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In re Joseph F. Carretta

220 B.R. 203 (D. N.J. 1998)

LEASES; ASSIGNMENTS—Under New Jersey law, determination as to whether an assignment of rents is to be treated as collateral or as an absolute assignment is to be determined from the precise wording of the assignment. Absent ambiguity or vagueness, extrinsic evidence is excluded from such a determination.

A commercial property owner executed a guaranty to a financial corporation in exchange for loans made to companies in which the borrower had substantial stakes. As further security for the loans, the lender took a mortgage and an assignment of rents and leases on the property. When the borrower filed for bankruptcy under Chapter 11, its lender sought to enforce the assignment of rents. The borrower opposed the motion and the Bankruptcy Court determined that the assignment of rents was given as collateral and was not an absolute assignment. The judge failed to find a present intent to assign title to the rents to the lender because there were other assignments and agreements with additional creditors that were executed the same day as the assignment was given to the lender. The lender argued that the precise wording of the assignment expressed an intent to immediately and absolutely assign present title in the rents, and that controlling case law prohibits a Bankruptcy Court from looking beyond the actual wording of the assignment. The borrower claimed that the assignment of rents was not absolute because he retained the ability to further assign them, with the lender’s consent.

In its plenary review, the District Court first resolved whether extrinsic evidence may be considered in determining whether an assignment of rents is absolute or conditional. It held that a creditor must get the same protection in Bankruptcy Court that it would have under state law as if no bankruptcy had occurred. In New Jersey, an assignment of rents transfers title upon its execution, and its precise wording determines its effect without consideration of extrinsic evidence. In the Court’s view, even if extrinsic evidence was permitted, it may not be used to contradict the plain, unambiguous words of a document, as the borrower was attempting to argue. Looking strictly to the language of the assignment, the District Court concluded that the assignment was “quintessentially absolute.” The Court found that both parties had a clear, present intent to enter into an absolute assignment, and stated that there was no ambiguous language in the assignment. Even though the borrower may have been able to assign the rents to a third party, this did not mean that the assignment was conditional or that the borrower retained any ownership interest in the rents, only that it had a license to assign them with its lender’s consent. Such a license did not defeat the absolute nature of the assignment.


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