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Banco Popular North America v. Filippatos Family L.L.C.

A-1241-03T3 (N.J. Super. App. Div. 2005) (Unpublished)

MORTGAGES; FORECLOSURE; DURESS — In order to establish an action for economic duress, a borrower must show that it was a victim of a wrongful or unlawful act or threat which deprived it of free will.

A bank lent money to a limited liability company. In order to secure repayment on the loan, the entity executed a note and mortgage, for which a local diner served as security. The borrower defaulted on the note and mortgage and the bank moved for summary judgment which was granted. The lower court then entered a judgment against the borrower for the outstanding loan balance. The judgment also included contractual attorneys’ fees and real estate taxes. The bank then commenced a foreclosure action. A rent receiver was appointed to collect rent from the diner. Instead of proceeding with the foreclosure, the bank assigned its rights under the note, mortgage, judgment, and foreclosure action. The assignee then entered into settlement negotiations with the borrower. At the time, the borrower was trying to sell the diner to a hospice center. The assignee agreed to adjourn the sheriff’s sale several times in order to facilitate that sale. The parties then entered into discussions regarding the payoff amount. The assignee demanded significantly more than the judgment entered by the lower court. The company demanded an itemization of the payoff amount and filed an emergent application to stay the sheriff’s sale. The parties eventually settled on a payoff figure higher than the judgment amount and the mortgage was satisfied. The borrower then filed a motion in aid of litigant’s rights seeking a refund of the settlement amount that exceeded the judgment. It argued that it was entitled to the refund because it was under duress when it agreed to the higher amount. The lower court ordered the refund and the assignee appealed.

The Appellate Division reversed the lower court’s ruling on the basis that the borrower failed to prove that it was under duress when it agreed to the payoff amount. In order to establish duress, the borrower was required to show that it was a victim of a wrongful or unlawful act or threat which deprived it of its free will. The Court held that the borrower’s representatives were all sophisticated business people who were represented by counsel during the settlement negotiations with the assignee. It further held that there was no evidence indicating that the payoff amount was other than the product of an open and voluntary compromise between the parties. As a result, the Court reversed the lower court’s ruling.

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