Krosnowski v. Krosnowski

• Decision Date: 29 October 1956
• Docket Number: No. A--18,A--18
• Citation: Krosnowski v. Krosnowski, 22 N.J. 376, 126 A.2d 182 (N.J. 1956)
• Parties: Walter A. KROSNOWSKI, Plaintiff-Appellant, v. Ignatz J. KROSNOWSKI and Garford Trucking, Inc., Defendants-Respondents.
• Court: New Jersey Supreme Court

Page 376

22 N.J. 376

126 A.2d 182

Walter A. KROSNOWSKI, Plaintiff-Appellant, v.Ignatz J. KROSNOWSKI and Garford Trucking, Inc.Defendants-Respondents.

No. A--18.

Supreme Court of New Jersey.

Argued Oct. 1, 1956.

Decided Oct. 29, 1956.

Morris M. Schnitzer, Newark, for appellant(Meyer E. Ruback, Newark, on the brief; Ruback & Albach, Newark, attorneys).

G. Kenneth Brown, of the New York Bar, New York City, for respondents, by leave of court(William Rubin, Bayonne, on the brief).

The opinion of the court was delivered by

HEHER, J.

The action here is to foreclose one of 11 mortgages covering certain parcels of real property in New Jersey, given September 28, 1955 by the corporate defendant, Garford Trucking, Inc., to the individual defendant, Ignatz J. Krosnowski, to secure the payment of $400,000, an obligation as signed, in turn, by the latter to the plaintiff, Walter A. Krosnowski, as collateral security for the payment of $190,000 to the plaintiff, each representing an interest in common with other members of the Krosnowski family, as will presently appear.

Both the corporate mortgage debt of $400,000 and the individual indebtedness of $190,000 would in the regular course mature in three years approximately from September 28, 1955; and the basic issue concerns the legal consequence of a conceded default in the payment of a quarter-annual installment of interest which accrued January 2, 1956 on the $400,000 mortgage debt under a provision of the mortgage, invoked by the plaintiff, for the immediate payment of principal and interest in the event of a 'default in the performance' of the mortgage or a contemporaneous agreement in writing between the parties, to be set forth presently.

The plaintiff and the individual defendant are brothers.They and other members of the family were the holders of the capital stock of the corporate defendant, and creditors of the corporation as well.In 1955 the corporation filed a petition for relief under Chapter XI of the Bankruptcy Act; and the proceeding was eventually terminated by the approval of a plan which classified the corporate creditors in two groups: Class 1 and 2, the latter comprising the members of the Krosnowski family, and the former including all other general creditors.The plan provided for the giving of mortgages and pledges of corporate assets for the security of the family creditors, in part subordinate to the claims of Class 1 creditors.

By the agreement of September 28, 1955, the corporation's indebtedness to the family creditors was fixed at $400,000.The corporation agreed to secure the debt, with interest at 5%, by 11 real estate mortgages.As between themselves, the family divided into two groups: the 'Baltimore Group' headed by plaintiff; and the 'I.J. Group,' represented by the individual defendant.The Baltimore Group sold its interest in the stated corporate debt and the corporate stock and the stock of a subsidiary corporation to the I.J. Group for $225,000, of which $35,000 was paid on account; the payment of the balance of $190,000 was deferred until the discharge in due course of the moneys due to the Class 1 creditors under the plan of reorganization approved in the Chapter XI Proceeding, and meanwhile interest was to be paid thereon quarter-yearly at the rate of 5%.As security for the indebtedness of the I.J. Group to the Baltimore Group, the former assigned not merely their own interest in the corporate debt, mortgages and corporate stock, but also the interests acquired from the Baltimore Group in the same assets.

January 2, 1956 was the day appointed for the payment of the first installment of interest on both the individual debt of $190,000 and the corporate debt of $400,000, but neither was paid; and, the default continuing after notice given January 12 following that unless 'interest due * * * on the amount secured by said mortgages' and other specified defaults involving a prior lien were cured within ten days, the 'acceleration rights provided for in each of said eleven mortgages' would be exercised, plaintiff elected to accelerate and accordingly brought this suit to foreclose.Tender of the interest due on the $190,000 debt, made in open court on February 17, 1956, was refused, as coming too late.

The notice specified these defaults: (1) interest due January 2, 1956'on the amount secured by said mortgages,' and 'each of said mortgages is therefore now in default'; (2) interest and installment of principal due December 1, 1955 to Farmer & Oehs Company on its prior mortgage lien, amounting to $11,352.84, and additional interest of $1,291.67 due January 1, 1956, and also an installment of $4,000 falling due January 1, 1956 on the principal of the latter mortgage.The defaults involving the prior mortgage set down in subdivision (2) of the notice were cured by payment within time, but not the default stated in subdivision (1).

Defendants contend that 'No notice was given to the individual defendant as to default in payment of interest on his $190,000 debt, or specifying any default in the agreement of September 28, 1955'; that the default set forth in subdivision (2)'was completely cured,' and 'no interest was due January 2, 1956 on the mortgage indebtedness, and there was no default as to item No. 1.'This, on the hypothesis that 'under the terms of the mortgage, as modified by the collateral agreement of even date, incorporated by reference, an interest payment due January 2, 1956 pursuant to the terms of the mortgage itself, had been deferred.'A secondary question raised is whether the notice of January 12, 1956 constituted 'due notice of default as to the interest payment on the $190,000 due January 2, 1956, pursuant to the terms of the agreement of September 28, 1955.'

There was a summary judgment of dismissal in the Superior Court.Judge Stanton found that the mortgage and the agreement of September 28, 1955, read together, reveal an 'intention' that 'the payment of interest on the $400,000 mortgage should be deferred if the other obligations were met'; 'There is no cancellation of that interest or no extinguishment of it, merely a deferment of it as long as the interest on the $190,000 was paid'; and 'since no notice was given as to the default in the payment of the interest on the $190,000 obligation, there has been no acceleration.'

The case is here by our certification of plaintiff's pending appeal to the Appellate Division.

The corporate mortgage provides that '* * * the entire unpaid principal of this mortgage and all interest accrued thereon shall forthwith become due and payable upon the occurrence of any one or more of the following events: (a) Default in the performance of any term, provision or requirement of the aforementioned written agreement of even date herewith; (b) Default in the performance of the within mortgage or any other mortgage given to secure said principal sum of $400,000, or default in any lien prior to the within mortgage or any such other mortgage.'There is also a provision for acceleration in the event of the insolvency of the corporation or a named affiliate corporation, or 'if it go into reorganization under Chapter X or Chapter XI of the Bankruptcy Act,' or 'if it make a composition with its creditors,' or in case of the sale of its assets, or if any execution or attachment shall issue against any of its property or effects, and shall not be vacated or satisfied within five days from the date of issue, or if default is made in a payment required by the plan or arrangement (under Chapter XI) to the Class 1 creditors of the corporation; and then comes the clause that such 'acceleration shall not be complete and enforceable unless ten days notice of the default complained of is sent by registered mail addressed to I. J. Krosnowski' at a given address, and 'unless within ten days from the date of such mailing the default complained of is not completely cured and eliminated.'

But the agreement of September 28, 1955 made sale of the Baltimore Group's corporate stock and creditor-claims to the individual defendant, representing the I.J. Group, for the sum of $225,000, the balance of $190,000 remaining after the cash payment to be paid 'in consecutive weekly payments of $1,000 each on Monday of each week, the first of such payments to be made one week after the Class 1 creditors of Garford shall have received final payment of the moneys due them under the Plan of Reorganization approved in said Chapter XI Proceeding,' and meanwhile interest thereon at 5%, payable quarterannually, and at the same rate on unpaid balances after the weekly payments on principal shall have begun; and provision was therein made for the assignment of the I.J. Group's interest in the $400,000 mortgages and the capital stock of Garford and a subsidiary corporation as collateral security for the payment of the unpaid purchase price of $190,000, subject to this acceleration clause:

'Notwithstanding anything in the within agreement or in any other instrument to the contrary, the entire unpaid purchase price of $190,000, or the unpaid balance thereof, with all accrued interest thereon, shall forthwith become due and payable upon the occurrence of any one or more of the following events:

'(a) Default in the performance of any term, provision or requirement of the within agreement.

'(b) Default in any real estate mortgage given or assigned collaterally to secure the payment of said purchase price, or any default in any lien prior and paramount to any such mortgage.'

And subdivision (c) included, as grounds for acceleration, the insolvency of either Garford or the subsidiary corporation, or the sale of its assets or seizure thereof by judicial process, in terms somewhat similar to the acceleration clause of the mortgage.

The acceleration clause of the agreement, paragraph 7, provides that 'the right of acceleration shall not be complete and perfected unless and until notice shall have been...