Garden State Buildings, L.P. v. First Fidelity Bank, N.A.

A-181-96T3, 1997 WL 739016 (N.J. Super. App. Div. 1997)
  • Opinion Date: November 20, 1997

MORTGAGES; ASSIGNMENTS—By executing various documents and making payments after its lender assigned the mortgage loan, borrower waived its right to enforce the provision of the loan that made such an assignment void. Borrower may still have a chance to prove damages against the wrongfully assigning lender.

A partnership, as the debtor, secured a construction and financing loan for development of a hotel. All parties agreed to an extension after the debtor was unable to pay off the loan on the maturity date. The relevant documents provided that no assignment of the loan was effective unless approved by both parties in writing. In September 1993, the debtor asked the bank holding the loan if the loan was being sold as part of a bulk sale of problematic loans. The bank stated that its policy was not to discuss pending bulk sales. At the end of September, 1993, the bank sold and assigned the loan, without the partnership’s consent, as part of a bulk sale. The partnership made approximately six monthly payments to the assignee. After much dispute with the assignee, the debtor conveyed the hotel to the assignee in lieu of foreclosure, and executed a release stating that the assignee was the true and lawful owner of the loan obligation and mortgage documents. The debtor then filed suit against the bank. Because the partnership made no attempt to void the assignment, made payments to the assignee, and executed the release documents, the trial judge granted summary judgment to the bank, holding that the debtor ratified the assignment, and was therefore barred from asserting any claim against the bank for wrongful assignment. On appeal, the partnership claimed it was not required to void the assignment and could pursue damage remedies against the bank while making payments to the assignee.

Section 322 of the Restatement (Second) of Contracts states that a contractual term prohibiting assignment gives a right to damages for breach, but does not render an assignment ineffective. Federal case law states that to invalidate an assignment, the document being assigned must expressly state that any assignment shall be void, otherwise, the assignment is effective and the injured party only has a right to damages. The loan documents in this case specifically stated that any assignment without the prior written consent of the other party rendered the assignment void. Accordingly, the assignment could have been invalidated, or the debtor could have accepted the assignment while retaining a right to seek damages against the bank. Therefore, the Appellate Division had to determine whether the debtor waived the anti-assignment clause through its subsequent actions. The rule generally promulgated by the New Jersey Supreme Court is that, “waiver is the intentional relinquishment of a known right, and it must be shown that the party charged with waiver knew of its legal rights and deliberately intended to relinquish them.” Sebar v. Sanyo Bus. Sys. Corp., 111 N.J. 276, 291 (1988). Some cases require an express waiver while others look to a party’s actions. Either way, waiver must be voluntary and unequivocal. Based on the payments and executed documents, the Appellate Division found that the debtor clearly waived its right to void the assignment. However, the Court noted that the debtor did not ratify the assignment, since ratification relates to acts professed to have been performed on one’s behalf. Therefore, the remaining issue was whether the debtor waived its right to assert a claim for damages against the bank. The Court stated that since the issue of waiver involves questions of intent, it is not properly the subject of a summary judgment motion. Accordingly, the Appellate Court reversed the summary judgment motion and remanded the case for a full exploration of the facts to determine whether the debtor waived its right to a claim for damages against the bank.