The opinion of the court was delivered by: BAUMAN
In these consolidated actions plaintiff Walter E. Heller & Company, Inc. ("Heller") seeks to recover upon guaranties executed by defendants Ralph Cox, Jr. ("Cox") and Ocean Air Tradeways ("OAT") respectively, in connection with a $1.7 million loan made by Heller to United States Overseas Airlines, Inc. ("USOA") in November, 1962.
Plaintiff is a Delaware corporation which has its principal place of business in Illinois and does business in New York. Since neither defendant is a citizen of New York, Delaware or Illinois, and the amount in controversy exceeds $10,000, this Court has jurisdiction of these actions under 28 U.S.C. § 1332.
It is plaintiff's position that the defendants, by virtue of their respective guaranties, jointly and severally owe to plaintiff, as of January 22, 1972, the sum of $166,017.44.
The defendants, on the other hand, while not denying the execution of the guaranties in question, challenge the validity of the agreements and the extent, if any, of their outstanding liability to plaintiff.
The background of this controversy is as follows: On November 23, 1962, plaintiff entered into a written loan agreement with USOA and various affiliated companies and persons, including Air Power Overhaul, Inc., Ocean Air Tradeways, Inc., Canamex Corporation, and defendants COX and OAT. The loan agreement provided that plaintiff would lend $1,700,000 to USOA and that USOA would repay the loan plus pre-computed interest of $279,631.75 in 24 successive monthly installments of $69,000 each, beginning January, 1963, and a twenty-fifth installment of $323,631.75.
At the time of the loan, USOA executed a collateral installment note in the face amount of $1,979,631.75 reflecting the advance of the $1,700,000 plus interest. As security for the repayment of this indebtedness, USOA and each of the other parties to the loan agreement executed various instruments, including chattel mortgages and a deed of trust in favor of plaintiff.
In addition to requiring repayment of the principal sum of the loan with interest, the note provided for the payment of 12 1/2% interest on each and every payment not timely made. The note also provided that in the event of default, USOA would pay all "exchange and collection charges and a reasonable sum as attorneys' fees if placed in the hands of an attorney for collection."
Contemporaneously with the making of the loan and the execution of the note, and in order to assist USOA in obtaining the Heller financing, defendants Cox and OAT executed and delivered to plaintiff their respective guaranties by which they each guaranteed:
"* * * the prompt payment in full * * * of any and all indebtedness, obligations and liabilities of every kind or nature (both principal and interest) * * * owing to [plaintiff] by [USOA] * * * and all expenses, collection charges, court costs and attorneys' fees incurred in endeavoring to collect or enforce any of the foregoing against [USOA] and/or [defendants] or any other person or concern liable thereon * *."
In addition, each defendant specifically waived all notices and rights with respect to the indebtedness and collateral to which guarantors are otherwise entitled.
USOA was in default under the loan agreement and note from the outset. The first installment of the loan was only partially paid, and thereafter not one installment was paid in its proper amount or when due. Nonetheless, Heller refrained from declaring a default until July, 1965. At that time, Heller accelerated the entire outstanding debt and began pursuit of collection by, among other things, the sale of collateral.
These sales however, were interrupted when USOA filed an application for an arrangement pursuant to Chapter XI of the Federal Bankruptcy Act in the District of New Jersey. Plaintiff then filed a Notice of Motion and Petition for leave to sell certain assets of USOA which were covered by the chattel mortgages. USOA, at the instigation and direction of Cox and OAT (acting by and through Cox), and with the financial support of OAT, challenged plaintiff's right to conduct the sales and opened a full-scale attack on the validity of the indebtedness. Hearings were held before Referee Lipkin in November, 1966. Heller's Executive Vice President, Edmund Duncan, testified at length to all the relevant facts surrounding the loan and the status of the indebtedness as of November 15, 1966. The loan agreement, the collateral installment note, chattel mortgages, ledger cards, checks and correspondence were submitted in support of Heller's claim. Additionally, a large volume of documents was requested by and produced to counsel for USOA who then undertook a vigorous and extensive cross-examination of Duncan. Among other things, with the direct participation of Cox who was present throughout, he raised questions concerning the propriety of prior sales of collateral, the accuracy of plaintiff's computation of the outstanding indebtedness, the reasonableness of attorney's fees, the computation of interest, and a myriad of alleged improprieties by plaintiff. Every relevant transaction and every item of indebtedness then outstanding was subjected to scrutiny and challenge.
In connection with these proceedings, counsel for USOA propounded interrogatories to plaintiff requesting further information concerning defenses and counterclaims which were allegedly available to USOA. These interrogatories covered the negotiation and closing of the loan, payments made, the existence, condition, ownership and location of collateral, plaintiff's relationship and dealings with Twentieth Century Aircraft, prior sales of collateral by plaintiff, and plaintiff's actions with respect to the DC-4 aircraft N-90428. Plaintiff was required to and did answer the interrogatories, and a substantial volume of still additional documents were produced.
On January 18, 1967, Referee Lipkin rendered his "Findings of Fact, Conclusions of Law and Order" holding plaintiff's claim valid and establishing a lien in favor of plaintiff, as of November 15, 1966 (the date upon which testimony was commenced), in the amount of $152,232.07.
On March 15, 1967, Referee Lipkin entered an Order granting plaintiff's request to proceed with the sale of USOA's assets in Wildwood, New Jersey. This Order however, was entered without prejudice to USOA's right to assert counterclaims.
Several months after the Court's Order, USOA, on Cox's affidavit, sought to interpose certain counterclaims against Heller in the bankruptcy court as did OAT. They ranged from charges of mismanagement of collateral to usury and fraud. Referee Lipkin permitted the submission of the counterclaims and Heller responded in full. Thereafter, Cox failed on several occasions to appear for a trial of the counterclaims despite specific directions by Referee Lipkin. Finally, he dismissed them.
When Heller completed the sale of the major items of USOA collateral at a publicly held, well publicized, and well attended auction sale, a substantial deficiency remained. Accordingly, Heller brought these actions ...