HOLLY C. BAKKE v. MAGDY ELAMIR, M.D.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3982-04T13982-04T1

HOLLY C. BAKKE, COMMISSIONER

OF THE NEW JERSEY DEPARTMENT

OF BANKING AND INSURANCE, AS

LIQUIDATOR OF AMERICAN PREFERRED

PROVIDER PLAN, INC.,

Plaintiff-Respondent,

v.

MAGDY ELAMIR, M.D.,

Defendant-Appellant.

_______________________________________________________________

 

Submitted March 29, 2006 - Decided July 28, 2006

Before Judges Parker and Grall.

On appeal from the Superior Court of New

Jersey, Law Division, Hudson County,

Docket No. L-5396-03.

Orloff, Lowenbach, Stifelman & Siegel,

attorneys for appellant (Bernard Schenkler,

on the brief).

White and Williams, attorneys for respondent

(Michael N. Onufrak and Evan Barenbaum, on

the brief).

PER CURIAM

In this deficiency action, defendant Magdy Elamir, M.D., appeals from a final judgment entered on February 28, 2005 in favor of plaintiff Holly Bakke, Commissioner of the New Jersey Department of Banking and Insurance, as liquidator of American Preferred Provider Plan of New Jersey, Inc. (APPP-NJ), in the amount of $1,290,000, plus post-judgment interest.

Plaintiff is the assignee of a promissory note and mortgage between defendant and American Preferred Provider Plan of Mid-Atlantic, Inc., a District of Columbia HMO solely owned by defendant. Prior to this action, a mortgage foreclosure judgment was entered in favor of plaintiff on the note and mortgage and defendant did not appeal. The sale of the mortgaged properties, however, left a deficiency in excess of $1,000,000. The deficiency is the subject of this action. The trial court granted plaintiff's motion for summary judgment on defendant's liability and barred his defenses under the doctrine of collateral estoppel.

The background facts relevant to this appeal are as follows. Defendant is a neurologist licensed to practice in New Jersey. He is the principal and sole shareholder of two HMO's involved in this action: APPP-NJ (NJ Corporation) and APPP-DC (DC Corporation).

On September 6, 1996, the DC Corporation was incorporated in the District of Columbia (D.C.) and, in early 1997, received a license to operate as an HMO and serve medical patients in D.C. Initial licensing requirements for D.C. required a minimum capitalization or net worth of $1,500,000. The DC Corporation fulfilled this capitalization requirement by using a brokerage account holding cash and securities. Defendant transferred this account to the NJ Corporation before the end of 1997, however, leaving the DC Corporation under-capitalized.

On December 30, 1997, defendant executed a note promising to pay $1,500,000 to the DC Corporation. The note stated that a first mortgage was being placed on three buildings located at 554 and 556 Summit Avenue in Jersey City and 6815 Bergenline Avenue in Guttenberg.

On June 11, 1998, defendant, as mortgagor, signed the mortgage for those three properties, plus a fourth property at 550 Summit Avenue in Jersey City, with the DC Corporation as the mortgagee. The mortgage collateralized the promissory note for $1,500,000.

The Commissioner of the D.C. Department of Insurance and Securities Regulation (D.C. Commissioner) refused to accept the note and mortgage as substitute capitalization for the brokerage account, stating that it was not an "admitted asset" as required by the D.C. regulations. The applicable regulation, D.C. Mun. Regs. 3101.5, was adopted on July 16, 1999.

On September 8, 2000, the D.C. Superior Court placed the DC Corporation in liquidation, and appointed the D.C. Commissioner as liquidator. The order of liquidation vested the D.C. Commissioner with title in all of the DC Corporation's property, including the DC Corporation's rights under the note and mortgage.

When the NJ Corporation suffered financial problems, plaintiff declared it insolvent and obtained an order of liquidation. Plaintiff filed a claim in the D.C. proceedings for money that the NJ Corporation had loaned to the DC Corporation, and the D.C. Commissioner assigned the note and mortgage to plaintiff.

The D.C. Commissioner commenced the underlying foreclosure action (Docket No. F-5734-01) in the Chancery Division and, upon the assignment of the note and mortgage to plaintiff, an order was entered on September 26, 2002 substituting plaintiff for the D.C. Commissioner in that case.

On July 24, 2003, the Sheriff of Hudson County, pursuant to a writ of execution, sold 550, 554 and 556 Summit Avenue in Jersey City to the State of New Jersey, Department of Banking and Insurance (Department), the highest bidder, for $475,000 at a public sale. On September 4, 2003, the Hudson County Sheriff, pursuant to a writ of execution, also sold 6815 Bergenline Avenue in Guttenberg to the Department, the highest bidder, for $260,000 at a public sale.

The Department then executed purchase and sale agreements for 550, 554 and 556 Summit Avenue on March 31, 2004, totaling $534,000. The record indicates that a purchase and sale agreement was drafted, but not executed, for 6815 Bergenline Avenue in Guttenberg.

In this action on the deficiency, defendant raised a multitude of defenses. The trial judge found none of the defenses viable and granted plaintiff's motion for partial summary judgment. On defendant's motion for reconsideration, he asserted that the note was unenforceable because the contract failed for the essential purpose that it was created: compliance with the District's capitalization requirements. Defendant further claimed that there was a mutual mistake between the parties that he did not discover until the liquidation proceedings were in progress. He made essentially the same arguments as on the summary judgment motion, and the judge incorporated her rulings from the initial decision into the reconsideration decision. Citing Zirger v. Gen. Accident Ins. Co., 144 N.J. 327 (1996), the judge found that defendant was collaterally estopped from raising all of his defenses because enforceability and validity of the note had already been adjudicated in the prior foreclosure action.

In this appeal, defendant argues:

POINT ONE

THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT

POINT TWO

THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT ON THE MUTUAL MISTAKE DEFENSE

POINT THREE

THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT ON THE FAILURE OF CONSIDERATION DEFENSE

POINT FOUR

THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT ON THE DEFENSE OF FRUSTRATION OF PURPOSE AND IMPOSSIBILITY OF PERFORMANCE

A. FRUSTRATION OF PURPOSE AND IMPOSSIBILITY OF PERFORMANCE IS A DEFENSE TO ENFORCEMENT OF THE CONTRACT

B. IMPOSSIBILITY OF PERFORMANCE OR FRUSTRATION OF PURPOSE BY GOVERNMENTAL RESTRICTIONS IS A DEFENSE TO ENFORCEMENT OF A CONTRACT

C. AN EXISTING AS WELL AS A SUPERVENING CONDITION IS A PROPER BASIS FOR THE DEFENSE OF FRUSTRATION OF PURPOSE OR IMPOSSIBILITY

POINT FIVE

THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT ON THE DEFENSE THAT THE CONDITION OF GIVING THE NOTE WAS NOT SATISFIED

POINT SIX

THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT ON THE DEFENSE THAT THE TRANSACTION WAS LIMITED TO THE REAL ESTATE AND THAT NO PERSONAL OBLIGATION WAS INTENDED

POINT SEVEN

THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT ON THE DEFENSE THAT THE NOTE WAS ILLEGAL AND ENFORCEMENT WAS AGAINST PUBLIC POLICY

POINT EIGHT

THE TRIAL COURT ERRED IN HOLDING THAT COLLATERAL ESTOPPEL BARRED THE DEFENSES IN A DEFICIENCY ACTION

I

Defendant initially argues that the trial judge erred in granting summary judgment on liability. We review a grant of summary judgment under the same standard applied by the trial court under R. 4:46-2(c). Turner v. Wong, 363 N.J. Super. 186, 198-99 (App. Div. 2003). That standard is "'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 536 (1995) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505, 2512, 91 L. Ed. 2d 202, 214 (1986)). If there is a genuine issue as to any material fact, summary judgment must be denied. R. 4:46-2(c).

Without citing specifics, defendant contends that the judge made credibility determinations as to his intent or the reasonableness of his conduct, and that she improperly weighed the evidence. Defendant maintains that if he were afforded the benefit of all reasonable inferences, summary judgment would be denied. We disagree. We have carefully considered the record, and we are satisfied that summary judgment was properly granted. Brill, supra, 142 N.J. at 536. The trial judge ruled on each of the defenses asserted by defendant and we will discuss each one below.

II

Defendant next argues that the judge erred in granting summary judgment on the defense of mutual mistake. We disagree.

The judge determined that defendant bore the risk of mistake because it was reasonable to place the risk on the party who knowingly made the promissory note and granted the mortgage. The doctrine of mutual mistake applies when both parties labor under the same misapprehension of fact. Bonnco Petrol, Inc. v. Epstein, 115 N.J. 599, 608 (1989); Beachcomber Coins, Inc. v. Boskett, 166 N.J. Super. 442, 446-46 (App. Div. 1979). Reformation for mutual mistake requires that "the minds of the parties have met and reached a prior existing agreement, which the written document fails to express." Bonnco, supra, 115 N.J. at 608. The mutual mistake must be one that is made at the time the parties reduced their agreement to writing. Id. at 609. "For a court to grant reformation there must be 'clear and convincing proof' that the contract in its reformed, and not original, form is the one that the contracting parties understood and meant it to be." Cent. State Bank v. Hudik-Ross Co., 164 N.J. Super. 317, 323 (App. Div. 1978) (quoting Brodzinsky v. Pulek, 75 N.J. Super. 40, 48 (App. Div.), certif. denied, 38 N.J. 304 (1962)).

Here, giving defendant all favorable inferences, there is no indication that the parties shared an erroneous assumption of fact at the time the mortgage and note were executed. Defendant claims that he and the DC Corporation were mistaken in their belief that the note and mortgage could have been used for the net worth requirements of the D.C. Department of Insurance and Securities Regulation. The note was signed on December 30, 1997, however, and the applicable D.C. regulation, D.C. Mun. Regs. 3101.5, was not adopted until July 16, 1999. Thus, at the time the note and mortgage were executed, there could not have been a mutual mistake.

III

Defendant next argues that the judge erred in granting summary judgment on the failure of consideration defense. He maintains that there was no consideration. This argument is contradicted by the note itself. As the trial judge stated, the note indicates on its face that defendant received consideration.

Defendant maintains that the note was tendered solely to bolster the DC Corporation's capitalization requirements and that he received nothing in return. This assertion is contrary to facts to which defendant stipulated in the foreclosure action, however, and is precluded by the doctrine of collateral estoppel. Perez v. Rent-A-Center, Inc., 186 N.J. 188, 199 (2006).

IV

Defendant next argues that the judge erred in granting summary judgment on the defenses of frustration of purpose and impossibility of performance.

Defendant relies on Edwards v. Leopoldi, 20 N.J. Super. 43, 54 (App. Div.), certif. denied, 10 N.J. 347 (1952), in which we stated: "[T]he contract is to be construed as subject to the implied condition that the parties shall be excused . . . [if], before breach, the state of things constituting the fundamental basis of the contract ceases to exist without default of either of the parties." Defendant's reliance is misplaced.

In Edwards, we explained: "'Generally, impossibility of performance offers no relief from the performance of contractual obligations, whether the impossibility could or could not have been foreseen at the time of the making of the contract.'" Id. at 52 (quoting Schaefer v. Brunswick Laundry, Inc., 116 N.J.L. 268, 271 (E. & A. 1936)). We noted three exceptions to this rule: "(1) where the impossibility arises by operation of law; (2) where a thing necessary for performance is destroyed; and (3) where the contract calls for personal services, and the party to perform or receive performance dies." Edwards, supra, 20 N.J. Super. at 52.

None of these exceptions apply here. While defendant argues that impossibility arose by operation of law when D.C. adopted its regulation, that act does not impact on the note and mortgage. There was no impossibility of performance to fulfill the promise of the note which was to convey money based on mortgaging the properties. When the D.C. regulation was adopted, it did not affect the promise to pay and receive consideration which is explained on the face of the note. Since the note states that consideration was received, the claimed impossibility of using the money for capitalization purposes is immaterial since the note and mortgage were already executed when the regulation was adopted.

Defendant further relies on 30 Williston on Contracts 77.28 (4th ed. 2004) in which the author states:

The circumstance of existing impossibility occurs when parties contract and an object of their agreement already has been destroyed but neither party has reason to know of the destruction. Absent specific contract language to the contrary, no duty arises to deliver the property and the promisor is not liable to the promisee for breach of contract.

The doctrine of existing impossibility does not apply here because the claimed impossibility is based on a regulation adopted well after the note and mortgage were executed. In short, we find no merit in defendant's arguments on this issue.

V

Defendant next claims that the judge erred in granting summary judgment on the defense that the condition of giving the note was not satisfied. He relies on Duff v. Trenton Beverage Co., 4 N.J. 595, 605 (1950), for the proposition that a conditional promise does not need to be expressed. The Court in Duff, however, addressed contracts involving future performance:

Ordinarily, a promise to do a thing not in itself unlawful is binding even though for some unforeseen reason performance becomes impossible, unless the risk of supervening impossibility is refused by the promisor. Middlesex Water Co. v. Knappmann Whiting Co., [ 64 N.J.L. 240 (E. & A. 1900)]. Yet even where the promise is absolute in terms, a condition may be implied in the promise, depending upon the nature of the performance and the circumstances. The basis of the defense of impossibility is the presumed mutual assumption when the contract is made that "some fact essential to performance then exists, or that it will exist when the time for performance arrives . . . ." Williston on Contracts (Rev. Ed. 1936), 1937.

[Id. at 605.]

Here, there was no future performance and performance never became impossible.

In Liberty Mut. Ins. Co. v. President Container, Inc., 297 N.J. Super. 24, 34 (App. Div.), certif. denied, 149 N.J. 406 (1997), we explained:

The parties to a contract "may make contractual liability dependent upon the performance of a condition precedent." Duff v. Trenton Beverage Co., 4 N.J. 595, 604, 73 A.2d 578 (1950). However, condition precedents are "disfavored by the courts." Marsa v. Metrobank For Savings, F.S.B., 825 F. Supp. 658, 664 (D.N.J. 1993), aff'd, 26 F.3d 122 (3d Cir. 1994). This is because the "failure to comply with a condition precedent works a forfeiture." Castle v. Cohen, 840 F.2d 173, 177 (3d Cir. 1988). Given this, a condition precedent "must be expressed in clear language or it will be construed as a promise." Ibid. See Kennedy v. Westinghouse Corp., 29 N.J. Super. 68, 78, 101 A.2d 592 (App. Div. 1953), aff'd, 16 N.J. 280, 108 A.2d 409 (1954) ("where by the terms of the contract performance on one side is made a condition precedent to performance by the other, such an intention expressed in the contract will be given effect"). See also Marsa, supra, 825 F. Supp. at 664 ("where the contract language is unclear, an obligation should be interpreted as a promise, rather than a condition precedent").

Defendant seeks to use parol evidence to vary the terms of the contract. While parol evidence may be offered for the purpose of interpreting a contract, it cannot be used to alter its terms. Defendant's claim that he was not able to use the money for capitalization purposes is not relevant to whether the note and mortgage are enforceable.

VI

Defendant next argues that the judge erred in summarily dismissing the defense that the transaction was limited to the real estate and that no personal obligation was intended. Defendant signed the agreement personally with no reservation as to his personal obligation.

He maintains further that there is an ambiguity in the mortgage that allows for extrinsic evidence of the intention of the parties. The claimed ambiguity is the note's reference to three properties while the mortgage recites four. Defendant argues that the mortgage on the four properties was intended to enhance the value of what was proffered to satisfy the capitalization requirement. That may be, but it does not bear on his personal obligation when he signed the note. The note sets forth the obligation irrespective of whether the mortgage refers to an additional property. We see no inconsistency or ambiguity here that extinguishes defendant's personal liability on the note.

Relying on Driscoll Constr. Co. v. State, 371 N.J. Super. 304 (App. Div. 2004), defendant argues that he may present evidence of the circumstances surrounding the transaction, even without an ambiguity in a contract. That reliance is misplaced. In Driscoll, we held that extrinsic evidence is admissible to elucidate a contract, not to change its terms as defendant here seeks to do. Id. at 316 (citing Great Atl. & Pac. Tea Co., Inc. v. Checchio, 335 N.J. Super. 495, 501 (App. Div. 2000)).

VII

Defendant next argues that the judge erred in summarily dismissing the defense that the note was illegal and its enforcement is against public policy. The judge rejected that defense, stating that defendant failed to show that the mortgage itself was illegal and failed to articulate any policy, rule, statute or regulation indicating that the transaction was against public policy. We agree with the trial judge's assessment of this defense.

VIII

Finally, defendant contends that the judge erred in holding that collateral estoppel barred his defenses. We agree that the trial judge erred in her decision on defendant's motion for reconsideration, when she relied on the doctrine of collateral estoppel to strike all of the defenses. As we have noted above, collateral estoppel was applicable to the failure of consideration defense. The error was harmless, however, because there is no merit in any of the defenses pled by defendant. R. 2:10-2.

In conclusion, we have carefully considered the record in light of defendant's arguments and we are satisfied that summary judgment was properly granted. Brill, supra, 142 N.J. at 540.

Affirmed.

 

(continued)

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A-3982-04T1

July 28, 2006