A. J. Armstrong Co. v. Janburt Embroidery Corp., L--31329

• Decision Date: 06 October 1967
• Docket Number: No. L--31329,L--31329
• Citation: 97 N.J.Super. 246,234 A.2d 737
• Parties: , 4 UCC Rep.Serv. 748 A. J. ARMSTRONG CO., Inc., Plaintiff, v. JANBURT EMBROIDERY CORP., Harry Josephs, Bernard Josephs, George Josephs, and James Lo Curto, Defendants.
• Court: New Jersey Superior Court

Page 246

97 N.J.Super. 246

234 A.2d 737, 4 UCC Rep.Serv. 748

A. J. ARMSTRONG CO., Inc., Plaintiff, v. JANBURT EMBROIDERY CORP., Harry Josephs, Bernard Josephs, George Josephs, and James Lo Curto, Defendants.

No. L--31329.

Superior Court of New Jersey

Law Division.

Oct. 6, 1967.

Thomas A. Hogan, Union City, for plaintiff (Moser, Roveto & McGough, Union City, attorneys).

Joseph V. Cullum, Union City, for defendants.

PINDAR, J.S.C.

This is an action brought by the assignee of a promissory note, secured by a chattel mortgage, for a deficiency judgment against certain alleged accommodation parties to the note. A judgment of liability against Janburt, the maker of the note, has already been entered. The question of the extent of the parties' liability on the note has been severed from the present action, which is solely concerned with the liability of the alleged accommodation parties. R.R. 4:43--2. The following facts are not in dispute:

On March 1, 1960 defendant, Janburt Embroidery Corp. (Janburt) obtained a loan from Robert Reiner, Inc. (Reiner), in return for which Janburt executed 72 negotiable promissory notes payable to Reiner's order at stated monthly intervals. The notes were secured by a chattel mortgage on certain pieces of machinery owned by Janburt. The signatures of codefendants James Lo Curto, Bernard Josephs, George Josephs and Harry Josephs (not served in this action) appeared on the reverse side of each of the 72 notes. The following statement appeared immediately above the aforesaid signatures: 'We hereby waive notice of protest, presentment and dishonor.'

In January 1963 John A. Vollman, now president of Reiner, purchased a majority stock interest in Reiner, Inc. This purchase was financed by A. J. Armstrong and Co. (Armstrong), plaintiff herein, a New York corporation. As part of the consideration for Armstrong's financing of Vollman's purchase, a general assignment of accounts receivable including, presumably, the chattel paper which is the basis of this suit, was made to Armstrong. Reiner, however, was to continue to collect the moneys due under the assignment. It does not appear whether the general assignment represented a sale of Reiner's accounts receivable or simply the creation of a security interest in them.

In January 1963 Janburt asked Reiner to refinance their notes of 1960. Each of these notes was drawn for $805.55, representing monthly repayments of principal and interest at 6%. Pursuant to Janburt's request Reiner drew a 'refinance note' in April 1963, but dated May 15, 1963. The refinance note provided that $38,400, the unpaid balance due under 1960 series of notes, was to be repaid in 48 monthly installments of $510.02, with a final 'balloon' payment of $24,849.15. The refinance note was to bear an annual interest rate of 8 1/2%.

The refinance note contained the following statements in two separate paragraphs:

'1. Upon failure to make any payment as herein agreed, or in the event of death, insolvency or bankruptcy or failure in business of the maker, this note shall, at the option of the holder immediately become due and payable without demand or notice * * *.

2. The undersigned hereby waives notice of nonpayment, protest, presentment and demand * * *.'

At the bottom of the refinance note appeared the typed signature of Janburt Embroidery Corp., by James Lo Curto, president. Attesting was Harry Josephs, as secretary of Janburt. The signatures of Bernard Josephs and George Josephs, the former above the latter, appeared immediately beneath that of Harry Josephs. On the reverse side of the refinance note all four signatures appeared with the signatories' respective addresses. No corporate offices appeared after any of these signatures.

Vollman testified that this note with its individual endorsements was not received by him until November 11 1963, at which time it was forwarded to Armstrong accompanied by Reiner's assignment.

Subsequent to the drawing of the refinance note a so-called 'Extension Agreement' was drawn between Janburt (mortgagor), Reiner (mortgagee) and Armstrong. The extension agreement was dated June 1963. It purported to amend the terms of the chattel mortgage executed between Janburt and Reiner and assigned by Reiner to Armstrong.

Among other provisions the agreement provided:

'* * * 1. The mortgagor shall be and hereby is indebted to Armstrong in the amount of $38,813.05.

2. Said indebtedness of $38,813.05 shall be payable as follows: $413.05 upon signing of this extension agreement and the balance of $38,400 in 48 equal monthly installments of $510.02 each and a 49th and final installment of $25,025.16 * * *.'

It should be noted that the extension agreement increased Janburt's total indebtedness by more than $400 over the total in the refinance note of May 1963. The extension agreement was signed:

'WITNESS OR ATTEST: JANBURT EMBROIDERY CORP. (Mortgagee)

GEORGE JOSEPHS (S)

BY: JAMES LO CURTO (S)

BY: BERNARD JOSEPHS (S)

BY: HARRY JOSEPHS (S)'

In a letter from Reiner to Lo Curto, dated November 6, 1963, Vollman asked:

'Please have each of the four stockholders repeat their name on the back of this note (i.e., May 15, 1963) indicatting that they are personally liable for the note in question.

Also please have two officers of Janburt Embroidery sign the three copies of the extension agreement where indicated and after the names and signature of A. J. Armstrong Co. please have all four stockholders sign as individuals in the spaces provided. * * *' Again, on November 14, 1963 Vollman wrote to Janburt:

'* * * Will you also please be kind enough to remind Mr. Joseph to return the underlying extension agreement on which the four stockholders have to affixe (sic) their signatures as individuals.'

The extension agreement was finally received by Reiner on or about November 18, 1963, at which time it was forwarded to Armstrong. Throughout Vollman's correspondence with Janburt it appears that Reiner was acting as Armstrong's agent.

Subsequent to the execution of the refinance note and extension agreement Janburt made payments directly to Armstrong. On March 15, 1964 there was a default. As provided by the terms of the refinance note, the entire balance was accelerated. The security specified in the chattel mortgage was sold at sheriff's sale on March 17, 1965 and purchased by Reiner for $100.

I

Both counsel stipulated that the law of New Jersey applies to this action.

The refinance note and extension agreement involved in this suit for deficiency are governed by the Uniform Commercial Code, as adopted by the New Jersey Legislature. The Code became operative on January 1, 1963. The parties must be presumed to have contracted in light of the law as it existed in 1963. Since the extension agreement purports to amend the 1960 chattel mortgage, it is presumed that those portions of the mortgage not so amended were satisfactory to the parties in light of the law at the time of their modifications. N.J.S. 12A:10--101(3), N.J.S.A. Therefore, the rights and liabilities of the parties under their security agreement (chattel mortgage) are also to be governed by N.J.S. 12A:1--101 et seq., N.J.S.A., especially N.J.S. 12A:9--101 et seq., N.J.S.A. and insofar as applicable, N.J.S. 12A:3--101 et seq., N.J.S.A.

II

By its terms N.J.S. 12A:9--101 et seq. N.J.S.A. governs the general assignment between Reiner and Armstrong of January 1963. Article 9 applies to any transaction which creates a security interest in or which is a sale of chattel paper. N.J.S. 12A:9--102(1)(a) and (b), N.J.S.A. Chattel paper is defined as 'writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific goods. When a transaction is evidenced both by such a security agreement * * * and by an instrument or a series of instruments, the Group of writings taken together constitute chattel paper.' N.J.S. 12A:9--105(1)(b) N.J.S.A. The term 'instrument' means a negotiable instrument. N.J.S. 12A:9--105(1)(g), N.J.S.A. Thus, in the suit under discussion the three writings--the refinance note of 1963, the chattel mortgage executed in 1960, and the extension agreement dated June 1963--constitute chattel paper. See Uniform Commercial Code N.J.S. 12A:9--105, N.J.S.A. Comment 3, 'Chattel Paper.' (p. 345).

Thus, whether Armstrong bought the chattel paper or merely took a security interest in the subject chattel paper, Armstrong is treated as a secured party under Article 9. N.J.S. 12A:9--105(1)(i), N.J.S.A. defines a secured party as one to whom chattel paper has been Sold. In these circumstances, Janburt is termed the 'account debtor' and Reiner the 'debtor.' However, Article 9 does not purport to deal with an assignee's right to dispose of collateral owned by an account debtor and subsequently to sue the account debtor for a deficiency. N.J.S. 12A:9--504(2), N.J.S.A. refers to the rights between an assignor and his assignee and is inapposite for disposition of this issue. But under general principles of law of assignment, the assignee succeeds to all the rights of his assignor. If Reiner could dispose of collateral and sue for deficiency, Reiner's assignee, Armstrong, could do so as well. In some situations, not here relevant, the assignee of chattel paper will have greater rights than his assignor. See N.J.S. 12A:9--318(1), N.J.S.A.

Article 9 provides that a secured party may reduce his claim to judgment, foreclose, or otherwise enforce the security interest by any available judicial procedures as prescribed by individual state laws. N.J.S. 12A:9--501(1), N.J.S.A. According to New Jersey Study Comment #3 to 9--501, such procedures are covered by the Rules of Civil Procedure. However, in Veterans Loan Authority v. Wilk, 61 N.J.Super. 65, 160 A.2d 138 (App.Div.1964), the court indicated that the Chattel Mortgage Act did not prescribe procedures for the foreclosure of security interests in chattels other than consumer goods. This act has since been...