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Ligran Inc. v. Medlawtel Inc.

Decided: July 16, 1981.

LIGRAN, INC., A CORPORATION OF THE STATE OF NEW JERSEY AND MARTIN ANGER, PLAINTIFFS-APPELLANTS,
v.
MEDLAWTEL, INC., A NEW JERSEY CORPORATION, ET AL., DEFENDANTS, AND ELIZABETH BUTKUS, DEFENDANT-RESPONDENT



On certification to the Superior Court, Appellate Division, whose opinion is reported at 174 N.J. Super. 597 (1980).

For reversal and remandment -- Chief Justice Wilentz, and Justices Sullivan, Pashman, Clifford, Schreiber, Handler and Pollock. For affirmance -- None. The opinion of the Court was delivered by Pollock, J.

Pollock

The primary issue in this case is when does a cause of action accrue against a person who is both the maker and the guarantor of payment of a promissory note. More specifically, where a promissory note is given as security for a lease, does the cause of action accrue at the time the note is issued or at the time the lease is breached? Inherent in this question is the problem of whether, as a matter of law, a maker can extend his or her liability by also signing as a guarantor of payment. We conclude that the resolution requires additional factual findings, and we remand the matter to the trial court for further proceedings.

I

On April 28, 1969, defendant Elizabeth Butkus personally executed a promissory note for $12,500 payable on demand to plaintiff Martin Anger. Anger is the former president of Ligran, Inc. and Butkus is the president of Medlawtel, Inc., which, like Ligran, is a close corporation. On April 26, 1969, Medlawtel leased the Village Motel and Swim Club in Rahway from Ligran. The parties agree that the note was issued as security for Medlawtel's performance on the lease.

Butkus signed on the face of the note as sole maker and on the back as sole guarantor of payment. The written guaranty reads:

For value received the undersigned and each of them hereby forever waives presentment, demand, protest, notice of protest and notice of dishonor of the within note, and the undersigned and each of them guarantees the payment of said note with interest at maturity or any time thereafter and consents without notice to any and all extensions of time or terms of payment made by holder of said note.

Notwithstanding the agreement of the parties, the instruments do not specify their interrelationship. Because Anger does not claim to be a holder in due course, the denomination of the note as a demand instrument is not dispositive of the rights and duties of the parties. Furthermore, the lease is unclear in

regard to the term of the tenancy. Paragraph 2 of the lease states: "[t]he term of this demise shall be for five years, beginning May 1, 1969 and ending April 30, 1979 [ sic ] (together with additional five year option as hereinafter set forth)." Paragraph 26, pertaining to security in the event of an exercise of the option to renew, provides:

Tenant shall have an option to renew the within lease for a period of five years upon the same terms and conditions as is set forth herein . . . . In the event Tenant exercises their option to renew the within lease, then the Landlord shall continue to hold the security deposit of $10,000 upon the same terms and conditions as set forth herein until the expiration of the option period.

Although the lease states the amount of the security deposit at $10,000, the trial court found that the promissory note for $12,500 represented the security deposit under the lease. The discrepancy arose because Ligran actually executed two leases to Medlawtel for two separate motels and those leases required a total security deposit of $25,000. Medlawtel paid the deposit of $12,500 for the second motel lease in cash. The note, thus, represented the security deposit for the Village Motel.

On December 1, 1969, the parties modified the lease. Paragraph 2 was amended to read: "[t]he term of this demise shall expire on April 30, 1977, together with a five-year option as hereinafter set forth." Paragraph 26 was modified: "[t]he tenant shall have the option to renew the within lease for a period of five years from May 1, 1977." Although the parties ...


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