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Wachovia Bank, National Association v. the Credit Doctor

August 31, 2011


On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-6122-08.

Per curiam.


Submitted February 3, 2011

Before Judges Fuentes, Gilroy and Ashrafi.

Defendants Bernard Gouss and the Estate of Harvey Nelson (the Estate) (collectively, the appellants) appeal from: the June 19, 2009 order that denied Gouss's motion for summary judgment; the August 14, 2009 order that denied the Estate's motion for summary judgment; and three May 3, 2010 orders, two again denying appellants' motions for summary judgment, and the third granting summary judgment to plaintiff Wachovia Bank, National Association, in the amount of $184,156.25, together with costs of suit. We affirm in part; reverse in part; and remand for further proceedings consistent with this opinion.


On July 29, 2008, plaintiff filed a complaint seeking to recover monies owed under a promissory note executed by defendant The Credit Doctor, Inc.,*fn1 as borrower, and from the guarantors of the note: Gouss, the Estate as successor to Harvey Nelson (the deceased), and defendants Michael J. Falcone and Philip Douglas Nell.*fn2

On April 28, 2009, plaintiff filed a motion for summary judgment against Gouss. Gouss filed a cross-motion for summary judgment against plaintiff. On June 19, 2009, the court entered two orders supported by an oral decision denying both motions. On June 25, 2009, the Estate filed a motion for summary judgment. On August 14, 2009, the trial court entered an order with reasons stated denying the motion.

On October 20, 2009, Gouss filed a second motion for summary judgment against plaintiff. Plaintiff filed a cross-motion for summary judgment against Gouss and the Estate; the Estate filed a cross-motion for summary judgment against plaintiff. On May 3, 2010, the court entered three orders supported by a written decision denying appellants' motions and granting plaintiff's motion.


Prior to 1998, Gouss and Nelson each owned 50% of the outstanding stock of Tru-Homes Sales Co., Inc., a New Jersey corporation d/b/a The Credit Doctors. The business involved cashing public assistance checks for individuals and providing installment loans for home furnishings sales. Nell and Falcone assisted Gouss and Nelson in the operation of the business. In anticipation of purchasing Tru-Home Sales, Nell and Falcone formed The Credit Doctor, Inc., a New Jersey corporation, with Nell serving as President and Falcone as Vice President/Secretary. On May 8, 1998, Gouss and Nelson sold and transferred their outstanding stock in Tru-Home Sales to The Credit Doctor. As part of the purchase price, Gouss and Nelson each took back a promissory note in the amount of $985,000 from The Credit Doctor personally guaranteed by Nell and Falcone.

On September 19, 2000, Nell and Falcone executed a promissory note on behalf of The Credit Doctor as borrower in favor of the First Union National Bank as lender. The note secured a line of credit for the operation of The Credit Doctor's business. The note stated the principal amount was $250,000, "or such sum as may be advanced and outstanding from time to time, with interest on the unpaid principal balance at the rate and on the terms provided in this [p]romissory [n]ote (including all renewals, extensions, or modifications hereof, this '[n]ote')." The note required monthly payments of accrued interest only commencing November 1, 2000, and "continuing on the same day of each month thereafter until fully paid."

Interest accrued on the unpaid balance on the note at the lender's prime rate plus 1%.

The note defined itself as "a demand Note" stating that "all Obligations hereunder shall become immediately due and payable upon demand." As previously stated, the note provided for advances from the lender to The Credit Doctor:

LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and Bank may advance and readvance under this Note respectively from time to time until the maturity hereof (each an "Advance" and together the "Advances"), so long as the total principal balance outstanding under this Note at any one time does not exceed the principal amount stated on the face of this Note, subject to the limitations described in any loan agreement to which this Note is subject. Bank's obligation to make Advances under this Note shall terminate if a demand for payment is made under this Note or if a Default (as defined in the other Loan Documents) under any Loan Document occurs or in any event, on the first anniversary hereof unless renewed or extended by Bank in writing upon such terms then satisfactory to Bank. As of the date of each proposed Advance, Borrower shall be deemed to represent that each representation made in the Loan Documents is true as of such date. 30-Day Payout. During the term of the Note, Borrower agrees to pay down the outstanding balance to a maximum of $100.00 for 30 consecutive days annually.[*fn3 ]

The note further provided that any "waivers, amendments or modifications" to the note or loan documents were invalid "unless in writing and signed by an officer of Bank." Moreover, the lender's waiver of a default would not function as a waiver of any other default or a subsequent default of the same type. In a similar vein, "[n]either the failure nor any delay on the part of Bank in exercising any right, power, or remedy under this Note and other Loan documents" could "operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or remedy." The Credit Doctor and other persons liable under the note waived "presentment, protest, notice of dishonor, notice of intention to accelerate maturity, notice of acceleration of maturity, notice of sale and all other notices of any kind." The Credit Doctor, and other persons liable under the note, also agreed that the lender could extend, modify or renew this Note or make a novation of the loan evidenced by this Note for any period, and grant any releases, compromises or indulgences with respect to any collateral securing this Note, or with respect to any other Borrower or any other person liable under this Note or other Loan Documents, all without notice to or consent of each Borrower or each person who may be liable under this Note or any other Loan Document and without affecting the liability of Borrower or any other person who may be liable under this Note or any other Loan Document.

Lastly, the note stated that it inured to the benefit of and was binding, not only upon the parties, but also their "respective heirs, legal representatives, successors and assigns."

Gouss, Nelson, Nell, and Falcone executed personal, guaranties of the note on the same day the note was executed. The guaranties stated that they were provided to the lender by appellants "[t]o induce Bank to make, extend or renew loans, advances, credit, or other financial accommodations to or for the benefit of Borrower" and that appellants "absolutely, irrevocably and unconditionally guarantee[] to Bank and its successors, assigns and affiliates the timely payment and performance of all liabilities and obligations of Borrower to Bank and its affiliates." The instruments specifically stated that "[t]his Guaranty is a continuing and unconditional guaranty of payment and performance and not of collection," and that "[t]he parties to this Guaranty are jointly and severally obligated hereunder."

The guaranties, entitled "UNCONDITIONAL GUARANTY," included a "CONSENT TO MODIFICATIONS" provision that permitted, among other things, the lender to:

(a) extend or modify the time, manner, place or terms of payment or performance and/or otherwise change or modify the credit terms of the Guaranteed Obligations; (b) increase, renew, or enter into a novation of the Guaranteed Obligations; [and] (c) waive or consent to the departure from terms of the Guaranteed Obligations . . . ; all in such manner and upon such terms as Bank may deem appropriate, and without notice to or further consent from Guarantor.

By the terms of the guaranties, the appellants waived various rights and defenses, including:

(a) promptness and diligence in collection of any of the Guaranteed Obligations from Borrower or any other person liable thereon, . . . ; (e) notice of extensions, modifications, renewals, or novations of the Guaranteed Obligations, of any new transactions or other relationships between Bank, Borrower and/or any guarantor . . . ; [and] (g) the right to assert against Bank any defense (legal or equitable), set-off, counterclaim, or claim that Guarantor may have at any time against Borrower or any other party liable to Bank.

Further, the guaranties provided that default would occur upon the happening of certain enumerated events including: "(a) failure of timely payment or performance of the Guaranteed Obligations or a default under any Loan Document . . . and/or;

(c) the death of . . . [the] Guarantor." The guaranties stated that default would render the obligations "due immediately and payable without notice," and would permit the lender to "exercise any rights or remedies as provided in this Guaranty and other Loan Documents, or as provided at law or equity." Similar to the note, the guaranties provided that "[n]o waivers, amendments or modifications of this Guaranty and other Loan Documents shall be valid unless in writing and signed by an officer of Bank" and that "[n]o waiver by Bank of any Default shall operate as a waiver of any other Default or the same Default on a future occasion." Lastly, the guaranties, like the note, stated that they inured to the benefit of "and [were] binding upon the parties and their respective heirs, legal representatives, successors and assigns."

Nelson died on April 8, 2001. The Union County Surrogate's Office issued letters testamentary on October 16, 2001. The Credit Doctor continued to access the line of credit; and by letter dated October 4, 2001, First Union National Bank renewed The Credit Doctor's line of credit for a year. By letter of November 20, 2002, plaintiff, as successor in interest to First Union National Bank, renewed the note for a third year.*fn4 By letter of November 7, 2003, plaintiff once again extended the line of credit for another year. On October 26, 2004, plaintiff "extended" The Credit Doctor's line of credit again, but only for an additional six months.

By letter dated May 11, 2005, plaintiff informed The Credit Doctor that the line of credit would not be renewed, indicating that "further requests for advances will not be honored." Although plaintiff demanded "immediate payment in full" of the outstanding "principal and interest," it offered The Credit Doctor an alternative to repay the principal amount due in fifty-nine monthly payments of $4,166.67, together with accrued interest, commencing July 1, 2005 and ending June 1, 2010. The letter stated that nothing therein would "constitute a novation, and all other terms and conditions of the Note, the loan agreements and the guaranties . . . and any other documents, executed in connection therewith . . . shall remain the same." The letter further provided that the "repayment terms are offered as a renewal, rearrangement and extension" of the note obligations "and not in substitution therefor or extinguishment thereof," and that plaintiff "reserve[d] all of its rights under the Loan Documents, which shall remain in full force and effect without amendment except as stated in th[e] letter until the indebtedness" is fully repaid. Plaintiff sent copies of the letter to Gouss, Nell, and Falcone, but not to the Estate.

In a March 20, 2007 letter accepted by Nell and Falcone on behalf of The Credit Doctor on March 24, 2007, plaintiff stated it was "changing the repayment terms for the . . . note originally dated May 11, 2005*fn5 in the original amount of $250,000.00." The letter modified the May 11, 2005 repayment terms by changing the due date of the monthly payments to the tenth day of the month beginning April 10, 2007, and ending June 10, 2010. The note's "other terms and conditions," however, continued unchanged. The Credit Doctor made payments ...

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