Goldmann, Conford and Haneman.
[58 NJSuper Page 267] Plaintiff brought an action in the County Court to recover the principal, interest and attorney's fee due on three of five promissory notes (the first two are not here involved, having been paid), executed and delivered on September 12, 1957 by defendant Dewey's Garage, Inc. to E. Jay Ferdinand Agency, Inc. The notes were personally endorsed by defendant Dewey LaRose. They were then endorsed to plaintiff in blank by the Ferdinand Agency and its principal officer, E. Jay Ferdinand, under the terms of
an agreement entered into between plaintiff and the Ferdinand Agency on June 11, 1957, hereinafter described.
Following institution of the main suit defendants filed a third-party action against the Ferdinand Agency and Ferdinand personally, claiming that the latter had undertaken to obtain a loan of $6,500 for defendants, and for that sole purpose defendants had executed the notes in blank; that subsequently the third-party defendants represented they could not obtain the desired loan and had destroyed the notes; that the notes had not in fact been destroyed, but had been completed and negotiated by the third-party defendants to plaintiff; and that by reason of this fraud the defendants were entitled to indemnification and reimbursement should plaintiff succeed in its main suit. The parties agreed below, as they do here, that the legality of the transaction is to be determined under the laws of the State of New York, where the notes were delivered.
The County Court judge, sitting without a jury, initially found in favor of plaintiff and against defendants on each of their three defenses. He held that (1) the transaction was not a loan under the banking laws of New York, so as to be absolutely void, but a discount or purchase of the notes; (2) there was no action on plaintiff's part to circumvent the usury laws of New York; and (3) plaintiff was a bona fide holder in due course, so that the defense of fraud could not be invoked against it. Judgment for plaintiff was accordingly entered in the main case, and in favor of Dewey's Garage, Inc. and LaRose in the third-party action.
The court subsequently gave defendants special leave to make an application to set the judgment aside and to have judgment entered in their favor. Upon reargument the County Court judge reversed his position and found the notes were void because in contravention of the New York Banking Law, since they had been negotiated only for the purpose of obtaining a loan from plaintiff. It therefore set aside the original judgment and entered judgment against plaintiff. This appeal followed.
The nature of the transaction between plaintiff and Ferdinand is revealed by the agreement they entered into on June 11, 1957 relating to the advance of funds by plaintiff. Plaintiff agreed that it would from time to time purchase from the Ferdinand Agency accounts receivable and other choses in action representing monies due the Agency for unpaid premiums on insurance placed through it; and the Agency was to deliver to plaintiff promissory notes or other evidences of debt acceptable to plaintiff. Plaintiff was to advance to the Ferdinand Agency 75% of the net amount of the notes, and the remainder (less the "compensation" about to be mentioned) after actual receipt of payment of the balance thereof. The agreement provided that the Ferdinand Agency was to pay plaintiff, "as its compensation, 1/24th of 1% per day upon the net receivable balances from the date of purchase to the date of payment of the purchased accounts"; further, it was to pay plaintiff interest at the rate of 6% "upon the purchase-money outstanding, from the date of purchase to the date of payment" of the purchased accounts. Plaintiff's president testified that the total compensation to be paid amounted to about 24% a year.
Under the agreement it was the further responsibility of the Ferdinand Agency, in case any account was not paid in whole or in part at maturity, upon demand to pay plaintiff the full amount of the balance remaining unpaid. Attached to the agreement was a guarantee, signed by E. Jay Ferdinand and his wife individually, reciting that in order to induce plaintiff to purchase the Ferdinand Agency accounts, they would "jointly and severally guarantee the due payment and performance [by the Agency] of all monies to be paid and all things to be done, * * * as well as the due payment of all other obligations which [the Agency] may at any time owe [plaintiff], however created."
Additionally, the two Ferdinands gave plaintiff a mortgage, dated July 1, 1957, covering valuable properties owned by them in Millburn and Newark, N.J., securing
"* * * all sums which may be due and owing or which may become due and owing to [plaintiff] in accordance with the Agreement dated June 11, 1957 * * * and/or in accordance with the guaranty of the mortgagors dated June 11, 1957 * * *; and all sums which may be due and owing to [plaintiff] by virtue of said mortgagors' having guaranteed the payment of any debts owing or which may become owing from E. Jay Ferdinand Agency, Inc. to [plaintiff] (whether arising out of the endorsement of notes of said E. Jay Ferdinand Agency, Inc. or otherwise), which debt at the present time (in addition to such sums owing in accordance with said agreement dated June 11, 1957) amounts to the sum of THIRTEEN THOUSAND DOLLARS ($13,000) as evidenced by instruments of even date herewith."
On September 3, 1957 the Ferdinands gave plaintiff another mortgage covering the same properties, and of similar tenor, evidently intended as security to cover a ...