New Jersey Bank v. Toffler
| Decision Date | 04 February 1976 |
| Citation | 139 N.J.Super. 161,353 A.2d 116 |
| Parties | , 19 UCC Rep.Serv. 294 NEW JERSEY BANK, a national banking association, Plaintiff-Respondent, v. Jeffrey TOFFLER and Betsy Ann Toffler, his wife, Defendants-Appellants. |
| Court | New Jersey Superior Court — Appellate Division |
Cole & Cole, Jersey City, for defendants-appellants (Robert S. Sirota, East Orange, on the brief).
Allan A. Maki, Paterson, for plaintiff-respondent.
Before Judges MATTHEWS, LORA and MORGAN.
Plaintiff instituted this action against defendants seeking a money judgment because of defendants' failure to repay the balance of a certain loan collateralized by securities. Defendants filed an answer and counterclaimed, alleging that plaintiff as pledgee neglected to protect and preserve the value of the securities which were pledged as collateral for the loan. Plaintiff moved for summary judgment which was granted. This appeal followed.
On March 9, 1972 defendants executed a demand collateral note in the amount of $125,000 with interest at 6%. The collateral consisted of five different stocks which had a market value of $215,400 as of March 10, 1972.
On October 24, 1972 and on May 18, 1973 defendants made payments on the principal of $20,000 and $57,000, respectively.
On March 18, 1974 defendants were notified that the value of their collateral had fallen below the allowable margin, I.e., 58% Of the collateral's loan value. Plaintiff, pursuant to the terms of the demand note, demanded additional collateral or repayment of the loan.
During the months of March, April and May 1974 plaintiff made numerous attempts to communicate with defendants without success. On May 31, 1974 a certified letter was sent to defendants notifying them that the principal and interest was due and payable immediately. This letter was returned 'refused--June 1, 1974.' Thereafter, a Western Union Mailgram to the same effect was dispatched to defendants.
On June 19, 1974 plaintiff sold defendants' collateral for $22,035.94, which left $25,464.06 in principal and $2,206.43 in interest due and owing.
Defendants claim that they were never contacted concerning the decline in value of the collateral and deny receipt of any certified letters or telegrams.
In pertinent part, the note provides in paragraph 4 that the defendants agree to do all things necessary to maintain the value of the collateral. Paragraph 14 provides that the plaintiff (holder) shall not become liable or responsible in any way to defendants for failure, neglect or delay in giving notice of 'matters' concerning any collateral security.
Defendants argue that a pledgee who has custody and control of securities which are pledged as collateral for an indebtedness has a duty to use reasonable care to preserve the value of those securities, and, accordingly, that substantial fact questions exist with respect to whether plaintiff complied with this duty. Therefore, it was improper to dismiss the counterclaim and grant plaintiff's motion for summary judgment.
The transaction between plaintiff and defendants in this matter is governed by N.J.S.A. 12A:9--101 Et seq. which applies to secured transactions, including 'security interests created by contract including pledge.' N.J.S.A. 12A:9--102(2).
Defendants rely on N.J.S.A. 12A:9--207 ('Rights and Duties When Collateral Is in Secured Party's Possession') which provides that a secured party must use reasonable care in the custody and preservation of collateral in his possession. N.J.S.A. 12A:9--207(1). There is no question but that plaintiff is a secured party within the intent of the statute. N.J.S.A. 12A:9--105(1) (i). The dispute centers on the interpretation of 'custody and preservation of collateral.'
The New Jersey Study Comment states that 'Section 9--207(1) makes no change in the law of New Jersey.' In support of this statement the comment cites Bardsley v. First Nat. Bank, etc., Montclair, 111 N.J.L. 512, 168 A. 665 (E. & A. 1933) (); Baron v. Peoples National Bank of Secaucus, 9 N.J. 249, 87 A.2d 898 (1952) (), and McCrea v. Yule, 68 N.J.L. 465, 53 A. 210 (Sup.Ct.1902) (). These cases do not specifically deal with defendants' contention here that plaintiff-pledgee had a duty to preserve the value of their collateral.
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