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Tiernan v. Pines

Decided: July 31, 1958.

THOMAS TIERNAN AND CATHERINE TIERNAN, PLAINTIFFS-APPELLANTS AND CROSS-RESPONDENTS,
v.
CARASALJO PINES, A CORPORATION, AND RAEF M. HADDAD, DEFENDANTS-RESPONDENTS AND CROSS-APPELLANTS



Goldmann, Freund and Conford. The opinion of the court was delivered by Freund, J.A.D.

Freund

[51 NJSuper Page 395] The principal issue to be determined is whether $12,000 paid to defendant Raef M. Haddad by the plaintiffs was a loan of money, or was a purchase of a 25% interest in Carasaljo Pines, a corporation (hereafter called Carasaljo). The transaction is evidenced by a letter agreement dated April 12, 1949. [51 NJSuper Page 396] The complaint contains two counts. The first count alleges that on April 12, 1949 plaintiffs and defendant Haddad entered into a written agreement whereby Haddad "sold to the Tiernans a 25% interest in Carasalja Pines," the owner of a tract of land in Lakewood Township, N.J. The land was sub-divided into lots and was being sold as so sub-divided. Haddad agreed to account for and to pay over to the plaintiffs 25% of the net profits. Haddad was the owner of 50% of the stock of Carasaljo. It is further alleged that Haddad received plaintiffs' share of the net profits and refused to pay over to them their share, for which they seek an accounting. The second count alleges that after plaintiffs negotiated with Katherine T. DeBow, an employee of Lakewood Hotel and Land Association (hereafter called Land Company), defendant Haddad agreed to sell them 100 acres of land owned by the Land Company, for $12,500. When they met with Haddad to consummate the sale he told them he owned 50% of the stock of Carasaljo and recommended that, instead of buying the Land Company property, they "purchase 50% of his holdings in the defendant company for $12,000," and guaranteed in writing the repayment of the moneys so invested. Plaintiffs say they relied upon Haddad and turned over to him the $12,000 and signed the agreement by which they claim they became the owners of a 25% interest in Carasaljo. They further allege that in 1949, 1950 and 1951 Haddad sold about $150,000 worth of land belonging to Carasaljo and that plaintiffs on many occasions had inquired as to whether or not there were any profits due them, but Haddad told them that there was no profit nor did he anticipate any in the near future. Plaintiffs believed Haddad, and in 1951 accepted the return of their investment of $12,000 with interest for two years at 2%. In 1956 plaintiffs were informed by Katherine T. DeBow that the Carasaljo venture had been profitable, whereupon they demanded an accounting by Haddad, which he refused. Plaintiffs demand that Haddad account for moneys received by him from Carasaljo and a judgment for any moneys found due to the plaintiffs.

The answer of Haddad by separate defense states that on August 25, 1950 plaintiffs executed a receipt in full for all moneys due them, and the answers of both defendants rely upon separate defenses of the statute of limitations and laches. The pretrial order states the issues to be: "fraud in the inducement, deceit, unilateral mistake, specific performance, rescission, breach of a fiduciary relationship, agreement, fraud, laches, statute of limitations, statute of frauds, performance of all agreements, if any," and "no issue abandoned."

At the conclusion of the hearing the trial judge orally made findings of facts that the plaintiffs had the utmost confidence in Haddad, they depended upon his advice, he knew they were disturbed by the lack of profits from their investment and by the fact that the moneys given to Haddad were owed to relatives; that Haddad had a duty of full disclosure to them and that there was no intentional breach of the fiduciary relationship; Haddad did not in any way intend to deceive or mislead the plaintiffs. The trial judge ruled that the transaction was a sale to plaintiffs and not a loan and that they were entitled to one-half of Haddad's profit as a result of their ownership of one-half of Haddad's 50% interest in Carasaljo. He also said that plaintiffs were entitled to receive from Haddad "one quarter interest in Carasaljo Pines, namely, the one half of Mr. Haddad's stock in this corporation upon the payment to him of $12,000." He further held that Haddad breached his duty when the moneys were returned to plaintiffs without disclosure to them of the financial condition of Carasaljo, which had due a substantial amount of accounts receivable because of the number of sales in 1949, which moneys, if received, would substantially increase the profits of Carasaljo. He further found, however, that the Tiernans would have "gladly taken back their $12,000" when they did, even if the "entire situation had been explained to them by Mr. Haddad."

Subsequently a motion was made to settle the form of the judgment, and the trial judge refused to award a money judgment to the plaintiffs because there was no complete

accounting testimony. The judgment provided that within 45 days from the entry of the judgment, upon payment of $12,500 by the plaintiffs to Haddad, he should turn over to the plaintiffs one-half of his stock in Carasaljo. The judgment further provided that plaintiffs, when they became stockholders, could continue the present litigation and would then be entitled to an accounting from the defendants. The trial judge stated that while a risk was cast upon the plaintiffs if they advanced $12,000 to repurchase the stock, they could not properly be allowed to obtain from the defendant the accounting information until they were stockholders of Carasaljo. The trial judge refused to accept plaintiffs' argument that the payment of the money by plaintiffs to Haddad would also revive Haddad's guarantee contained in the agreement of April 12, 1949.

Plaintiffs appeal from those parts of the judgment which: requires them to repay $12,500 to Haddad to secure a return of their stock in Carasaljo, without at the same time restoring to plaintiffs the benefits of the guarantee contained in the letter agreement of April 12, 1949; requires the repayment to be made as a condition for an accounting for profits, without an opportunity to become apprised of the facts necessary to determine plaintiff's course of action; fails to determine that Haddad or Carasaljo is required to account for plaintiffs' share of the profits in Carasaljo, without first requiring repayment; fails to determine that Haddad had breached the trust and confidence of the plaintiffs; and fails to enter a money judgment against Haddad and Carasaljo based upon the moneys received by Haddad by way of profits. The defendants cross-appeal from the entire judgment.

The facts are complex, although the essential basic picture comes through on close inspection of the record. We conceive that the fundamental question is whether by the letter agreement of April 12, 1949 the plaintiffs gave Haddad the $12,000 as a loan or as a payment for a half-interest of the 50% interest that Haddad owned in Carasaljo. Another question pertains to the circumstances under which the plaintiffs requested and received the return of their $12,000.

Plaintiff Thomas Tiernan was a retired New York City policeman. His wife, Catherine, had been employed for some 30 years by the Western Union Telegraph Co. Both had known Haddad since 1944, having purchased from him three parcels of real estate. Since 1918 Haddad has been engaged in buying and selling real estate in Long Island and New Jersey.

In 1946 Haddad owned practically all the issued stock of the Land Company. The Company was in need of money to pay taxes and Haddad was able to persuade Joseph Kesler to lend it $25,000. But the transaction for devious reasons took the following form: Kesler organized the Carasaljo Pines, a corporation, all the stock being issued to him and his family, and 180 acres of land was conveyed to the corporation by the Land Company for the sum of $25,000. Kesler advanced the $25,000 and took a note from Carasaljo Pines therefor. Haddad guaranteed the repayment of the $25,000 to Kesler, and members of the Kesler family assigned a 50% interest in Carasaljo to Haddad. Haddad testified that in his agreement with Kesler it was stipulated he was not to withdraw any moneys for compensation from Carasaljo, nor were any profits to be distributed, until the $25,000 was repaid. He also testified that before plaintiffs turned over their $12,000 to him (Haddad), he showed them the guarantee to Kesler.

However, certain arrangements which were put into effect in connection with Carasaljo's actual land sale operations cast additional light on the true nature of the Haddad-Kesler deal. All promotional work and sales supervision was done by the Land Company (90% owned by Haddad) which was paid a commission originally of 10-12%, but after March 1949, of 25% of the selling price. The salesmen who did the actual selling received a 15% commission and a promotion man received an override commission of 5%. All advertising was done by an agency controlled by Kesler at fixed fees and Kesler himself drew $175 per month for "travelling expenses." Sales were on the installment plan, with a 30% down payment. In the beginning, therefore,

profits were bound to be meagre, as the various expenses of sales exceeded down payment cash receipts.

Haddad testified in a deposition that the Tiernans were at his office every other weekend and they developed a friendship with him. They planned to live in Lakewood and he had discussed with Mrs. Tiernan the possibility of her working in his office.

Katherine T. DeBow early in 1949 was manager and sales director of the Land Company. She knew the plaintiffs were interested in purchasing land in Lakewood. She showed them 100 acres of land known as Pine Acres and came to an understanding as to its purchase for $12,500. Haddad was told of the proposed sale and he discussed the transaction with the Tiernans on two different occasions at his Long Island office. He discouraged them from buying vacant land because it was a hazardous investment and he did not want them to lose any of their money. He said that the paramount issue was the safety of their principal. Haddad knew that part of the money plaintiffs were trying to invest was borrowed from Mr. Tiernan's sister. In the course of their conversations Haddad convinced them that it would be better to invest the money with him. As the result of their discussions the plaintiffs delivered $12,000 to Haddad on April 12, 1949. He dictated an agreement in the presence of the defendants, which they read and signed, and then gave Haddad the $12,000. The agreement reads as follows:

"Raef M. Haddad

60-10 Roosevelt Avenue

Woodside, N.Y.

Telephone Havemeyer 9-4300

April 12th, 1949.

Mr. Thomas J. Tiernan, and

Mrs. Catherine E. Tiernan,

196 East 38th Street,

Brooklyn, New York.

Dear Mr. and Mrs. Tiernan:

This will acknowledge receipt from you of the sum of $12,000.00 as a loan for which you will receive in lieu of interest half of my profits on my investment in the Carasaljo Pines development property located on ...


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