Nation Wide, Inc. v. Scullin

• Decision Date: 12 August 1966
• Docket Number: Civ. No. 676-65.
• Citation: 256 F. Supp. 929
• Parties: NATION WIDE, INC., a New Jersey corporation, Plaintiff, v. Edward P. SCULLIN, Thomas F. Park, Jr. and Robert M. Brown, jointly and severally, Defendants.
• Court: U.S. District Court — District of New Jersey

256 F. Supp. 929

NATION WIDE, INC., a New Jersey corporation, Plaintiff, v. Edward P. SCULLIN, Thomas F. Park, Jr. and Robert M. Brown, jointly and severally, Defendants.

Civ. No. 676-65.

United States District Court D. New Jersey.

August 12, 1966.

Clarence Blitz, Atlantic City, N. J., for plaintiff.

Kisselman, Devine, Deighan & Montano, Camden, N. J., by Neil F. Deighan, Jr., Camden, N. J., for defendants.

OPINION

COHEN, District Judge:

Plaintiff, Nation Wide, Inc., a New Jersey corporation moves for Summary Judgment under 28 F.R.Civ.P.Rule 56, against the defendants, Pennsylvania residents, on a contract alleged to be one of absolute personal guaranty for performance of a prime contract made between plaintiff and P. & S. Frozen Food Company, a corporation of which the defendants are officers and directors.

The primary contract between plaintiff and P. & S. Frozen Food Company, the performance of which defendants guaranteed, was made on September 6, 1963. It purported to be a lease, referring to the parties throughout as "lessor" and "lessee," under the terms of which plaintiff "leased" certain baking equipment, to be supplied by Quaker City Baking Equipment Company, to P. & S. Frozen Food Company, for a term of 60 months, at a monthly rental of $750.00, beginning September 6, 1963, and payable on the sixth day of each month thereafter for the balance of the term, or a total of $45,000.00.¹ No deposit of security was required to assure faithful performance of this agreement. Instead, on September 6, 1963, defendants Scullin, Park and Brown, officers and directors of the frozen food company, pledged their personal credit for unconditional guaranty of their corporation's performance, as an inducement for plaintiff to undertake the contract of September 6, 1963.²

P. & S. Frozen Food Company took possession of the equipment in question, placed it in its premises in Winslow Township, Atlantic County, New Jersey, which plant it leased from Garden State Cold Storage Co., Inc., and made monthly payments to plaintiff, totaling $12,500.00 until default.

On February 15, 1965, Garden State Cold Storage Co., Inc., distressed the equipment for a three-months' rental delinquency of $12,900.00. The equipment was independently appraised at $19,100.00, and on March 18, 1965, sold for that amount to the landlord as the highest bidder. On March 19, 1965, plaintiff obtained from the defendants and filed a financing statement with the New Jersey Secretary of State, under the Uniform Commercial Code, R.S. 12A:9-101 et seq. N.J.S.A. This action was taken at a time when the defendants knew bankruptcy was imminent, for as officers and directors of the corporation they filed a voluntary petition, March 24, 1965.

Thereafter, plaintiff filed a proof of claim for $32,250.00 in the bankruptcy court purporting to be a secured creditor. However, the claim having been filed within 4 months of the petition was disallowed, thereby relegating plaintiff to the status of a general creditor.

In support of its motion, plaintiff urges that the defendants bound themselves to an absolute, unconditional guaranty for the performance of the prime contract obligation of the debtor corporation. It argues that, despite the defendants' allegation of its failure to protect the collateral under security transaction requirements, whether by reason of negligence or mistaken judgment, the guarantors are neither prejudiced nor relieved of their absolute obligation to save plaintiff harmless upon the default of the prime debtor.

In resisting plaintiff's motion for summary judgment, defendants contend that the transaction between plaintiff and P. & S. Frozen Food Company was actually a security transaction, whereby plaintiff loaned it $30,000.00, and took back as security a lease agreement, subsequent to which it belatedly filed a financing statement. They argue that the $30,000.00 loan was reduced by payments totaling $12,750.00, leaving a balance of $17,500.00 plus interest. Further, that because plaintiff failed through negligence to protect its lien under the security agreement, defendants, as sureties, are discharged from any personal obligation to plaintiff by reason of their company's default. Defendants also assert as defenses that plaintiff, itself, breached the lease agreement, in that it never had title to the equipment which it purported to lease; and that neither plaintiff nor P. & S. Frozen Food Company having either title or possession, such being in a third party, Garden State Cold Storage Co., Inc., neither P. & S. Frozen Food Company nor any of the defendants are liable for the balance of the lease payments. Additionally, they urge that plaintiff having jeopardized and made possible the loss of the security, which security sold for more than the balance of the outstanding obligation for rents, and future interest not having been earned, plaintiff has sustained no damages other than those occasioned by its own conduct.

Such are the contentions of the parties and the events giving rise to this case, in which it appears that the material facts are not in issue.³ The dispute involves a question of law, i. e., a construction of the legal effect to be given to the intention of the parties and is, consequently, ripe for summary judgment. A consideration of all the circumstances surrounding this transaction, as pleaded and supported by opposing affidavits, creates no genuine issue of material fact foreclosing summary judgment. Robert L. Ferman & Co. v. General Magnaplate Corp., 33 F.R.D. 326 (D.C.N.J.1963); Frederick Hart & Co. v. Recordgraph Corp., 169 F.2d 580 (3 Cir. 1948).

The agreement between plaintiff and P. & S. Frozen Food Company, and that of defendants with plaintiff executed the same day, demonstrates that defendants pledged their guaranty absolutely and without limitation, in order to induce the plaintiff to advance $30,000.00 to their company for the purchase of the equipment. And that to secure payment of $45,000.00 over a five year period, an installment arrangement was cast in the form of a lease with an option to purchase, including a provision for a "bonus," or interest, to be spread over the term of the agreement. However harsh a bargain it may seem in retrospect, the defendants' obligation was voluntarily assumed and made absolute by its terms. Joe Heaston Tractor & Imp. Co. v. Securities Accept. Corp., 243 F.2d 196 (10 Cir. 1957); Robert L. Ferman & Co., supra. These defendants were not cast in the familiar role of accommodation endorsers, or sureties, a status which would entail less stringent responsibilities in the eyes of the law. Rather, they were businessmen—the principal actors, both as individuals and in their corporate alter ego—who undertook to perform this arrangement. It is reasonable to assume, nothing contrawise in the record, that they were possessed of some measure of business acumen, when they undertook to guarantee their company's contract performance.

The paramount obligation here is the guaranty contract of the defendants, the consideration for which was the contract of the corporation. Whatever form the corporate contract may have taken, whether partaking of the characteristics of a lease or a security transaction,⁴ is of no consequence. Their obligation was unconditional. Duff v. Trenton Beverage Co., 4 N.J. 595, 604, 73 A.2d 578 (1950); Edwards v. Leopoldi, 20 N.J.Super. 43, 53, 89 A.2d 264 (App.Div. 1952). And the law in New Jersey is well settled that the courts will not make a different or better bargain for the parties than they have seen fit to make for themselves. William Berland Realty Co. v. Hahne & Company, 26 N.J.Super. 477, 486, 98 A.2d 124 (Ch.Div.1953), mod. 29 N.J.Super. 316, 102 A.2d 686 (App. Div.1954), but not in basic principle; Robert L. Ferman & Co., supra. From a reading of the contract, the intention of the parties is clear; the defendants owed in full that obligation which their corporation, P. & S. Frozen Food Company, undertook.

The proposition of law advanced by defendants, that their undertaking by this contract was only a suretyship and that, consequently, plaintiff's negligent failure to protect its interest under a security transaction discharges their obligation, was similarly raised and disposed of in Joe Heaston Tractor & Imp. Co., supra. 243 F.2d at page 198:

"* * * that by reason of such failure (the filing of

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