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KROON v. MAXWELL

March 17, 1969

Gerald F. KROON, Plaintiff,
v.
Lloyd R. MAXWELL and Caroline Maxwell, Defendants



The opinion of the court was delivered by: KRAFT

 This is an action upon a promissory note. The plaintiff, a New Jersey citizen, is assignee of the note.

 Defendants Lloyd R. Maxwell and Caroline, his wife, citizens of Pennsylvania, are two of the makers of the note in suit. This instrument, in the face amount of $50,000, was originally executed in favor of the Cinnaminson Bank and Trust Company of Riverton, New Jersey (now known as the Garden State Bank), on or about December 31, 1962, by Maxwell Sales & Engineering Company *fn1" (Maxwell Sales), Sherman Car Wash Equipment Company *fn2" (Sherman) and Lloyd R. Maxwell, Caroline Maxwell and F. William Thacher, Jr., *fn3" individually. Lloyd R. Maxwell is President and Caroline Maxwell, his wife, is Secretary of Maxwell Sales, F. William Thacher, Jr. is President and Bette Belle Thacher, his wife, is Secretary of Sherman.

 In their suggested findings and brief defendants and third-party plaintiffs, raise several defenses to the main action:

 
1. At the time plaintiff acquired the note Maxwell Sales had a valid claim of $89,000 against the bank for unauthorized withdrawals which the bank permitted the plaintiff to make from Maxwell Sales' checking account.
 
2. The signatures of the Maxwells to the note were procured by fraud perpetrated by plaintiff Kroon and Thacher.
 
3. Kroon is merely the nominee of Thacher and Sherman and no attempt was ever made to secure payment of or to reduce the amount of the note by selling the equipment and Heintz stock which secured the note.
 
4. As third-party plaintiffs, the Maxwells claim they are entitled to indemnity from Sherman and Thacher because Sherman is the prime surety and Thacher is sub-surety. It is alleged that Thacher assured the Maxwells that they were signing the note only as accommodation parties and that they need not concern themselves about personal liability. They allege that they were induced to execute the note by the fraudulent misrepresentations of Thacher and Kroons as agents for Sherman with respect to the reasons which gave rise to the loan. They further allege that Sherman received the primary benefit of the loan.

 It was stipulated by counsel for Thacher and Sherman that in the event the plaintiff is successful in his cause of action against the Maxwells, Thacher and Sherman are liable for their share of contribution.

 A threshold question is presented by defendants' defense and third-party claim raising the issue of alleged fraud by Kroon and Thacher. In their answer, third-party complaint, pre-trial memorandum or at trial, the defendants failed to assert the defense of fraud. Moreover, during the trial, when the Court granted third-party plaintiffs leave to amend their complaint, no application was made to plead the alleged fraud of Kroon and Thacher.

 Under Rule 8(c) fraud is an affirmative defense, which is waived if not pleaded or made the subject of an appropriate motion under Rule 12(h). "The waiver is final if the defendant fails to correct the omission either prior to trial or during trial as permitted by Rule 15(a)(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A. Ibid." Systems, Inc. v. Bridge Electronics Co., 335 F.2d 465, 466 (3 Cir. 1964).

 We must dwell at some length on the provisions of the note, the negotiations and the business operations of the parties to this litigation to provide an adequate understanding of all the circumstances attending this matter.

 Thacher was a director of the Cinnaminson Bank in 1962 when he applied to the bank for the loan in the name of Maxwell Sales. The bank regarded the application as one for a loan to "a director's corporation." Consequently, the bank agreed to make the loan only if Thacher's stock in Heintz Manufacturing Company was assigned as collateral security and if Sherman and the three directors of Maxwell Sales (the Maxwells and Thacher) signed the note, as well as the applicant, Maxwell Sales.

 The note recites that the following property was deposited as collateral security for the ...


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