Moss Indus. Inc. v. Irving Metal Co. Inc.

• Decision Date: 03 September 1948
• Docket Number: No. 216.,216.
• Citation: 61 A.2d 159
• Parties: MOSS INDUSTRIES, Inc. v. IRVING METAL CO., Inc.
• Court: New Jersey Supreme Court

61 A.2d 159

MOSS INDUSTRIES, Inc.

v.IRVING METAL CO., Inc.

No. 216.

Court of Errors and Appeals of New Jersey.

Sept. 3, 1948.

Appeal from Court of Chancery.

Suit by Moss Industries, Inc., a corporation of New York, against Irving Metal Co., Inc., a corporation of New Jersey, for an adjudication that a transaction was a loan, wherein defendant filed a counterclaim. From the decree, 141 N.J.Eq. 421, 57 A.2d 922, the defendant appeals.

Affirmed.

Arthur Brown, of Woodbridge (Leo S. Lowenkopf, of Perth Amboy, of counsel), for defendant-appellant.

Hannoch & Lasser, of Newark (Aaron Lasser, of Newark, of counsel), for complainant-respondent.

FREUND, Judge.

This appeal is from a final decree wherein it was decreed ‘that the transactions set forth in the bill of complaint between the complainant and the defendant constituted a loan of $20,820.10 made by the defendant to the complainant, coupled with a pledge by the complainant with the defendant * * * of 208,201 pounds of * * * metals', that the complainant was ‘entitled to redeem the said pledge by payment of the sum of $22,902.10’ and that it is the owner of the said metals.

The facts are fully detailed in the opinion of the court below, reported in 141 N.J.Eq. 421, 57 A.2d 922. It will suffice for our purposes to repeat them only in part.

The respondent for many years past has been engaged in the business of processing and fabricating various kinds of metals. In May, 1947, respondent, due to a combination of factors, found itself so financially embarrassed that it had overdrawn its bank account by approximately $12,000. It did however, own a large quantity of new metals of considerable value, which it declined to sell at a sacrifice. Appellant, a scrap metal dealer, was a depositor in the same bank as the respondent and was in a position to loan money. The bank manager suggested to respondent that a loan would tide it over and he introduced Mr. George S. Moss, the respondent's president, to Mr. Irving Reichenthal, president of the appellant corporation, for the purpose of negotiating a loan. The parties reached an agreement whereby the appellant agreed to loan respondent a sum of money to be secured by the delivery to appellant of new metals owned by the respondent. Initially, the appellant agreed to loan respondent 12¢ for each pound of metal delivered to appellant, who was to store it, and the respondent was to be permitted to redeem the metal in whole or in part at any time within one year by paying 14¢ per pound. A memorandum to this effect was signed by the respondent, but not by the appellant. Notwithstanding its failure to sign this memorandum, appellant sent its trucks to respondent's premises and carted away about 100,000 pounds of metal, but no moneys were advanced. Thereafter, on June 4, 1947, upon the insistence of Mr. Reichenthal, the agreement was changed so as to reduce the loan from 12¢ to 10¢ per pound of metal delivered, which respondent could redeem in whole or in part by repaying 12¢ per pound within sixty days. This latter agreement was signed by both parties. Subsequently, respondent delivered additional metal to appellant, until appellant had in its possession 208,201 pounds of metals valued in excess of $70,000. However, the first advance of money was not made until June 9, 1947 and the last on June 11, 1947, for a total of $20,820.10, being 10¢ per pound on 208,201 pounds of metals.

Both agreements stated ‘This is not a sale, but an advance’ and the later one provided that ‘The Irving Metal Co., Inc. does not assume any responsibility for fire, theft, losses or damages to the said material.’ Various receipts for metals delivered, given by appellant to respondent, read ‘This invoice does not constitute a sale, but an advance, in which title to the material does not pass.’ The agreement of June 4, 1947, however, did provide ‘In the event Moss Industries, Inc. does not remove the material within sixty days from date, title passes to Irving Metal Co., Inc. and Irving Metal Co., Inc. is the sole owner of this material.’

Prior to August 4, 1947, the expiration of the sixty day period, respondent in accordance with the agreement endeavored to redeem a portion of its property by paying a proportionate amount of its indebtedness, but appellant declined to accept the payment or redeliver the metal. Thereupon respondent, in order to redeem all of its property, succeeded in raising from another bank sufficient moneys with which to pay appellant its entire indebtedness and notified appellant of its readiness so to do. Appellant, conceiving that it could appropriate the metal in its possession if the loan was not repaid by August 4, 1947, under various pretexts, as appears from the testimony, lured respondent into the belief that the money could be paid thereafter. When respondent on several occasions, viz., on August 5th, 7th and later, offered and tendered payment, appellant insisted that the metals had become its property ipso facto on August 4th upon respondent's failure to pay the debt within sixty days after the date of the agreement, and that the metals were no longer subject to redemption.

The bill was filed to redeem the respondent's metal and respondent has deposited with the Clerk in Chancery a sum sufficient to pay the entire indebtedness.

Appellant contends that the transaction was a conditional sale while the respondent urges, and the court below found, that it constituted a loan, coupled with a pledge. Disposing first of appellant's contention, the substance of the argument is that the transaction constituted a conditional sale, because the written agreement contained no provision for liability upon respondent for repayment of the appellant's advances; that the automatic divestiture of title to the metals from respondent to appellant operated in satisfaction of the advances. This argument is not novel and has neither factual nor legal merit. It was presented and considered in the early cases of Hogan v. Jaques, 19 N.J.Eq. 123, 97 Am.Dec. 644; De Camp v. Crane, 19 N.J.Eq. 166; Crane v. De Camp, 21 N.J.Eq. 414; Phillips v. Hulsizer, 20 N.J.Eq. 308. The absence in the written agreement of an express promise to repay the advances does not alter the nature of the transaction. In the last mentioned case, the court said ‘A loan always constitutes a debt, and it does not require a note, or bond, or covenant to make it such, nor is it extinguished by or merged in a mortgage taken for its security.’

In this case, as in all others of the construction of contracts, the character of the transaction is determined by the intention of the parties. There is but little dispute about most of the material facts, and we have no difficulty in ascertaining the true nature and character of the transaction between the parties, the rights created and the duties imposed thereby. There can be no doubt but that respondent never intended to sell its metal to appellant for the amount of its advances, which was a fraction of the market value. And, so far as appellant is concerned, the several specific stipulations in the memoranda to the effect that ‘this is not a sale, but an advance, title to the material does not pass' and that the risk of loss or damage was not assumed by appellant, emphatically negative the claim now made. It is clear that the advances were loans, that the metals were delivered by way of security for the payment thereof and were to be redelivered upon repayment...