On appeal from the Superior Court of New Jersey, Law Division, Essex County.
Michels, Pressler and Trautwein. The opinion of the court was delivered by Michels, P.J.A.D.
Plaintiffs Maglificio Allesandra (Allesandra), Maglificio Alba Di Abati Luigi (Luigi), and Maglificio Camelia, S.R.L. (Camelia), appeal from a judgment of the Law Division dismissing their damage action against Arch Gross (Gross).
The facts, as they appear from the record, are that plaintiffs, three Italian clothing manufacturers, sold and delivered women's clothing and apparel to Highlander Sportswear, Inc. (Highlander), a New Jersey corporation. The merchandise was sold and shipped to Highlander on open account. While the record is not entirely clear, this arrangement was apparently satisfactory to the parties for some period of time. However, between August 5 and October 7, 1976 Allesandra sold and delivered to Highlander merchandise having a total cost of $100,408.99 without receiving any payment, and the relationship between the parties broke down. On October 14, 1976 Highlander delivered three postdated checks to Allesandra in the total sum of $24,531.10. By November 24, 1976 Highlander was still indebted to Allesandra in the total sum of $75,877.89. In order to bring its account up to date and to assure continued shipment of merchandise, Highlander delivered to Allesandra a series of six $10,000 promissory notes and a check in the sum of $15,877.89. Two of the notes were due in December 1976, two in January 1977 and two in February 1977, and each of the six notes was personally indorsed by Gross, the president and principal stockholder of Highlander. Thereafter, on November 30, 1976, following the execution and delivery of the six notes and check, Allesandra sold and delivered to Highlander additional merchandise having a total cost of $53,981.16. Highlander did not pay for this merchandise, and neither the $15,877.89 check nor any of
the six $10,000 notes indorsed by Gross was honored when presented for payment.
On April 18, 1977 Highlander filed a petition for relief from its creditors in accordance with chapter XI of the Bankruptcy Act in the United States District Court for the Southern District of New York listing, among its many creditors, the three plaintiffs. Plaintiffs immediately instituted this action in the Law Division against Gross and then filed a proof of claim against Highlander in the bankruptcy proceedings in the federal court. In their proof of claims plaintiffs claimed that $154,390.15 was owed them for goods sold and delivered, of which sum $60,000 was evidenced by the six promissory notes made by Highlander and indorsed by Gross. Highlander objected to plaintiff's claim and filed a counterclaim for an affirmative judgment in the bankruptcy court in the sum of $1,150,000 based on the alleged poor quality of the merchandise and plaintiffs' failure to deliver the merchandise on time and in the quantities ordered.
In the first three counts of the complaint filed in this action, plaintiffs essentially charged Gross with fraud and concealment in failing to disclose to them the true financial condition of Highlander when the merchandise was ordered in order to induce plaintiffs to sell the same on credit. They also alleged that they relied upon the financial soundness of Highlander when they sold and shipped the merchandise to Highlander, as a result of which they were damaged. Allesandra claimed damages in the total sum of $154,390.15, Luigi claimed damages in the sum of $11,753.35 and Camelia claimed damages in the total sum of $3,096.75. In the fourth count of the complaint Allesandra sought to recover $60,000 -- the total amount due on the six $10,000 promissory notes made by Highlander and personally indorsed by Gross. Gross denied that he was under any liability or obligation to plaintiffs and raised, among other separate defenses to the fourth count, that the merchandise sold and shipped to Highlander was of poor quality and therefore that there was a failure of consideration for the six promissory notes. Gross also filed a counterclaim against plaintiffs seeking to
recover damages for (1) the diminution in the value of his stock in Highlander due to the alleged poor quality of and failure to timely deliver the merchandise sold to Highlander, and (2) alleged malicious use and abuse of process.
Gross moved to dismiss the first three counts of the complaint on the ground that they failed to state a claim against him upon which relief could be granted. Plaintiffs thereupon filed cross-motions to dismiss the counterclaim on the same ground, and Allesandra moved for summary judgment on the fourth count. The trial judge granted Gross's motion to dismiss the first three counts of the complaint, in part reasoning that:
In this matter there are no circumstances which constitute any relationship between the parties other than the usual commercial relationship of buyer and seller with the buyer being the president of a corporation. In view of the fact that the plaintiff had no objection to dealing with a corporation and selling it goods on open account apparently without asking for a financial statement or without seeking any independent information as to its financial standing, it must take the law as it presently exists. While there is a strong judicial trend towards consumerism and the protection of parties to commercial transactions from overreaching by one party with respect to the other party, we have not reached the point where in a commercial transaction one corporation is required to disclose to another corporation that it may or may not be in a position to pay its bills. Many avenues of inquiry are available to a party to a commercial transaction if it seeks protection. The goods could have been shipped but not delivered until paid for. This is merely one example of a well known commercial safeguard. There are many more. The plaintiff did not avail himself of any and relied upon ultimate payment by the corporation. To charge an officer or an agent of the corporation personally with the responsibility for payment would reduce commerce to a shambles. The law imposes no such responsibility.
The trial judge also dismissed the counterclaim against plaintiffs, but reserved decision on Allesandra's motion for summary judgment to enable the parties to brief the matter further. Thereafter the judge denied the motion, concluding that there were genuine issues of material fact as to the quality of the merchandise and whether this represented a lack of consideration for the Highlander promissory notes indorsed by Gross, which he (Gross) could interpose as a defense.
Prior to the trial of this action Highlander's objection to plaintiffs' proof of claim filed in the bankruptcy court came on for hearing in the federal ...