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January 6, 1970


Fullam, District Judge.

The opinion of the court was delivered by: FULLAM

FULLAM, District Judge.

 In October of 1962, plaintiff entered into a written agreement with the defendant Sterling Coin-Op. Machinery Corporation for the financing of installment sales of dry-cleaning equipment by the defendant to its retail customers. Under the terms of this agreement, the defendant Sterling Coin-Op. Machinery Corporation guaranteed in extremely broad terms, the payment of all such installment contracts by the debtors, and agreed unconditionally to make good the remaining balance due on any account in default, upon 30 days notice. By separate written agreements, the remaining defendants unconditionally guaranteed the obligations of Sterling Coin-Op. Machinery Corporation in its transactions with the plaintiff.

 On or about October 22, 1962, the defendant Sterling Coin-Op. Machinery Corporation entered into a conditional sales contract with Frederick E. Mueller and Marguerite Mueller for the sale of certain dry-cleaning equipment for the total sum of $28,051.33, and assigned this obligation to the plaintiff pursuant to the above-mentioned agreement. The assignment contained the following language:

 The conditional sales contract contained the following language:

"If a note is given in connection with this transaction, such note is evidence of indebtedness, and is not given in payment."

 Simultaneously with the execution of the conditional sales contract, a judgment note in the sum of $28,051.33 was duly executed by Mr. and Mrs. Mueller, payable to Sterling Coin-Op. Machinery Corporation. The note contained the following language:

"This note evidences indebtedness under a conditional sales contract, executed by the maker hereof, dated October 22, 1962."

 The note was duly endorsed to the plaintiff by the Sterling Coin-Op. Machinery Corporation with recourse.

 All of the papers, i.e., the executed conditional sales contract, the executed assignment of the sales contract, and the endorsed judgment note, were forwarded to the plaintiff under the same cover, on or about October 24, 1962. In the covering letter, the plaintiff was requested to "record the judgment note in the appropriate county and advise us when this has been done." However, under the terms of the judgment note, judgment could be confessed only "if this note or any installment thereof is not paid when due."

 The plaintiff did not attempt to confess judgment on the note, but retained the same in its files. On or about March 10, 1963, the debtors defaulted in the payment of monthly installments. Both the plaintiff and the defendants attempted from time to time to persuade the debtors to pay the installments as they fell due; although some additional payments were made, the debtors were continually in default from and after March 10, 1963.

 In October of 1962, when the note was executed, the debtors were the owners of real estate in which they had an equity of approximately $25,000. In December of 1963, they conveyed this real estate. The defendants did not learn that the judgment note had not been entered of record until late August of 1964. Judgment was entered against the Muellers by confession on the note on September 14, 1964, but by that time they were substantially without assets. Litigation was instituted in an attempt to set aside the conveyance of the Muellers' real estate. By agreement, acquiesced in by all of the parties to this litigation, that action was settled, and the Muellers were discharged from all further liability in connection with the transaction, for the sum of $6,500. This payment, together with other payments which had been made previously by the Muellers, left an outstanding balance on the original transaction of $12,517.73, claimed by the plaintiff in this action. In connection with the litigation, the defendants expended the sum of $1,900.50 in legal fees. It is the position of the defendants that the plaintiff's failure to enter judgment upon the note, and the resultant loss of a potential lien against the Muellers' real estate, relieves all of the defendants of their obligations under the guarantees, and that the plaintiff is indebted to the defendants for the $1,900.50 defendants were obliged to spend in order to collect the $6,500 payment from the Muellers' real estate.

 The written contracts between the parties recite that they are to be interpreted under the laws of the State of New York, but neither side has suggested that New York law differs from that of Pennsylvania in any material respect. It is my opinion that the plaintiff is entitled to recover the ...

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