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Darrah Food Services Inc. v. Lambertville House Inc.

Decided: June 28, 1985.

DARRAH FOOD SERVICES, INC., A CORPORATION OF THE STATE OF NEW JERSEY, SUSAN DARRAH, JAMES ROSSO, MARY ROSSO, MARGARET SLACK, JOYCE SLACK, JILL SLACK, MARGARET KNOSTER, RICHARD KNOSTER AND THOMAS BEETEL, PLAINTIFFS-RESPONDENTS,
v.
LAMBERTVILLE HOUSE, INC., A CORPORATION OF THE STATE OF NEW JERSEY AND JOHN C. ALLEN, JR., DEFENDANTS-APPELLANTS



On appeal from Superior Court of New Jersey, Chancery Division, Somerset County.

Dreier, McElroy and Shebell. The opinion of the court was delivered by Dreier, J.A.D.

Dreier

Plaintiffs, Darrah Food Services and its principals, agreed in 1980 to lease and manage The Lambertville House with an option to purchase the premises. The record owner of the restaurant and tavern is The Lambertville House, Inc., whose sole shareholder, John C. Allen, owns the liquor license. Plaintiffs instituted this action May 11, 1984 in the Chancery Division, Hunterdon County, alleging that in January 1982 they had exercised their option to purchase, had tendered over $100,000 of the purchase price to defendant and had been making semi-monthly payments of $2,800 since April 1982. They also alleged that they had substantially improved the property in reliance upon the agreement and claimed that defendants refused to execute the necessary consents so that the transfer of the liquor license could be approved.

In 1984 defendants listed the premises with a local broker and notified plaintiffs that they intended to file a summary dispossess action to oust them from possession. Plaintiffs obtained an Order to Show Cause requiring defendants to demonstrate why an interlocutory injunction should not be issued preventing the conveyance of the premises or other frustration of the purpose of their original agreement. After various motions and amendments of pleadings, on June 29, 1984 the parties negotiated for an entire day, with the aid of the court, and reached a settlement which was placed on the record. The settlement provided that The Lambertville House would be sold to plaintiffs and that defendants would use their best efforts and execute the necessary documents to have the liquor license transferred. The selling price of $690,000 was to be paid by a cash payment of $245,000 at closing with the balance financed by defendants. Although both parties preferred that plaintiffs obtain an SBA loan, defendants contend that the agreement provided that if the SBA did not take a second mortgage then plaintiffs could choose to obtain conventional financing and defendants would accept a second mortgage

behind the first mortgagee; in such case eight of the nine individual plaintiffs would guarantee the second mortgage.

Plaintiffs were given 90 days to obtain financing "with a right to extend that time for good cause shown." This provision clearly negated the usual rule that mortgage contingency time limitations are of the essence. See Schultz v. Topakyan, 193 N.J. Super. 550, 553 (App.Div.1984).

The parties' agreement further provided that if plaintiffs could not obtain financing or if they failed to obtain ABC approval of the transfer of the liquor license, the case would revert to "ground zero," defined as the litigation status as it existed prior to the settlement, with the Chancery restraints in place. Considering the animosity and charged state of affairs that grew between the parties thereafter, their choice of the phrase "ground zero" as opposed to "square one" was prophetic.

Plaintiffs failed to obtain financing within the 90 day period and defendants brought a motion on October 5, 1984 seeking to have the case restored to the status quo ante the settlement. Plaintiffs cross-moved for an order extending the time to obtain financing. The "good cause" alleged was that much of the 90 days had been lost due to improper attempts by defendants to exact more money from plaintiffs. The trial judge granted the extension on the basis that plaintiffs had been on the premises for four years and put a substantial amount of effort and money into the property. Defendants had also contended that plaintiffs had let taxes slip substantially in arrears, but the court agreed that so long as defendants were protected against tax foreclosure, he would not require that taxes be brought current. Plaintiffs were cautioned that they would have to obtain a firm commitment by December 7, 1984 because no more extensions would be granted.

At the December 7th hearing plaintiffs still had not received a firm commitment from either of the two sources they had revealed at their earlier appearance; however, they presented a

written offer of a loan by a mortgage company with an affidavit by a certified public accountant that a final commitment was imminent. No order was entered and the trial judge carried the matter to December 21st on which date he would hear the substantive issues unless a firm commitment had been obtained.

Two days prior to the adjourned hearing date plaintiffs obtained a financing commitment and on December 21, 1984 the trial judge entered an order enforcing the settlement reached by the parties June 29, 1984. He directed defendants "to consummate the sale of The Lambertville House . . . [and] commence and complete the ...


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