SYLLABUS

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

MAPLEWOOD BANK AND TRUST V. SEARS, ROEBUCK AND CO., ET AL. (A-91-93)

     (Note: The Court wrote no full opinion in this case. Rather, the Court's affirmance of the judgment of the Appellate Division is based substantially on the reasons expressed by Judge Coleman's written opinion below.)

     Argued February 15, 1994 -- Decided March 15, 1994

     PER CURIAM

    Maplewood Bank and Trust is the holder of a first purchase money mortgage dated September 20, 1988 and recorded on October 5, 1988, on premises owned by Edward and Terre Capers. The original mortgage debt was for $121,000. On May 31, 1989, Sears, Roebuck and Co. (Sears) filed a Financing Statement covering a new kitchen installed in the mortgaged premises at the request of the Capers after they executed a Security Agreement. The Financing Statement filed by Sears gave notice that Sears had a security interest in the new kitchen installed in the mortgaged premises in the amount of $33,320.40.

    On August 18, 1989, the Capers executed a second mortgage on the premises to New Jersey Savings Bank for the sum of $34,000. That mortgage was recorded on August 23, 1989.

    The Capers eventually defaulted in their payments due to Maplewood Bank and Sears. Maplewood Bank filed a foreclosure complaint on November 5, 1988 and an amended complaint on or about December 6, 1990. Sears filed an answer and counterclaim. Sears sought a declaration that its debt was prior to the mortgage of Maplewood Bank and, among other things, sought to compel Maplewood Bank to pay Sears the amount due on its agreement. In essence, Sears claimed that under N.J.S.A. 12A:9-313, it was entitled to priority over Maplewood Bank in the funds realized from the anticipated foreclosure sale. Sears' answer and counterclaim were stricken on July 26, 1991, and the matter proceeded as an uncontested foreclosure action. A final judgment in foreclosure was entered on February 28, 1992.

    Sears appealed the dismissal of its counterclaim to the Appellate Division, arguing that the priority given Sears as a purchase money security interest holder under the New Jersey Uniform Commercial Code (UCC) applies to the proceeds of a judicial sale instituted by a purchase money mortgagee. The Appellate Division rejected that argument.

    The Appellate Division found that it was undisputed that the new kitchen Sears installed and financed satisfied the conditions of a fixture under the UCC; that Sears obtained a purchase money security interest in the fixture to secure full payment; and that Sears perfected its security interest by filing a Financing Statement covering the fixtures in the Hunterdon County Clerk's Office where the first mortgage held by Maplewood Bank was recorded. However, the court found that Sears' security interest was limited to the fixtures and did not extend to the realty.

    On the issue of remedies available, Sears contended that it should be entitled to receive from the proceeds obtained at the foreclosure sale the difference between the value of the realty with the new kitchen and the value of the realty after the new kitchen had been removed. The Appellate Division rejected this approach as an inappropriate remedy absent statutory authorization. Under the plain

language of the UCC, Sears had two options: removal of the fixtures or foregoing removal of the fixtures. The Appellate Division reasoned that to adopt Sears' argument in the absence of legislation would mean that a mortgagee's security interest could be impaired substantially without the Legislature pronouncing an intention to do so. The Appellate Division noted that any modification of fundamental property rights of purchase money mortgagees must be done through legislation and may not be implied from the existing statute. Lastly, the court found that Sears was not entitled to any remedy, other than the removal of fixtures, based on equitable principles. It concluded that Sears knew its remedy was limited to removal upon default.

    The Supreme Court granted certification.

HELD:    Judgment of the Appellate Division is AFFIRMED for the reasons expressed in Judge Coleman's written opinion below. The priority given Sears as a purchase money security interest holder under the New Jersey Uniform Commercial Code does not apply to the proceeds of a judicial sale instituted by a purchase money mortgagee.

     CHIEF JUSTICE WILENTZ and JUSTICES CLIFFORD, HANDLER, POLLOCK, O'HERN, GARIBALDI and STEIN join in this opinion. SUPREME COURT OF NEW JERSEY
A- 91 September Term 1993

THE MAPLEWOOD BANK AND
TRUST COMPANY,

    Plaintiff-Respondent,

        v.

SEARS, ROEBUCK AND CO.,

    Defendant-Appellant,

     and

EDWARD CAPERS, TERRE CAPERS,
and NEW JERSEY SAVINGS BANK,

    Defendants.

        Argued February 15, 1994 -- Decided March 15, 1994

On certification to the Superior Court, Appellate Division, whose opinion is reported at 265 N.J. Super. 25 (1993).

Sheldon H. Pressler argued the cause for appellant (Pressler and Pressler, attorneys; Raymond A. Noble, of counsel; Mr. Noble and Steven P. McCabe, on the brief).

Alan R. Ostrowitz argued the cause for respondent (Ostrowitz & Ostrowitz, attorneys).

PER CURIAM
        The judgment is affirmed, substantially for the reasons expressed in the Appellate Division opinion, reported at 265 N.J. Super. 25 (1993).

        Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi, and Stein join in this opinion.

Converted by Andrew Scriven