
conclusions of law determined in the Pennsylvania decision
therefore necessarily determine the facts and law as to both
purchase orders since it was the dealing between American and
its assignor which were determinative of the rights of the parties.
Since this action involves both the Ideal and Anthony
purchase orders the judgment to be entered herein shall combine
the proceeds and costs of the two orders in determining the
amount of the judgment. The Pennsylvania decision has already
determined a net amount including interest on the Ideal order.
The net amount should be determinable on affidavits on the
Anthony order since the components are all subject to proof by
documentary evidence. Since the Anthony payment has been
held in Escrow in an interest bearing account by agreement
between Commercial and American, no interest shall be
awarded but the interest earned in that account shall be divided
pro rata between Commercial and Anthony to the division of
the Anthony payment.
The Pennsylvania decision serves not only as a collateral
estoppel on the issue of liability here, the decision also serves to
establish the method by which damages are to be here
determined. Utilizing that rationale, the parties are directed to
submit additional affidavits within 20 days after publication of
this decision in the New York Law Journal, supported by
documentary evidence to permit the fixing of the amount to be
awarded. Entry of an order is reserved pending submission of
those materials.
Dated: April 1, 1976.
s/ S.R.
J.S.C.
10a
ORDER OF JUDGE GROSSMAN DENYING SUMMARY
JUDGMENT TO RESPONDENT
SUPREME COURT : NEW YORK COUNTY
INDIVIDUAL CALENDAR : PART 6
COMMERCIAL TRADING COMPANY, INC.,
® Se
Plaintiff,
-against-
AMERICAN EAST INDIA CORPORATION and EUGENE
CONNELLY,
Defendants.
Index No.
10534/72
GROSSMAN, J:
The October 28, 1977 motion by Mr. Connelly is a
“renewal” of a motion for summary judgment denied because of
the absence of pleadings, and based on an unpleaded claim. The
cross motion by plaintiff also was previously denied for failure
to show an affirmative pleaded claim.
Mr. Connelly does not understand what is meant by an
affirmative pleading. It is his own complaint or his own
counterclaim for affirmative relief. He has no affirmative
complaint or counterclaim.
Plaintiff renews its cross motion for summary judgment
under the principles of collateral estoppel. There is no cause of
action in the complaint seeking recovery under principles of
Rind Fete ate ee oe
Order of Judge Grossman Denying Summary Judgment to
Respondent
collateral estoppel and summary judgment is not available on an
unpleaded claim (Progressive Co. v. Mt. Vernon Clock Corp., 5
A D 2d 166; Harry Ohringer Inc. v. Kass, 28 A D 2d 117).
Furthermore, plaintiff has made a motion for summary
judgment on its complaint. It cannot make successive motions
for summary judgment thereon (Jerome v. Lewis, 32 A D 2d
648; Levitz v. Robbins Music Corp., 17 A D 2d 801).
Both motions are denied.
Dated: December 13, 1977
LOUIS GROSSMAN
Acting Justice of the Supreme
Court of the State of New York
J.S.C.
12a
ORDER OF JUDGE GROSSMAN GRANTING MOTION
FOR PREFERENCE TO PETITIONERS
NEW YORK SUPREME COURT
COUNTY OF NEW YORK
INDIVIDUAL CALENDAR PART 6
COMMERCIAL TRADING CO., INC.,
Plaintiff,
-against-
AMERICAN EAST INDIA CORPORATION and EUGENE
W. CONNELLY,
Defendants.
Present:
Hon. LOUIS GROSSMAN
Justice
Papers numbered
Notice of Motion and Affidavits Annexed 14
Answering Affidavits 5
Replying Affidavits 6-7
Upon the foregoing papers this Motion for a preference is
granted to the extent of directing the calendar clerk to place this
case on the appropriate trial calendar for early trial subject to
the approval of the Justice presiding thereat. A copy of this
order with notice of entry shall be served on the calendar clerk
within ten days of publication hereof.
tl re calla
ee eee
l3a
Order of Judge Grossman Granting Motion for Preference to °
Petitioners .
Dated: 12-13-77
LG
J.S.C.
County Clerk’s No. 10534-1972
l4a
COMPLAINT
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
COMMERCIAL TRADING COMPANY, INC.,
Plaintiff,
-against-
AMERICAN EAST INDIA CORPORATION,
Defendant.
Plaintiff, by its attorneys, WACHTELL, LIPTON,
ROSEN, KATZ & KERN, complaining of the defendant,
alleges:
FOR A FIRST CAUSE OF ACTION:
|. Plaintiff is a corporation, duly incorporated under the
laws of the State of New York, with its principal office for the
transaction of business at 1440 Broadway, New York, New
York.
2. Upon information and belief, defendant American East
India Corporation (hereinafter “American”) is a New York
corporation with its principal office tor the transaction of
business at 25 Broadway, New York, New York:
3. Walker Trading Corporation (hereinafter “Walker”) is a
New York corporation with its principal office for the
transaction of business at 47 West 34th Street, New York, New
York.
< on 6 ea ne teal te Beets ate
1Sa
Complaint
4. At all times hereinafter mentioned plaintiff was and still
is the owner of a valid and perfected prior security interest in the
accounts receivable, contract rights, and inventory of Walker
and all documents of title and the goods evidenced thereby
belonging to Walker together with the proceeds of such accounts
receivable, contract rights, inventory, documents of title and
goods.
5. Said security interest was created by virtue of the
following instruments:
(a) Accounts Receivable Agreement dated February 19,
1964 between Walker and Plaintiff. (A copy of said Accounts
Receivable Agreement is annexed hereto as Exhibit “A” and
made a part of this complaint);
(b) Security Agreement (Inventory) dated December 30,
1966 between Walker and Plaintiff. (A copy of said Security
Agreement (Inventory) is annexed hereto as Exhibit “B” and
made a part of this complaint);
(c) Financing Statements covering the property described in
the Accounts Receivable Agreement set forth in paragraph 5(a)
hereof, which were duly filed in the office of the Secretary of the
State of New York on September 28, 1964 and in the office of
the City Register of the City of New York, New York County on
September 16, 1964. (Copies of said Financing Statements
bearing acknowledgements of filing are annexed hereto as
Exhibit “C” and made a part of this complaint); and
(d) Financing Statements covering the property described
in the Security Agreement (Inventory) set forth in paragraph
5(b) hereof, which were duly filed in the office of the Secretary
of the State of the State of New York and in the office of the
City Register of the City of New York, New York County, on
l6a
Complaint
January 20, 1967. (Copies of said Financing Statements bearing
acknowledgments of filing are annexed hereto as Exhibit “D”
and made a part of this complaint).
6. By virtue of the advance of monies by plaintiff to Walker
and pursuant to the terms of the Accounts Receivable
Agreement and Security Agreement (Inventory) (hereinafter
collectively referred to as the “Security Agreements”) Walker is
presently indebted to plaintiff in the amount of approximately
$310,000, which suri is payable upon plaintiffs demand.
7. Upon information and belief in or around December
1967, defendant American, at the request of Walker, opened up
letters of credit on behalf of Walker for the purchase by Walker
from foreign manufacturers of certain goods to be sold by
Walker to Walker's customers under an arrangement whereby
defendant American was to receive a fee or finance charge for its
furnishing of the said letters of credit.
8. Upon information and belief subsequent thereto and
during the period between and including November 1967 and
March 1968 Walker sold to certain of its customers footwear,
shoes and other goods (hereinafter collectively referred to as “the
Goods”) for an aggregate price which is not presently capable of
being precisely ascertained by plaintiff but believed to be
approximately $200,000, all of which amounts are now due and
owing by said customers (said customers are referred to
hereinafter as “the account debtors”).
9. By virtue of plaintiffs advances of money, the Security
Agreements and the filed Financing Statements as aforesaid,
plaintiff acquired a prior security interest in the Goods,
documents of title representing the Goods, and all account
receivable arising out of the sale of the Goods and was and Is
entitled to collect the said accounts receivable from the account
debtors thereon.
ee
17a
Complaint
10. A dispute has arisen between plaintiff and defendant
American with respect to the ownership of the said accounts
receivable arising out of the sale of the Goods by Walker to the
account debtors.
11. Defendant American has asserted and claimed that the
Goods were imported, paid for, and “were the possession of”
defendant American and that the accounts receivable arising
from the sales thereof belong to defendant American. Defendant
American has further asserted and claimed that Walker was
never the owner of the Goods but was merely acting as
defendant American's agent in the sales of the Goods and that
plaintiff is entitled to receive only the amount of Walker's
alleged “commissions” on such sales of approximately 15% of
the face amount of said accounts.
12. Plaintiff asserts, claims and hereby alleges that
defendant American was neither the owner of the Goods nor the
seller of the Goods; that the orders for the Goods were sent by
the account debtors to Walker; that the sales contracts for the
purchase of the Goods from the foreign manufacturers were in
Walker’s name; that defendant American merely provided
Walker with letters of credit to enable Walker to pay for the
Goods; that each of the invoices for the sale of the Goods to the
account debtors was on Walker’s stationery, and was in Walker's
name; that no security agreement of any kind existed between
defendant American and Walker; and that defendant American
has no security interest whatsoever in the Goods, the proceeds
thereof, or the accounts receivable arising out of the sale thereof.
13. Upon information and belief defendant American has
notified the account debtors that they should pay the said
accounts to it. Upon learning of such notification by defendant
American plaintiff notified said account debtors to make such
payment to plaintiff. Said account debtors have refused to make
payment of the said accounts until the dispute between plaintiff
18a
Complaint
and defendant American has been resolved for fear of incurring
double liability on said accounts in the event such payment were
to be made to the party not entitled thereto.
14. Upon information and belief, all of said account
debtors are foreign corporations not qualified or doing business
in the State of New york and are not amenable to service of
process of this Court.
15. Because of the dispute that presently exists as aforesaid
between plaintiff and defendant American with Fespect to the
ownership of said accounts receivable and the right to receive
payment thereof, a judicial determination of such dispute is
desirable and necessary so that the right of plaintiff to the
payment thereof be settled and so that the account debtors liable
thereon may be free to pay same to the party entitled thereto
without fear of incurring double liability for such payments.
16. Plaintiff has no adequate remedy at law.
FOR A SECOND CAUSE OF ACTION
17. Plaintiff repeats and realleges each and every allegation
contained in paragraphs “I” througk “16” inclusive of this
complaint.
18. Defendant American, by virtue of its notification and
demand that the said account debtors of Walker pay the
accounts to it rather than plaintiff, has interfered with and
unless enjoined from doing so, will continue to interfere with
plaintiff's security interest in the accounts receivable of Walker
thereby causing plaintiff irreparable injury.
19. Plaintiff has no adequate remedy at law.
FOR A THIRD CAUSE OF ACTION
oe hs as Mirth A Ob Ns tn ts
ih nbesincabibibeitasiicr de. emnlcantdll ns
19a
Complaint
20. Plaintiff repeats and realleges each and every allegation
contained in paragraphs “I” through “19” inclusive of this
_ complaint.
21. The Security Agreements between plaintiff and Walker
provide that during their terms, Walker may not sell, pledge,
assign, transfer or otherwise encumber or dispose of any of
Walker’s accounts other than to plaintiff and Walker may not
borrow any money on such accounts from any party other than
plaintiff.
22. Upon information and belief, at all relevant times
herein defendant American had due notice of the Security
Agreements between plaintiff and Walker.
23. Upon information and belief, notwithstanding the fact
that defendant American had due notice and knowledge of the
Security Agreements between plaintiff and Walker, defendant
American wrongfully, knowingly, intentionally, maliciously, and
without reasonable justification or excuse induced, persuaded
and enticed Walker to violate, repudiate and breach the Security
Agreements between Walker and plaintiff and to refuse to
proceed further thereunder, in that, among other things Walker
borrowed money from defendant American to finance its
purchase of the Goods on the security of its accounts receivable
and intends to borrow money in the future from defendant
American and others on the security of its accounts receivable,
has refused to borrow money from plaintiff on such security and
has stated that it will not in the future borrow money from
plaintiff on such security.
24. By reason of the fact that Walker was induced to
violate, repudiate and breach the Security Agreements as
aforesaid, plaintiff was deprived of the interest, charges and fees
it would have received had Walker borrowed the money from
20a
Complaint
plaintiff to finance its purchase of the Goods and plaintiff was
and will in the future be iurther deprived of the interest, charges
and fees which it could have expected to receive in connection
with money-which it would have lent to Walker had Walker not
violated, repudiated and breach the Security Agreements as
aforesaid.
25. By virtue of the foregoing, plaintiff has been damaged
in an amount not presently capable of heing accurately
ascertained but believed to be in excess of $40,000.
WHEREFORE, plaintiff demands judgment against
defendant American:
1. Granting a declaratory judgment in favor of plaintiff,
adjudging and declaring:
(a) That plaintiff has a security interest in the accounts,
receivable of Walker arising out of the sale of the Goods; |
(b) That plaintiffs said security interest therein is prior and
superior to whatever interest defendant American may have
therein; and
(c) That as between plaintiff and defendant American,
plaintiff is entitled to have the amounts owing on the said
accounts paid to plaintiff.
2. Enjoining defendant American, its officers, agents,
servants, employees, attorneys and all persons in active concert
or participation with defendant American to whom notice of
such injunction shall come, during the pendency of this action
and permanently thereafter, from taking any steps to cause the
account debtors to pay the accounts to defendant American
rather than plaintiff, or to take any other action which would
interfere with plaintiffs security interest in the accounts
receivable of Walker:
ec ac lil
« Te ee Cet i he BF DANE. «gl hi
tn ae
Leet wn sient NR nt
2ia
Complaint
3. In an amount not less than $40,000, together with
appropriate interest thereon.
4. For the costs and disbursements of this action.
5. For such other, different and further relief as the Court
may deem just and proper.
WACHTELL, LIPTON,
ROSEN, KATZ & KERN
Attorneys for Plaintiff
Office and P.O. Address
230 Park Avenue
New York, New York 10017
Tel. No. 889-4300
(Verified by Gerald J. Grossman, as Vice-President, April 4,
1968)
22a 23a
STATUTES INVOLVED states Involved
holders take priority over an earlier security
UNIFORM COMMERCIAL CODE interest even though perfected. Filing under this
Article does not constitute notice of the security
Applicable Sections (In Pertinent Part) interest to such holders... . ”
Letter of Credit Protection The “Instrument”
“UCC 9-106 (The single most important document in UCC Article 9, Secured
Transactions. The only document which requires possession to
‘Contract right’ means any right to payment perfect a secured interest, UCC 9-304, supra.)
under a contract not yet earned by performance
and not evidenced by an 'nstrument... .” “UCC 3-104
“UCC 9-106 Form of Negotiable Instruments; ‘Draft’; ‘Check’;
‘Certificate of Deposit’; ‘Note’.
‘Account’ means any right to payment for
goods...which is not evidenced by an (1) Any writing to be a _ negotiable
instrument... .” instrument within this Article must
“UCC 9-304 (a) be signed by the maker or drawer;
and [emphasis added]
Perfection of Security Interest in In. uments,
Documents and Goods Covered by Documents (b) contain an unconditional promise or
order to pay a sum certain in money and
fi} 1... A: security taterest in no other promise, order, obligation or
instruments ... can be perfected only by the power given by the maker or drawer
secured party's taking possession. ...™ except as authorized by this Article, and
“UCC 9-309 (c) be payable on demand or at a definite
time; and
Protection of Purchasers of Instruments and
Documents (d) be payable to order or to bearer.
Nothing in this Article limits the rights of a (2) A writing which complies with the
holder... to whom a negotiable document of requirements of this section is
title has been duly negotiated ...and = such
Other
24a
Statutes Involved
(a) a ‘draft’ (bill of exchange’) if it is an
ee
“UCC 1-201
(37) ‘Security interest’. . .
The term also includes any interest of a buyer of
accounts... .”
“UCC 2-201
Formal Requirements
(1) ...a contract for the sale of goods for the
price of $500 or more is not enforceable by way
of action or defense unless there is some writing
sufficient to indicate that a contract for sale has
been made between the parties and signed... . ~
“UCC 9-105
(a) ‘Account debtor’ means the person who ts
obligated on an account....
(c) ‘Collateral’ means the property subject to a
security interest and includes accounts, contract
rights ... which have been sold.
(d) ‘Debtor’ means the person who owes
payment or other performance of the obligation
secured ...and includes the _ seller of
accounts. .. . Where the debtor and the owner of
the collateral are not the same person, the term
‘debtor’ means the owner of the collateral. . . .
== sui m
25a
Statutes Involved
“UCC 9-204
When Security Interest Attaches:
(1) A security interest cannot attach until there is
agreement that it attach and value is given and
the debtor has rights in the collateral. It attaches
as soon as all of the events in the preceding
sentence have taken place... .
(2) For the purposes of this section the debtor
has no rights
(c) in a contract right until the contract
has been made.
(d) in an account until it comes into
existence.”
“UCC 9-302
When Filing is Required to Perfect Security
Interest;
(1) A financing statement must be filed to perfect
all security interests except the following
(a) a security interest in collateral in
Possession of the secured party under
Section 9-305.”
“UCC 9-305
When Possession by Secured Party Perfects
Security Interest Without Filing.
26a
Statutes Involved
A security interest in letters of credit . . . goods,
instruments, negotiable documents... may be
perfected by the secured party's taking possession
of the collateral... .”
“UCC 9-306
‘Proceeds’; Secured Party’s Rights on Disposition
of Collateral.
(3) The security interest in proceeds is a
continuously perfected security interest if the
interest in the original collateral was perfected
but it ceases to be a perfected security interest
and becomes unperfected ten days after receipt of
the proceeds... .
“UCC 9-318
Defenses Against Assignee;
(1)... the rights of an assignee are subject to
(a) all the terms of the contract between
the account debtor and assignor.”
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