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Crionna Investments, LP v. Zackim

A-6097-02T5 (N.J. Super. App. Div. 2004) (Unpublished)

SETTLEMENTS; DEFAULT—Absent an agreement to the contrary, when a debtor fails to pay the settled amount, the creditor is entitled to pursue a judgment for the original debt, not merely for any previously compromised amount.

A bank’s customer and its bank entered into a stipulation of settlement for a balance due. The customer defaulted, leading the bank to move for a judgment “for the full amount sought in the complaint.” The lower court entered a judgment for the full amount. Thereafter, the parties agreed to an amended stipulation of settlement, similar to the original agreement, except that the total amount due was less than the original amount and except for a significant difference in the default provision. The original agreement provided that the bank would give its customer written notice of a default and allow a ten-day period within which the customer could cure the default. The post-judgment agreement allowed the bank to seek entry of judgment without motion or notice, and there was no cure provision. It also provided that, “[t]he time of payment is the date of receipt thereof by the [bank’s] counsel.”

The customer again defaulted, leading the bank to promptly move to seek entry of judgment for the total sum originally due. The lower court denied relief to the bank, saying only that “[e]quity does not allow this relief under the circumstances presented.”

The bank appealed, and the Appellate Division reversed the lower court’s ruling. It saw no basis for refusing to enforce an unambiguous contract for which adequate consideration was provided. After the customer’s first default, and after the bank obtained a judgment based on the total debt in accordance with the original settlement, the bank agreed to vacate that judgment and reinstate the original settlement, but only if it could proceed to judgment on the original obligation without giving notice. In essence, in the post-judgment settlement, the bank compromised the total sum due on the original debt in exchange for the expectation that it would receive timely payments without further legal action. When its customer failed, for a second time, to fulfill his promise, the bank was deprived of the consideration for which it had bargained. Therefore, it was no longer obligated to fulfill its side of the bargain, which was to accept a sum less than the original debt. Generally, when there is a breach of a material term of an agreement, the non-breaching party is relieved of its obligations under the agreement.

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