the offices of Superior Funding's attorneys in Millburn, New
Jersey. All of the loan documents, including the loan agreement
and promissory note, were signed and delivered at the closing,
and the collateral security was also then and there delivered.
Benaderet and Ringer also signed and delivered at the closing
their unconditional and continuing guaranty of payment of the
loan, in which guaranty they expressly consented in advance,
without notice to them, to extension of time and changes in the
terms of payment of the note. At the closing Superior Funding
also delivered to Big Apple its $200,000.00 check made payable
to Big Apple and evidencing the loan made by Superior Funding
to that corporate borrower. The loan agreement of July 30, 1984
contained provisions to the effect that the laws of the State
of New Jersey governed the loan transaction and that interest
would be compounded by adding defaulted interest to principal
and computing such interest thereon.
In March 1985, after the due date of the loan had passed
without payment, the parties entered into an extension of the
loan agreement, extending the maturity of the loan from October
30, 1984 to April 1, 1985 and increasing the interest on the
loan from two percent to two and one-half percent per month.
That extension agreement also provided that except as so
changed, the terms and conditions of the loan agreement, the
promissory note, and the guaranty would remain in effect. Also,
in March 1985, Benaderet, a co-guarantor, delivered additional
collateral security to Superior Funding consisting of his
shares and proprietary lease in a cooperative apartment in New
During its approximate nine-year existence as a New Jersey
corporation engaged on a small scale in the interstate
commercial finance business, Superior Funding had made only two
or three loans to New York residents, and Tucker had come to
New York about two or three times and visited the borrowers'
premises in connection with such loans. At no time did Superior
have any office or any employees or any telephone number in New
York, and, except for the few incidental contacts with the
State described above, Superior Funding had no contact with New
York in connection with its lending business. Generally, the
loans which Superior made were to borrowers it knew as a result
of businesses in which other Tucker companies were involved,
primarily the real estate construction and development
business. These affiliated real estate companies had never done
any such real estate business in the State of New York.
Moreover, Superior never solicited any loans; any interested
borrowers would contact Superior Funding.
Big Apple did not pay the first monthly interest payment due
August 30, 1984 in the sum of $4,000.00, nor any of the
successive monthly interest payments. Big Apple also defaulted
in paying the loan at its maturity on October 30, 1984. Big
Apple was in continuous default; at no time was Big Apple ever
current in the payment of interest and principal.
It soon became apparent to Superior Funding that most of the
stock which Big Apple had pledged was either worthless or could
not be sold because of non-compliance with the rules of the
Securities and Exchange Commission governing "letter stock" and
"control stock." Benaderet and Ringer pled with Tucker not to
sell the pledged stock because they ensured that the stock
value would rise. At the request of Benaderet and Ringer,
Superior Funding did sell certain stock and applied the
proceeds, like the proceeds of a number of the payments made by
Big Apple, first to unpaid interest and then, where available,
in reduction of principal.
October Judgment Binding on Ringer and Benaderet
The doctrine of res judicata requires that a final judgment
is binding on the parties and those in privity with them.
Nevada v. U.S., 463 U.S. 110, 135, 103 S.Ct. 2906, 2920, 77
L.Ed.2d 509 (1983). The law is well settled that guarantors of
payment of a corporate debt, particularly where such guarantors
are controlling shareholders, executive officers and directors
of that corporation, are parties to and control the lawsuit
against the borrower, and had a
full and fair opportunity to contest the granting of the
judgment, are in privity with the corporate borrower and
therefore bound by a judgment against the corporation. See,
e.g., United States v. Grayson, 879 F.2d 620, 625 (9th Cir.
1989) (collateral estoppel applies to guarantor of corporate
debt); 1B J. Moore, Moore's Federal Practice ¶ 0.411
(tests for collateral estoppel). Benaderet and Ringer meet
every fair test necessary to establish privity and are
therefore bound by the judgment entered against Big Apple on
October 3, 1989.
Choice of Law
As a defense to the judgment entered, Ringer has argued that
the loan is usurious and has now become a penalty in violation
of New York law. In a diversity action, a court applying New
York's choice of law rules will honor the parties' selection of
the law that should govern the dispute when the law chosen has
a reasonable relationship to the agreement and does not violate
public policy.*fn1 Walter E. Heller & Co., v.
Chopp-Wincraft Printing Specialties, Inc., 587 F. Supp. 557,
560 (S.D.N.Y. 1982) (citations omitted). The parties here
agreed that New Jersey law would govern any disputes arising
from the loan agreement and this agreement bears a reasonable
relationship to that forum's law.*fn2 Moreover, New York's
"rule of validation" choice of law rule would favor the forum
state whose usury statute would most favorably uphold the
contract. Walter Heller, 587 F. Supp. at 560 (citing Speare
v. Consolidated Assets Corp., 367 F.2d 208 (2d Cir. 1966) (the
underlying transaction violated the usury laws of New Jersey
and New York but New York law required that the forum choose
New Jersey law as it was most favorable to the transaction)).
New Jersey law does not permit guarantors of corporate debt the
defense of usury Selengut v. Ferrara, 496 A.2d 725, 730,
203 N.J. Super. 249, 258 (N.J.Sup.Ct.App. Div. 1985) ("When loans are
actually made to a corporation, usury is not a defense by the
individual endorsers or guarantors of the corporate
obligation.") (citations omitted), cert. denied,
508 A.2d 199, 102 N.J. 316 (1985). As stated in Nation Wide, Inc. v.
Scullin, 256 F. Supp. 929, 932-33 (D.N.J. 1966):
[T]he law in New Jersey is well settled that the courts will
not make a different or better bargain for the parties than
they have seen fit to make for themselves . . . [t]he corporate
obligation was fixed and clear; the guaranty, equally so. The
legerdemain employed by the parties to accomplish their mutual
purposes cannot now be employed to defeat their obligations.
The money advanced was on behalf of [the corporate borrower]
and was in fact devoted to its corporate use, hence not
interdicted as usurious under New Jersey law.
(citations omitted) See also Tobia v. Shad Riv. Corp., 1990
WL 4624 (D.N.J. Jan. 16, 1990) (Guarantors of corporate
obligations cannot raise usury as a defense).