Conford, Freund and Kilkenny. The opinion of the court was delivered by Freund, J.A.D.
This is an appeal by Albert A. Calvetti and his wife, Mary Calvetti, co-makers of a promissory note, from summary judgment entered in favor of New Jersey Mortgage and Investment Corp. (New Jersey Mortgage) as holder in due course of that note. The appellants challenge the propriety of the entry of judgment upon pleadings, affidavits, and answers to interrogatories, wherein, they maintain, genuine issues of material fact were presented.
The note, in the face amount of $1,208.82, is dated June 15, 1959 and was given in connection with a contract between the Calvettis and United Aluminum Products, Inc. (United) for the installation of aluminum siding on the former's Paterson home. The instrument was sold for $969 by United to New Jersey Mortgage on June 16, 1959, and the latter, unable to obtain payment from the Calvettis, instituted this action on the note.
Defendants answered by denying that plaintiff was a holder in due course of the note. Their precise contention was that New Jersey Mortgage had knowledge of a defect or infirmity in the instrument at the time of receiving it from United. They asserted that the note had been executed pursuant to a written contract of June 14, 1959 for aluminum siding; that the contract clearly provided that defendants would get 2% off the contract price if they paid cash, and that they orally agreed, accordingly, with United's representative, that they would sign a blank note which would be held by United pending determination by them as to whether or not they would pay in cash or not; that the instrument was incomplete in material respects, including the amount due; that delivery of the note was made on the express condition that United would hold the instrument pending acceptance by defendants of the installation work and that "plaintiff received the said note knowing of the conditional delivery thereof"; that United breached its contract by performing its work in an incompetent, negligent, and careless manner and not to the satisfaction of defendants,
and that the latter had notified the payee that the contract was cancelled. Defendants also pleaded, as a separate defense, that the note was actually signed on Sunday, June 14, 1959, in contravention of N.J.S. 2A:171-1.
Concurrent with their answer, the Calvettis joined United as a third-party defendant, demanding that the contractor be held liable to defendants for any judgment on the note in favor of New Jersey Mortgage. United's answer denied both the conditional nature of the note and the inadequacy of its installation performance.
The attainment of the status of holder in due course presumes compliance with the statutory conditions set forth in R.S. 7:2-52. There is no real dispute that plaintiff purchased the note for value, that the instrument was complete and regular upon its face, and that plaintiff became the holder before the note (payable in monthly installments) was overdue and was without notice that it had been previously dishonored. The remaining and central question therefore is: Does a genuine issue of fact exist as to whether New Jersey Mortgage took the instrument without notice, at the time of negotiation, "of any infirmity in the instrument or defect in the title of the person negotiating it"?
Summary judgment procedure, while invaluable as a means of expediting judicial administration, Broderick Wood Products Co. v. United States , 195 F.2d 433, 435-36 (10 Cir. 1952), as well as discouraging the practice of coercive settlement of an otherwise worthless claim by the threat of drawn-out trial proceedings, Altman v. Curtiss-Wright Corporation , 124 F.2d 177, 180 (2 Cir. 1941), is to be utilized with the utmost caution and never as a vehicle for judicial fact-finding by means of a choice between opposing affidavits. Judson v. Peoples Bank & Trust Co. of Westfield , 17 N.J. 67, 73-75 (1954); Devlin v. Surgent , 18 N.J. 148, 154 (1955); Frank Rizzo, Inc. v. Alatsas , 27 N.J. 400, 405 (1958); Bouley v. Borough of Bradley Beach , 42 N.J. Super. 159, 167-68 (App. Div. 1956); Mango v. Brodsko , 32 N.J. Super. 143 (Ch. Div. 1954).
Thus, all doubtful inferences are to be drawn against the movant in favor of the opponent of the motion, Judson v. Peoples Bank & Trust Co. of Westfield, supra , 17 N.J. , at p. 75, Bouley v. Borough of Bradley Beach, supra , 42 N.J. Super. , at p. 168, although, on the other hand, mere allegations in the pleadings without affidavit or other evidentiary support may not prevent the rendering of the judgment. Ocean Cape Hotel Corp. v. Masefield Corp. , 63 N.J. Super. 369, 383 (App. Div. 1960). The prevailing standard is most precisely articulated by the rule establishing it, namely, R.R. 4:58-3, providing that "if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show palpably that there is no genuine issue as to any material fact challenged * * * the moving party is entitled to a judgment or order as a matter of law."
Clearly a number of facts have been placed in issue by the parties in their pleadings and supportive papers, which include answers by both United and New Jersey Mortgage to interrogatories propounded by defendants. The inquiry is whether these issues are "genuine" and "material" to defendants' liability on the note. The Calvettis concede that their allegations of Sunday execution, failure of consideration, and conditional delivery are at best personal defenses, but they maintain that the stripping of plaintiff's armor as a holder in due course would subject it to these defenses. This is of course an accurate rephrasing of the mandate of R.S. 7:2-58, to the effect that "[i]n the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable." See New Jersey, Study of Uniform Commercial Code (Nov. 1960), §§ 3-201, 3-306.
Scrutinizing the moving papers, we note defendants' affirmation that "the plaintiff received an incomplete document and with knowledge that it had been delivered only conditionally and upon terms which were not properly met by the payee of the purported note"; that "a note was received by the plaintiff under circumstances where it knew, or was
chargeable with notice, that this indorsement [a form warranty on the back of the note attesting that the work had been properly competed] was false"; and that the affidavits and answers to interrogatories of United and New Jersey Mortgage are contradictory in certain pertinent respects and raise "a factual controversy of material importance." Plaintiff, through its secretary-treasurer, Edward Baime, averred that when the note was negotiated to it, the instrument was "fully complete and regular on its face in all material particulars including the date and amount due"; that it had no notice that, as alleged, the instrument had been delivered only conditionally and upon terms not properly met by the payee; and that it actually had no knowledge of the terms of the contract at the time of negotiation of the note.
Certain elemental principles may here be stated, for the purpose of defining the perimeter of the present inquiry in terms of materiality. The essential issue which defendants claim to be genuinely in dispute is whether or not plaintiff had notice of the defective (conditional) nature of the instrument. The elements comprising notice in this context are basically as defined in R.S. 7:2-56:
"To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith."
New Jersey has decisively aligned itself with those jurisdictions which follow the "white heart" or "subjective" test of good faith. See New Jersey, Study of Uniform Commercial Code, supra , § 3-302, comments 1 and 4. By this standard, the court looks to the actual knowledge of the holder rather than to what the awareness of a prudent man would have been under the circumstances. As the rule is generally stated, evidence of bad faith on the part of the holder, and not merely proof of circumstances ...