Illegality. On May 25, 1964, Kroyden Industries, Inc, a New ...

[mspears3]

Illegality. On May 25, 1964, Kroyden Industries, Inc, a New Jersey corporation, was prohibited by court order from making certain representations to its customers in connection with the sale of carpeting. In August of 1964, in violation of this order, one of Kroyden's employees offered to give Anna Berenyi and her husband carpeting free of charge if they referred prospective buyers to Kroyden Industries. Mr. and Mrs. Berenyi agreed to this condition, and relying upon the employee's offer, Anna Berenyi signed a promissory note for 1,521, from which finder's fees would be deducted when prospective buyers were referred to Kroyden Industries. Kroyden subsequently negotiated the note to the plaintiff in this case, New Jersey Mortgage & Investment Corp When Berenyi refused to pay the note, the plaintiff brought this legal action against her to recover the debt. Berenyi claimed that she was not liable on the note because the contract with Kroyden was illegal, having been prohibited by court order. Can Berenyi avoid her obligations on the note on the basis of illegality? Explain.

Question 2

An employee works for 20 years for a large company and has good job performance. When the company is reorganized, the employee is dismissed because he is no longer needed. The employee probably has a good suit for:
 a. breach of implied covenant of good faith
  b. breach of express contract, since he worked for more than seven years c. tort of interference with contractual relations
  d. breach of an implied contract e. none of the other choices

[enass]

Answer to Question 1

Illegality
The trial court held for the plaintiff, and Berenyi appealed. The appellate court affirmed the trial court's judgment. In addressing the question of Berenyi's liability on the note, the court stated that the controlling issue presented is whether the defense here asserted is a universal' defense or a personal' defense. Universal defenses are available against even a holder in due course of a negotiable instrument; personal defenses are not available against such a holder. It was undisputed that the plaintiff was a holder in due course. The New Jersey Mortgage & Investment Corp. had taken the note in good faith, for value, and with no notice of the court order against Kroyden or of its violation by Kroyden's employee. Under New Jersey law, a holder in due course takes free and clear of the defense of illegality, unless the statute which declares the act illegal also indicates that payment thereunder is void. The court concluded that, because no New Jersey statute ordained that a note obtained in violation of an injunction is void and unenforceable, the illegality involved did not qualify as a universal defense but only as a personal defense. As such, it was ineffective against the claim of a holder in due course. (This case was decided under the unrevised Article 3, but the result would likely be the same under the revised Article 3.)

Answer to Question 2

e

[mspears3]

TYSM

[Dinolord]

Thanks for the timely response, appreciate it