In The Matter of MATTHEWS ASSOCIATES, INC., A Corporation of The State of New Jersey, Bankrupt. A. & J. Friedman Supply Co., Inc., Appellant
In The Matter of MATTHEWS ASSOCIATES, INC., A Corporation of The State of New Jersey, Bankrupt. A. & J. Friedman Supply Co., Inc., Appellant
2d 101
Thereafter, with the approval of the referee, the trustee accepted $1,654.57 in
settlement of a claim against the general contractor for money owed Matthews
under its subcontract. The appellant then amended its claim to assert, on its
own behalf and on behalf of any other materialmen similarly situated, that the
sum thus received by the trustee constituted a trust for their benefit by reason of
a New Jersey statute which reads:
The referee disallowed this claim of a dominant interest in a particular fund and
the district court sustained that position. This appeal followed.
The appellant contends that the quoted language of the New Jersey statute
imposed upon Matthews a legal duty to use any such collection as we have here
to pay appellant and any other creditors similarly situated and, therefore, that a
bankruptcy court, guided by principles of equity, should hold that the money
paid to Matthews' trustee in bankruptcy is a trust fund for such creditors.
We assume, but do not decide, that this contention would have merit if
Matthews had received this money before bankruptcy.2 But that is not the case
here. The debt owed Matthews by the general contractor was collected by the
trustee after bankruptcy.
any statutory duty depended. Thus, the appellant must contend that, although it
was only a general creditor when its debtor became bankrupt, action thereafter
by the trustee created a trust or an equitable lien for its benefit.
10
Such a change of a creditor's status and priority solely upon the basis of events
after bankruptcy would be contrary to the basic theory and scheme of the
Bankruptcy Act. In addition to the title to the bankrupt's assets conferred by
Section 70, sub. a, 11 U.S.C. 110(a), of the Bankruptcy Act, the trustee, by
Section 70, sub. c, 11 U.S.C. 110(c), is given the position of one who has
acquired a lien as of the time of bankruptcy. Thus, Matthews' trustee acquired a
lien upon whatever contractual claim Matthews had against the general
contractor. And the trustee acquired this preferred position at a time when such
a materialman as Friedman had nothing but a general creditor's claim against
Matthews. Moreover, Section 70 gives the trustee his special status in order that
he may achieve equality of distribution among all of those who, like Friedman,
are general creditors at the time of bankruptcy.3 It was in exercise of his power
to that equalitarian end that the trustee here collected the debt owed Matthews
by the general contractor. It would be a self-contradictory travesty of the legal
scheme of bankruptcy for such reduction of an unencumbered asset to
possession for the benefit of all creditors to have the effect of converting the
money thus received into a trust fund for a limited group of creditors.4
11
Such travesty could be avoided only by contending that before bankruptcy the
subcontractor's materialmen had some legally recognized interest in any
contractual obligation of the general contractor to the subcontractor. But no
such interest existed at common law and no statute has been enacted that
purports to have that effect. As already has been stated, the materialmen were
only general creditors of the subcontractor at the time of bankruptcy.
12
For these reasons, we conclude that the decisions of the court below and the
referee were correct.
13
The most authoritative New Jersey case interpreting this statute is Samuel D.
Wasserman, Inc. v. Klahre, 1952, 24 N.J.Super. 143, 147-148, 93 A.2d 628,
631, where the appellate division stated: 'It is entirely clear to us that the scope
of the statutory provision on which the plaintiffs build their case, is limited to
the creation of a criminal offense; and that no civil action can be based directly
on the statute.' But the court added: 'We are satisfied that had * * * (the
contractor) violated the statute, the plaintiffs would have had whatever civil
remedy might be appropriate to the circumstances under the general principles
of law of equity.' Id. at 148, 93 A.2d at 631. See also Plevy v. Schaedel, 1957,
44 N.J.Super. 450, 130 A.2d 910, and the unreported case of Minnesota Mining
& Mfg. Co. v. John E. Joyce, Inc., No. C-2709-61, Super.Ct., Ch.Div.
Monmouth County, January 25, 1963, where the trial courts held flatly that this
criminal statute gives rise to no civil remedy
3
See Sampsell v. Imperial Paper & Color Corp., 1941, 313 U.S. 215, 61 S.Ct.
904, 85 L.Ed. 1293; 3 Collier, Bankruptcy, 14th ed., P60.01