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Great Falls Bank v. Pardo

January 27, 1993


Boyle, P.J.Ch.


This motion for reconsideration focuses on the novel issue of whether the court should have granted summary judgment to a mortgagee bank, when the defaulting mortgagor's co-partners fraudulently induced him to give to the bank (1) a guaranty covering the co-partners' prior debt and (2) a mortgage to secure his guaranty -- both in exchange for an interest in the co-partners' real estate venture.

Plaintiff, Great Falls Bank ("Great Falls"), brought this action against defendants, Joseph Pardo ("Pardo"), Samuel Petracca ("Petracca"), and others, to foreclose a real estate mortgage. On December 28, 1992, the court granted plaintiff's motion for summary judgment. Pardo now asks the court to reconsider its ruling.


In late 1987 or early 1988, Frank Paparatto ("Paparatto"), Petracca, and Ciro Spinella ("Spinella") agreed to acquire certain land, construct family residences thereon, and sell the same for profit, which they agreed to share as follows: Paparatto --

60%; Petracca -- 20%; and Spinella -- 20%.*fn1 On June 8, 1988, the partners borrowed $350,000 from Great Falls to help finance this project and executed a promissory note. To secure the loan, (1) the three partners and their wives executed guaranties, (2) Petracca, Spinella, and their wives executed mortgages, and (3) Paparatto pledged a $100,000 certificate of deposit.

In late 1988, Pardo acquired a fourteen percent interest in this venture. In exchange for same, Pardo (1) contributed $176,000, (2) gave a guaranty to Great Falls on January 6, 1989 covering the funds borrowed by the three partners,*fn2 and (3) executed a mortgage to Great Falls on June 16, 1989 to secure his guaranty. On June 22, 1989, plaintiff released Paparatto's certificate of deposit in exchange for Pardo's mortgage.

On January 21, 1990, the bank extended the loan for one year and the partners executed a renewal promissory note to plaintiff. The four partners, including Pardo, signed the note as principal obligors and listed the Pardo, Petracca, and Spinella mortgages as security. On August 16, 1990, plaintiff filed suit because the partners failed to pay required monthly interest payments.

On November 14, 1990, the partners executed another renewal promissory note to plaintiff. This time, plaintiff dismissed the lawsuit and extended the loan for another year. The four partners again signed the note as principal obligors and listed the mortgages as security. On the same date, Pardo and Petracca also executed mortgage modification and extension

agreements. Both the promissory note and the modification and extension agreements stated that plaintiff may release any party or collateral without affecting the liability of the mortgagors or debtors.

On June 28, 1991, plaintiff released Ciro and Maria Spinella from their obligations and discharged their mortgage. In exchange therefor, the Spinellas paid off twenty-five percent (25%) of the loan balance. Because the remaining debtors did not pay the $262,500 balance when the loan matured, Great Falls instituted this foreclosure action.

On December 18, 1992, plaintiff moved for summary judgment. In opposition to this motion, Pardo contended that the bank was merely a third party beneficiary of Pardo's promise to guarantee and secure the partners' debts. He further contended that, according to third party beneficiary principles, the mortgage was void because Paparatto and Petracca fraudulently induced him to execute it. Pardo also maintained that, for several reasons, the mortgage was void because it did not secure a valid, subsisting debt. He contended that the underlying debt was unenforceable because (1) plaintiff released a principal obligor, (2) his partners fraudulently induced him to execute it, and (3) it lacked consideration. Alternatively, Pardo asked the court to delay the enforcement of the foreclosure judgment until plaintiff enforces its mortgage against Petracca.

In response, plaintiff contended that Pardo's mortgage was not a third party beneficiary contract because Pardo had become a principal obligor on the note. The court rejected this argument because, based on the deposition testimony of plaintiff's vice-president Glenn Durr ("Durr"), an issue of fact existed as to whether Pardo and Great Falls intended to change Pardo's status from guarantor to principal obligor. Nevertheless, the court concluded that Pardo was liable on the mortgage even if he remained a guarantor and, therefore, granted summary judgment in favor of plaintiff. Pardo contends that the court erred in this respect.


The only material issues in a foreclosure proceeding are the validity of the mortgage, the amount of the indebtedness, and the right of the mortgagee to resort to the mortgaged premises. See Central Penn Nat'l. Bank v. Stonebridge, Ltd., 185 N.J. Super. 289, 302, 448 A.2d 498 (App.Div.1982); Thorpe v. Floremoore Corp., 20 N.J. Super. 34, 37, 89 A.2d 275 ...

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