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Sachs v. Jefferson Loan Co.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


February 27, 2009

JANET SACHS PLAINTIFF-APPELLANT,
v.
JEFFERSON LOAN COMPANY, DEFENDANT-RESPONDENT.
ROBERT SACHS, PLAINTIFF-APPELLANT,
v.
JEFFERSON LOAN COMPANY, DEFENDANT-RESPONDENT.

On appeal from the Superior Court of New Jersey, Law Division, Special Civil Part, Bergen County, Docket Nos. DC-4115-07 and DC-7066-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued November 18, 2008

Before Judges Winkelstein and Gilroy.

Following a non-jury trial, plaintiffs Janet Sachs (Janet) and Robert Sachs (Robert) appeal from: 1) the November 13, 2007 order that dismissed their complaints against defendant Jefferson Loan Company; and 2) the two orders of December 6, 2007, one as to each plaintiff, that effectively amended the November 13, 2007 order by providing that the dismissals of their complaints were without prejudice, subject to plaintiffs re-filing the complaints upon defendant's default in making payment to plaintiffs. For reasons that follow, we reverse and remand the matter to the trial court to enter judgment in favor of plaintiffs.

On February 14, 2007, Janet filed a complaint in the Special Civil Part against defendant, demanding payment of principal and interest owed on a debenture issued by defendant on November 7, 2000. The debenture was for the principal amount of $5,636 and bore interest at the rate of 10% per annum for a term of five years. On March 16, 2007, Robert, Janet's brother, filed his complaint against defendant, demanding payment of principal and interest owed on defendant's debenture dated October 29, 2005. The debenture was for the principal amount of $5,000 and bore interest at the rate of 10% per annum for a term of three years. On March 26, 2007, and May 4, 2007, defendant filed its answers to Janet's and Robert's complaints, respectively.

On September 17, 2007, the matters were consolidated and tried non-jury. On November 13, 2007, the trial court entered an order dismissing both complaints. On December 6, 2007, the trial court entered two orders, one with respect to each of the complaints, effectively amending the order of November 13, 2007, by providing that the complaints could be re-filed upon defendant's default in payment on the debentures.

I.

Defendant is in the business of making consumer loans. It raises capital, in part, by issuing debentures to private lenders and through commercial loans from banks, including Valley National Bank. Each debenture issued to a private lender contains the following provision: "[t]his instrument is subordinate to all indebtedness of the Corporation now existing and which may be incurred after the issue date for indebtedness and obligations to banks, trust companies, and other financial institutions or lending institutions."

Janet and Robert are holders of separate debentures. On November 6, 1995, Janet lent $3,500 to defendant for a term of five years with interest at 10% per annum. The debenture was renewed on November 7, 2000, in the principal amount of $5,636 for an additional term of five years, maturing November 6, 2005.

Robert became a debenture holder in October 1993. The debenture was renewed several times, with the last debenture being issued on October 29, 2005, in the amount of $5,000, for a term of three years with interest payable at the rate of 10% per annum. The cover letter forwarding the debenture to Robert provided that the interest would be payable to him on a quarterly basis.

In November 2006, because of its financial difficulties, defendant not only stopped making interest payments on all outstanding debentures, but also stopped redeeming all debentures. In December of that year, defendant issued a letter to the debenture holders advising of its dire financial condition and that it was going to voluntarily liquidate its assets. The letter informed the debenture holders that it had reached an agreement with its prime lender, Valley National, whereby defendant would liquidate its holdings; pay $3,500,000 against an outstanding $7,500,000 loan of Valley National; and then share any other monies that defendant receives in liquidation on a 50/50 basis between Valley National and the debenture holders.

Not wanting to stand second to Valley National, Janet and Robert filed separate complaints, seeking to recoup the monies owed under their debentures. The matters were consolidated and tried without a jury on September 17, 2007. The court rejected plaintiffs' contentions that defendant had anticipatorily breached the debenture agreements because defendant never stated that it was going to default in the payment of the debentures or declare bankruptcy. The court dismissed plaintiffs' complaints without prejudice, directing that they could be re-filed upon defendant's default.

On appeal, plaintiffs argue: 1) the trial court erred in determining that defendant had not anticipatorily breached its debenture obligations to plaintiffs; 2) defendant breached its verbal agreement and prior practices of allowing debentures to be redeemed prior to maturity; 3) the court erred in not addressing Janet's claim that she never received notice that her debenture had matured in November 2005; and 4) even if plaintiffs' debentures were subordinate to Valley National's loan, it did not prevent entry of judgment.

II.

Reviewing courts "'do not disturb the factual findings and legal conclusions of the [motion] judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice . . . .'" Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974) (quoting Fagliarone v. Twp. of No. Bergen, 78 N.J. Super. 154, 155 (App. Div. 1963)). However, a motion judge's "interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995). It is against these principles that we consider plaintiffs' arguments.

III.

Plaintiffs first argue that the trial court erred in determining that defendant had not anticipatorily breached its debenture obligations to them. We agree.

Anticipatory repudiation "entitles a nonrepudiating party to claim damages for total breach when the other party, through an unambiguous affirmative act or statement, repudiates its contractual duties prior to the agreed-upon time for performance." Spring Creek Holding Co. v. Shinnihon U.S.A. Co., 399 N.J. Super. 158, 178 (App. Div.), certif. denied, 196 N.J. 85 (2008). However, there are two general views as to whether the nonrepudiating party may sue for damages when the other party acts in other than a non-ambiguous manner. Id. at 178-79.

Under the traditional view, "[t]he nonrepudiating party could either continue to perform, and subject itself to greater damages when the other party failed to satisfy its contractual duties, or halt its performance." Id. at 179. The modern view is not so restricted; that is, it "does not 'limit anticipatory repudiation to cases of express and unequivocal repudiation of a contract. Instead, anticipatory repudiation includes cases in which reasonable grounds support the obligee's belief that the obligor will breach the contract.'" Ibid. (quoting Danzig v. AEC Corp., 224 F.3d 1333, 1337 (Fed. Cir. 2000), cert. denied, 532 U.S. 995, 121 S.Ct. 1656, 149 L.Ed. 2d 638 (2001)); see also Restatement (Second) of Contracts § 251 (1981). New Jersey courts follow this modern view approach. Spring Creek Holding, supra, 399 N.J. Super. at 179.

Here, defendant sent each plaintiff a letter on December 13, 2006, advising that it was ceasing business operations and that there was no guarantee that the unsecured debenture holders would receive the monies owed under the debentures. Rather, defendant informed plaintiffs that it had not only reached an agreement to liquidate with Valley National, its prime lender, to which defendant then owed approximately $7,500,000, but also to pay Valley National the first $3,500,000 from the liquidation proceeds. After that initial payment is satisfied, defendant would then share the remaining proceeds of the liquidation equally among all debenture holders and Valley National.

We are satisfied that the letter evidenced reasonable grounds to support plaintiffs' beliefs that defendant was not going to pay the principal and interest on their debentures. The breach of non-payment goes to the essence of the debenture contract, and as such, plaintiffs may treat defendant's action as a breach of the agreement to pay and sue for damages. Moreover, as to Robert's claim, there was no dispute that defendant had defaulted in making the quarterly interest payment owed on the debenture.

Defendant argues that it did not default in its payment of the debentures because the debentures contained a provision subordinating the debenture holders' indebtedness to the indebtedness owed to defendant's commercial lenders. We disagree. The fact that the debentures are subordinate to commercial loans does not affect whether defendant breached its agreement with plaintiffs. It simply may have placed plaintiffs in a position behind the commercial lenders as to payment, not the right to sue for breach of contract. See Conklin v. Hannoch Weisman, 145 N.J. 395, 402 (1996) (where the court explained the concept of loan subordination as "if you are a lender, to subordinate a loan to that of another means that someone else must be paid before you can collect anything from the borrower. If the borrower owes a substantial sum of money to that other party, you may not be paid at all").

Accordingly, we reverse the three orders appealed from that dismissed plaintiffs' complaints without prejudice, subject to plaintiffs re-filing upon the default of defendant; and remand the matters to the trial court to enter judgment in favor of each plaintiff for monies owed on each debenture. We do not express any position as to plaintiffs' rights to collect on those judgments prior to indebtedness owed by defendant to its commercial lenders.

Reversed and remanded for further proceedings consistent with this opinion.

20090227

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