Source: http://pa.findacase.com/research/wfrmDocViewer.aspx/xq/fac.19880224_0041198.C03.htm/qx
Timestamp: 2016-12-05 10:44:50
Document Index: 194357960

Matched Legal Cases: ['§ 365', '§ 365', '§ 573', '§ 631', '§ 586', '§ 644', '§ 122', '§ 542', '§ 133', '§ 12', '§ 12']

| KG v. Stoller
KG v. Stoller
FR. WINKLER KGv.GENE STOLLER, V. HELMUT WINKLER, MARTHA WINKLER FUHST, KURT MAIER, WALTER SCHNEE, AND FRANZ REMENSBERGER. GENE STOLLER, APPELLANT
Appeal from the United States District Court for the District of New Jersey - Newark, D.C. Civil No. 86-3743.
On August 4, 1982, Stoller guaranteed two additional notes on BEW's behalf in consideration for the purchase of equipment. These notes, which form the basis of this appeal, had an aggregate value of $671,485.88. On the front of each note, Stoller signed his name followed by the designation "chief executive officer" to indicate his representative capacity. However, on the back of each note, Stoller signed only his name with no additional designation. The words "per aval Gene Stoller" were printed under each signature. Stoller admits to executing the notes in this fashion.*fn1
By letter dated August 5, 1982, Winkler informed BEW of its intention to terminate the dealership agreement. On September 17, 1982, BEW filed a voluntary petition for reorganization pursuant to chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey. Winkler, an unsecured creditor, filed a motion to compel BEW to either assume or reject the dealership agreement pursuant to 11 U.S.C. § 365(d)(2). BEW's assumption of the agreement would require it to satisfy its existing obligations to Winkler, and its rejection of the agreement would effectively excuse Winkler from future performance. Moreover, Winkler asserted that BEW was in default under the agreement based upon its failure to pay for approximately $696,716.40 in equipment purchases. BEW, in turn, asserted that it was entitled to credit for payments made by Burton Koffman*fn2 in partial satisfaction of its indebtedness.
In response to Winkler's § 365(d)(2) motion, the parties executed a settlement agreement on July 15, 1983. In addition to providing for a consensual termination of the dealership agreement, the settlement required Winkler to provide BEW with new equipment and spare parts over a five year period, and an accounting of Koffman's payments. Although the settlement extinguished a claim by either party for wrongful termination of the agreement, it reserved the rights of both parties to pursue claims arising prior to the agreement's cancellation. In a letter addendum dated August 29, 1983, BEW expressly reserved its claims against Winkler and other third parties for conduct relating to the dealership agreement. The bankruptcy court approved the settlement on September 6, 1983.
On September 14, 1983, BEW filed a complaint against Winkler and Robert V. Loeb,*fn3 alleging wrongful interference and breach of contract. Winkler responded by filing objections to BEW's proposed reorganization plan. In a release executed on April 4, 1984, Winkler agreed to withdraw its objections to the reorganization plan in exchange for BEW's release of all claims asserted in the September 14 complaint.*fn4 The release, executed by Stoller, expressly reserved BEW's right to pursue any future claims against Winkler arising out of the settlement agreement.
On September 24, 1986, Winkler filed a complaint against Stoller seeking to recover on defendant's guarantee of the 1982 promissory notes. In response, the defendant moved to dismiss plaintiff's complaint for lack of subject matter jurisdiction and improper venue.*fn5 The plaintiff then filed a cross-motion for summary judgment. On February 24, 1987, the district court granted Winkler's summary judgment motion holding, pursuant to Matsushita Electric Industrial Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986), that Stoller's affidavit, submitted in opposition to plaintiff's motion, was insufficient to permit "a rational trier of fact to find for the non-moving party. . . ." The district court additionally granted defendant leave to file a counterclaim.
On March 16, 1987, defendant filed a motion for reconsideration of the district court's order granting summary judgment. The court denied defendant's motion holding: (1) that neither the settlement nor the release effectuated an extinguishment of Stoller's liability on the notes; (2) that Stoller had no right to assert BEW's affirmative claims as a set-off; and (3) that as guarantor of the notes, Stoller was not entitled to notice of dishonor and protest within the meaning of N.J.S.A. 12A:3-502.*fn6 Finally, on June 22, 1987, the district court dismissed defendant's counterclaim relying upon the doctrine of res judicata. This appeal followed.
The district court rejected Stoller's affidavit finding it both unpersuasive and uncorroborated. Relying principally upon Colby v. Klune, 178 F.2d 872, 874 (2d Cir. 1949), defendant argues that he was entitled to have his assertions accepted as true, and correspondingly, that the district court improperly resolved an issue of credibility on a motion for summary judgment. Because we conclude that the parol evidence rule precludes proof of the allegations contained in Stoller's affidavit, we need not address his claim that the district court misapplied the summary judgment standard.*fn7
Perhaps no legal precept has inspired more commentary and more confusion than the proscription commonly known as the parol evidence rule. Nearly one hundred years ago, Professor Thayer observed that, "Few things are darker than this, or fuller of subtle difficulties."*fn8 Simply stated, the rule is that absent "fraud, accident, or mistake . . . oral representations or agreements are merged in or superseded by the subsequent written contract, and parol evidence to vary, modify, or supersede the written contract is inadmissible in evidence." Bardwell v. Willis Company, 375 Pa. 503, 506, 100 A.2d 102, 104 (1953). Despite its title, the rule is one of substantive contract law, and not one of evidence. 3 Corbin on Contracts § 573 at p. 375 (1960).
Before a court can apply the parol evidence rule, it must determine whether the parties have adopted a writing as the final and complete expression of their agreement. 4 Williston on Contracts § 631 at p. 960 (quoting Shiver v. Liberty Building-Loan Association, 16 Cal.2d 296, 106 P.2d 4 (1940)). In essence, a court cannot conclude that parol evidence, whether oral or written, contradicts the terms of a written agreement without first deciphering the meaning of those terms. See Atlantic Northern Airlines Inc. v. Schwimmer, 12 N.J. 293, 96 A.2d 652, 656 (1953). Therefore, oral testimony of facts relevant to the interpretation of a contract is not excluded by the rule. 96 A.2d at 656. Moreover, as between parties, parol evidence challenging the existence or the absence of consideration is always admissible. See 3 Corbin on Contracts § 586 at 489. See also Reconstruction Finance Corporation v. Gohl, 19 N.J. Misc. 545, 21 A.2d 693, 696 (Sup.Ct.Atl.Cnty. 1941).
It is well established that New Jersey law prohibits parol evidence of a collateral agreement not to enforce a promissory note against a maker or an indorser. Beers v. Broad & Market Nat. Bank of Newark, 102 N.J.L. 5, 131 A. 105 (Sup. Ct. 1925) (proof of collateral oral contract that unconditional indorser was not to be held liable if maker did not pay note held inadmissible). See also Reconstruction Finance Corporation v. Gohl, supra. In Giberson v. First National Bank of Spring Lake, 100 N.J. Eq. 502, 136 A. 323 (Ch. 1927), the New Jersey Court of Chancery excluded parol evidence of a contemporaneous oral agreement that the payee of a note agreed to look to a third party for payment, and not to the maker. Id. at 324.
Id. at 696. Other courts have similarly relied upon the parol evidence rule to exclude evidence of promises not to enforce. See Third Nat. Bank & Trust Co. of Scranton v. Rodgers, 330 Pa. 523, 198 A. 320 (1938) (maker who admitted delivery of renewal note could not deny liability on the ground that president of payee bank promised that he would not be called upon to pay); Samales v. Essie, 94 N.H. 262, 51 A.2d 639 (1947) (evidence of understanding that notes would never be enforced and would become effective only upon death of maker held to violate parol evidence rule); Snowden v. The Franklin National Bank of Long Island, 338 F.2d 995 (5th Cir. 1964) (maker's claim that he would never be held personally liable on note because of bank's assurance that corporate recipient of funds had adequate collateral held to violate parol evidence rule under Texas law); 4 Williston on Contracts § 644 at 1123-24 (parol agreement that negotiable instrument need not be paid or sued upon violates parol evidence rule).
Implicit in the foregoing rendition of applicable precedent is the conclusion that reliance upon a promise not to enforce a note does not constitute fraud. In First Nat. Bank of Hooversville v. Sagerson, 283 Pa. 406, 129 A. 333 (1925), the Pennsylvania Supreme Court concluded that a defendant's reliance upon a bank's representation that his execution of a note "was a mere matter of form" and would not be enforced against him did not constitute fraud. Id. at 334-35. The court therefore held that the defendant could not escape the strictures of the parol evidence rule by alleging a promise not to enforce the notes. Id. at 335.
Turning to the facts before us, we hold that proof in support of a guarantor's allegation that his indorsement was required only as a matter of form, and that it would never be enforced, is prohibited by the parol evidence rule. The notes are unconditional and indorsed without qualification. They embody the final written expression of the parties' agreement, and Stoller's affidavit therefore constitutes an attempt to contradict, alter, or modify the terms of an integrated contract. See Bardwell, 100 A.2d at 104. In fact, Stoller's affidavit would do more than simply modify the notes' terms; it would utterly extinguish them. Notably, Stoller has not asserted failure of consideration, mistake, or accident -- allegations that are indeed provable by parol evidence. Finally, the defendant's assertion that Winkler's representations constituted fraud is utterly meritless. See Sagerson, 129 A. at 335.
In further support of his contention, Stoller relies upon Westmont Nat. Bank v. Payne, 108 N.J.L. 133, 156 A. 652 (E & A 1931), and upon Chera v. The Shores, 145 N.J. Super. 19, 366 A.2d 994 (1976). In Westmont, the New Jersey Court of Errors and Appeals held that the parol evidence rule did not preclude defendants from demonstrating that their signatures on a note were procured by fraud. 156 A. at 654-55. Kirkbride, the cashier of the Westmont National Bank, obtained defendants' signature on two blank sheets of paper by assuring them that "no harm would come" to either themselves or their home. The defendants claimed that they did not even know that they were signing a note. Westmont, therefore, involved fraud in the very execution of an instrument. In this case, however, Stoller knowingly executed two notes but alleged that they were not to be enforced against him. We conclude that Westmont is distinguishable from the instant action based upon Stoller's inability to establish fraud. The defendant's reliance on Chera, however, is somewhat more problematic.
Stoller next asserts several challenges to the district court's denial of his motion for reconsideration. Initially, defendant argues that Winkler effectively released BEW from liability under the notes through the 1983 settlement and the 1984 release. Relying upon Restatement of Security § 122 (1941), Stoller concludes that a creditor's release of a principal effectuates a discharge of the surety. Defendant's contention has no merit.
As a result of the 1983 settlement, BEW and Winkler agreed to terminate the dealership agreement. Moreover, Winkler consented to provide BEW with spare parts and equipment over a five year period. BEW, however, reserved its right to assert claims arising prior to the termination of the dealership agreement. These claims were ultimately asserted and subsequently released in exchange for Winkler's promise to withdraw its objections to BEW's pending reorganization plan. Nowhere in either the settlement or in the release did Winkler agree to discharge, alter, or modify either BEW's or Stoller's obligations under the notes. Ironically, it was BEW that in fact released Winkler from claims arising under the dealership agreement. Finally, we observe that BEW's discharge from its obligations under the notes by operation of the Bankruptcy Code does not affect a release of Stoller as guarantor. 11 U.S.C. § 542(e). See also United States v. Kurtz, 525 F. Supp. 734, 742 (E.D. Pa.), aff'd, 688 F.2d 827 (3d Cir.), cert. denied, 459 U.S. 991, 74 L. Ed. 2d 387, 103 S. Ct. 347 (1982).
Stoller additionally contends that the district court erred in refusing to permit him to assert BEW's affirmative claims against Winkler to off-set his liability. The defendant relies principally upon Restatement of Security § 133(c) which provides:
Stoller finally observes that N.J.S.A. 12A:3-502 requires notice of dishonor and protest as a precondition for indorser liability. Section 12A:3-502 provides in relevant part:*fn9
N.J.S.A. § 12A:3-416 asserts, in part, that a guarantor of a note waives his entitlement to notice of dishonor and protest:
New Jersey law therefore identifies two types of signatories distinguishable by the extent of their respective responsibilities under a written instrument. See Central Jersey Bank and Trust Company v. Lady Van Industries, Inc., 154 N.J. Super. 459, 462-63, 381 A.2d 831, 833 (1977). We must therefore determine whether Stoller's "per aval" execution of the notes at issue constituted an indorsement entitling him to notice of dishonor and protest, or a guarantee excusing Winkler from the requirements of N.J.S.A. 12A:3-502. Importantly, Stoller signed each note twice, once in his representative capacity as BEW's chief executive officer, and once with the per aval designation.*fn10
In Banco Nacional De Costa Rica v. Bremar Holdings Corp., 492 F. Supp. 364, 366 n.1 (S.D.N.Y. 1980), the district court defined the term "por aval" as:
See also Bar-Ram Irrig. Products v. Phenix-Girard Bank, 779 F.2d 1501, 1504 (11th Cir. 1986) (por aval signatures personally obligated signatory under Ala. Code Section 7-3-403(2)(a) (1975)). Similarly, Black's Law Dictionary 123 (5th ed. 1979) defines "aval" as "the guaranty of a bill of exchange."*fn11 Because we agree with the district court's conclusion that Stoller's per aval execution constituted a personal guarantee within the meaning of N.J.S.A. § 12A:3-416, the plaintiff was not required to issue notice of dishonor and protest.*fn12 The district court therefore correctly denied defendant's motion for reconsideration.