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Advanced Enterprises Recycling, Inc. v. Bercaw

376 N.J. Super. 153, 869 A.2d 468 (App. Div. 2005)

CONTRACTS; CONVERSION—Failure by one contracting party to turn over sales proceeds to the other as called for in a particular contract is not conversion because there is no obligation to turn over the identical money; there is only a debtor-creditor relationship.

A supplier sued its commercial buyer for conversion after it was discovered that the buyer transferred to itself certain profits from the sale of the supplier’s product. Their agreement was that the supplier invoiced the buyer after each shipment, and the buyer, in turn, was to remit payment to the supplier upon sale of the product to customers. During its deposition, the buyer admitted that it “had received monies from clients who had bought” the supplier’s product, but that it “had not turned those funds over to” its supplier. Additionally, the supplier’s accountant claimed that there were nearly two hundred invoices totaling over $100,000, for which the supplier “had not received any money from” the buyer.

The lower court ordered the buyer to deposit “the principal amount allegedly owed to” the supplier with the court. The buyer appealed, arguing that “the trial court erred in (1) granting partial summary judgment against [it] on the book account/open invoice claims; [and] (2) holding [it] liable for converting” the supplier’s property; and, among other things, “certifying the partial summary judgment as final; and ... awarding pre-judgment interest to” the supplier. The Appellate Division agreed, upholding all but the lower court’s “opinion on the conversion issue.”

The Court pointed out that “conversion is the wrongful exercise of dominion and control over property owned by another in a manner inconsistent with the owner’s rights.” It also held that, “[w]here there is no obligation to return the identical money, but only a relationship of a debtor and creditor, an action for conversion of the funds representing the indebtedness will not lie against the debtor.” Here, the supplier and the buyer stood “in a debtor-creditor relationship” since “the funds in question were not deposited with” the buyer, “but were the proceeds of sales made by” the buyer. Additionally, the Court held that “the question [was] not who [had] title to the [product] since title has passed to the customer,” but rather, “the question [was] whether” the buyer “paid for the [goods] sold to it.”

The Court concluded that the lower court had “erred in holding ... that [the buyer] converted the funds paid to [it] for the” product since, under the “Uniform commercial Code, ‘goods’ are defined as moveable items for sale ‘other than the money in which the price is to be paid.’”


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