On appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County
Havey, Stern and Brochin. The opinion of the court was delivered by Brochin, J.A.D.
[265 NJSuper Page 50] Brunswick Chrysler-Plymouth, Inc. (d/b/a Brunswick Mazda) is an automobile dealership that sold both Chrysler and Mazda automobiles. On April 10, 1990, plaintiffs Robert Horn and John G. Seneca, who owned other automobile dealerships, entered into
an agreement with the owner of Brunswick Mazda, Daniel A. Brady, to buy its assets.
In order to be able to continue selling Mazda automobiles, plaintiffs needed Mazda's approval for the transfer of its franchise from Mr. Brady to themselves. Mazda was informed of the proposed transfer on April 20, 1990. It furnished plaintiffs with its standard form of application for approval of the transfer. They completed the form and submitted it to Mazda on or shortly after April 30, 1990. The form requested, and plaintiffs submitted, biographical information, personal financial statements, a pro forma balance sheet for the new dealership, an operating forecast, details about its proposed location, and information about the sources of the funds to be invested.
Among the questions contained on the application form were the following:
Are you now or have you been during the past seven (7) years . . .:
A defendant in any law suit or legal processing [ sic ]?
Declared bankrupt or made an assignment for creditors?
Convicted of or imprisoned for crime?
Bonded for any reason? [Emphasis added.]
Plaintiffs answered "No" to each of these questions.
Between April 20 and August 7, 1990, while negotiating with Mr. Brady about various changes to their agreement, plaintiffs also talked to Mazda's representatives from time to time about the status of their pending application for Mazda's approval of the transfer of the franchise. They were told that the application was being processed, but that a floor plan agreement and a parts settlement accounts memo were needed and were still missing. A floor plan agreement is a lender's agreement to finance the dealership's purchase of its stock of automobiles. A parts account settlement letter is an undertaking specifying whether the old dealer or the new one will be responsible to Mazda for any amount which the dealership owed for its parts inventory at the time of the transfer.
On August 7, 1990, Mazda received the parts account settlement letter and its representative called plaintiffs to tell them that their application was still incomplete because their floor plan agreement was still missing. On the afternoon of August 8, the Mazda representative responsible for granting or withholding approval of the transfer of the dealership to plaintiffs learned from Mazda's district sales manager that criminal charges were pending against Mr. Seneca for violating the narcotics laws. That same day, Mr. Seneca was asked about the matter. According to the trial court's findings, he replied truthfully, informing the Mazda representatives, in substance, that there were several criminal narcotics charges outstanding against him and that he was then on bail, but that the charges had been or were going to be dismissed.
Mazda's subsequent investigation disclosed that four indictments were outstanding against Mr. Seneca. They were a State grand jury indictment filed October 13, 1987, charging that on February 5, 1987, he possessed more than 8 ounces of cocaine containing at least 3.5 ounces of pure freebase, intending to distribute it, and that he possessed a .32 caliber automatic pistol without a permit; a Middlesex County indictment charging that on December 7, 1989, he possessed cocaine in an amount of less than half an ounce, intending to distribute it; and two Middlesex County indictments charging that he possessed small amounts of cocaine on November 1, 1988, and on July 18, 1989.
On August 10, 1990, Mazda's regional manager wrote Mr. Brady:
While your submission of a completed package of materials necessary to give Mazda sufficient notice to evaluate your proposal has been incomplete and our district manager has been working with you to complete your applications, a serious problem has recently come to our attention which requires us to inform you immediately that we cannot approve your buy/sell proposal at this time.
We have just learned that one of the proposed buyers did not disclose, in his application to Mazda, relevant information requested concerning his background and the pendency of criminal charges against him. This information was obviously called for in the materials submitted to Mazda and in our Discussions with him and its exclusion as well as the pendency of the serious ...