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Swift & Co. v. Smigel

Decided: July 15, 1971.


Conford, Kolovsky and Carton. The opinion of the court was delivered by Conford, P.J.A.D.


[115 NJSuper Page 392] Plaintiff Swift & Company instituted an action in the Superior Court against Erwin Smigel, executor of the estate of Joseph O. Smigel, for

$8,509.60, the amount of merchandise it supplied the Pine Haven Nursing Home & Sanitarium, Inc. ("Pine Haven") upon credit. Plaintiff held continuing guaranties by decedent Smigel and third-party defendant Abe Kraig for payment of the indebtedness. The trial court granted defendant Erwin Smigel's motion for summary judgment, and entered judgment dismissing Swift's complaint and Smigel's third-party complaint against Kraig. Swift appeals from that judgment.

The action of the trial court was predicated upon Joseph Smigel's adjudication as an incompetent prior to the delivery of any of the merchandise for which claim is here made, and upon the authority of the supposed rule that mental incompetency of an offeror prior to acceptance by the offeree terminates the offer whether or not the offeree had notice of the incompetency at the time of the acceptance. Restatement, Contracts , § 48 at 56 (1932). The justification for any such rule, which has not heretofore been passed upon in any reported New Jersey case, is the main question before us for resolution.

The undisputed facts which emerge from the pleadings, motion papers, briefs and oral argument are these. To induce plaintiff to sell provisions to Pine Haven, the two equal owners of its stock, decedent Smigel and one Abe Kraig, on November 11, 1962 each entered into a written agreement of "continuing guaranty" with plaintiff undertaking to pay at maturity all indebtedness of Pine Haven for goods to be sold and delivered to it by plaintiff. Among other provisions, the agreement signed by Smigel purported to cover all liabilities the buyer might incur until ten days after receipt of notice from the guarantor or his legal representatives of withdrawal of the guaranty. No notice of withdrawal was ever given by Smigel or his representatives. Plaintiff asserts, and for the purpose of this appeal it must be accepted as a fact, that it never had knowledge of Smigel's incompetency during the period of delivery of the merchandise giving rise to the present claims, or previously.

We are without information on the basis of which it could be determined whether plaintiff reasonably should have known or been put on inquiry of facts which would have disclosed Smigel's incompetence. Smigel was adjudicated incompetent January 16, 1966, and letters of guardianship were issued to his son, the present defendant, on February 1, 1966. The unpaid-for merchandise was delivered during the period from January 4, 1967 to October 12, 1967. What the course of deliveries and payments therefor previously may have been is not disclosed by the record.

Smigel died November 19, 1967. Pine Haven filed a petition under Chapter XI of the Bankruptcy Act on December 20, 1967. Plaintiff made a claim against the decedent's estate, which was rejected, whereupon this action was instituted.

Defendant's third-party complaint against Kraig and one defense to the complaint are based on the allegation that the goods in question were not delivered to Pine Haven but to a newly organized enterprise owned by Kraig. The merits of this claim were not involved in the decision of the court to enter the summary judgment.

Neither of the parties to this appeal disputes that the agreement upon which this action was brought was a continuing guaranty of the kind "which is not limited to a particular transaction * * * but which is intended to cover future transactions." See Fidelity Union Trust Co. v. Galm , 109 N.J.L. 111, 116 (E. & A. 1932). A continuing guaranty is at its inception an offer from the guarantor and is accepted by the creditor each time the latter does a specified act (e.g. , extending credit to the debtor). Typically, as here, such a guaranty reserves in the guarantor the power to revoke it unilaterally prior to action by way of acceptance by the creditor. 38 Am. Jur. 2d, Guaranty , § 63 at 1064.

The specific question which concerns us here -- whether an adjudication of mental incompetency of a guarantor operates automatically to revoke a continuing guaranty -- has not been decided in any American case disclosed by research

of the parties or our own. An English trial court decided that the continuing efficacy of the guaranty ceased only when the creditor became aware of the guarantor's insanity. The issue, however, was not involved in the reported appeal. ...

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