Goldmann, Freund and Foley. The opinion of the court was delivered by Goldmann, S.j.a.d.
Defendants appeal from a Chancery Division summary judgment, as amended, in favor of plaintiff in his foreclosure action.
On July 22, 1957 plaintiff loaned $30,000 to defendant William H. Wilson, Inc., hereinafter referred to as the company. He asked for, and the company agreed to pay, a premium (so denoted in plaintiff's affidavit), of $13,000, thereby creating an indebtedness of $43,000. To evidence this obligation the company on that date executed and delivered to plaintiff 43 negotiable promissory notes of $1,000 each and bearing interest at 6%. The notes were payable at monthly intervals, beginning August 22, 1957, so that the last note fell due on February 22, 1961. The notes were endorsed by defendants William H. Wilson and Adriana, his wife. As security for the loan, the company executed and delivered to plaintiff a real estate mortgage containing the usual 30-day default clause. The mortgaged premises consisted of three contiguous improved lots on Route 46 in Totowa, N.J. There was a gasoline station on one lot, a three-family house on the second, and a restaurant and bar on the third. We note that one tract was already encumbered by a first mortgage in the amount of $13,125, and another tract by a first mortgage in the amount of $24,596. We are informed that as additional security plaintiff received a chattel mortgage on all the personal property in the restaurant, owned by Mayfair, Inc., of which Wilson was an officer, as well as all the capital stock of that company. This triple security is eloquent evidence of defendant's desperate need of funds and almost complete lack of bargaining position.
On July 27, 1957 the Wilson company conveyed the mortgaged premises to defendant Howin Corporation, of which Wilson was the president. Howin paid the $1,000 notes as they matured, together with interest, until the note of January 22, 1959 fell due. It apparently had some difficulty in paying that note. Howin gave plaintiff three checks of $400 each, respectively dated February 22, March 22 and April 22, 1959, to take care of the note. The first check was paid; the remaining two were returned by the bank marked "Insufficient Funds" and were never paid.
Howin paid the three notes that fell due in February, March and April, but failed to pay those due in May and June 1959. Plaintiff thereupon elected to call the entire balance due, and on July 2, 1959 instituted the present action to foreclose the real estate mortgage. The complaint stated that there was then due on the unpaid notes and mortgage the principal sum of $22,800 plus interest of $2,622 to June 22, 1959.
In their answer defendants admitted execution of the 43 notes but denied they were indebted to plaintiff in the amount claimed. By way of separate defense they alleged that the loan transaction contemplated a bonus to plaintiff to be apportioned over the life of the notes; acceleration in the payment of the notes would make the $13,000 bonus "tantamount to a penalty," and therefore that portion of the loan which became a penalty by virtue of the acceleration was not due and owing to plaintiff and should be credited against the amount claimed to be due. Further, defendants characterized the bonus as exorbitant and unconscionable, and claimed they were entitled to a credit against the portion said to be due and owing, thereby reinstating the loan and vacating the alleged default.
On March 1, 1961 plaintiff, pursuant to an order permitting him to do so, filed a supplemental complaint setting out that additional notes, due on the 22nd day of each month commencing with July 22, 1959, and up to and
including January 22, 1961, had not been paid. Defendants answered, setting up the same defenses as before.
Plaintiff then moved for summary judgment, the motion being supported by an affidavit of indebtedness in which plaintiff stated that the balance of the principal sum due was $23,800, represented by 23 notes and two checks of $400 each, together with interest thereon. This allegation was corrected in an affidavit filed soon after by plaintiff in which he indicated that $22,800 was due, represented by 22 notes and the two checks, plus interest of $5,156.80, or a total of $27,956.80. In an answering affidavit, defendant Wilson alleged that
"4. The January 22, 1959, payment was paid unto the plaintiff by three separate checks, which the plaintiff accepted pursuant to an arrangement made between the plaintiff and the defendant corporation."
He pointed out that although plaintiff demanded the sum of $25,422 in his original complaint, he had already received $46,422 in all, including $21,000 on account of principal, the $13,000 bonus, and interest at 6% from July 22, 1957, "which sum is unconscionable, and if said demand is permitted, the amount in excess of Thirty Thousand ($30,000.00) Dollars actually loaned, would be tantamount to a penalty." Based upon payments ...