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The National State Bank, Elizabeth, NJ v. Margolis

A-2338-97T1 (N.J. Super. App. Div. 1998) (Unpublished)

CONTRACTS; WAIVER—Waiver, by acquiescence, of a provision of a settlement agreement, treated as a contract, requires a course of dealing that evidences a mutual departure from the terms of the agreement.

A debtor and its lender entered into a settlement agreement that provided for monthly payments from the debtor. In the event of a default, the amount of the debt under the settlement agreement was to escalate to a higher amount than that which would be paid by the debtor if all payments were made on time. A time came when the debtor’s payments were two months in arrears. When the lender demanded payment, the debtor sought a six month moratorium and tendered the two late payments. The lender rejected the debtor’s request for the moratorium and directed the debtor to forward two additional installments that had become due in the interim. Those payments were made by the debtor, and were accepted by the lender without reservation. About four months later, when the debtor was now five payments late, the lender notified the debtor that it intended to pursue its rights. When the matter came before the lower court, the debtor argued that because the lender had forborne in the face of the debtor’s earlier late payments, it had effected a modification of the settlement agreement. The Appellate Division found otherwise. A law suit settlement agreement constitutes an enforceable contract. While parties to an existing contract may, by mutual assent, modify or abandon it, an ambiguous course of dealing from which one party might reasonably infer that the original contract was still in force, and the other party could infer that it had been changed, will not support a modification. The mere acceptance of a lesser amount, in and of itself, does not show a mutual departure from the original terms of an agreement. Notwithstanding a string of cases, holding in a variety of contexts that a continued course of dealing may support a finding of acquiescence sufficient to modify the terms of an agreement, the Court found the record barren of any evidence suggesting such a course of dealing. Although the lender periodically accepted late payments, it notified its debtor in clear and unequivocal language that it rejected the debtor’s proposed payment moratorium and, instead, insisted on pursuing its rights under the settlement agreement. In addition, the Court found no conduct by the lender which would make an equitable doctrine such as equitable estoppel, laches, or waiver available to benefit the debtor. No act or omission of the lender induced the debtor to stop making payments or cause it to change its position to its detriment. The debtor acted at its peril in its unilateral attempt to declare a moratorium on making payments. The Court would not reward it for its deliberate deviation from the terms of the settlement agreement.


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