Court Opinion

ID: 9694342
Source: CourtListenerOpinion
Date Created: 2023-08-25 17:38:21.808398+00
Date Added: 2024-06-11T12:09:07.109723
License: Public Domain

*58Conford, P. J. A. D.,
Temporarily Assigned, concurring in part and dissenting in part. I am in agreement with the Court’s determination that summary judgment should not have been entered for plaintiff. I take issue, however, with the Court’s failure to direct the entry of summary judgment in favor of defendant on the ground of impairment by plaintiff of the collateral for defendant’s obligation as surety on the note in suit.
There is some support in the history of the adoption of Section 3.606 of the Uniform Commercial Code for defendant’s contention that its intent was to entitle a surety to discharge upon impairment of recourse or of collateral without having to demonstrate either prejudice or actual loss. Prior to the promulgation of the official version of the Code in 1958 (later adopted in New Jersey) the New York Law Revision Commission made a full study of the 1952 draft code. It is generally believed that certain alterations of the draft code were attributable to recommendations of the New York Commission.1 See Uniform Commercial Code in Uniform Laws Annotated (Master edition 1968) Explanation, p. iii. The New York Commission concluded that Section 3-601 (1) of the code adopted the strict rule of suretyship, not requiring a showing of prejudice to the surety. 2 New York Law Revision Commission Report, op. cit. supra, at 1179. Also adverting to the study and conclusion of the New York Commission in this regard was the Supreme Court of Oregon in Philco Finance Co. v. Patton, 248 Or. 310, 432 P. 2d 686, 689, n. 7 (1967).
Notwithstanding the foregoing legislative history, I agree with the Court’s view that as a matter of sound policy we should not adopt the principle of sirictissimi juris in this *59regard but that a surety should be entitled to relief if he is “able to establish that he has sustained prejudice”, even if the prejudice cannot be measured “in terms of monetary loss”, pp. 56-57. But apparently the Court and I do not share a common understanding of the meaning of the word “prejudice” in this respect since I view the record on the motion for summary judgment as conclusively establishing prejudice to defendant in plaintiff’s failure to have promptly recorded the Langeveld mortgage while the Court holds that a plenary hearing is necessary to establish prejudice. In this regard, the legislative history aforementioned at least militates against an approach which would unduly circumscribe the surety in establishing prejudice by an impairment of collateral.
I am in full accord with the Court’s assertion that the question of prejudice must be assessed as of the time the note matured, in February 1973. It cannot be left to the hindsight of events as they later unfolded and as they apparently stood in August 1974, when the sheriff’s sale took place, pp. 55-56. What must be appraised and compared, in order to determine whether defendant was prejudiced, are the hypothetical situation which defendant would have faced on the maturity date had the Langeveld mortgage been timely recorded, on the one hand, and the actual situation which in fact confronted him on that date, on the other hand. That actual situation consisted of the fact that the mortgage had not been recorded, and three new liens had been recorded in the interim, apparently assuming priority to the Langeveld mortgage, to which defendant was subrogated as a surety.
As of the maturity date, had plaintiff’s mortgage been a good and subsisting mortgage ahead of any other liens except the first two mortgages (which it was not, because it had not been recorded until March 1, 1973), defendant as surety would have been entitled to pay off the Langeveld mortgage and assume a position of priority to the later intervening liens, i. e., the Hanson mortgage of $100,000, the *60Reed Electric Corporation mechanic’s notice of $111,000 and the Samuel Braen mechanic’s notice of $12,000. He could then have paid or refinanced the first two mortgages at the amount due in March 1973. He would not have had to wait until completion of the foreclosure of The Howard Savings mortgage, necessary, as it turned out, because of the contending claims for priority of the other lienors, and he would have been able to save the additional interest which accrued on the first (Howard Savings) mortgage between February 15, 1973 (maturity of Langeveld note) and August 26, 1974 (sheriff’s sale).
As well stated in the Court’s opinion, “defendant appears to have been deprived of the opportunity effectively to exploit his right of subrogation to unimpaired collateral by the failure of plaintiff to record the mortgage given him by L.R.Z.H. Corporation.” pp. 55-56.
“Prejudice” is adequately established, in my view, by the substantial possibility of a worsened position of the surety due to the impairment of the collateral by the creditor. The surety does not have to show the certainty of loss from the impairment in order to demonstrate prejudice. Frequently, as in this case, the course of events makes it impossible to establish actual loss to a certainty or even a reasonable probability thereof. It should be enough that it is reasonably possible that the surety has been disadvantaged. Comparable views were articulated as long ago as 1840 in Bell v. Martin, 18 N. J. L. 167 (Sup. Ct.), holding that, in order to discharge an endorser because of a creditor’s agreement to extend time to the debtor, such extension need only be to the “prejudice” of the endorser. The court said: “But this does not mean to his actual, ascertained loss or injury: but to his prejudice, in contemplation of law; by depriving him of his right to take up the note, and sue the prior indorsers, or the maker, until after the expiration of the extended credit, given by the holder.” (Id. at 170; emphasis in original). The court goes on to explain that' any other rule would “subvert the very foundations, upon which the *61whole system of commercial paper has been erected”. (Id. at 170-171).
Since it is impossible to rerun the course of events and discover to a certainty what defendant, as surety, would have done at maturity of the note if the Langeveld mortgage had been recorded immediately upon execution, rather than delayed to a date letting in other encumbrances ahead of it, it seems to me that prejudice must be assumed on these facts, as a matter of law, on the basis of what defendant would have had the right to do at that time in protection of Iris interests. I do not see how any facts plaintiff might conceivably adduce at a hearing could affect the validity of the foregoing observations. Cf. Merchants Ind. Corp. v. Eggleston, 37 N. J. 114 (1962), dealing with “prejudice” as an essential ingredient of estoppel when an insurance company maintains control of the defense of a liability action against its insured, and later denies coverage. In that connection the court said (Id. at 129): “Indeed some courts speak of a 'conclusive’ presumption of prejudice, doubtless because, since the course cannot be rerun, they believe it futile to attempt to prove or to disprove that the insured would have fared better on his own.”
Procedurally, entry of summary judgment for defendant at this time would be supportable since defendant did earlier make a motion for summary judgment before a different judge which was denied, and he repeats the request for that relief on this appeal.. This Court has the right to assume original jurisdiction in order to bring the litigation to a conclusion, R. 2:10-5, and plaintiff has been fully heard on the issues.
For reversal and remandment — Chief Justice Hughes and Justices Mountain, Sullivan, Pashman, Clieeoed and Scheeibee — 6.
Concurring in part and dissenting in part — Judge Coneoed — 1.

For example, the Commission recommended deletion of a Comment to Section 3-606(1) declaring there would be a pro tanto discharge of the surety upon partial release or impairment of security. See 2 New York Law Revision Report, 1189-1190 (1955). The official draft adopted that recommendation.