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M.N. Axinn Co. v. Gibraltar Development Inc.

Decided: June 21, 1957.


Goldmann, Freund and Conford. The opinion of the court was delivered by Goldmann, S.j.a.d.


[45 NJSuper Page 525] Defendant appeals from a judgment entered in favor of plaintiff by the Law Division

judge, sitting without a jury, in an action based upon defendant's written guarantee of payment for certain building materials to be supplied by plaintiff to Chad-Mal Corporation.

The basic facts are undisputed; most of them are stipulated. Plaintiff is a New York corporation engaged in supplying building materials, and defendant is a New Jersey corporation engaged as developer in the construction and sale of private homes. Defendant contracted with Chad-Mal Corporation, a New Jersey company, as general contractor to erect 100 homes in a development on defendant's tract at Sayreville, New Jersey. On March 21, 1952 plaintiff entered into a contract with Chad-Mal to supply lumber and certain building materials to be used on the project, but acceptance of the agreement by plaintiff was expressly made contingent upon its approval by plaintiff's credit department, and that approval, in turn, was conditioned upon defendant's guarantee of payment by Chad-Mal. Gibraltar was interested in this credit being extended to Chad-Mal, and notified plaintiff that it would enter into such a guarantee arrangement.

By letter to plaintiff dated March 28, 1952, defendant agreed that in consideration of plaintiff's execution of the agreement with Chad-Mal dated March 21, and to induce plaintiff to extend credit and sell and deliver the materials set forth in that contract, it would be "corporately liable as guarantor" of the contract and pay for materials delivered thereunder if Chad-Mal refused and neglected to make payment when due. Immediately upon receipt of the letter of guarantee on March 31, plaintiff's credit department approved the proposed contract with Chad-Mal. On that same date plaintiff notified Chad-Mal that it had received the guarantee, that it approved the proposed contract, and that the contract had become a binding agreement. At the same time plaintiff entered upon the performance of its contract by putting into work material which was to be delivered to Chad-Mal.

On April 1, the day after plaintiff had entered into this binding agreement with Chad-Mal, it received a letter from defendant's attorney, dated March 29, reading as follows:

"In connection with corporate guarantee of Gibraltar Development Inc. of even date, please be informed that same is expressly conditioned and subject to your responsibility to forward copies of all invoices and statements, either to me or to said Gibraltar Development Inc. at my office, simultaneously with copies sent to Chad-Mal Corporation covering every delivery of materials to the job. All invoices and statements are to indicate the # of the house or lot and block number of the house for which same are ordered. All deliveries are to be made to the project and no other place.

Kindly acknowledge the conditions herein set forth, by signing the copy of this letter herein enclosed and returning same to me immediately."

On receipt of this letter plaintiff wrote at the bottom: "Contents of this letter are acknowledged as part of the corporate guarantee of Gibraltar Development Inc., as though more fully set forth at length therein, this 1st day of April, 1952." The letter, thus subscribed, was then returned to defendant.

Plaintiff began delivery of building materials to Chad-Mal on April 2, 1952, and continued to do so until December 9, 1952, when all deliveries were completed. Plaintiff never complied with the condition recited in defendant's March 29 letter; it did not forward copies of invoices and statements to defendant simultaneously with those sent to Chad-Mal covering delivery of materials to the job. However, it was stipulated that defendant "had knowledge of the making of all of said deliveries of material by plaintiff and had knowledge that all of said material was incorporated into houses built for defendant by the said Chad-Mal Corporation and owned by defendant." On August 9, 1952 defendant wrote plaintiff purporting to cancel its corporate guarantee because it had not received any invoices covering purchases by Chad-Mal. Nevertheless, as noted, plaintiff continued deliveries until December 9.

As of November 1, 1952, the account of plaintiff and Chad-Mal was in balance. However, plaintiff thereafter delivered to Chad-Mal materials costing $11,818.14. Of

this amount about $6,000 represented the price of material delivered under the contract, and hence guaranteed by defendant. For this plaintiff received no payment.

In the latter part of 1952 Chad-Mal sued defendant in the Law Division for the balance allegedly due it on the general building contract, and recovered judgment of $11,500 which, less an attorney's lien of $3,000, resulted in a net recovery of $8,500. At about the time this law action was instituted, a number of stop notices were filed by subcontractors against defendant, as owner and developer of the tract, claiming amounts due under their contracts with Chad-Mal. Confronted by these claims, including one on the part of plaintiff against Chad-Mal, defendant instituted an interpleader action in the Chancery Division to have the court determine what amounts were due and owing the several stop notice claimants. This interpleader action was begun prior to the disposition of the Law Division action brought by Chad-Mal. When the latter was terminated by a judgment which netted Chad-Mal $8,500, defendant paid the sum to the clerk of the court in the interpleader action. Eventually, in April 1955, the Chancery Division entered judgment determining that only plaintiff and one other claimant had any rights in the $8,500 fund on deposit with the clerk, and after allowing a counsel fee, directed that the balance be paid to these defendants pro rata. The result was that plaintiff received $6,362.88 on account of its claim. It applied this sum first against that portion of its account with Chad-Mal representing sales of material outside of the contract that had been guaranteed by defendant. This it had a clear right to do. The balance of the interpleader recovery was applied to the guarantee account, reducing plaintiff's claim against defendant to the sum of $5,455.26. It was to recover this balance that plaintiff instituted the Law Division action now under review.

Defendant raised three defenses to that action, claiming that (1) plaintiff's cause of action was res judicata by reason of the interpleader judgment entered in the Chancery Division, ...

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