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Midlantic National Bank v. Martinez Sun Electric, Inc.

A-5818-95T5 (N.J. Super. App. Div. 1997) (Unpublished)

LOANS—A defaulting borrower that wanted to inject a counterclaim based upon the lender having failed to advance different loan moneys to an unrelated borrower that happened to owe the defaulting borrower money was rebuffed by the Court.

A bank sued an electrical subcontractor and its guarantors on a promissory note. The subcontractor argued that the bank wrongfully failed to pay out all of the funds it had committed to a contractor for a construction project on which the subcontractor worked. As a result, the subcontractor could not collect money for work it had performed, and was therefore unable to make payments on its note. At trial, the Law Division held that this counterclaim should not be heard in this case, but rather in a separate proceeding for collection of money from the contractor. The Law Division granted summary judgment for the bank.

The Appellate Division affirmed, holding that the subcontractor had no standing to sue the bank for its alleged failure to pay the contractor because it was not a third-party beneficiary of the contractor’s loan agreement with the bank. Even if the subcontractor had been a third party beneficiary, the entire controversy doctrine required the contractor to be joined as a party in this case, since the promisor and promisee are proper parties in a suit brought by a third-party beneficiary. The Appellate Court further held that no setoff was allowed for equipment left by the subcontractor at the construction site which disappeared. Even though the bank assumed responsibility for security at the site after the contractor’s default, the Court determined that the subcontractor abandoned the equipment by failing to make any efforts to retrieve it.


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