February 19, 2010
CHRISTOPHER DEWEY, PLAINTIFF-RESPONDENT,
KAYANNA DEWEY, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Hunterdon County, Docket No. FM-10-352-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 27, 2009
Before Judges Gilroy and Simonelli.
Defendant Kayanna Dewey appeals from those provisions of the June 30, 2008 Family Part order that denied her motion seeking an order to compel plaintiff Christopher Dewey to pay interest on two promissory notes at the contract default rate.
We reverse and remand for further proceedings consistent with this opinion.
Following twenty-four years of marriage, the parties were divorced pursuant to a dual judgment of divorce (JOD) entered on May 9, 2007. One day prior to the entry of the JOD, the parties entered into a marital settlement agreement (MSA) addressing alimony, custody, child support, parenting time and equitable distribution of marital assets and liabilities. Pursuant to Paragraph Nos. 5.7C and 5.9 of the MSA, plaintiff executed two promissory notes in favor of defendant.
Under the promissory note referenced in Paragraph No. 5.7C (the "Collateral Assignment of Investments Note"), plaintiff agreed to pay defendant $1,372,000, with interest calculated at the rate of 7% per annum. This note requires interest to be paid quarterly, commencing July 1, 2007; and then on the first day of October, November and April for five years. On April 1, 2012, the entire balance of principal and accrued interest is due and payable.
Under the second promissory note referenced in Paragraph No. 5.9 (the "Appaloosa Note"), plaintiff agreed to pay defendant $5,685,000, together with interest calculated at the rate of 7% per annum. This note requires that the principal be repaid in four equal installments, commencing January 15, 2009, and then on the same day each year for the next three successive years. This note also requires interest to be paid quarterly on the same day when interest is due and payable under the Collateral Assignment of Investments Note.
Both notes contain defined default events. Among other defined events, the notes provide that the plaintiff shall be in default upon the failure to pay when due any interest or principal payments in accordance with the terms of the notes. Each note also contains defined remedies, and obligations upon default. Paragraph 6 of the Appaloosa Note provides in pertinent part:
... [U]pon such Default, Payee [(defendant)] shall provide written notice of Default to Maker [(plaintiff)] (specifying the Default) by hand or by recognized overnight courier (the "Default Notice"). Maker shall have twenty (20) days from the date of service of the Default Notice to cure the Default, provided, however, if a default of non-monetary obligation cannot be cured within said twenty (20) day period, maker may have an additional sixty (60) days to cure provided he is diligently pursuing such cure. Interest during the period of Default (measured from date of Event of Default) accrues at 15% or the maximum amount permitted by law if less than 15% (rather [than] at 7%) until the date the Default is cured (the "Default Penalty"). The Default Penalty is due and payable to Payee on the next quarterly interest payment date following the cure of the Default. If the Default is not cured, payment of all sums due under this Appaloosa Note automatically accelerates and are immediately due in full to Payee.... [(emphasis added).]
The Collateral Assignment of Investments securing the Collateral Assignment of Investments Note contains a like provision.
Under the MSA, defendant agreed to resign as trustee of an insurance trust that owned a life insurance policy on plaintiff's life. Because defendant failed to timely execute and submit her resignation papers as trustee, plaintiff withheld the October 1, 2007 interest payments on both notes totaling $123,497.50, and wired the funds to his attorney to hold in escrow pending defendant's execution of the necessary documents resigning her position as trustee. On October 18, 2007, after receiving the resignation documents from defendant, plaintiff notified his counsel to wire transfer the interest payments to defendant. Although plaintiff had failed to make the interest payments by October 1, 2007, defendant never served him with a notice of default.
The next quarterly interest payments became due on January 1, 2008. Plaintiff again owed $123,497.50 in interest on the two notes. Plaintiff paid that amount on January 14, 2008, again without being served by defendant with a notice of default.
On February 5, 2008, because plaintiff had not paid interest at the contract default rate of 15% per annum from October 1, 2007 to October 18, 2007, and January 1, 2008 to January 14, 2008, defendant filed a motion to enforce litigant's rights seeking, among other things, an order compelling plaintiff to pay additional interest during the time of default in the amount of $47,044.64 ($37,899.98 on the Appaloosa Note; and $9,144.66 on the Collateral Assignment of Investments Note). On March 3, 2008, plaintiff filed a cross-motion for counsel fees and costs. On March 5, 2008, defendant served plaintiff with notices of default under both notes.
The matters were argued on March 28, 2008. On June 30, 2008, the trial court issued an order with stated reasons that in relevant part denied defendant's request for an order compelling plaintiff to pay additional interest for the two time periods requested. In denying the relief, the court reasoned in part that neither note contained a provision permitting plaintiff to withhold the quarterly interest payment to strong arm defendant into compliance with the MSA. However, the court determined that because defendant had failed to provide written notice of default to plaintiff prior to plaintiff making payments on October 18, 2007, and January 14, 2008, defendant could neither accelerate the principal amounts due, nor compel payment of additional interest at the contracted rate.
On appeal, defendant argues:
THE TRIAL COURT'S CONCLUSIONS WERE NOT SUPPORTED BY SUBSTANTIAL CREDIBLE EVIDENCE AND THE COURT MISAPPLIED ITS [DISCRETION] BY REDEFINING THE TERM "DEFAULT" CONTAINED IN THE TWO NOTES AND IN DENYING DEFENDANT DEFAULT INTEREST FOR THE LATE PAYMENTS MADE BY THE PLAINTIFF UNDER THE NOTES CONTAINED WITHIN THE MARITAL SETTLEMENT AGREEMENT.
A. THE COURT'S INTERPRETATION OF THE DEFAULT PROVISION CONTAINED WITHIN THE APPALOOSA NOTE AND THE COLLATERAL ASSIGNMENT NOTE IS NOT CONSISTENT WITH THE CLEARLY WRITTEN, [UNAMBIGUOUS] DEFINITION OF "DEFAULT" CONTAINED IN THE ACTUAL NOTES.
B. NEITHER THE APPALOOSA NOTE NOR THE COLLATERAL ASSIGNMENT OF INVESTMENT NOTE REQUIRED NOTICE BEFORE A "DEFAULT EVENT" HAPPENED AND THEREFORE INTEREST BEGAN TO ACCRUE FROM THE DATE OF THE "DEFAULT EVENT" TO THE DATE THE PAYMENT WAS RECEIVED THAT WAS DUE THEREIN. THE COURT MISAPPLIED ITS DISCRETION IN CONCLUDING THAT A "DEFAULT EVENT" HAD NOT HAPPENED.
C. CURING THE DEFAULT WITHIN 20 DAYS DOES NOT RELIEVE THE PLAINTIFF OF PAYING THE DEFAULT INTEREST THAT WAS DUE WITH THE NEXT QUARTERLY PAYMENT AND THE COURT MISAPPLIED ITS DISCRETION IN DENYING DEFENDANT THE DEFAULT INTEREST DUE THEREIN.
D. DEFAULT INTEREST IS DUE ON THE TOTAL PRINCIPAL REMAINING NOT THE QUARTERLY INSTALLMENT AND THE COURT MISAPPLIED ITS DISCRETION IN DENYING DEFENDANT THE DEFAULT INTEREST DUE THEREIN.
"The scope of appellate review of a trial court's fact-finding function is limited. The general rule is that findings by the trial court are binding on appeal when supported by adequate, substantial, credible evidence." Cesare v. Cesare, 154 N.J. 394, 411-12 (1998). Moreover, "[b]ecause of the family courts' special jurisdiction and expertise in family matters, appellate courts should accord deference to family court factfinding." Id. at 413. However, "[a] trial court'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. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
"This state has a strong public policy favoring enforcement of [marital] agreements." Massar v. Massar, 279 N.J. Super. 89, 93 (App. Div. 1995). "Marital agreements are essentially consensual and voluntary and as a result, they are approached with a predisposition in favor of their validity and enforceability." Ibid. As such, courts will enforce them when "they are fair and equitable." Ibid; see also Schiff v. Schiff, 116 N.J. Super. 546, 560-61 (App. Div. 1971) ("When a contract has been fairly procured and its enforcement will work no injustice or hardship, it is enforced almost as a matter of right.") certif. denied, 60 N.J. 139 (1972).
A "promissory note" is "[a] promise or engagement, in writing, to pay a specified sum at a time therein stated, or on demand, or at sight, to a person therein named, or to his order, or bearer." Black's Law Dictionary, 1214 (6th Ed. 1990). When given for consideration, a promissory note is the equivalent of a contract to pay money. First Union Nat'l Bank v. Penn Salem Marina, Inc., 383 N.J. Super. 562, 569 (App. Div. 2006) (citing Colton v. Depew, 60 N.J. Eq. 454, 458 (E. & A. 1900), rev'd. on other grounds, 190 N.J. 342 (2007).
As a general principle, "courts should enforce contracts as the parties intended." Pacifico v. Pacifico, 190 N.J. 258, 266 (2007). "An agreement must be construed in the context of the circumstances under which it was entered into[,] and it must be accorded a rational meaning in keeping with the express general purpose." Tessmar v. Grosner, 23 N.J. 193, 201 (1957). "The polestar of contract construction is to discover the intention of the parties as revealed by the language used by them." Karl's Sales & Serv., Inc., v. Gimbel Bros., Inc., 249 N.J. Super. 487, 492 (App. Div.), certif. denied, 127 N.J. 548 (1991). Accordingly, the court should not re-write a contract or grant a better deal than that for which the parties expressly bargained. Solondz v. Kornmehl, 317 N.J. Super. 16, 21 (App. Div. 1998). With these principles in mind, we consider defendant's arguments.
Defendant argues first that the trial court erroneously construed the terms of the promissory notes, determining that defendant's service of notice of late payment was a condition precedent to triggering plaintiff's obligation to pay interest during the period of default at the higher contract default rate. In countering defendant's argument, plaintiff does not challenge the reasonableness of the contract default rate; rather, plaintiff contends that the court properly exercised its discretion in determining that it would be inequitable under the facts of this case to enforce the contract default rate provision. We disagree with plaintiff's contention.
The notes are clear and unambiguous. Default is self-executing. It occurs upon the failure to timely pay interest or principal. Defendant is not required to serve notice of late payment to trigger a default. Upon default, plaintiff is obligated to pay interest on the entire outstanding balance of principal "at 15% [per annum] or the maximum amount permitted by law if less than 15% (rather [than] at 7%) until the date [d]efault is cured."
Here, plaintiff defaulted under the two notes by failing to timely pay the October 1, 2007 interest payments. Plaintiff remained in default until October 18, 2007, when those interest payments were made. Plaintiff again defaulted under the notes when he failed to timely pay the January 1, 2008 interest payments and remained in default until those payments were made on January 14, 2008. During those two default periods, defendant owed interest on the entire balance of principal at the rate of 15% per annum (or the lawful interest rate if lower than 15%), not at 7%. Defendant is entitled to the additional interest at the contract default rate for the periods that plaintiff remained in default. Accordingly, we reverse the trial court's denial of defendant's request for additional interest at the contract default rate and remand to the trial court to enter an amended order awarding defendant the additional interest.
Reversed and remanded for further proceedings consistent with this opinion.
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