On appeal from the Superior Court of New Jersey, Law Division, Cumberland County.
Michels, Baime and Wallace. The opinion of the court was delivered by Michels, P.J.A.D.
Defendant Sherman Laboratories, Inc. (Sherman Laboratories) challenges an order of the Law Division granting a partial summary judgment that awarded plaintiff Optopics Laboratories Corporation (Optopics) the total sum of $124,696.12 for principal and interest due under a loan agreement.
The essential factual background and procedural history giving rise to this appeal follow. Optopics and Sherman Laboratories were both engaged in the production and sale of sterile ophthalmology products. In April 1983, Optopics acquired certain assets of Ketchum Laboratories, Inc., which previously had produced products for Sherman Laboratories. As Optopics wanted to continue manufacturing products for Sherman Laboratories, the parties entered into a Manufacturing License Agreement on February 26, 1985, which detailed Optopics' use, marketing, sale and/or manufacture of Sherman Laboratories products. The Agreement was subsequently amended in April 1985 to add another product of Sherman Laboratories. Thereafter, on May 21, 1985, the parties entered into a Loan Agreement under which Optopics advanced Sherman Laboratories $90,000 in four separate transactions over the course of the next year. That Agreement provided, in pertinent part:
1. Optopics will loan Sherman no more than $200,000 ("the Sherman Loan") under the terms and conditions herein stated. Except as provided in the first sentence of Section 8, $40,000 shall be paid to Sherman upon the execution of this Agreement and the remainder promptly as such funds become available to Optopics. The total of the Sherman Loan shall consist of the amount paid to Sherman plus the amount withheld for deposit to the Interest Fund (Sherman Loan Total).
5. Sherman will pay Optopics interest monthly on the Sherman Loan at the rate of Chase Manhattan Prime, plus 1%, on a per annum basis. Such Chase Manhattan Prime shall be the one in effect on the first New York Banking Day of the month as of 5:00 p.m. EDT (EST).
6. Sherman will pay Optopics interest on the first day of each month, for that month, with the Chase Manhattan Prime Rate applicable thereto being the one for the month immediately prior thereto (Interest Due Date).
The purpose of the loan, as indicated in the Agreement, was to allow Sherman Laboratories to "purchase and install production equipment, to erect a warehouse and to enlarge and improve certain existing production facilities." Further, the Agreement provided that Sherman Laboratories was to issue Optopics certain shares of Sherman Laboratories stock as other consideration for the loan. Optopics' first loan payment of $40,000 was executed on May 21, 1985, along with the Agreement, and it was evidenced by a Promissory Note. However, the additional $50,000.00 which was loaned to Sherman Laboratories by Optopics was not evidenced by any promissory notes. The Promissory Note executed with the Agreement contained the following pertinent provisions:
If any installment of principal or interest is not promptly paid when due and the interest fund has been depleted after Optopics has acted fully and completely to comply with the requirements of that certain "Agreement" executed by and between Sherman and Optopics on May 21, 1985, then the entire debt, at the option of the holder hereof, shall at once mature and become due and payable.
In case this note should be placed in the hands of an attorney at law after its maturity to institute legal proceedings or interest, or to protect the interests of the holder hereof, or in case the same should be placed in the hands of an attorney for collection, compromise, or other action, Sherman Laboratories, Inc. agrees to pay the reasonable fees of the attorney who may be employed for that purpose.
As to interest payments, the Loan Agreement provided for the creation of an "Interest Fund -- Money Market Account." This account was to be for the benefit of Sherman Laboratories, and it was to be sustained by funds which Optopics would withhold from each loan disbursement in the amount of the monthly interest projected to come due on the loan. Additionally, particular provisions were included in the Agreement which addressed the separate scenarios wherein the account either approached exhaustion or became entirely exhausted. Specifically, the Agreement provided:
Interest Fund -- Money Market Account
8. Optopics will withhold from each disbursement by Optopics to Sherman on the Sherman Loan an amount equal to the projected monthly interest payments thereafter remaining on the Sherman Loan until one (1) year from the date of this Agreement at the then current Chase Manhattan Prime rate, plus 1% on an annual basis; such amount shall be at least $4,400.00 on the first disbursement and shall constitute an "Interest Fund". All amounts in the Interest Fund will be deposited to an Optopics titled Money Market Account, which shall be the property of Sherman (subject only to the administration of Optopics), with interest inuring to the benefit of Sherman. The Interest Fund will be used by Optopics solely to pay interest to Optopics on the Sherman Loan. Optopics will issue checks to Optopics from the Money Market Account solely for interest due on the Sherman Loan on the first day of each month. Optopics will pay, in turn, interest to Lenders of monies to Optopics. Optopics will send Sherman a copy of the statement from the Money Market Account within seven days after receipt.
9. Before the Interest Fund is exhausted, thereby making it impossible for Optopics to pay interest to Optopics on the Sherman Loan, it will be the duty of Optopics to give Sherman at least thirty (30) days prior notice of such impending exhaustion and to advise Sherman of the amount required to supplement the fund. If Sherman fails to adequately supplement the Interest Fund before the fund is exhausted, then Sherman will issue Sherman stock to Optopics at a conversion price of $.25 per share on the 10th day after the defaulted Interest Due Date ...