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Malaker Corp. v. First Jersey National Bank

Decided: November 9, 1978.

THE MALAKER CORPORATION STOCKHOLDERS PROTECTIVE COMMITTEE ET AL., PLAINTIFFS-APPELLANTS AND CROSS-RESPONDENTS,
v.
FIRST JERSEY NATIONAL BANK ET AL., DEFENDANTS-RESPONDENTS AND CROSS-APPELLANTS, AND ALBERT MULLER, DEFENDANT-RESPONDENT



On appeal from Superior Court, Law Division, Hudson County.

Fritz, Bischoff and Morgan. The opinion of the court was delivered by Morgan, J.A.D.

Morgan

At issue in this interlocutory appeal is the propriety of the trial court action in entering a judgment n.o.v. with respect to two of plaintiffs' claims and of an order setting aside the jury verdicts with respect to the other claims and ordering a new trial as to them. Pursuant to leave granted, plaintiffs appeal all of these rulings; defendants cross-appeal those aspects of the trial court action granting plaintiffs a new trial, contending that a judgment n.o.v. should have been entered as to all of plaintiffs' claims. The challenged rulings following rendition of the verdicts as to liability are interlocutory; the damage aspect of the case was never tried.

At the core of the controversy between the parties is an alleged oral agreement by First Jersey National Bank (bank), a defendant herein, to make available to the Malaker Corporation (corporation), not a party, a line of credit in the amount of $2,000,000 for working capital purposes. Plaintiffs The Malaker Corporation Stockholders Protective Committee and several individual stockholders, including Stephen F. Malaker, Jerome B. Malaker and Romayne Malaker, alleged that the bank made this oral commitment. The bank denies this obligation, contending that its only "agreement" is described in a critical letter of February 3, 1969 which limits the purposes of the line of credit to government contracts and corporate acquisitions made subject to advance approval by the bank. The bank's later refusals to make certain loans were alleged by plaintiffs and found by the jury to constitute breaches of this underlying obligation. From this factual predicate spring most of the several theories upon which recovery is sought, among them breach of contract, unlawful interference with prospective economic advantage and conspiracy, all of which will be more specifically described in the following portions of this opinion. The trial took place over 25 consecutive days generating a transcript of well over 3500 pages. Because of the sheer volume of the testimony and documentary evidence, the

factual context of each of the separate theories of recovery will be described in connection with our consideration of its legal propriety.

Breach of alleged oral agreement to extend an unrestricted $2,000,000 line of credit.

In the fall of 1968 Stephen Malaker, president of the corporation, met defendant Thomas Stanton, then president of First Jersey National Bank, at a social function. Malaker mentioned to Stanton that the corporation "was in the process of going public" and would be needing a bank to finance its development. Following up on this initial conversation in January 1969, Stanton and Malaker carried on discussions concerning the nature of the proposed relationship between the bank and the corporation, during which Malaker advised Stanton of his need for a "$2,000,000 line of credit." During a subsequent conversation at the offices of the bank between Malaker, Stanton and the bank's loan officer, Merton Corn, the matter received further exploration. According to Malaker an oral contract was consummated at that time. Since documentary evidence of this alleged agreement is absent and no other person from the corporation witnessed the alleged handshake, its existence depends on Malaker's testimony, and it becomes essential to quote his description of the existence and scope of the alleged agreement.

Malaker understood that no further documentation would be needed to confirm the contract. Malaker testified that in

reliance upon this handshake agreement he dropped negotiations with other banks and began planning corporate operations on the assumption that the unrestricted line of credit would be honored.

By letter dated February 3, 1969 the bank wrote a letter to Malaker in apparent confirmation of the prior agreement. Again, because of the critical role played by this letter, we quote it in full:

Dear Dr. Malaker:

As we discussed earlier we will be happy to make available $2,000,000 in loans to Malaker Corporation on the following basis:

For acquisition purposes:

Prospective acquisitions are subject to our review with the understanding that we will not unreasonably withhold approval. A typically acceptable purchase would involve acquisition for all stock or cash not in excess of book value plus stock. Naturally, both the financial condition of the company being acquired and the number of acquisitions made within a given period are relevant factors.

For financing of Government contracts:

Such loans will be secured by the applicable Government contract and the receivables created thereunder. It is proposed that Malaker Corporation maintain its financial position so that after granting of such loans total debt will be less than twice the tangible net worth of the company.

This is, of course, a broad outline within which we hope to work with you over the near term. As the needs of your company become more clear, modifications should be made.

Clearly, this letter does not describe the unrestricted line of credit about which Malaker testified. According to the express terms of the letter, the credit to be extended was limited to two purposes, corporate acquisitions and government contracts. Further, loans for acquisitions were to be subject to the bank's approval not to be unreasonably withheld, and as for government contracts, loans therefor would be made available so long as, with the monies advanced, "total debt will be less than twice the tangible net worth of the company." Hence, in addition to requiring the corporation to "maintain its financial position," the standards for

evaluating its financial soundness were specified; loans on government contracts were conditioned on such a showing.

Malaker recognized immediately that this letter failed to reflect his impressions of the oral commitment the bank allegedly made only days before because he testified that he called Stanton on receipt and asked "is this all I'm going to get?" Stanton responded (according to Malaker) that the limited commitment was all that was necessary at the time and assured Malaker that he had a $2,000,000 line of credit. Stanton denied receiving any such phone call and, of course, denied assuring Malaker of any unrestricted line of credit in any amount. Stanton's understanding of the February 3, 1969 letter was that it memorialized the bank's intention to make available $2,000,000 to be used in connection with acquisitions and financing of government contracts. An unrestricted line of credit for general corporate purposes was not contemplated because of the corporation's lack of a "track record" and its prior Chapter XI reorganization of which the bank had knowledge.

Merton Corn, the bank's loan officer who drafted the letter of February 3, 1969, also denied that an unrestricted line of credit was intended thereby. It was his understanding, as he explained it, to afford the corporation a line of credit whenever, because of uncollected receivables evidencing a healthy business outlook, cash became in short supply. In those circumstances the bank would aid in any proposed corporate acquisition or the funding of government contracts.

The foregoing represents the only direct evidence of either the restricted or open line of credit commitment in the amount of $2,000,000. Hence, the existence of the open line of credit rests essentially on the word of Malaker both as to the original oral agreement and Stanton's reassurance after Malaker's receipt of the letter. The restricted credit line is evidenced by the letter itself and the testimony of Stanton and Corn. Both parties refer, however, to facts which they contend provide the basis for inferring conclusions favorable to their respective positions. For example, plaintiffs

point to a letter written to Malaker on April 22, 1969 by Merton Corn wherein he told Malaker that "As soon as you indicate a need, I will be happy to ship out a supply of notes." Plaintiffs contend that such an offer is consistent with their position that the line of credit established was unrestricted since bare notes do not normally provide the means of financing corporate acquisitions or financing government contracts. Defendants, on the other hand, point out the absence of any further documentation or conversation with anyone concerning the open line of credit and the absence of all reference to such a commitment during a multitude of phone calls which were taped by Malaker.

In any event, the bank did lend substantial monies to the Malaker Corporation at various times during the 1970-71 period of the Malaker-bank relationship. Repayment was not made and the bank subsequently obtained judgments in a prior suit in the amount of the debt. Plaintiffs' allegations of breach of the underlying open line of credit established in January-February 1969 and of certain independent promises to lend money were based on those occasions on which the bank refused a requested loan. Those incidents of breach of contract, which the jury found to have rested exclusively upon plaintiffs' allegations of the open line of credit, will hereinafter be dealt with together since the existence of a breach depends upon the enforceability of the obligation to extend credit.

On defendant's post-trial motions the trial judge, however, entered judgment n.o.v. on the open line of credit issue, holding that the agreement the jury found to have been created lacked too many essential terms to be susceptible of enforcement. Although the total amount of the obligation was clear, the failure to specify rates of interest, terms of repayment, necessity for collateral or the extent thereof required, or the very duration of the agreement, rendered it too vague for enforcement. All claims based exclusively upon the enforceability of the open line of credit -- that is, those

rejected loans unrelated to acquisitions of government contracts or not otherwise found supportable by way of promissory estoppel -- were accordingly rejected.

The foregoing factual recital as it bears on this issue supports the trial judge's characterization of the evidence germane thereto as "minimal and marginal." The existence of this agreement rests exclusively on the testimony of Malaker, a person directly interested in the resolution of this issue. Even his testimony is deficient in that it does not specifically attest to a line of credit for any particular purpose; he did not testify that Stanton promised credit in the agreed amount for general corporation purposes but only that he "had a two million dollar line of credit," a fact upon which there was no real disagreement. Any force to Malaker's testimony is, in our view, dissipated by the letter of February 3, 1969 which followed within days of the handshake which allegedly sealed the agreement for the open credit line. That letter clearly limited the purposes for which the credit could be used. Again, the telephoned reassurance of the open, as distinguished from the limited, credit line rested on the testimony of the same witness. Noteworthy is the fact that no direct documentation of the open line could be found in either the bank's or plaintiffs' records, or the taped telephone conversations of which there were many, a lack particularly significant in light of the magnitude of this alleged undertaking. Even after the bank allegedly breached this undertaking no documented complaints of the breach were produced.

We need not, however, determine whether the issue was properly submitted to the jury on this state of the proofs because we agree with the trial judge that even with the jury determination that the open credit line had been promised as testified to by Malaker, the undertaking was unenforceable, as a matter of law, for lack of specificity in its terms Absent any suggestion as to what rate of interest the loan would bear, what were to be the terms of repayment of such loans, whether they were to be repaid on demand

or were to be given on time notes, whether they would be collateralized and, if so, what collateral could have been demanded, how long the bank was to be obligated to honor this commitment, no trier of fact could determine, without sheer speculation, whether the bank complied or breached this undertaking

An agreement so deficient in the specification of its essential terms that the performance by each party cannot be ascertained with reasonable certainty is not a contract, and clearly is not an enforceable one. Friedman v. Tappan Development Corp. , 22 N.J. 523, 531 (1956). A contract so vague in the description of the performance of each party thereto is incapable of remedy at law or in equity. Caullett v. Stanley Stilwell & Sons, Inc. , 67 N.J. Super. 111, 115 (App. Div. 1961). An essential characteristic of an enforceable contract is that its obligations be specifically described in order to enable a court or a trier of fact to ascertain what it was the promissor undertook to do. Williston, Contracts (Jaeger, 3 ed. 1957), ยง 24. See also, Heim v. Shore , 56 N.J. Super. 62, 73 (App. Div. 1959); Montclair Distributing Co. v. Arnold Bakers, Inc. , 1 N.J. Super. 568, 575 (Ch. Div. 1948).

Reference to decisional authority for aid in determining the extent to which a given amount of vagueness or the absence of important terms of an agreement will be tolerable, is unavailing. Each case, being unique, turns on its facts. Hence, each of the cases cited by plaintiffs to support their contention that courts frequently tolerate considerable vagueness in the description of performances owed in an agreement is clearly distinguishable on its facts. Thus, in Stern v. Premier Shirt Corp. , 260 N.Y. 201, 183 N.E. 363, 364 (Ct. App. 1932), the contract involved was an agreement to lend an amount of money sufficient to finance a certain business. The specific amount of the loan was otherwise unspecified and it was contended that this omission was fatal to enforcement. The court, however, enforced the contract, noting that this omission was the only point of uncertainty

in the agreement; that undertaking could be implied from the facts surrounding the promise, specifically from the fact that the defendants "were familiar with the financial requirements of the business and knew well what would be sufficient to carry it on." In the present case, the amount was subject to no dispute whatever; indeed, that was the only point of certainty in the entire agreement, assuming that there was such an agreement. All of the other terms normal to an obligation of this magnitude were missing. The other cases referred to by plaintiffs for the same proposition are similarly distinguishable on their facts. See Morgan v. Young , 203 S.W. 2d 837 (Tex. Civ. App. 1947); Merchants' Bank of Canada v. Sims , 122 Wash. 106, 209 P. 1113 (Sup. Ct. 1922). Our canvass of the available authority convinces us of the correctness of the trial judge's appraisal that the clear weight of authority would hold the alleged agreement for an open credit line to be too vague to be amenable to enforcement. Accordingly, we affirm the order directing entry of a judgment n.o.v. with respect to this issue. This holding eliminates those claims of breach of contract dependent solely upon the existence and the enforceability of this open line of credit, specifically, the bank's rejection of loans in August 1970, on October 5, 1970, in April 1971, in June 1971 and in July 1971. We have identified these loans by reference to the special verdict of the jury in which they identified those rejected loans which constituted breach of the open credit line obligation.

Restricted line of credit in the letter of February 3, 1969.

This issue arises from the letter of February 3, 1969 in which the bank did offer a $2,000,000 line of credit for purposes of financing corporate acquisitions and government contracts. The trial judge denied the bank's motion for entry of judgment n.o.v. with respect to this issue, concluding that although, as in the oral agreement, essential terms were missing, enough was there to permit its enforcement. We disagree.

In our view, the same infirmities apparent in the agreement for an unrestricted line of credit taint this agreement as well. Its duration, the rate of interest, or other compensation to be exacted for loans made pursuant to it, the bank's entitlement to collateral and its amount, the form of the loans to be made (time or demand), the terms of repayment are all missing. The only difference between the oral and the written agreement is that in the latter the purposes of the loans are spelled out, some of the terms and some standard for measuring the sufficiency of the performance are described. We do not regard such terms as sufficient to permit enforcement. For example, the first and only alleged breach of the restricted credit line, that is, the one contained in the letter of February 3, 1969, concerned a proposed corporate acquisition about which discussion commenced with the bank in December 1969, some ten months after the commitment was given. During that month defendant Corn had discussions with William Seeds, an officer of Malaker Corporation, concerning a proposed acquisition of a company known as Vibration Eliminator for which a loan in the amount of $600,000 was requested. Corn indicated an interest in making the loan subject to the receipt and review of certain financial information. A condition to the proposed loan was to be, however, a "kicker" or "sweetener" in the form of warrants for 30,000 shares of Malaker Corporation, a demand which Stephen Malaker deemed unreasonable. Although Corn testified he told Malaker that the number of shares was negotiable, a fact Malaker denied, further financial information concerning the acquisition was not furnished and a final decision on the loan was therefore not reached.

Nothing in the letter agreement of February 3, 1969, however, even remotely suggests whether the bank's demand of such compensation was in compliance with or in breach of that agreement. Although plaintiffs concede that some collateral was probably required under this ...


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