Johanna Farms, Inc. v. Elliott Equipment Co.

Smith, J., delivered the opinion of the Court. We shall here hold that a trial judge (Clark, J.) correctly concluded that by reason of the failure of a transferee and a transferor to do that which was required in the case of a bulk transfer under what was then Maryland Code (1957, 1964 Repl. Vol.) Art. 95B, §§ 6-104 — 6-107, inclusive, (now Code (1975) §§ 6-104 — 6-107 Commercial Law Article) a transfer was ineffective against a garageman who held a lien under then Code (1957) Art. 63, § 41 (now Code (1975) § 16-202 Commercial Law Article) for the repair of a vehicle. Appellant, Johanna Farms, Inc. (Johanna Farms), brought an action in replevin in the District Court of Maryland for Talbot County against appellee, Elliott ¹³⁹ Equipment Company, Inc. (Elliott), alleging that Elliott improperly detained a 1970 International tractor.

Johanna claimed to be vested with title to the tractor by reason of a purchase from King Juices, Inc. (King Juices). In what state King Juices was incorporated does not appear. It is apparent, however, that its principal place of business was at Greensboro in Caroline County. The vehicle in question had been repaired by Elliott for King Juices at sometime prior to April 25, 1974, having been damaged in an accident.

The cost of the repairs was approximately $4,000. Elliott released the tractor upon the promise that it would be paid as soon as the check for the repairs was received from the insurance company involved. Some time after April 25 Elliott received a form letter from Johanna Farms bearing that date on the stationery of King Juices. It said: “Gentlemen: “This is to advise you that as of April 26, 1974, Johanna Farms, Inc., has purchased the Maryland Plant, together with all equipment and rolling stock of King Juices, Inc., and Johanna Farms is taking over the operation of the plant and the service of the customers formally [sic] serviced by King Juices. “You are hereby advised, that Johanna Farms assumes no responsibility for accounts payable of King Juices, incurred prior to April 26,1974.

Billing for supplies on and after April 26, 1974, is to be made to King Juice Division of Johanna Farms and mailed to P. 0. Box 246, Greensboro, Maryland 21639. “If you have any questions regarding the above, please contact the undersigned at Johanna Farms, Inc., P. O. Box 272, Flemington, New Jersey 08822. Telephone: (201) 782-4515. “For credit references, please feel free to contact the Flemington National Bank and Trust Company, ¹⁴⁰ or the Town and Country Bank, both in Flemingtón, New Jersey. Very truly yours, PETER S. GOLDMAN” On May 4 Johanna Farms delivered the tractor in question to Elliott’s place of business in Easton for minor repairs, a change of oil, and a grease job.

The total bill was $75.06. The repairs were charged to “King Juice, Greensboro, Maryland.” Underneath appeared “Johanna Farms.” On May 21 it was returned to Elliott’s place of business for minor repairs. The bill in that instance was to “King Juice, Greensboro, Maryland,” in the amount of $70.39. Nothing appears on the invoice relative to Johanna Farms.

In each instance the vehicle was released without any mention being made of the sum of $4,000 still due for the previous repairs. Sometime after its date of May 22, but before May 28, Elliott received a second form letter relative to this transfer. It was on the stationery of Johanna Farms and also was signed by Mr. Goldman. It said: “Gentlemen: “Recently we advised you that as of April 26, 1974, we had acquired the Greensboro, Maryland Plant of King Juices, Inc., and certain equipment and assets located therein and that prior to that date, we have no responsibility for any obligations of King Juices, Inc. “We wish to further inform you that final arrangements between Johanna Farms, Inc. and King Juices, Inc. have not been concluded and that under our agreement with King Juices, Inc., any moneys not used to pay off creditors of King Juices, Inc. holding liens, will be paid in escrow to the attorney for King Juices, Inc., Alan Z. Lefkowitz (Kaplan, Finkel, Lefkowitz, Roth & Ostrow, Esqs., Suite 1612, Frick Building, Pittsburgh, Pennsylvania 15219) for payment of secured claims and distribution to creditors of King Juices, Inc., in strict ¹⁴¹ compliance with the Uniform Commercial Code, if applicable. “We suggest you contact the attorney for King Juices, Inc. JOHANNA FARMS, INC. /s/ Peter S. Goldman Peter S. Goldman” (Emphasis added.) On May 28 the tractor was returned yet again to the shop of Elliott for repair.

This work was completed on or about May 30 at a cost of $997. At this time Elliott declined to release the vehicle unless all bills for repairs to it were paid including the $4,000. This resulted in a telephone conversation between the general counsel for Johanna Farms and George Wilson, president of Elliott. The attorney said that the cash consideration for the bulk transfer had been paid to the attorney for King Juices in escrow for payment to the creditors of King Juices in accordance with their legal priorities and suggested that contact be made with the attorney for King Juices, Alan Z. Lefkowitz, Esq.

Other conversations took place, including conversation between counsel for Elliott and counsel for Johanna Farms. Johanna Farms sent an individual to Easton for the tractor. Elliott declined to release the tractor unless the sums due it were paid. Judge Clark said of this: “It is to be noted that [the employee of Johanna Farms] did not offer to pay [Elliott] the $997.00 for the release of the tractor, nor did he have the funds with which to pay this bill or New Jersey tags to put on the tractor in the event it had been released to him.” The tags on the vehicle had expired May 31.

It was actually titled in Pennsylvania in the name of Double X Products Company, which seems to have been a subsidiary or affiliate of King Juices. On or about June 13 Johanna drew a check to Elliott in the amount of $145.45 covering the May 4 and May 21 repair bills, which check was paid in due course. Elliott ¹⁴² received from Lefkowitz approximately one-third of the $4,000 owed for repairs to the tractor made before the bulk transfer. Elliott has never received the $997 for the repairs rendered May 28-30,1974.

It is not disputed: that the tractor in question was a part of a bulk transfer within the meaning of Code (1957, 1964 Repl. Vol.) Art. 95B, § 6-102; that Elliott was not advised of the transfer of title from King Juices to Johanna; and that in the transfer no affidavit was procured from agents of King Juices as to debts owed by that corporation nor was there an affidavit to the effect that there were no debts. The District Court action was docketed on November 4, 1974. Johanna claimed damages for the unlawful detention.

Judgment was rendered on June 16, 1975, against Elliott in favor of Johanna in the amount of $7,364.49 covering cost of rental of a replacement tractor. An appeal was filed to the Circuit Court for Talbot County. The amount in controversy having been in excess of $500, the “appeal [was] heard on the record made in the District Court.” Code (1974) § 12-401 (c) Courts and Judicial Proceedings Article. The circuit court judge pointed out that no effort was made to comply with the requirements for scheduling of property and listing of creditors as required by Art. 95B, § 6-104; that the two letters to which we have referred “do not contain in several material respects the information required by § 6-107 and such notice could not have been timely sent, as [Johanna] was in possession of subject tractor on 4 May 1974 when [Johanna] turned it over to [Elliott] for repairs, yet the first notice of the bulk transfer was dated 25 April 1974, a lapse of only nine days, assuming it was sent on that date and possession of subject tractor was not delivered to [Johanna] until 4 May 1974”; said that “[e]ven though it may be assumed that none of the purchase money fell into the hands of the transferor and all of it was devoted to the payment of the transferor’s debts, how can it be assumed that each and every creditor of the transferor was dealt with fairly and in accordance with law, when it is undisputed that the transferee ignored the ¹⁴³ requirements of § 6-104 and § 6-107, which are two of the most important provisions of Title 6?”; concluded that “[t]he failure of the parties to the bulk transfer to abide by the provisions of Title 6 was so flagrant as to persuade one that they had never read them”; “uph[e]ld Elliott’s refusal to release that tractor”; “noted that the [District Court] judgment does not state that [Johanna] is entitled to the return of subject vehicle and, lacking such a predicate, it is difficult to see how [Johanna] could be awarded damages for [Elliott’s] unlawful detention of subject vehicle”; that “the judgment is inconsistent with the Opinion of the District Court, holding that [Elliott] was entitled to recover from [Johanna] the sum of $1,032.65 for services properly performed by [Elliott] for [Johanna] at the latter’s request in that no deduction of this amount was made from the award of damages to [Johanna],” and proceeded to reverse the judgment in favor of Johanna and enter one for Elliott against Johanna in the amount of $1,032.65 and all costs.

We granted the writ of certiorari in this case in order that we might consider the question presented under the bulk transfer provisions (Subtitle 6) of the Uniform Commercial Code, Art. 95B at the time the cause of action arose and now the Commercial Law Article. Our predecessors rendered decisions relative to the failure of parties to comply with the prior Maryland sales in bulk act (Code (1957) Art. 83, §§ 97-101) but we have not been called upon to render any decision relative to failure to comply with the present bulk transfer statute. Johanna sees this case as having two questions, (1) whether it “substantially complied with the provisions of the Bulk Sales Act,” and (2) whether Elliott is “barred by the statute of limitations from challenging the legality of a bulk sales transfer.” i The Bulk Sales Transfer The garageman’s lien claimed by Elliott arises under what ¹⁴⁴ at the time of this transaction was Code (1957) Art. 63, § 41 providing in pertinent part: “Whenever a motor vehicle ... is left by the owner or by any other person with his authority, express or implied, in the custody of any corporation, ... for repair, . . . the corporation . . . in whose custody said motor vehicle ... is left for all or any of the purposes aforesaid, shall have a lien on said motor vehicle ... for all charges so incurred, and may lawfully retain the same until said charges have been paid, or until said lien is extinguished or discharged as hereinafter provided. Said lien shall be superior to the rights of the holders of conditional sale contracts, bills of sale, chattel mortgages or other liens or claims of any kind which are not theretofore executed and recorded or filed for record as required by law, but shall be subordinate thereto where the same have