Court Opinion

ID: 4170107
Source: CourtListenerOpinion
Date Created: 2017-05-19 16:13:46.530217+00
Date Added: 2024-06-11T14:38:56.094292
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                  APPROVAL OF THE APPELLATE DIVISION

                                     SUPERIOR COURT OF NEW JERSEY
                                     APPELLATE DIVISION
                                     DOCKET NO. A-2601-10T3

JPMORGAN CHASE BANK, N.A.,

         Plaintiff-Respondent,

v.

JEFFCO CINNAMINSON CORPORATION
D/B/A STAN ESPOSITO FINE CARS
and PAUL T. ANDREWS,

         Defendants-Appellants,

and

ALFRED SCIUBBA,

         Defendant.

_____________________________________

         Submitted March 7, 2012 - Decided March 27, 2012

         Before Judges J. N. Harris and Haas.

         On appeal from the Superior Court of New
         Jersey, Law Division, Camden County, Docket
         No. L-002840-09.

         Marchetti   Law,   P.C.,   attorneys  for
         appellants (Anthony L. Marchetti, Jr., on
         the brief).

         Maselli   Warren,    P.C.,   attorneys    for
         respondent JPMorgan Chase Bank, N.A. (Paul
         J. Maselli, of counsel and on the brief).
PER CURIAM

    This appeal concerns a national bank's alleged imperfect

release of security interests in two high performance

automobiles —— a Ford GT40 (the Ford GT) and a Ferrari

Scaglietti (the Ferrari) —— held as collateral, without first

waiting for two payoff checks to clear.    Plaintiff JPMorgan

Chase Bank, N.A. (JPMorgan) irreversibly released its liens and

returned the title papers for the automobiles to the owner's

consignee, only to learn just days later that both checks were

dishonored for insufficient funds.    Defendants Jeffco

Cinnaminson Corporation (Jeffco) and Paul T. Andrews claim that

JPMorgan's precipitous conduct resulted in the impairment of

collateral, which requires the discharge of their obligations to

the bank.

    Jeffco and Andrews appeal from the December 10, 2010

judgment entered in favor of JPMorgan for $305,215.33 plus

$40,822.52 in reallocated attorneys fees and costs.       We reverse

and remand for further proceedings.

                                 I.

                                 A.

    We begin with familiar principles of law:

            Our review of the meaning of a statute is de
            novo, and we owe no deference to the
            interpretative conclusions reached by the
            trial court . . . .    Zabilowicz v. Kelsey,

                                 2                            A-2601-10T3
         200 N.J. 507, 512-13 (2009); see also
         Manalapan Realty, L.P. v. Twp. Comm., 140
N.J. 366, 378 (1995).        In determining
         whether   summary   judgment  was   properly
         granted based on the record, we apply the
         same standard governing the trial court --
         we view the evidence in the light most
         favorable to the non-moving party.       See
         Henry v. N.J. Dep’t of Human Servs., 204
N.J. 320, 330 (2010); Brill v. Guardian Life
         Ins. Co. of Am., 142 N.J. 520, 523 (1995);
         see also R. 4:46-2(c).

         [Wilson ex rel. Manzano v. City of Jersey
         City, ___ N.J. ___, ___ (2012)(slip op. at
         5).]

Here, the Law Division granted summary judgment against Jeffco

and Andrews, the non-moving parties.    With these principles in

mind, we turn to the facts, viewing them in the light most

favorable to those defendants.

                                 B.

    In late 2005, Jeffco and Andrews applied to JPMorgan,

through the Jim Golden Ford-Lincoln-Mercury car dealership, for

a loan to pay for Jeffco's acquisition of the Ford GT.    On

December 6, 2005, Jeffco and Andrews signed a document entitled,

"Promissory Note and Security Agreement – Consumer Paper," in

favor of JPMorgan in the amount of $177,373, which referred to

Andrews as a "co-borrower."   In a separate disclosure entitled,

"Cosigner Notice," Andrews was advised that he was "being asked

to guarantee [the] debt," and he signed the document above a

line labeled, "Cosigner's Signature."

                                 3                         A-2601-10T3
    In July 2006, a similar transaction occurred involving the

Ferrari.   On July 27, 2006, Jeffco and Andrews signed a document

entitled, "New Jersey Retail Installment Contract," in favor of

Ferrari Maserati of Central N.J. agreeing, as "Buyer and Co-

Buyer," to pay a total of $255,507 for the Ferrari.    Andrews

again signed a separate "Cosigner Notice," which contained the

identical boilerplate language as the December 2005 disclosure.

The retail installment sale contract evidenced by these

instruments was assigned to JPMorgan.

    In due course, both automobiles were entrusted to

automobile dealer Alfred Sciubba for the purpose of finding a

buyer for each vehicle.    Andrews and Sciubba had known each

other for several years and previously engaged in similar

arrangements.   The record does not contain any writings

evidencing the nature of the bailment and it appears that

Sciubba and Andrews transacted business mostly through oral

handshake agreements.     Sciubba owned and operated a specialty

car business at a number of locations under the trade name Auto

Toy Store, which, among other things, sold motor vehicles on

consignment.

    At his deposition, Sciubba testified that he regularly

accepted consignments from Andrews's personal stock of

automobiles, but that the placements of the Ford GT and Ferrari

                                  4                         A-2601-10T3
were not true consignments because the vehicles were owned by

Jeffco, and Sciubba claimed to have a part ownership interest in

Jeffco.    Andrews disputes this.       However, according to Sciubba,

because he was tasked to sell his own automobiles —— albeit

titled in the name of Jeffco —— these were not consignment

transactions, at least as far as he was concerned.

     In general, when Sciubba (or his staff) sold a consigned

automobile, it was his responsibility, through the Auto Toy

Store, to obtain clear title for the buyer.         If the automobile

had been financed and there was a lien on the title, it was

Sciubba's responsibility to forward the unpaid balance due on

the indebtedness to the creditor, usually a bank or credit

union.     In return, the creditor endorsed the lien paid and

returned the title papers to Sciubba, who would then obtain new

title papers and forward them to the buyer.         Among the documents

Sciubba required from consignors to facilitate this payoff

process was a power of attorney authorizing the procedure.

     In the summer of 2006, a prospective buyer for the Ford GT

emerged.    At that time, Sciubba still maintained a Jeffco

checking account and was in possession of some of its blank

checks.1    One of Sciubba's employees prepared and mailed to

1
   The record contains documentary evidence suggesting that
Sciubba had transferred his entire interest in Jeffco to Andrews
                                                     (continued)

                                    5                           A-2601-10T3
JPMorgan a payoff check from the Jeffco account.     This employee

also signed Andrews's name to a document entitled,

"Authorization For Payoff" and directed the bank to send the

"lien release" to Jeffco at an address in West Berlin, New

Jersey, which was one of Sciubba's Auto Toy Store locations.

    On August 29, 2006, JPMorgan received the check in the

amount of $162,066.51.   On September 1, 2006, before waiting to

ensure that the check cleared, JPMorgan endorsed its lien as

paid, and mailed the Ford GT's title papers to the designated

address.   Presumably, upon receipt, clear title to the

automobile was delivered to the purchaser.

    The Jeffco check, however, never cleared.   It was

dishonored due to insufficient funds on September 6, 2006.

Thus, not only did the principal amount of the indebtedness

remain unpaid, but interest on the loan continued to accrue.

Andrews did not learn of these circumstances until a

representative of JPMorgan later called him saying that the bank

wanted a payment for the loan.

    The Ferrari transaction took a similar course.     After a

purchaser paid for that automobile, a Jeffco check in the amount

of $243,170 was prepared by one of Sciubba's employees and sent

(continued)
in December 2004 and his right to utilize this checking account
eighteen months later was dubious.

                                 6                          A-2601-10T3
to JPMorgan on December 15, 2006.     JPMorgan received the check

four days later.    One day after that, it endorsed the lien as

paid, and mailed the Ferrari's title papers to the West Berlin

address.   The check did not clear.    It was dishonored on

December 29, 2006, for insufficient funds.

    Thus, as far as JPMorgan was concerned, it now held two

unpaid loans in Jeffco's and Andrews's names, both of which were

now unsecured.     After Andrews was made aware of this turn of

events, he and Sciubba attempted to resolve their multi-faceted

dispute.   Not only were these underlying loans in arrears, but

Andrews had not been paid his appropriate share of the

automobiles' net profits.

    In July 2007, Andrews and Sciubba executed an agreement

entitled, "Partial Agreement of Understanding," which provided

that Sciubba would "make complete and timely monthly payments on

any and all amounts due and owing on the . . . Ferrari . . . and

the Ford GT."    Sciubba performed these obligations for

approximately one year.     In September 2008, supposedly due to

challenging economic conditions, Sciubba closed the Auto Toy

Store and stopped paying the loans.     In short order, JPMorgan

commenced this lawsuit to recover the amounts due.

    The record is unclear when JPMorgan actually filed its

initial complaint.    However, an amended complaint was filed in

                                  7                           A-2601-10T3
February 2009, naming Jeffco, Andrews, and Sciubba as

defendants.    Jeffco and Andrews defended on the ground, among

others, that because JPMorgan had failed to protect the

collateral, their two loans were discharged.     They filed cross-

claims against Sciubba, and also asserted a counterclaim against

JPMorgan claiming negligence in the handling of the collateral.

In mid-2009, JPMorgan and Sciubba settled their part of the

dispute and entered into a stipulation of settlement.    This

agreement called for Sciubba to make scheduled payments to

JPMorgan for one year, and then make a balloon payment for the

balance due.

    In September 2010, JPMorgan filed a motion for partial

summary judgment.   Jeffco and Andrews responded with a cross-

motion for summary judgment.    As part of their response and

cross-motion, Jeffco and Andrews submitted Thomas Bonneville's

expert report and opinion.     Bonneville opined that JPMorgan's

release of the liens violated financial industry standards and

was contrary to JPMorgan's policies and procedures.     Bonneville

stated that not only should the liens not have been released

until JPMorgan could verify that the loans had been paid in full

with good funds, but JPMorgan failed to properly verify that the

documents submitted along with the payoff checks –- the power of

attorney and Authorization For Payoff -– were genuine.

                                  8                         A-2601-10T3
Furthermore, Bonneville contended that JPMorgan failed to

properly monitor and manage the Jeffco loan portfolio after the

first payoff check (for the Ford GT) bounced.

    In an oral decision, the Law Division recited the mostly

undisputed facts, ultimately holding the following:

         My best understanding of the facts here is
         that [JPMorgan] implicitly knew that [the
         entity transmitting title to the vehicles
         was in the business of selling vehicles]
         because [it] received a check from Auto Toy
         Store, an entity that appeared in all
         respects to be a business that was in the
         business of selling motor vehicles.

              It therefore reasonably concluded, or
         should   have    concluded,   that   [these]
         vehicle[s] had been consigned to an entity
         that was in the business of selling motor
         vehicles; that the only way that the
         vehicles could have reached that location
         was through the actions of Mr. Andrews in
         allowing the vehicle[s] to be placed into
         the stream of commerce through this motor
         vehicle dealership; and that in consequence,
         to the extent that payment was presented to
         the bank, that payment was, from the
         dealership,   adequate   and sufficient   to
         constitute the basis for the release of
         title.

              In terms of the release of the title in
         each of the two instances to the Auto Toy
         Store in connection with the bona fide
         purchaser, . . . Andrews and Jeffco can't be
         heard to complain about that release because
         they set in motion the very facts that led
         to the consignment of the vehicle to this
         dealership.    They can't therefore assert
         that   they  are   entitled   to  the   same
         protection under [N.J.S.A.] 12A:3-605 where
         the bank has impaired their collateral

                               9                            A-2601-10T3
         because under Section I of that section,
         they created the very circumstance that
         produced the basis for the discharge of the
         collateral.

              . . . .

              For those reasons, the Court finds that
         the   defense   that's    asserted   by  the
         defendant[s] to the indebtedness is simply
         based upon the facts that are acknowledged
         by the defendant[s], even where the Court
         construes the facts in the light most
         favorable   to  the   defendant[s],   is not
         available to [them] because the defendant[s]
         acknowledge[] this knowing consignment of
         the vehicle[s] to the Auto Toy Store.

              For all of those reasons then, the
         Court concludes that the motion for partial
         summary judgment by JPMorgan Chase Bank as
         against Jeffco and Andrews must be granted.
         There was an appropriate and proper and
         mandatory release of the collateral in
         connection    with    the   sale   of   [these]
         vehicle[s] by an entity appointed by Andrews
         acting   as    the   Jeffco   principal,   that
         consigned [these] vehicle[s] for sale -–
         which would result in a sale to a bona fide
         purchaser who presented fair and reasonable
         documentation to the bank in regard to
         payment,    and    therefore   there   was   an
         obligation to release the title instrument.

    A few weeks later, the court entered a judgment against

Jeffco and Andrews adding approximately $40,000 in attorneys'

fees to the unpaid balance of the loans.   This appeal followed

after a default judgment was entered in favor of Jeffco and

Andrews against Sciubba on the cross-claims.

                               10                          A-2601-10T3
                               II.

    The parties have chosen to engage their dispute at the

arcane intersection of Chapters Two (Sales), Three (Negotiable

Instruments), and Nine (Secured Transactions) of New Jersey's

Uniform Commercial Code (the UCC).   We are not sanguine that

their legal analyses properly harmonize the disparate purposes

of each chapter of the UCC.   First, the parties' arguments about

the statute and the limited decisional law in this state

relating to consignments revolve around situations concerning

priority disputes between buyers and consigners, not, as here,

between secured creditors and consigners.   Second, the UCC does

not exclusively control the duties of secured creditors vis-à-

vis the management, control, and release of their liens.     See

N.J.S.A. 39:10-10 (providing that when a security agreement

noted on a certificate of ownership has been performed the

secured party shall deliver to the buyer the certificate of

ownership thereto, with proper evidence of satisfaction of the

termination of the security interest).   Cf. N.J.S.A. 39:10-9

(noting that its provisions relating to security interests do

not "apply to security interests in motor vehicles which

constitute inventory held for sale, but such interests shall be

subject to chapter 9 of Title 12A of the New Jersey Statutes.").

                                11                         A-2601-10T3
    JPMorgan relies upon Martin v. Nager, 192 N.J. Super. 189

(Ch. Div. 1983) and N.J.S.A. 12A:9-320(a) for the proposition

that "the UCC entitles buyers in the ordinary course of business

to take ownership of automobiles without being subject to

liens."   In so many words, JPMorgan argues that whenever an

"innocent purchaser" is involved in the acquisition of an

automobile, the rights of a secured lender must almost-

instantaneously (and inexorably) bend to the will of the buyer.

Even if that were nothing more than an exaggerated

overstatement, it is not what occurred in this case, at least

from JPMorgan's vantage point.

    JPMorgan justifies the breakneck speed of its lien-

releasing activities based upon the mere appearance of an

alleged good faith purchaser on the scene.    However, JPMorgan

had no knowledge about the identity or status of the purchasers

at the time of the futile payoffs.    When bank employees received

the first payoff check from Jeffco, with its accompanying

request to release the lien that had allegedly been signed by

Andrews, JPMorgan was neither aware that the Ford GT had, in

fact, been sold, nor was it privy to any other details of the

transaction between the Auto Toy Store and the buyer.

    In fact, contrary to the Law Division's conclusion,

JPMorgan could not have "implicitly kn[own] that [the entity

                                 12                         A-2601-10T3
transmitting title to the vehicles was in the business of

selling vehicles] because [JPMorgan] received a check from Auto

Toy Store, an entity that appeared in all respects to be a

business that was in the business of selling motor vehicles."

JPMorgan never received a check from the Auto Toy Store.

Instead, the check came from Jeffco, which from the evidence

available at the time was not an entity that was in the business

of selling motor vehicles.2   For all JPMorgan's employees knew,

there was no sale involved at all, and Jeffco simply was

restructuring its liabilities and changing lenders.   The UCC

does not require a secured lender to blindly release a lien

without conducting reasonable due diligence, including ensuring

that the proffered payoff is sufficient to extinguish the

outstanding amount due on the loan or there are other sufficient

lawful grounds for freeing the collateral.

     Martin does not hold otherwise.   In that case, the only

issue that was decided involved the rights of a buyer and seller

of a consigned automobile where the consignee converted the

purchase price and became insolvent.   Martin, supra, 192 N.J.
2
  The Jeffco checks that Sciubba's employee sent to JPMorgan are
not part of the appellate record. We do not know, for example,
whether those checks contained Jeffco's trade name, Stan
Esposito Fine Cars, which might have been an indication that the
money to pay off each loan came from an automobile dealer. Even
if that were the case, however, it would not have demonstrated
that the buyer was a "bona fide purchaser."

                                13                          A-2601-10T3
Super. at 193.   The court did not address the rights of a

secured creditor and did not hold that a lien holder must

endorse the lien paid-in-full before making sure that the loan

is, in fact, paid in full.

    N.J.S.A. 12A:9-320(a) also is inapplicable to JPMorgan's

actions.   This statute provides, in pertinent part, as follows:

           Except as otherwise provided in subsection
           (e), a buyer in ordinary course of business,
           other than a person buying farm products
           from a person engaged in farming operations,
           takes free of a security interest created by
           the buyer's seller, even if the security
           interest is perfected and the buyer knows of
           its existence.

           [N.J.S.A. 12A:9-320(a)(emphasis added).]

Under N.J.S.A. 12A:9-315(a)(1) and (2), a perfected security

interest continues in collateral upon any disposition, unless an

exception in the UCC applies.   N.J.S.A. 12A:9-320(a) is one such

exception because it automatically discontinues the security

interest so that the goods purchased are no longer encumbered by

the lender's security interest.    The effect ensures that a buyer

acquires the goods with clear title.

    The purpose of N.J.S.A. 12A:9-320(a) is to facilitate sales

transactions between a debtor and its customers.      If the

debtor's customers can freely purchase, without having to worry

about security interests, the debtor's cash flow is more likely

                                  14                           A-2601-10T3
enhanced by the concomitant ability to pay the indebtedness to

the secured party in a timely fashion.

    The security interests in this case were created by Jeffco

and Andrews, not by the Auto Toy Store.     The buyers of the Ford

GT and Ferrari were dealing with the Auto Toy Store.     Thus,

those buyers would take free of any security interest created by

Auto Toy Store, but not those created by Jeffco and Andrews.

See Ocean Cnty. National Bank v. Palmer, 188 N.J. Super. 509

(App. Div. 1983) (applying former N.J.S.A. 12A:9-307(1), the

source of N.J.S.A. 12A:9-320(a)).

    Furthermore, the statute describes nothing about the

secured party's duty to release its perfected security interest

and is silent as to the speed within which that must be

accomplished.   In this case, there is no evidence of a need for

a speedy release of JPMorgan's security interests.     The record

neither identifies the buyers of the Ford GT and Ferrari nor

discloses their demands for obtaining the paperwork necessary to

comply with the title transfer provisions of the motor vehicle

certificate of ownership law, N.J.S.A. 39:10-1 to -25.     Had

JPMorgan waited a few more business days before robotically

processing the lien releases, its discovery of the checks'

dishonor might have enabled Jeffco and Andrews to prevent the

conversion of the purchase proceeds.     We, of course, cannot know

                                15                          A-2601-10T3
the outcome of this hypothetical scenario.   However, in light of

Bonneville's expert opinions, we cannot say that Jeffco and

Andrews would have inevitably suffered the same harm.     That

determination is for the trier of fact to make.

    JPMorgan further argues that Jeffco and Andrews are co-

makers of the instruments that evidence the loans related to the

Ford GT and Ferrari.   Accordingly, it claims that they are not

entitled to raise the defense of impairment of collateral under

N.J.S.A. 12A:3-605, because such defense is available only to

accommodation parties (see N.J.S.A. 12A:3-419), not to makers

(see N.J.S.A. 12A:3-103(a)(5)) of instruments.    The UCC's

impairment of collateral section, in pertinent part, provides as

follows:

           e. If the obligation of a party to pay an
           instrument is secured by an interest in
           collateral and a person entitled to enforce
           the instrument impairs the value of the
           interest in collateral, the obligation of an
           indorser or accommodation party having a
           right of recourse against the obligor is
           discharged to the extent of the impairment.
           The value of an interest in collateral is
           impaired to the extent the value of the
           interest is reduced to an amount less than
           the amount of the right of recourse of the
           party asserting discharge, or the reduction
           in value of the interest causes an increase
           in the amount by which the amount of the
           right of recourse exceeds the value of the
           interest. The burden of proving impairment
           is on the party asserting discharge.

                                16                            A-2601-10T3
        f. If the obligation of a party is secured
        by an interest in collateral not provided by
        an accommodation party and a person entitled
        to enforce the instrument impairs the value
        of    the    interest    in    collateral,    the
        obligation of any party who is jointly and
        severally liable with respect to the secured
        obligation is discharged to the extent the
        impairment     causes   the    party    asserting
        discharge to pay more than that party would
        have been obliged to pay, taking into
        account     rights    of     contribution,     if
        impairment had not occurred. If the party
        asserting discharge is an accommodation
        party   not    entitled   to    discharge   under
        subsection e. of this section, the party is
        deemed to have a right to contribution based
        on joint and several liability rather than a
        right   to    reimbursement.    The   burden   of
        proving impairment is on the party asserting
        discharge.

        g. Under subsection e. or f. of this
        section, impairing value of an interest in
        collateral includes failure to obtain or
        maintain perfection or recordation of the
        interest    in     collateral,    release  of
        collateral      without     substitution   of
        collateral   of    equal  value,   failure to
        perform a duty to preserve the value of
        collateral owed, under chapter 9 or other
        law, to a debtor or surety or other person
        secondarily liable, or failure to comply
        with   applicable     law  in    disposing of
        collateral.

        [N.J.S.A. 12A:3-605(e), (f), and (g)].

Also,

        [a] person signing an instrument is presumed
        to be an accommodation party and there is
        notice that the instrument is signed for
        accommodation  if   the   signature  is   an
        anomalous indorsement or is accompanied by

                               17                           A-2601-10T3
         words indicating that the signer is acting
         as surety or guarantor with respect to the
         obligation   of    another    party   to the
         instrument.   Except as provided in 12A:3-
         605, the obligation of an accommodation
         party to pay the instrument is not affected
         by the fact that the person enforcing the
         obligation had notice when the instrument
         was   taken   by    that   person   that the
         accommodation party signed the instrument
         for accommodation.

         [N.J.S.A. 12A:3-419(c).]

In light of these provisions, we conclude that there is a

factual dispute over Andrews's status.     Although he signed both

the promissory note for the Ford GT and the retail installment

sale contract for the Ferrari, he was provided the Cosigner

Notice in both instances, which alerted him that he was "being

asked to guarantee the debt."   These words alone might qualify,

in the language of the statute, as "indicating that the signer

is acting as surety or guarantor with respect to the obligation

of another party to the instrument."     Ibid.   Accordingly,

summary judgment was not appropriate as the means to determine

whether Andrews was an accommodation party.

     As for Jeffco, its ability to argue for a discharge

pursuant to the impairment of collateral doctrine is controlled

by N.J.S.A. 12A:3-605(f).   This section applies to "the

obligation of any party who is jointly and severally liable,"

not just accommodation parties, and permits a discharge "to the

                                18                              A-2601-10T3
extent the impairment causes the party asserting discharge to

pay more than that party would have been obliged to pay."     Ibid.

(emphasis added).   Not only did the Law Division not reach this

issue, but the evidence presented on summary judgment was

insufficient to warrant a judgment in JPMorgan's favor as a

matter of law.

    Finally, JPMorgan argues that regardless of whether it

impaired the collateral, both Jeffco and Andrews waived the

defense.   It, along with the Law Division, asserted that because

Jeffco and Andrews had placed the Ford GT and Ferrari in

Sciubba's custody and control ("in the stream of commerce"),

which resulted in Sciubba's mishandling of the payoff checks,

they are deemed to have waived remedies for the impairment of

collateral.   We view this evidence of waiver, by itself, to be

insufficient to warrant an "unequivocal" waiver as required by

Langeveld v. L.R.Z.H. Corp., 74 N.J. 45, 54 (1977) and its

progeny.

    In Langeveld, the Court directly addressed the effect of

particular contract language on a guarantor's right to

unimpaired collateral.   Such a result "should be permitted only

where the instrument of guaranty specifically frees the creditor

from liability for such impairment."   Id. at 53.   As a result,

the Court adopted the rule that when faced with a claim that a

                                19                          A-2601-10T3
guaranty was meant to eradicate every right of a guarantor and

grant the creditor absolute immunity as to the collateral, a

court must strictly construe the language of the guarantee.

Ibid.

    Here, by analogy, the mere entrustment of the Ford GT and

Ferrari to Sciubba did not, as a matter of law, constitute an

unequivocal waiver of Jeffco's and Andrews's rights to

unimpaired collateral.   The two separate acts —— entrustment of

the cars and waiver of a future defense —— are independent of

each other.   We do not exclude the possibility that at trial,

JPMorgan could establish grounds for waiver, but the summary

judgment record was wholly insufficient to warrant a conclusion

to the contrary.

    In sum, we conclude that the Law Division improvidently

granted summary judgment in favor of JPMorgan.   Whether Jeffco

or Andrews will be entitled to discharge the loans owed to

JPMorgan remains to be seen.   Jeffco and Andrews will shoulder

the burden of proof on the impairment of collateral defense, and

JPMorgan will be entitled to present evidence demonstrating its

waiver.   The trier of fact will also be obliged to determine,

even if an impairment of collateral occurred, the extent, if

any, of the impairment in accordance with N.J.S.A. 12A:3-605.

We recognize that the issues in this case are thorny and will

                                20                        A-2601-10T3
present serious challenges to the court, to the parties, and to

the trier of fact.3   We are, nonetheless, confident that all will

fulfill their assigned roles in the resolution of this dispute.

     Accordingly, summary judgment in favor of JPMorgan is

reversed; the reallocation of counsel fees is vacated without

prejudice; and the matter is remanded to the Law Division for

further proceedings consistent with the views expressed in this

opinion.   We do not retain jurisdiction.

3
  An official comment to N.J.S.A. 12A:3-605 suggests that the
impairment of collateral defense is "greatly diminished" because
"[i]t is standard practice to include . . . a waiver [of a right
to discharge] in notes prepared by financial institutions or
other commercial creditors.   Thus, the defense appears only in
"the occasional case in which the note does not include . . . a
waiver clause and the person entitled to enforce the note
nevertheless takes actions that would give rise to a discharge
without obtaining the consent of the secondary obligor."
N.J.S.A. 12A:3-605, UCC Comment 9. If JPMorgan's promissory note
or retail installment sale contract provides a basis to argue
waiver, we do not preclude the employment of this argument, and
leave it to the Law Division to decide the matter.

                                21                        A-2601-10T3