[89 NJSuper Page 578] This is an action on a promissory note. On May 10, 1960, the defendant, G.R. Wood, Inc., then the operator of a scheduled bus line and of charter buses, made and executed to the plaintiff bank a note for $4000. The note was given for a loan to finance the purchase of a bus by G.R. Wood, Inc. As collateral security for the loan, G.R. Wood, Inc. gave to plaintiff a chattel mortgage on the bus, bearing even date with the note, which was recorded in
the office of the County Clerk of Gloucester County. The note was indorsed in blank before delivery by the individual defendants Knight, Kouvatas, Forte, Matthews and Hasbrouck.
Periodic payments of interest were made on the note to and including June 30, 1962. On that day, an order was entered in the Superior Court, Chancery Division, adjudicating G.R. Wood, Inc. insolvent and appointing Harris Y. Cotton, Esq., a member of the bar of this State, as custodial receiver of the company. By the same order, the creditors of the company were enjoined and restrained from proceeding with legal actions against it.
Following the appointment of the receiver, a petition for reclamation of the mortgaged bus was prepared and filed on behalf of the plaintiff but was never prosecuted to completion and no order granting or denying reclamation was ever entered. The receiver testified in the trial of this action that, with respect to certain other buses, the holders of encumbrances filed petitions for reclamation which the receiver resisted. In those cases orders were entered permitting the receiver to reclaim and operate the buses, paying to the petitioners rental therefor at the rate of $100 per month for each such bus.
The receiver operated the company until November 1964. On January 8, 1965 the bus which was pledged as collateral by the said chattel mortgage was sold, by leave of the court, for the sum of $1550. By agreement with the plaintiff, the receiver retained $200 as compensation for his administrative expenses in effecting the sale and remitted the balance of $1350 to plaintiff, which has been credited by plaintiff on account of the amount due on the note.
Demand was made by plaintiff for payment of its note on May 31, 1963. In due course the note was presented for payment but was not paid. This action was instituted on August 5, 1963. By reason of the injunction above mentioned the action has not proceeded against G.R. Wood, Inc. Douglas Hasbrouck was not served with process and is not presently a party to this action. The plaintiff seeks judgment for the
balance due on the note against the remaining individual defendants.
These defendants assert that they are relieved of liability on the note by reason of the failure of the plaintiff to seize and sell the bus held as collateral and apply the proceeds of such sale in satisfaction of or on account of the balance due on the note. In the alternative they assert that they should be credited with the amount which might have been realized from such sale.
This transaction having taken place before the effective date of the Uniform Commercial Code in this State (N.J.S. Title 12A) the case is governed by the provisions of the Uniform Negotiable Instruments Law, R.S. 7:1-1 et seq. Under that law, the defendants here occupy the status of accommodation indorsers.
"An accommodation party is one who has signed the instrument as maker, drawer, acceptor or indorser, without receiving value therefor, and for the purpose of lending his name to some other person; such person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party." R.S. 7:2-29.
The words "without receiving value therefor" have been held to refer to the instrument, so that under this section an accommodation party is one who has signed his name thereto without receiving value for the instrument. Carr v. Wainwright, 43 F.2d 507 (3 Cir. 1920). Here the recipient of the loan was G.R. Wood, Inc., an operating bus company. G.R. Wood, Inc. was the purchaser and owner of the bus mortgaged as collateral and the loan was to finance the purchase of said bus. The defendants, while stockholders of G.R. Wood, Inc., are not shown to have received any individual benefit or value for the note. The mere fact that the loan would not have been granted without their indorsements on the note does not alter that fact, or ...