## Facts

- Chris-Don, Inc. operated a tavern in Fanwood, New Jersey and held a municipal liquor license.
- United Trust Bank loaned the debtor $300,000 and took a purported security interest in the debtor’s business assets, including “general intangibles,” and filed a UCC-1 financing statement in New Jersey.
- The debtor later filed Chapter 11 and the case was converted to Chapter 7; a trustee was appointed.
- The trustee sold the liquor license for $155,000 and held the proceeds pending determination of lien validity and priority.
- United claimed its perfected security interest reached the liquor license (as a general intangible) and the sale proceeds.
- The New Jersey Division of Taxation asserted a competing judgment lien based on a Certificate of Debt; the New Jersey Division of Alcoholic Beverage Control intervened on appeal.
- In an adversary proceeding, the bankruptcy court granted summary judgment to United, holding revised Article 9 negated the ABC law’s anti-alienation restrictions as to a security interest in the license proceeds.

## Issues

1. Whether New Jersey’s revised U.C.C. Article 9, including N.J.S.A. § 12A:9-408, permits a debtor to grant a valid security interest in a liquor license (or its sale proceeds) despite N.J.S.A. § 33:1-26’s declaration that a liquor license is a personal privilege, not property, and not subject to pledge or encumbrance.
2. Whether a liquor license can be treated as an Article 9 “general intangible” such that a consensual creditor’s security interest can attach and be enforced against the license proceeds in bankruptcy.

## Decision

- The district court reviewed the bankruptcy court’s legal conclusions de novo.
- The district court reversed the grant of summary judgment to United.
- The court held that N.J.S.A. § 33:1-26 bars using a liquor license as collateral and that revised Article 9 does not override that statutory restriction.
- Because the liquor license is not “property” under the ABC statute, it is not an Article 9 “general intangible,” and United’s asserted security interest did not attach to the license or its proceeds.
- The matter was returned for further proceedings consistent with the ruling.

## Legal Principles

- Under N.J.S.A. § 33:1-26, a New Jersey liquor license is a state-regulated personal privilege that “shall not be deemed to be property” and is not subject to pledge, lien, or encumbrance as collateral for a private loan.
- Article 9 collateral categories (including “general intangibles”) presuppose a property interest recognized under applicable non-U.C.C. law; an item declared “not property” by statute falls outside Article 9’s attachment framework.
- N.J.S.A. § 12A:9-408 does not create an Article 9 security interest in a liquor license where state law denies property status and expressly prohibits encumbrance; courts will not infer an implied repeal of a specific regulatory statute from general commercial-law revisions.
- The economic value or transferability of a liquor license does not convert it into attachable collateral when state law classifies it as a non-property privilege for purposes of consensual security interests.

## Conclusion

The district court held that New Jersey’s ABC statute controls the collateral status of liquor licenses, preventing a debtor from granting a consensual Article 9 security interest in the license or its sale proceeds; it therefore reversed the bankruptcy court’s order recognizing United’s asserted first-priority lien.


In re Chris-Don, Inc., 367 F. Supp. 2d 696 (D.N.J. 2005)