D'Ippolito v. Castoro

• Decision Date: 20 May 1968
• Docket Number: No. A--123,A--123
• Citation: 51 N.J. 584,242 A.2d 617,38 A.L.R.3d 672
• Parties: , 38 A.L.R.3d 672 Joseph M. D'IPPOLITO, et al., Plaintiffs-Appellants, v. Joseph N. CASTORO, et al., Defendants-Respondents. Joseph N. CASTORO, Plaintiff-Respondent, v. Joseph M. D'IPPOLITO, et al., Defendants-Appellants.
• Court: New Jersey Supreme Court

Page 584

51 N.J. 584

242 A.2d 617, 38 A.L.R.3d 672

Joseph M. D'IPPOLITO, et al., Plaintiffs-Appellants, v. Joseph N. CASTORO, et al., Defendants-Respondents.

Joseph N. CASTORO, Plaintiff-Respondent, v. Joseph M. D'IPPOLITO, et al., Defendants-Appellants.

No. A--123.

Supreme Court of New Jersey.

Argued April 1, 1968.

Decided May 20, 1968.

William L. Boyan, Trenton, for appellants.

Thomas C. Jamieson, Jr., Trenton, for respondents (Jamieson, Walsh, McCardell & Moore, Trenton, attorneys).

The opinion of the court was delivered by

HANEMAN, J.

This appeal requires a determination of the duties and liabilities existing between co-guarantors of a promissory note.

The record discloses that D'Ippolito attempted to establish his own carton manufacturing corporation in 1962. When a credit commitment failed, D'Ippolito sought working capital from other sources. He contacted Castoro, an experienced businessman who, after several meetings, began to advance money to the corporation.

The financial condition of the corporation worsened and it became necessary to obtain loans from the Trenton Trust Company. The loans were secured by notes which were personally endorsed by both Castoro and D'Ippolito. The necessity of endorsing each note periodically became burdensome and on September 20, 1963 a guaranty agreement was signed by Castoro, D'Ippolito and D'Ippolito's wife. The last signature was necessary because D'Ippolito's only asset was a house held by himself and his wife as tenants by the entirety. Castoro, on the other hand, had substantial assets.

The testimony diverges as to the existence and nature of an agreement between Castoro and D'Ippolito as to their liability. The latter testified that they had both discussed their responsibilities and that Castoro felt that since he was the only one with assets he would be responsible but they agreed that 'our liability was 50-50. In other words we both had liability'. Castoro, on the other hand, testified that there was no agreement as to respective liability except that D'Ippolito had given assurances that any claim would be satisfied solely by D'Ippolito. The court found that each was to bear a one-half responsibility.

The notes secured by the guaranty agreement fell into default; the corporation became bankrupt; and Trenton Trust secured a default judgment against D'Ippolito, Castoro, and the corporation in the amount of $16,189.89. Apparently under threat of a levy upon his house D'Ippolito agreed with the bank to satisfy the judgment by making an initial payment of $4,000 and twelve monthly installments of $1,000 each. The trial court found that this agreement was consummated not as a voluntary assumption of all payments, but as a means to prevent the sale of D'Ippolito's house.

After $8,000 had been paid, D'Ippolito had exhausted his cash assets and called upon Castoro for help. Castoro, although fully apprised of the impending loss of the D'Ippolito home, refused financial aid even to the extent of payment to the bank of his share of the debt. The bank proceeded to levy upon and sell the D'Ippolito house at a sheriff's sale. Castoro, who had had previous dealings with the bank in an individual capacity, had been kept abreast of developments by the bank's attorney and was present at the sale.

At the sale a bid of $20,000 was made by some unidentified third person but later withdrawn, apparently at the request of the bank's attorney who then advised Castoro to submit a bid of $9,372.30 which represented the amount due to the bank plus costs and interest. Castoro's bid closed the auction. The uncontradicted testimony was that the house had a value of $47,000 of which $22,000 represented D'Ippolito's equity. The remainder represented the unpaid balance of a mortgage and various arrearages.

Having obtained the sheriff's deed, Castoro began an action in the Law Division for eviction. D'Ippolito began an action in the Chancery Division for a reconveyance of the house or alternatively for a money judgment of one-half the amount paid in satisfaction of the original debt. The two cases were consolidated for trial.

The trial court treated the case as one dealing with a constructive trust. Believing that such a trust cannot be imposed in the absence of fraud or breach of a confidential relationship, the court sought to ascertain whether Castoro's action indicated any such conduct or breach of such a fiduciary relationship. The court concluded that there was no fraud and that any fiduciary relationship which might have existed had ended by the time of the sale. The court also believed that a guarantor owes no duty to his co-guarantor until the latter has paid more than his pro-rata share of the debt. Since the court properly treated Mrs. D'Ippolito's signature as merely a means of making her husband's signature effective as to his sole asset, D'Ippolito would have had to pay more than half the judgment before Castoro would have had any obligation to come forward. Accordingly the court ruled that Castoro was not required to pay any money either to the bank or to D'Ippolito until after the house had been sold and therefore dismissed the suit for a reconveyance and granted a judgment for possession to Castoro. However, the court also concluded that since the proceeds of the sheriff's sale together with D'Ippolito's payments had fully satisfied the debt, and Castoro had made no payment to the bank on account of his obligation as a co-guarantor, D'Ippolito was entitled to contribution from Castoro for $8,686.15--one-half the money paid to the bank. Additionally, various allowances were made for the payment of interest on the mortgage, taxes and insurance on the one time D'Ippolito home. The Appellate Division affirmed and we granted certification on D'Ippolito's petition. 51 N.J. 8, 236 A.2d 887 (1967)

Although Gordon v. Griffith, 113 N.J.Eq. 554, 168 A. 57 (Ch. 1933) indicates that fraud is an essential element of a constructive trust, the better view as expressed in our later decisions is that a constructive trust will be impressed in any case where to fail to do so will result in an unjust enrichment. Clark v. Judge, 84 N.J.Super. 35, 61, 200 A.2d 801 (Ch. 1964) aff'd o.b. 44 N.J. 550, 210 A.2d 415 (1965); 5 Bogert, Law of Trusts § 472, p. 10 (2d ed. 1965); Scott on Trusts § 462.1, p. 3417 (3d ed. 1967). Generally all that is required to impose a constructive trust is a finding that there was some wrongful act, usually, though not limited to, fraud, mistake, undue influence, or breach of a confidential relationship, which has resulted in a transfer of property. Cf. Neiman v. Hurff, 11 N.J. 55, 93 A.2d 345 (1952). Scott on Trusts, supra, § 462.2, p. 3417, goes so far as to suggest that 'A constructive trust may arise, however, even though the acquisition of the property was not wrongful. It arises where the retention of the property would result in the unjust enrichment of the person retaining it'. We need not here decide, however, whether a constructive trust may arise absent any wrongdoing on the part of the alleged constructive trustee, for Castoro in failing to offer and pay one-half the debt to the principal creditor breached an obligation imposed upon him by the guaranty agreement and thus committed a wrongful act.

Castoro's argument is that he breached no duty because the law is well settled that a guarantor is under no obligation to Contribute by payment to his coguarantor any portion of a debt until the latter has paid more than his pro-rata share. This is a correct statement of the law. Vliet v. Wyckoff, 42 N.J.Eq. 642, 643, 9 A. 679 (E. & A. 1887); Sanderson v. Cicero State Bank, 125 N.J.Eq. 450, 453, 6 A.2d 130 (Ch. 1939); see cases collected in Note, 45 Cornell L.Q. 831, 832,...