Chemical Bank v. Penny Plate, Inc.

• Decision Date: 14 October 1976
• Citation: 365 A.2d 945,144 N.J.Super. 390
• Parties: , 20 UCC Rep.Serv. 778 CHEMICAL BANK, Plaintiff-Respondent, v. PENNY PLATE, INC., Defendant-Appellant.
• Court: New Jersey Superior Court — Appellate Division

Page 390

144 N.J.Super. 390

365 A.2d 945, 20 UCC Rep.Serv. 778

CHEMICAL BANK, Plaintiff-Respondent, v. PENNY PLATE, INC., Defendant-Appellant.

Superior Court of New Jersey,

Appellate Division.

Argued Sept. 13, 1976.

Decided Oct. 14, 1976.

Edward Suski, Jr., Camden, for defendant-appellant (Wilinski, Suski, Kille & Scott, Camden, attorneys).

Arthur K. Sirkis, Hackettstown, for plaintiff-respondent.

Before Judges BISCHOFF, MORGAN and COLLESTER.

The opinion of the court was delivered by

MORGAN, J.A.D.

Defendant Penny Plate, Inc. appeals from summary judgment entered in favor of plaintiff Chemical Bank (bank) in the amount of $19,248, representing the unpaid balance on a lease of equipment on which Penny Plate was lessee. The bank sued as assignee of the rights of the lessor, Ashley-Thornton Leasing Corporation, third-party defendant, against whom default judgment in favor of both Penny Plate and the bank has already been entered. Ashley-Thornton is, for purposes of this matter, defunct.

Since the matter was decided on the bank's motion for summary judgment, the record is an incomplete one. Before us are the documents of the transaction at issue, essential exhibits, and correspondence and deposition testimony of several persons associated with the bank and with Penny Plate. From this record the basic outline of the transaction and the dispute with respect thereto emerges with some clarity, although from the following discussion the deficiencies in the factual record will become apparent.

In the latter part of 1973 Penny Plate ordered two dies, costing $15,442.40, from A Line Tool and Die Company (not a party). At the time Penny Plate intended an outright purchase of this equipment and had the money with which to accomplish this purpose. Before the deal could be consummated, however, Ashley-Thornton appeared on the scene and offered to lease Penny Plate the equipment, thus conserving Penny Plate's capital by allowing use of the equipment for a monthly rental instead of payment of the full purchase price. Penny Plate accepted the offer and on March 14, 1974 entered into the lease which, by its terms, included an initial payment on deposit and 58 monthly payments thereafter. Ashley-Thornton, lacking the money necessary to purchase the equipment it was leasing to Penny Plate, undertook to obtain financing from the bank. In connection with the pending financing arrangement with the bank, Penny Plate, on March 20, 1974, executed a 'Delivery and Installation Certificate' which certified that the dies, the subject of the lease, had been received and accepted by Penny Plate as satisfactory. Two days later, on March 22, 1974, Ashley-Thornton assigned to the bank all of its rights to the money due on its lease with Penny Plate and executed a chattel mortgage on the leased equipment in exchange for the bank's loan of the money to Ashley-Thornton sufficient to pay the manufacturer for the equipment.

On the date of the assignment, March 22, 1974, the bank, fully cognizant of the fact that the equipment had not been paid for, and seeking to insure that payment would reach the manufacturer, required that Ashley-Thornton deliver its check, drawn on the bank's account being opened for it, in the full amount of the purchase price of the equipment together with a stamped envelope carrying Ashley-Thornton's return address. With these papers in its possession, together with Ashley-Thornton's loan application, the loan was granted, the account opened, and on March 27, 1974, five days later, the Ashley-Thornton check in the Ashley-Thornton envelope was mailed to the manufacturer in Louisville, Kentucky.

The Ashley-Thornton check never reached the manufacturer. Although the record is not clear on this point, it appears that for some reason the postoffice was unable to make delivery and the envelope containing the check was returned to Ashley-Thornton in accordance with the return address on the envelope. Ashley-Thornton never informed the bank of the nondelivery of the check, but instead destroyed the check and apparently drew on the account opened for it by the bank.

Prior to this, and on March 22, 1974, Penny Plate, responding to demands from the manufacturer for payment of the dies which it had already delivered and which it was threatening to repossess if the demanded payment was not made, itself made remittance to the manufacturer of the full amount of the purchase price. The check was dated March 22, 1974, and the reverse side thereof discloses that it was cashed in Louisville, Kentucky, on March 26, 1974. At the time the Penny Plate check was sent, and for months thereafter, the bank lacked knowledge that it was made. It also lacked knowledge that the Ashley-Thornton check it had sent to the same manufacturer never reached its intended destination.

On March 26, 1974 the bank sent to Penny Plate its formal notice of assignment instructing Penny Plate to send remittances on account of the lease to the bank at a specified address in New York. A coupon book was enclosed and acknowledgment of receipt of the notice was requested. The notice, however, could not have been received by Penny Plate before March 27, 1974, by which date, of course, Penny Plate's check to the manufacturer had already been cashed.

Thereafter, and in accordance with the instructions contained in the notice of assignment, Penny Plate made remittances to the bank. It was only after the third remittance was made, sometime in June of 1974, that Penny Plate advised the bank that it had paid the manufacturer in full and wanted credit for the amount paid. Penny Plate has not paid anything to the bank on account of the lease since June 1974 and Ashley-Thornton, now defunct, has paid nothing to either the bank or Penny Plate.

In the present action the bank seeks to recover from Penny Plate the full accelerated balance due on the lease which formed the collateral for the loan to Ashley-Thornton. It seeks to avoid the defense of failure of consideration (nonpayment of the purchase price of the equipment) interposed by Penny Plate by claiming the benefit of a 'waiver of defenses provision' in the lease between Penny Plate and Ashley-Thornton. That provision reads as follows:

Lessee's obligation to pay directly to the Assignee the amounts * * * which become due from the Lessee as set forth herein shall be absolutely unconditional and shall be payable whether or not the Lease is terminated by operation of law, any act of the parties or otherwise, and the Lessor promises so to pay the same and not to assert against the Assignee any claim or defense, whatsoever, whether by reason of breach of the Lease or otherwise, which it may or might now or hereafter have against the Lessor (the Lessee reserving its right to have recourse directly against the Lessor on account of any such claim or defense). * * *

According to the bank, this clause is effective to preclude assertion of failure of consideration as a defense to the bank's claim for payment under the lease.

According to the Uniform Commercial Code, N.J.S.A. 12A:9--206(1), such agreements are enforceable

* * * by an assignee who takes his assignment for value, in good faith and without notice of a claim or defense, except as to defenses of a type which may be asserted against a holder in due course of a negotiable instrument under the Chapter on Commercial Paper (Chapter 3). * * *

In recognition of the limitation of the enforceability of 'wiaver of defenses' clauses imposed by the Code, Penny Plate asserted before the trial court and in this appeal that the bank had notice, on the date it took the assignment, that the equipment manufacturer had not been paid, and that even after the assignment the manufacturer was not paid, even though the bank, because of the method used to make its remittance, was unaware of that fact. Hence, according to Penny Plate, the bank, having notice of the defense at the time of assignment, is open to the defense notwithstanding the waiver agreement in the lease.

The trial judge, in a written opinion giving his reasons for granting the bank's motion for summary judgment, concluded that nothing in the record supported Penny Plate's assertion that the bank 'had any knowledge of any infirmities in, or any defenses to the lease, which it had accepted as collateral security for it's (sic) said loan.' He likened the bank's position to that of a holder...