sold its lease to G.E. with recourse. Bowl-Mor guaranteed payment to G.E. not only in the assignment but in a basic security agreement between the two corporations.
At this time G.E. was buying all or almost all of Bowl-Mor's "paper" pursuant to an agreement between Bowl-Mor and G.E. dated December 29, 1961, (Defendant's Exhibit "E"). This agreement generally provided that if any lessees (obligors) defaulted G.E. could demand cash equal to the deficiency due. From the $97,924.00 which G.E. paid for the Contrucci lease, G.E. deducted $8946.40 for a reserve fund set up under said agreement and $6177.00 for an insurance premium leaving a net payable to Bowl-Mor of $82,800.00.
After G.E. had repossessed the bowling equipment, G.E. sold the equipment at public sale and bought it in for a net price of $19,050.38.
G.E. then made a demand on Bowl-Mor that it repurchase the machinery for cash pursuant to the basic agreement between the companies of December 29, 1961, already referred to, and the provisions of the assignment.
Bowl-Mor was unable to purchase the machinery from G.E. for cash. On July 23, 1964, the two companies entered into a new security agreement under which G.E. transferred the equipment to Bowl-Mor for $95,734.06 and Bowl-Mor gave G.E. a demand note for the same amount designated note No. 11 attached to the new security agreement (testimony of plaintiff's witness Herman Gerte).
The Contrucci account card (Defendants' Exhibit "A") in the possession of G.E. stated that the machinery was repurchased by Bowl-Mor on July 28, 1964, for $95,734.06.
Following the delivery of the demand note to G.E. (Bowl-Mor apparently was in no position to pay cash because of reverses) Bowl-Mor reconditioned the equipment and sold it. Eight of the machines were sold October 9, 1964, for $18,374.93 and the remaining eight machines were sold March 16, 1965, for $20,296.22, leaving a balance due on the demand note of $57,062.91 because the cash proceeds of the two sales were given to G.E.
The $57,062.91 remained due and unpaid until April 29, 1966. At that time Bowl-Mor and G.E. entered into another agreement (Defendants' Exhibit "D") under which G.E. charged to Bowl-Mor's reserve account the balance of note No. 11 (the Contrucci note). (Every time G.E. bought a lease from Bowl-Mor G.E. deducted a small amount of the price and set up a reserve for Bowl-Mor (see basic agreement of December 29, 1961, Defendants' Exhibit "E"). Bowl-Mor owed money on several accounts set forth in paragraph 3 of the agreement of April 29, 1966, which provided that these amounts would be charged against the reserve and considered paid). According to G.E.'s witness Herman Gerte the Contrucci note was in fact marked "satisfied and paid in full."
At the time the debts were credited against the reserve the Bowl-Mor reserve amounted to at least $267,908.20 because in May of 1966 this figure prevailed (test. of Gerte).
According to G.E.'s witness, Gerte, the note of Bowl-Mor on the Contrucci account was included on Schedule No. 4 attached to the agreement of April 29, 1966, as an item of $185,345.18 called "Deficit due to sale of Used Inventory." Gerte said note No. 11 (which covered the Contrucci account) was marked "paid in full."
Recognizing that Bowl-Mor might have asserted a claim against the Contruccis, we think G.E. has no claim to assert. It had elected to proceed against Bowl-Mor on its recourse agreement and had done so.
G.E. argues that it never received the $57,062.91 in cash and as a matter of fact when it was through balancing accounts with Bowl-Mor the reserve account was not only exhausted but in fact showed a negative balance. It was in the red. Thus G.E. should be permitted to proceed against defendants particularly because G.E. had never physically reassigned the Contrucci lease to Bowl-Mor.
We find that at the time of the April 29, 1966, agreement between Bowl-Mor and G.E. the reserve not only covered the $57,062.91 but in fact note No. 11 was marked satisfied. Thus the note was satisfied and the basic obligation which the note represented had been satisfied. As will be noted later on it is not required that an obligation be paid in cash. Note No. 11 (Defendants' Exhibit "C") bears this legend -- "Balance 3/16/65 $57,062.91. Proceeds of 4/29/66 agreement to clear deficiency $57,062.91. 0 balance 5/6/66. Paid in full 5/6/66."
We consider it unnecessary to discuss the principles of accord and satisfaction and novation (see discussion in 1 C.J.S. Accord and Satisfaction § 22 et seq.) which without more might dispose of this case since a new obligation was accepted by G.E. when it accepted the demand note of Bowl-Mor on July 23, 1964 which was paid by a charge against the reserve.
We find that G.E. has been paid albeit in part by a credit against Bowl-Mor's reserve which is a recognized manner of payment. See 70 C.J.S. Payment § 32.
"When so agreed or consented to payment may be made by the transfer of debits or credits or the application of deposits or funds of the debtor in the hands of the creditor or by the application of mutual indebtedness of the parties * * *"