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Hodgson v. Applegate

March 20, 1959

GEORGE M. HODGSON, PLAINTIFF-RESPONDENT,
v.
LEROY APPLEGATE AND CLARA E. APPLEGATE, DEFENDANTS-APPELLANTS.



Before Judges Goldman, Freund and Haneman.

Freund

The opinion of the court was delivered by

FREUND, J.A.D. Plaintiff George M. Hodgson, lessee of a two-bay service station in Woodland Township, Burlington County, brought this action to recover damages from the defendant-lessors, LeRoy Applegate and his wife, Clara E. The defendants were unable to deliver possession of the premises to plaintiff because the present operator of the service station, Herbert A. Cooper, exercised an option to renew his lease. The action was brought upon the theory that defendants were liable for breach of lease and for fraudulent non-disclosure of Cooper's option to renew. A jury of the Burlington County Court returned a verdict for plaintiff in the amount of $8,500, and a judgment was entered accordingly on April 9, 1958.

I.

On May 13, 1958, 34 days after the entry of the judgment, defendants served notice of a motion to set aside the judgment upon the following grounds:

"* * * that the said judgment was obtained by fraud and that the defendant has since obtained newly-discovered evidence, which would probably alter the judgment, and on the further ground, as specified under R.R. 4:62-2(a), (b), (c), and (f)."

On June 5, 1958, 57 days after the entry of the judgment, defendants filed an amended notice of motion to vacate which included two further reasons for setting aside the April 9 judgment: (1) that there was "basic error committed in the record" in that an improper measure of damages had been employed at the trial, and there was no evidence to support the claim of fraud; and (2) there were "basic error[s] in the Court's charge to the jury." The hearing on the motion to vacate was postponed until June 18, 1958, at which time the county judge denied the application. The defendants appeal from the denial of this motion.

Hodgson's complaint contained three counts: the first sought damages for loss of profits resulting from defendants'

inability to perform the contract of lease; the second, for compensatory damages suffered as a result of reliance upon the Applegates' representations that they were the owners of the premises in question when in fact there was an outstanding lease to Cooper; the third, for punitive damages based upon the malicious failure to disclose the prior lease. The defendants filed a counterclaim for rescission and reformation of the plaintiff's lease, but the court dismissed it upon the rendition of the jury verdict.

The Cooper lease ran for one year, beginning on May 15, 1956, and contained an option to renew for nine additional years, to be exercised by notice on or before April 1, 1957. Before November 1956 defendants had some differences with Cooper respecting the payment of rent and of other obligations. Believing that he would vacate on or before the expiration of the initial term, they apprised the plaintiff that they were interested in leasing the premises to him and his sons, who operated service stations at other locations.

On November 2, 1956 plaintiff and defendants signed the following memorandum:

"This agreement between LeRoy Applegate & Clara his wife as the lessors & George E. Hodgson, Thomas B. Hodgson, Lester Hodgson, and William Hodgson, the lessees, hereby agree to lease the Gulf Refining Station owned by the Applegates to the Hodgson boys, the leasees (sic), for a term of ten years at the rate of $200 per month minimum, and the gallonage under or above at the rate of three quarters of one cent per gallon.

A deposit of $10.00 is to bind this agreement until a permanent lease is drawn. Possession to be granted as soon as present tenant has vacated the property but it is the understanding that this date will not exceed the date of April 1, 1957.

Signed by

LeRoy Applegate /s/

Clara E. Applegate

Attested by

John Middleton /s/

For

George M. Hodgson /s/

GEORGE M. HODGSON"

Plaintiff's attorney proceeded to prepare the permanent agreement, and on November 10, 1956 the lease was signed

and executed by plaintiff and defendants. It recited that it was "for the term of ten years from the date of possession on (sic) which shall be on or before April 1, 1957."

At the trial, which commenced on April 7, 1958 and lasted for three days, plaintiff contended that defendants had represented that Cooper's lease was for a one-year term, that they had not mentioned Cooper's option, and that plaintiff was unaware of it. In this respect plaintiff was corroborated by John Middleton, a realtor who had drawn and witnessed the memorandum quoted above, and by plaintiff's attorney who had drawn the lease and attended to its execution. Defendants testified, however, that they had informed plaintiff and his attorney of Cooper's option and that Cooper had been in default in the payment of obligations under the lease. They claimed that the attorney had said Cooper could be evicted and that the attorney offered to prosecute such proceedings on defendants' behalf. Subsequently, when defendants sought to employ him to bring an eviction action, he refused because of conflict of interest. Defendants brought dispossess proceedings which terminated in Cooper's favor, and he exercised the option of renewal. Therefore, defendants were unable to deliver possession to plaintiff.

The insertion in the lease of April 1, 1957 as the date of possession, defendants explained, was intended as a protection to plaintiff so that when Cooper decided to vacate the premises plaintiff's possession could not be put off until "20 years from now, or something like that." Defendants vigorously denied that by consenting to plaintiff's inclusion of a specific date they intended to make any representation that there was no option in Cooper's favor. Thus LeRoy Applegate testified:

"Q. Mr. Applegate, there is a date, April 1, 1957, on this lease. Did you tell either Mr. Stackhouse or Mr. Hodgson or Mr. Middleton that the Cooper lease expired on April 1, 1957? A. I explained to them thoroughly it was one-year with an option of nine, and my wife explained the same thing to them. We both told them. They have got no argument on that.

Q. So the date of April 1st, 1957 was pulled right out of the air? A. He said, 'We've just got to put some date onto it, so it would be sometime.'"

Corroborative of the defendants' version that Hodgson had not been misled is the fact that Cooper's one-year term did not expire until May 15, whereas plaintiff was promised possession on April 1. Properly instructed, the jury could have inferred that not only the defendants but the plaintiff, who admitted that he "certainly knew" Cooper had a lease, had expected Cooper to vacate, whatever his rights, and, therefore, that plaintiff would have entered into a lease even had he known the true facts as to Cooper's option.

To prove damages, plaintiff attempted on the second day of the trial, through Cooper's testimony, to show his earnings from the operation of the gas station so as to provide a guide by which the jury could measure plaintiff's own lost profits. He was asked how many gallons of gasoline he sold monthly or yearly, but his estimates, based on memory, were vague and contradictory. He could not estimate his expenses. He attempted to refer to a paper which purported to reflect the gallonage sold, but it was not in his handwriting and he did not know when or by whom the figures had been transcribed. An objection to his use of the paper was sustained. Cooper's most significant testimony pertaining to profits from the gas station was that he was able to live off that station and that his "living costs are somewhere in the neighborhood of between 8 and $9,000.00 a year." He had income from other sources but he "derived 95% or 90%, possibly, of all the income from the gasoline station." He did not recall how much income tax he had reported for 1957 and had no idea how much he had earned.

Plaintiff also attempted to prove lost profits by introducing evidence of the profits of his son's service station in Pemberton, N.J., about seven miles from the station benanted by Cooper. The son's accountant testified that the Pemberton station showed a net profit of $12,906.92 for a 10 1/2-month period during 1957. The accountant's records, however, were based upon gross sales, and he could not estimate that proportion of the gross income of $78,507.26 attributable to sales of gasoline and that attributable to minor repairs and sales of accessories. In addition, there was little evidence

to indicate that the stations were comparable. Cooper's station is in a rural area and most of the sales are to transients; the other is in a small town and apparently has a more steady clientele.

The trial judge submitted the case to the jury after a relatively brief charge. He instructed that the action was one for "alleged misrepresentations" by defendants concerning the "term and option" in Cooper's lease. Aside from the matter of burden of proof, this statement of the issues constituted the entire charge as to what was necessary to establish defendants' liability, notwithstanding that plaintiff had pleaded and presented, in addition to the fraudulent misrepresentation theory, a clear case of breach of contract. When the jury returned to the courtroom with a question, the judge replied: "You are only concerned with whether or not there was a misrepresentation to induce the signing of the memorandum and the lease." However, neither in the original charge nor in the supplemental instruction did the trial judge instruct as to the essential elements which are required to make a fraudulent representation actionable. On the question of substantive liability, the charge was woefully inadequate.

On the subject of damages the judge charged that plaintiff sought "to recover his loss by not being able to take possession by reason of the prior lease, and that is where you may have some difficulty." The jury was instructed to evaluate the similarity between the gas station at Pemberton and Cooper's station and to consider the "statements of Mr. Cooper as to what he has done in that station by way of business. Again, no actual figures, but his approximation." The court summarized: "So, this matter of damages I necessarily must leave entirely in your hands * * *." (We note at this point that this charge, particularly the statement that it was on the issue of damages where the jury would have some difficulty and the last-quoted instruction that the issue of damages would be left entirely to the jury, could well be construed as the practical equivalent of a directed verdict for plaintiff on the issues of substantive

liability -- and this although no motion had been made therefor and although the proofs clearly indicated such issues were for the jury.)

At the conclusion of the charge, the judge asked if there were any exceptions, and defense counsel answered: "The charge is satisfactory, your Honor." As noted, the jury returned a verdict of $8,500 for the plaintiff. No motion for a new trial was made by defense counsel within the ten-day period as provided in R.S. 4:61-2, and no appeal was taken from the judgment entered on the verdict.

II.

Defendants then engaged another attorney (present counsel) who moved to set aside the judgment under R.R. 4:62-2. At the hearing on the motion, defendants' newly retained counsel argued the merits of the court's charge, contending that there was no evidence to support a case of fraud, and that the measure of recovery for fraud was limited to plaintiff's deposit of $10. He also contended that the case was tried on the theory of breach of lease, and that the measure of damages is the difference between the value of the lease at the time of the making thereof and the rent reserved. The court declined to consider these contentions as a basis for an application to vacate the judgment on the ground that these are matters pertaining to errors of law to be raised on appeal.

In support of the claim of newly discovered evidence, defendants presented the testimony of Frederick T. Crowley, the accountant for Cooper, and the testimony of the defendant, Mrs. Applegate, concerning conversations with Crowley, to show that Cooper had testified falsely as to his earnings from the gas station. Crowley is a resident of Pennsylvania and happens to be the accountant for both Cooper and the Applegates. On May 14, 1958, when he came into this State, he was subpoenaed to testify at the hearing on the motion to vacate on June 18. Crowley testified that between April 3 and 5, 1958 he had told defendant LeRoy Applegate that

Cooper had in fact suffered a loss from his operation of the station in 1956. At the time, Crowley promised to appear at the trial and so testify. On the morning of the trial's third day, April 9, 1958, however, he telephoned defendants at 7:30 or 8:00 A.M. and advised them that his conscience would not permit him to breach his confidential relationship with Cooper. At that time he had not informed defendants of the amount of Cooper's loss, but after being subpoenaed on May 14, Crowley did show them a statement, signed by Cooper, that his 1956 loss was $13,400. He had Cooper's 1956 income tax records and business statements with him at the hearing, but the court would not permit defendants to examine them and would not receive them in evidence.

Clara Applegate, the next witness at the hearing on the motion, categorically denied that she had learned from Crowley prior to the trial that Cooper had sustained a loss in 1956. She stated that on April 4, 1958 (Good Friday) Crowley "wasn't able to answer you on anything," and that the first time she spoke to Crowley on the subject of Cooper's loss was on the evening of the second day of the trial, April 8, 1958. Mrs. Applegate implied there was no reason to consult Crowley as to Cooper's possible losses until Cooper took the stand and testified that he had made a profit at the gas station, and that as soon as he did, she telephoned Crowley to ascertain the facts. She testified that Crowley told her on April 8, 1958 that Cooper had a loss, the amount of which was not then disclosed, and that he promised to testify the next morning. On the next morning, however, Crowley called and advised that he would not testify. She admitted having knowledge of the loss on April 9, but explained that she conceived it to be the function of defendants' trial counsel to bring the situation to the attention of the court.

Defendants' attorney then announced that Cooper was in the courtroon in response to a subpoena but that he should not be called to give testimony which might be self-incriminating. Cooper, however, voluntarily testified at the

request of the court. He said he could not recall whether his income tax return disclosed a profit or loss; he declared he had other sources of income beside the gasoline station in question; and he declined to examine the tax returns which were in the courtroom. Thus, it appeared that in 1956 Cooper might have reported a loss of $13,400 and not a profit of $8,000 or $9,000 as he implied in his testimony. However, whether the operation of the gas station resulted in a profit or loss was not established because the income tax return also included his other ventures. Reference to the income tax records or to Cooper's books (which had been subpoenaed and which were outside in his automobile) would have revealed the facts, but the court's ruling prevented ascertainment thereof.

III.

Defendants appeal from the order denying their motion to set aside the judgment, charging generally that the order was an abuse of the discretion vested in the trial judge under R.R. 4:62-2. The rule, so far as is here pertinent, reads as follows:

"On motion, with briefs, and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order or proceeding for the following reasons: (a) mistake, inadvertence, surprise, or excusable neglect; (b) newly discovered evidence which would probably alter the judgment, order or proceeding and which by due diligence could not have been discovered in time to move for a new trial under Rule 4:61-2; (c) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (d) the judgment or order is void; (e) the judgment or order has been satisfied, released, or discharged, or a prior judgment or order upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment or order should have prospective application; or (f) any other reason justifying relief from the operation of the judgment or order. The motion shall be made within a reasonable time, and for reasons (a), (b) and (c) not more than 1 year after the judgment, order or proceeding was entered or taken."

Numerous grounds are presented in support of the claim that the verdict of $8,500 for ...


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