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KG v. Stoller

filed: February 24, 1988.


Appeal from the United States District Court for the District of New Jersey - Newark, D.C. Civil No. 86-3743.

Seitz, Hutchinson, and Rosenn, Circuit Judges.

Author: Rosenn

ROSENN, Circuit Judge.

The principal issue in this diversity action requires us to determine the effect of the parol evidence rule on plaintiff-appellee Fr. Winkler KG's ("Winkler") attempt to recover on two promissory notes guaranteed by defendant-appellant Gene Stoller. By order dated February 24, 1987, the United States District Court for the District of New Jersey granted plaintiff's motion for summary judgment on the notes, and permitted defendant leave to file a counterclaim. Thereafter, the court denied Stoller's motion for reconsideration and dismissed his counterclaim. The defendant appeals and we affirm.


In 1968, Winkler, a West German manufacturer of bakery equipment, entered into an exclusive North American dealership agreement with Bakers Equipment Winkler, Inc. ("BEW"), a New York corporation engaged in the sale and service of bakery machinery. The agreement extended for a fifteen year period unless either party gave notice of termination one year prior to the termination date. In 1973, Stoller became BEW's chief executive officer.

As consideration for the bakery equipment that it purchased, BEW executed a series of promissory notes payable to Winkler, who, in turn, discounted them with its lender, Deutche Bank. In May 1980, Winkler began requiring Stoller's personal guarantee on all subsequent promissory notes. The plaintiff explained that Deutche Bank would no longer discount BEW's notes without Stoller's guarantee. In compliance with Winkler's request, Stoller guaranteed seven notes on September 2, 1980.

On August 4, 1982, Stoller guaranteed two additional notes on BEW's behalf in consideration for the purchase of equipment. These notes, which form the basis of this appeal, had an aggregate value of $671,485.88. On the front of each note, Stoller signed his name followed by the designation "chief executive officer" to indicate his representative capacity. However, on the back of each note, Stoller signed only his name with no additional designation. The words "per aval Gene Stoller" were printed under each signature. Stoller admits to executing the notes in this fashion.*fn1

By letter dated August 5, 1982, Winkler informed BEW of its intention to terminate the dealership agreement. On September 17, 1982, BEW filed a voluntary petition for reorganization pursuant to chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey. Winkler, an unsecured creditor, filed a motion to compel BEW to either assume or reject the dealership agreement pursuant to 11 U.S.C. § 365(d)(2). BEW's assumption of the agreement would require it to satisfy its existing obligations to Winkler, and its rejection of the agreement would effectively excuse Winkler from future performance. Moreover, Winkler asserted that BEW was in default under the agreement based upon its failure to pay for approximately $696,716.40 in equipment purchases. BEW, in turn, asserted that it was entitled to credit for payments made by Burton Koffman*fn2 in partial satisfaction of its indebtedness.

In response to Winkler's § 365(d)(2) motion, the parties executed a settlement agreement on July 15, 1983. In addition to providing for a consensual termination of the dealership agreement, the settlement required Winkler to provide BEW with new equipment and spare parts over a five year period, and an accounting of Koffman's payments. Although the settlement extinguished a claim by either party for wrongful termination of the agreement, it reserved the rights of both parties to pursue claims arising prior to the agreement's cancellation. In a letter addendum dated August 29, 1983, BEW expressly reserved its claims against Winkler and other third parties for conduct relating to the dealership agreement. The bankruptcy court approved the settlement on September 6, 1983.

On September 14, 1983, BEW filed a complaint against Winkler and Robert V. Loeb,*fn3 alleging wrongful interference and breach of contract. Winkler responded by filing objections to BEW's proposed reorganization plan. In a release executed on April 4, 1984, Winkler agreed to withdraw its objections to the reorganization plan in exchange for BEW's release of all claims asserted in the September 14 complaint.*fn4 The release, executed by Stoller, expressly reserved BEW's right to pursue any future claims against Winkler arising out of the settlement agreement.

On September 24, 1986, Winkler filed a complaint against Stoller seeking to recover on defendant's guarantee of the 1982 promissory notes. In response, the defendant moved to dismiss plaintiff's complaint for lack of subject matter jurisdiction and improper venue.*fn5 The plaintiff then filed a cross-motion for summary judgment. On February 24, 1987, the district court granted Winkler's summary judgment motion holding, pursuant to Matsushita Electric Industrial Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986), that Stoller's affidavit, submitted in opposition to plaintiff's motion, was insufficient to permit "a rational trier of fact to find for the non-moving party. . . ." The district court additionally granted defendant leave to file a counterclaim.

On March 16, 1987, defendant filed a motion for reconsideration of the district court's order granting summary judgment. The court denied defendant's motion holding: (1) that neither the settlement nor the release effectuated an extinguishment of Stoller's liability on the notes; (2) that Stoller had no right to assert BEW's affirmative claims as a set-off; and (3) that as guarantor of the notes, Stoller was not entitled to notice of dishonor and protest within the meaning of N.J.S.A. 12A:3-502.*fn6 Finally, on June 22, 1987, the district court dismissed defendant's counterclaim relying upon the doctrine of res judicata. This appeal followed.



Initially, Stoller contends that his affidavit, submitted in opposition to Winkler's motion, created an issue of material fact sufficient to preclude the district court's entry of summary judgment against him. Defendant averred that his decision to indorse the notes was based solely upon several representations made to him by Helmut Winkler, Martha Winkler Fuhst, and several other Winkler employees in August of 1982. Specifically, Stoller averred that the plaintiff's employees informed him that his personal guarantee was required by Deutche Bank as a precondition for discounting additional notes. Moreover, defendant asserted that he was told that his guarantee was "a mere formality" and that he would never be held personally liable on it. Stoller contends that these misrepresentations constituted fraud. Defendant's affidavit was contradicted by his ...

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