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Stewart v. Sbarro

Decided: June 22, 1976.


Fritz, Seidman and Milmed.

Per Curiam

Plaintiffs challenge on this appeal so much of the judgment below which was "entered in favor of the defendants Robert E. Dietz, Esq., and Peter J. Bonnani, Esq.," and against them. They contend that the trial judge erred in determining that these defendants, each an attorney-at-law of this State, had not breached any duty owed by them to plaintiffs in connection with a certain transaction, the details of which appear below.

Stewart-Bowker Corporation owned certain lands and premises situated on Route 38, partly in the Township of Mount Holly and partly in the Township of Lumberton, Burlington County. Plaintiffs were its original incorporators and principal stockholders. The corporation operated a restaurant and tavern on the premises until 1966, when mounting debts forced the closing of the business and the placing of the liquor license in escrow with the municipal authorities.

In June 1969 plaintiffs entered into an agreement to sell all the shares of the corporate stock to Vincent E. Sbarro and Canio Sbarro. Plaintiffs were represented by Dietz, who prepared the contract, and the Sbarros by Bonnani. The consideration for the sale was the sum of $90,000, of which $5,000 represented brokers' commission. The purchasers

agreed to assume the corporate debts as listed on an appended schedule, up to $85,000, and to take over an existing mortgage held by the Burlington Trust Company.

Although the purchasers also agreed to relieve the sellers "individually of any obligations under the Twenty-two Thousand Six Hundred ($22,600.00) note to the First National Bank of Beverly," the bank refused to release plaintiffs from their personal liability on the corporate obligation, whereupon an addendum was prepared whereby the purchasers agreed to execute a second mortgage on the premises as security for their agreement to pay the note, and Vincent Sbarro, Sr. (the father of Vincent E. Sbarro) and his wife Theresa would also give to plaintiffs as additional security for the payment of the note a mortgage on their residence in Hamilton Township. The two obligations were contained in a single bond and mortgage.

The closing took place at Dietz's office on July 10, 1969. Both attorneys were present, as were all the Sbarros except Canio and Theresa. The stock certificates were endorsed by plaintiffs and turned over to Dietz. The bond and mortgage, which Dietz had prepared, could not be fully executed because of the absence of Canio and Theresa. There was also a question of the reinstatement of the forfeited corporate charter, and it appears that $400 was set aside to defray the payment of back taxes. Although there is disagreement among the parties on what authority was extended to the attorneys or what they undertook to do, there is no dispute that the corporate stock was turned over to the purchasers by Dietz and that Bonnani took with him the bond and mortgage in order to obtain the missing signatures.

The purchasers immediately took possession of the premises and opened for business on January 1, 1970. Quarterly interest payments on the note were made until September of that year. The bond and mortgage were never completed and delivered to Dietz. On August 15, 1970 Bonanni prepared a second mortgage in the amount of $25,000 from the corporation to Canio Sbarro and his wife, which was executed by

Canio as president and Vincent E. Sbarro as secretary of the corporation. In March 1972, Vincent Sbarro, Sr., who was then separated from his wife, conveyed to her his interest in the Hamilton Township property and she later sold it to a third person.

In October 1971 the corporation filed a bankruptcy petition, and a year later the corporate assets were sold for $187,000 plus dollar-for-dollar for the existing inventory, an amount sufficient to pay all secured creditors and to provide a 30% distribution to the unsecured creditors, including plaintiffs. The latter received $6,372.07, which was immediately turned over to the First National Bank of Beverly, reducing the principal balance on the note to $15,627.93. Subsequently, in this litigation, an order was entered directing Canio Sbarro, who had received $7,286.48 as a secured creditor in the bankruptcy proceedings, to deposit that amount in court or to post a bond as security. The money, it appears, was later released to plaintiffs and also applied to the balance on the note.

This lawsuit was instituted against all of the Sbarros referred to above and the two attorneys. The complaint alleged, among other things, that the mortgage in question was never fully executed; that Canio Sbarro and his wife took their now second mortgage from the corporation, thereby relegating plaintiffs to the position of general creditors of the corporation while still remaining liable on the note, and that Vincent Sbarro and his wife failed and refused to execute and deliver to plaintiffs, as agreed, the second mortgage on their premises. Judgment was sought ordering the Sbarros (1) to honor their agreement to indemnify plaintiffs against liability on the note; (2) to reimburse plaintiffs for ...

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