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Ford Motor Credit Company v. LFK, Inc.

A-3706-02T5 (N.J. Super. App. Div. 2004) (Unpublished)

DEBTS; SETTLEMENTS—Where a settlement agreement can be interpreted to mean that a debtor’s failure to make the agreed-upon periodic payments will result in the debtor owing only the remaining settled amount, the creditor cannot get a judgment for the original, higher debt.

A company leased a truck, but fell behind on its payments, leading the lessor to bring suit. The lessee answered by filing a third-party complaint against the selling dealership, alleging defects in the truck. The lessee and the dealership then entered into settlement discussions, exchanging multiple proposals. Eventually, the two parties filed cross-motions to enforce a settlement, but there were significant differences between what each side believed had been their agreement. At a plenary hearing, the lower court rejected the lessee’s testimony, and entered an order enforcing the settlement under which the lessee was to pay an amount within thirty days to the leasing company. The order stated that failure to make the payment would result in a judgment for the entire amount due.

When the lessee failed to make the payment, the leasing company filed for the amount remaining on the lease. The Appellate Division held that the crucial factor was that there was no testimony at the resulting plenary hearing that the parties had agreed that if there were a payment default, judgment would be entered for the full amount of the original debt. Furthermore, in a draft of the settlement agreement, the first paragraph recited the amount originally awarded in the plenary hearing, and the following paragraph established that if the buyer failed to make payment, the company would file an affidavit with the court for entry of judgment for the remaining balance as established by the first paragraph. Therefore, it was the amount originally awarded at the hearing, and not the balance of the original lease, that the lessee agreed could have been entered as judgment against it.

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