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Jones v. Gabrielan

Decided: November 25, 1958.


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


[52 NJSuper Page 567] Plaintiff, Arthur Jones, brought this action to obtain specific performance of and other relief appertaining to a 1952 contract of sale in which he conveyed

the assets and facilities of the Jones Trucking Company to the defendants, Lee and Adele Gabrielan. The judgment of the Superior Court, Chancery Division, enforced, in effect, the provisions for default contained in that contract, required the defendants to surrender control to Jones of all the assets, facilities and management of the corporation, and ordered the defendants to account for moneys wrongfully withdrawn from it. The Chancery Division also dismissed the counterclaims brought by the Gabrielans and the corporation as unsupported by the evidence. The defendants appeal.

The Jones Trucking Company, a New Jersey corporation (hereinafter mentioned as the company), was organized and started business on May 1, 1951. On July 29, 1951 plaintiff, as the majority stockholder, entered into an agreement with Lee Gabrielan and Adele, his wife (hereinafter mentioned as Lee and Adele), for the sale by Jones of all the common stock of the corporation for $165,000, to be paid by a $25,000 deposit and $140,000 in weekly installments. The schedule annexed to the contract listed the specific assets that were included in the sale. The other excluded assets, having a book value of $154,788.79, remained with the plaintiff, who assumed and paid corporate liabilities of $136,527.91. The excess of book value of assets transferred over liabilities assumed was $18,260.08. This amount represented a corporate distribution to Jones. Although it has been carried on the company's books as an asset (debt owing from Jones), it should have been written off against surplus at the end of 1951.

On the same day, July 18, 1951, Jones and the Gabrielans entered into another agreement respecting the $25,000 deposit. They agreed that Lee was to make out a check for this amount and deposit it with an escrow agent, to be held until $25,000 was paid to Jones by installments and then to be returned to Lee and destroyed. Jones never received the proceeds of this check. Hence it appears that the Gabrielans have not invested any of their own funds in either the contract of sale or the company.

Pursuant to the contract, defendants made weekly payments totaling $9,533.38 in principal and interest. They defaulted in February 1952. Thereupon Jones brought suit for the unpaid balance of the purchase price. Defendants' answer admitted the making of the agreement but denied that a default had occurred.

Subsequently, a settlement was negotiated, and a stipulation of dismissal, consented to by the respective parties, was filed with the court. The settlement resulted in the execution and delivery of a new contract, dated September 24, 1952.

This second agreement, the basis of the present suit, was made by the plaintiff, as seller and sole owner of the Jones Trucking Company, and Lee Gabrielan. Adele was neither a party nor a signatory thereto. The agreement provided that there would be issued 1,000 shares of stock and, for the purposes of the contract, each share would have a value of $165. The value of the company was agreed to be $165,000. The seller was to retain ownership of the stock, except that those shares which represented payments on account of the purchase price were to be held in escrow by the buyer's attorney. The contract further provided that, if there was a default, plaintiff had the right to repurchase the stock held by the escrowee at a price to be agreed upon or as might be fixed by arbitration. Lee had the right to conduct the company's business, but not to undertake any major policy, operational or management changes without the written consent of the seller. If Jones withheld his consent, the matter would then be submitted to arbitration.

The provisions governing the consideration of $165,000 recited that $8,800 was deemed to have been paid already and that, as a result, Jones would transfer 53 shares to the escrowee. The balance of $156,200 would be secured by an interest-bearing promissory note executed by Lee and Adele and payable in weekly installments. It was specifically provided that such installments "may be advanced out of corporate profits and/or earnings, if existent." As each payment of $165 was received by Jones, he would assign

and deliver to the escrowee one share. In addition, the corporation was to execute a $50,000 first mortgage on its realty and a $106,200 chattel mortgage, both in favor of the seller.

Upon a default, in addition to permitting Jones to repurchase the stock held by the escrowee, the buyer agreed to turn over to the seller all the assets, management and control of the company. The buyer gave the seller's attorney an irrevocable power of attorney to consent to any judgment necessary to accomplish that result in the event of a failure to comply.

The buyer had the right to draw up to a stipulated sum each week ($125 per week during the first year; $150 thereafter), but the buyer was not to charge off to the business any personal, household or any other expense not connected with the business. The buyer was to supply the seller with monthly and annual reports reflecting the complete financial status and condition of the company. When the agreement was made, the buyer owed accrued interest of $2,349, of which he could pay but $180. Notes executed by the buyer and secured by 53 shares of the company covered the balance. Although not a party to the agreement, Adele was a comaker with Lee on the note dated September 24, 1952 for $156,200.

On February 29, 1956 Jones filed a complaint against Lee and Adele on the grounds that they had breached the contract of 1952. It charged that $54,475 was due under the agreement but only $50,000 had been paid, leaving an arrearage of $4,475 plus interest thereon, the equivalent of 14 weekly payments; that Lee had failed to surrender the assets and management of the company to plaintiff as required; that Lee had refused to furnish the financial reports; that the payments which were made under the contract were not only out of corporate profits or earnings but out of capital, thus impairing plaintiff's interest in the corporate ...

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