Just In Time For Finals: Court Poses, Then Answers, Law School Exam Question On Fraudulent Conveyances

Money
In Motorworld, Inc. v. Benkendorf, the Appellate Division decided to "put the issue raised in [the] appeal as if it were a law school exam," and then answer the exam question. Here is how it described the case:

A owns all the outstanding stock of DEF and GHI; her husband, B, operates all these and other entities wholly-owned by A. XYZ has done work for some of A and B's entities over the course of many years.

One of XYZ's principals asked B for a loan. B agreed, and A transferred $499,000 to DEF, a moribund entity. DEF then transferred $500,000 to XYZ, which executed a promissory note in DEF's favor; this note became DEF's only asset and its only debt is its unspoken obligation to repay A.

XYZ continued to perform work for GHI, and the note's due date was repeatedly extended; meanwhile, GHI's indebtedness to XYZ rose to approximately $1,000,000. Consequently, DEF executed a release of the note in exchange for XYZ's forgiveness of GHI's debt.

Was DEF's release of the note a fraudulent conveyance?

Believe it or not, this description was actually less complicated than the facts of the case.

 

Continue reading “Just In Time For Finals: Court Poses, Then Answers, Law School Exam Question On Fraudulent Conveyances”

In Life, There Are No [Personal] Guarantees (Especially When They Are Buried In An Ambiguous Provision Of A Contract)

by: Peter J. Gallagher (@pjsgallagher)

In a recent unpublished decision, the Law Division refused to enforce a purported personal guarantee in a commercial contract. Individuals and entities that include such guarantees in their contracts with customers should read the decision (or just continue reading below).

In Century Star Fuel Corp. v. Jaffe, defendant entered into a contract with plaintiff whereby defendant obtained a line of credit from plaintiff that defendant could use to purchase heating oil from plaintiff. The one-page contract, which was prepared by plaintiff, contained a single signature line for defendant’s president to sign on behalf of defendant. It also contained what the court described as “boilerplate language” providing the following: “Applicant . . . agrees and acknowledges that the person who signs this Application has the Authority to do so; and Personally Guarantees all present and future extensions of credit.” Defendant was identified as the “Applicant” in the signature line. Plaintiff alleged that this clause was unambiguous and rendered defendant’s president personally liable for defendant’s debts. Defendant disagreed and argued that the clause was unenforceable because its president never intended to be personally bound. Both parties moved for summary judgment. The trial court sided with defendant.

 

Continue reading “In Life, There Are No [Personal] Guarantees (Especially When They Are Buried In An Ambiguous Provision Of A Contract)”

Extra! Extra!

by: Peter J. Gallagher (@pjsgallagher)

The latest edition of  "Commercial Litigation Briefs" is out. The newsletter is published by my firm and contains short articles on topics and cases of interest to commercial litigators. This month there are two articles — one by me and one by my colleague, John DeSimone. My article discusses a recent decision from the Delaware Supreme Court that required Wal-Mart to produce attorney-client communications to shareholders as they investigated whether to bring a derivative lawsuit against the company. John's article reports on a recent New Jersey Appellate Division decision about debt buyers trying to collect on charged-off credit card accounts they purchased from other debt buyers, which also provides helpful guidance for litigators on the hearsay exception for business records.

Enjoy!

Does A Condominium Association Have Any Recourse When A Court Denies Its Request For Legal Fees?

Kate Muscalino aims to answer that question in her recent article, "You May Have Recourse When A Court Denies Your Board Attorneys's Fees,"  which begins:

Collections have become an area of increasing concern for condominium associations, as some unit owners struggle to pay their common charges on time and in full. As unit owners' debt continues to rise, associations are left with few options to collect: a lien on the unit and a lawsuit against the individual unit owner.

Many condo associations have been frustrated in their attempts to collect from a unit owner individually, as judges are often sympathetic to delinquent unit owners, offering extensions, scrutinizing certifications of amounts due and reducing or eliminating the association's ability to collect attorneys' fees.        

Click here for the rest of the article.

More Courts Reject Eleventh-Hour Attempts To Avoid Foreclosure Based On An Alleged Lack Of Standing

by:  Peter J. Gallagher

 Two more Appellate Division panels have refused to allow defendant's in foreclosure lawsuits to raise standing as an eleventh-hour defense.  As we previously reported — Changing Tide in Forclosure Litigation? Courts Taking Closer Look When Defendants Assert Lack Of Standing At Last Minute — there is now a clear trend against allowing defendants to stay silent in the face of a foreclosure lawsuit only to appear at the last minute, usually on the eve of a sheriff's sale, and seek to vacate final judgment based on an alleged lack of standing to foreclose.  Two recent Appellate Division cases continue to bring this point home. 

In IndyMac Bank FSB v. DeCastro, a residential borrower moved to vacate final judgment and dismiss the complaint 15 months after it was entered, arguing that he was not served with the complaint.  The motion was denied.  Defendant filed a second motion to vacate, arguing, for the first time, that the bank lacked standing to foreclose because it was not assigned the mortgage until after the complaint was filed.  This motion was denied as untimely and defendant appealed.  In an opinion, dated March 13, 2013, the Appellate Division affirmed.  In its decision, among other things, the Appellate Division rejected defendant's standing argument, noting: "[W]e have now made clear that lack of standing is not a meritorious defense to a foreclosure complaint."  Moreover, the Appellate Division held that defendant's standing argument was meritless "particularly given defendant's unexcused, years-long delay in asserting that defense or any other claim."  In arriving at this decision, the Appellate Division relied on many of the cases discussed in our prior post. 

Similarly, in WellsFargo Bank, N.A. v. Lopez, a different Appellate Division panel rejected another residential home owner's last-minute attempt to raise standing as a defense to the foreclosure complaint.  The facts in that case were a bit more egregious because the borrower contributed to the four-year delay between the entry of default and the filing of his motion to vacate by filing numerous bankruptcy petitions and seeking a stay to attempt to short sell the property.  Nonetheless, the Appellate Division affirmed the trial court's denial of the motion to vacate holding, among other things, that the lack of standing, even if true, was not a meritorious defense to a foreclosure complaint, particularly in the post-judgment context.  Again, the Appellate Division relied primarily on the cases included in our prior post.