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Adams Associates, L.L.C. v. Eastern Savings Bank, FSB

Superior Court of New Jersey, Appellate Division

June 11, 2013

ADAMS ASSOCIATES, L.L.C., Plaintiff-Appellant,


Argued telephonically May 20, 2013

On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-135-11.

Michael D. Malloy argued the cause for appellant (Finestein & Malloy, attorneys; Russell M. Finestein and Mr. Malloy, on the brief).

Jerold C. Feuerstein argued the cause for respondent (Kriss & Feuerstein, attorneys; Mr. Feuerstein, of counsel and on the brief).

Before Judges Fisher and Waugh.


In this appeal, we consider whether the trial court erred in granting summary judgment with regard to the meaning of a mortgage estoppel certificate and other related documents that memorialized the parties' transaction. Because the handwritten changes made to the mortgage estoppel certificate suggested more than one plausible interpretation of the parties' intent, we find the document ambiguous and, therefore, reverse and remand for further proceedings.

The genesis of this action was a transaction in which defendant Eastern Savings Bank, FSB, lent $350, 000 to Frank Pasquale Limited Partnership; the note memorializing Pasquale's debt to Eastern was secured by a mortgage on property on Adams Street in Hoboken. Pasquale defaulted on the loan, and Eastern commenced a foreclosure action, which resulted in entry of a judgment in Eastern's favor in the amount of $431, 847.01.

Later, plaintiff Adams Associates, L.L.C., agreed to purchase from Eastern the note and mortgage and Eastern's rights in the foreclosure judgment for $553, 429.06. To memorialize this transaction, Adams' attorney provided Eastern's attorney with drafts of a mortgage estoppel certificate, an assignment of mortgage, an assignment of the foreclosure judgment, an assignment of leases and rents, and an assignment of the note and guaranty. Eastern's attorney made revisions to the mortgage estoppel certificate, which, along with the other documents were executed and returned to Adams.

Following this transaction, Adams was substituted in Eastern's place in an action Eastern had commenced in the Law Division against the Pasquale defendants, who filed an answer in the Law Division action and moved to vacate the default judgment in the foreclosure action. In moving for relief, the Pasquale defendants argued that the loan documents were executed by Frank A. Pasquale, Jr., not Frank A. Pasquale, Sr., and that only the latter had the authority to bind the borrower. These matters were consolidated, and a plenary hearing was conducted. The judge concluded that the documents were not executed or authorized by Pasqsuale, Sr. – a fact that required the vacating of the default judgment and dismissal of the consolidated matters. Adams appealed, and we affirmed. Adams Assocs, , L.L.C. v. Frank Pasquale Ltd. P'ship, No. A-5724-08 (App. Div. Jan. 14, 2011).

With the invalidation of what it thought it had purchased, Adams commenced this action against Eastern for breach of the alleged warranty contained in the loan documents, and against New Jersey Title Insurance Company pursuant to the title policy Eastern obtained when entering into its transaction with Pasquale. After Eastern's successful motion to dismiss, and Adams' motion for reconsideration, the trial judge permitted Adams to amend its complaint. Adams filed an amended complaint sounding in negligence, as well as a later amendment alleging breach of contract, lack of consideration, mutual mistake and unjust enrichment.

All parties to the action thereafter moved for summary judgment. The judge denied the title insurer's motion, granted Adams' motion for summary judgment against the title insurer, denied Adams' motion for summary judgment against Eastern, and granted Eastern's motion for summary judgment against Adams.

Adams appeals, arguing: the judge erred in dismissing the warranty claim; the circumstances require rescission of the Adams-Eastern transaction; and Eastern was unjustly enriched. We agree that the judge erred in dismissing Adams' warranty claim and in granting summary judgment in Eastern's favor.

The trial court's disposition of Adams' claim against Eastern turned on the judge's interpretation of the mortgage estoppel certificate, which stated in relevant part:

[1] Now, therefore, the undersigned . . . hereby certifies and acknowledges that the said Mortgage is in full force and effect as a valid lien upon said lands and premises; that there is due on the said Mortgage and the Bond, Note or other Obligation secured thereby the sum of $ on account of principal, together with interest thereon from at the rate of % per year; that there are no set offs, counterclaims or defenses against the same in law or in equity, and that there have been no modifications or other changes in the original terms thereof, except
[2] Except as set forth above, Eastern Savings Bank makes no warranties or representations, and the assignment of the Note, Mortgage, Assignment of Leases and Rents, and the Final Judgment of Foreclosure are made without recourse or warranty.
[3] This certification is made with the knowledge that said Mortgage and the Bond, Note or other Obligations secured thereby are about to be assigned to and that said Assignee relies upon the truth of the statements herein contained.

Eastern's attorney struck out the "there are no set offs . . ." language in paragraph 1.[1] The italicized material in paragraph 2 is that which Eastern's attorney inserted by hand; the spaces reveal spaces in the original document that were not filled in. The record suggests there were no verbal discussions between counsel regarding the changes to the mortgage estoppel certificate, and all the documents, as revised by Eastern's attorney, were executed and delivered, thereby completing the Adams-Eastern transaction.

Courts enforce contracts as written. Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960); see also State v. Signo Trading Int'l, Inc., 130 N.J. 51, 63 (1992). When, however, a contract is ambiguous in a material respect, summary judgment is unavailable and the parties must be given the opportunity to illuminate the contract's meaning through the submission of extrinsic evidence. See, e.g., Conway v. 287 Corporate Ctr. Assocs., 187 N.J. 259, 268-70 (2006); B.D. v. Div. of Med. Assistance & Health Servs., 397 N.J.Super. 384, 391, 395-96 (App. Div. 2007). To sustain summary judgment regarding the meaning of the mortgage estoppel certificate as it relates to the issues on appeal, we must be able to conclude that the document permits only one plausible interpretation, M.J. Paquet v. N.J. Dep't of Transp., 171 N.J. 378, 396 (2002); B.D., supra, 397 N.J.Super. at 391, and that that single plausible interpretation one-sidedly favors Eastern's position, Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

Here, both parties argue the mortgage estoppel certificate is clear and unambiguous. They are both wrong because they present different reasonable interpretations of the document's meaning. Adams argues that the document contains a clear statement of Eastern's representation that the assigned mortgage was a valid lien on the property; this assertion is based on paragraph 1, in which Eastern "certifie[d] and acknowledge[d] that the said Mortgage is in full force and effect as a valid lien upon said lands and premises." Adams further argues that paragraph 2, which Eastern's attorney wrote into the document, does not negate or nullify paragraph 1's representation because paragraph 2, which asserts that Eastern "makes no warranties or representations" and the assignment of the mortgage was "without recourse or warranty, " commences with the phrase "[e]xcept as set forth above." And, Adams argues that the significance of paragraph 1 is emphasized by paragraph 3, which contains Eastern's recognition that Adams was relying on "the truth of the statements herein contained." Eastern, on the other hand, argues that the handwritten "without recourse" language of paragraph 2, and Eastern's striking of the "no set offs" provision originally contained in paragraph 1, demonstrated that Eastern gave no representations or warranties about the validity of the mortgage.

The parties have presented two plausible interpretations of the critical contractual language – a circumstance that precludes the entry of summary judgment. See M.J. Paquet, supra, 171 N.J. at 396; B.D., supra, 397 N.J.Super. at 395-96. Even though the parties may not have anticipated this result when they both moved for summary judgment, the meaning of the mortgage estoppel certificate cannot be summarily decided.[2] The parties are entitled to an opportunity to present extrinsic evidence concerning their intentions and the document's meaning to the trier of fact.

We also observe that our disposition regarding the debate about the meaning of the document enfolds the question of whether Adams' claims for rescission because of a mutual mistake or lack of consideration are viable. If the parties possessed a legitimate misunderstanding about what was being conveyed – and certainly Adams provided sufficient evidence to support its position in this regard[3] – the trial court was empowered to rescind the contract and restore the parties to the status quo ante See eg Beachcomber Coins Inc v Boskett 166 N.J. Super 442 (App Div 1979)

Because the trial judge prematurely decided Adams' claims against Eastern we reverse the summary judgment entered in Eastern's favor as well as the earlier dismissal of Adams' warranty claim

Reversed and remanded for proceedings in conformity with this opinion We do not retain jurisdiction

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