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Central Steel Drum Co. v. Gold Cooperage Inc.

Decided: April 18, 1985.


On appeal from the Superior Court of New Jersey, Law Division, Essex County.

Matthews, Furman and Havey. The opinion of the court was delivered by Matthews, P.J.A.D.


[200 NJSuper Page 252] Plaintiff appeals from a judgment which permits defendant Gold Cooperage, Inc. to retain $50,000 since plaintiff breached an agreement to purchase defendant's assets. The contract of

sale included a liquidated damage clause which provided for the forfeiture of that sum in the event plaintiff failed to complete the purchase.

The following was stipulated by the parties:

One, Central Steel Drum Company deposited the sum of $50,000 consistent with its obligation and responsibility under section number 2.01(A) of the purchase agreement dated as of December 29, 1981. Two, the attorneys for the seller, Shea and Gould, who were escrow agents under the terms of the purchase agreement dated as of December 29, 1981, released and paid to Gold Cooperage, Inc., the sum of $50,000. Three, the closing date of March 2, 1982, pursuant to section number 3.01 of the purchase agreement dated as of December 29, 1981 was adjourned upon consent to March 9, 1982 and no closing occurred under the terms and conditions of the purchase agreement dated as of December 29, 1981 or under any other agreement or understanding between Gold Cooperage, Inc. and Central Steel Drum Company.

Defendant and plaintiff were competitors, although the work performed by the two companies was not the same. Plaintiff reconditioned "open head" drums, which involved the burning or blasting of a drum; defendant reconditioned primarily closed-head drums, infrequently working on open-head drums.

During the summer of 1981, plaintiff became interested in purchasing defendant's business. Jeffrey Skuraton, one of plaintiff's owners, began negotiating with defendant on behalf of plaintiff for the purchase. Skuraton did most of the negotiating for plaintiff; Alan Fisher, a partner to Skuraton, also participated. Sol and Milton Gold negotiated for defendant.

A contract was prepared under which Skuraton, personally, was the named buyer of defendant's assets since his associates did not wish to continue negotiations. Subsequently, Skuraton's associates decided to acquire defendant's assets through plaintiff. Plaintiff was unrepresented by counsel until an oral understanding was reached with defendant, at which time counsel was retained and continuously represented plaintiff through March 9, 1982. Counsel drew up the agreement.

A total purchase price of $650,000 was specified, $600,000 of the purchase price to be commercially financed. Section 2.01(A) of the agreement provided that $50,000, paid upon execution of

the purchase agreement, would be held in escrow until closing. Skuraton denied ever discussing the amount of the deposit, specifically denying knowledge of its computation.

The $650,000 price had been agreed to during the summer of 1981 and was an arbitrary figure. Skuraton determined the value of defendant's assets by assessing its plant, equipment and approximate business volume. Skuraton inspected the machinery and equipment listed in section 1.01 of the agreement and was satisfied.

Skuraton testified that the allocation of $649,900 to the equipment being purchased was made strictly for tax purposes on counsel's advice. This amount was greater than the actual value of the machinery and equipment. Plaintiff, however, had no intention of using any of defendant's machinery; it was going to try to sell it. Hence, plaintiff viewed this acquisition as a buy out of one competitor, purchasing only its accounts.

Section 11 of the agreement provided:

If the purchase and sale contemplated by this Agreement is not consummated as hereinbefore set forth in this Agreement for any reason which is not the fault of the Seller or an act of God, then and in such event, the sum of FIFTY THOUSAND ($50,000.00) DOLLARS, which was paid to Shea & Gould, as set forth in Section 2.08, shall be delivered to the Seller as liquidated damages, and neither party shall have any further rights against the other.

Section 4.09 recited that for the 11-month period ending November 30, 1981 defendant sold 132,980 reconditioned open-head drums, 95,678 reconditioned closed-head drums, and 28,676 tallow drums. For this period the dollar value of these sales aggregated to no less than $2,886,500. Skuraton testified that section 4.09 had been inserted for plaintiff's benefit in order to determine the impact defendant's departure would have on the business.

Under section 12.05 defendant covenanted to conduct its business "in the ordinary course" "pending closing of" the agreement. Skuraton had discussed this provision with both plaintiff's counsel and the Golds. He testified that from the beginning of the negotiations in the summer of 1981 his concern was with defendant maintaining business volume. The Golds assured him they would not let the business slack. Skuraton denied, however, having had any role in inserting section 12.05 in the agreement.

Robert Ruben was a New York attorney affiliated with Shea & Gould, defendant's counsel. To the best of his knowledge section 12.05 had been contained in the original draft of the agreement and had never been changed. He had never discussed it with counsel for plaintiff or objected to its presence. Ruben believed that the Golds understood that they were to continue to operate their business in the same fashion as it had always been operating.

The contract was signed sometime in January 1982. At that time Skuraton made demand for a representation that defendant's volume of sales would continue until the closing date. The Golds told him that they would continue to operate their business in the ordinary course, seeing new customers and maintaining old ones. Skuraton conceded that the contract did not require defendant to guarantee a level of business at closing; he claimed, however, that he understood "ordinary course" as meaning that defendant would continue servicing existing accounts and would also actively seek new business.

Milton Gold said that he understood the phrase "ordinary course of business" as meaning that defendant would continue to do business as it had done over the preceding 50 years. Defendant was to continue selling and buying drums, soliciting customers and dealers and keeping abreast of what its competitors were doing pricewise. Sol Gold's understanding was in accord with this.

After plaintiff's agreement to purchase defendant was announced, some of defendant's dealers left it. Sol Gold speculated that customers left because they wanted to be sure they had a place to have their work done after the sale was closed.

He stated that defendant infrequently picked up new customers; the nature of the business was "continual repeat." Usually, negotiations were conducted at the end of the year for blanket orders covering six months to a year of the customer's needs. Milton Gold estimated that in 1981 defendant had approximately 76 ...

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