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Mulshine v. Trolio

A-4327-02T5 (N.J. Super. App. Div. 2004) (Unpublished)

LOANS; GUARANTIES—When interpreting a guaranty, which is a contract, the goal is to determine and give effect to the intention of the parties’ unilateral mistake is not a ground for upsetting the guaranty.

A corporation borrowed money from an individual. The note called for repayment of principal plus an additional ten percent. The corporation’s chairman and its president signed the note as guarantors with a provision that they would “promise to pay ... jointly and severally ... one half of the principal sum.” When the corporation failed to promptly make payments in full to the lender, the parties executed an escrow agreement. The escrow agreement included a provision that the chairman would take full responsibility for the balance. However, when the lender attempted to enforce the agreement, the chairman alleged that he was only responsible for one-half of the balance, pursuant to the original agreement.

The lower court held that the chairman was responsible for the entire balance, as specifically indicated by the new agreement. In addition, the lower court took note of a letter sent by the chairman to the lender stating that he would pay the entire balance and then seek reimbursement from the president. The lower court found that this letter indicated that the chairman had assumed the responsibility for the entire loan.

On appeal, the chairman argued that the escrow agreement should not have been used to change the original agreement which only required him to pay one-half of the balance. He claimed that when he signed the second agreement, he had forgotten that the original obligation was only for one-half of the amount, not one hundred percent.

The Appellate Division found this claim to be without merit. When interpreting a contract, the primary goal is to determine and give effect to the intent of the parties. A court does not assume that contract language is chosen carelessly. The escrow agreement showed the chairman’s intent to take full responsibility for the balance and then to seek reimbursement from the president “for his half of the guarantee.” The agreement was a new contract. The Court held that even if the chairman had a mistaken belief at the time he signed the letter as to the scope of his obligation, he still wasn’t entitled to relief. A party is not entitled to relief for a unilateral mistake if the mistake is not due to the fault of the party not mistaken but to the negligence of the one who acted under the mistake. There was no evidence that the lender did or said anything to mislead the chairman. Therefore, the Appellate Division affirmed the decision of the lower court which held the chairman to be liable for the entire outstanding balance owed to the lender.


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