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P.F.I., Inc. v. Kulis

October 10, 2003


On appeal from the Superior Court of New Jersey, Law Division, Morris County, L-3129-00.

Before Judges Kestin, Axelrad, and Winkelstein.

The opinion of the court was delivered by: Axelrad, J.T.C. (temporarily assigned).


Argued: September 17, 2003

Defendant, Nadezda Kulis, appeals a judgment for plaintiff, P.F.I., Inc., on a contract claim, following a bench trial.

She argues the claim is barred by the statute of limitations; the death of her husband, Danilo Kulis, made the contract commercially impracticable; and the court erred in awarding lost profits. Plaintiff cross-appeals the court's denial of pre judgment interest. We affirm the appeal and cross-appeal with respect to the $56,149.90 judgment for unpaid gasoline invoices and the balance due on loans substantially for the reasons articulated by the court in its oral decisions. We reverse the award of $30,415.85 for lost profits.

Defendant and her late husband operated a gasoline station and automobile repair shop. Plaintiff is a gasoline wholesaler that negotiates contracts with service stations and supplies stations with Texaco gasoline. On October 1, 1991, the parties*fn1 executed a product sales agreement and rider by which plaintiff would supply gasoline to defendant for a five-year period, with defendant required to purchase a minimum of 2,000,000 gallons"in substantially equal monthly quantities" during that period, or thereafter until the minimum purchase was attained. The agreement also provided for interest-free financing of improvements to the service station in the amount of $40,000, to be paid off at the rate of two cents per gallon from the gasoline sales. Sometime thereafter, plaintiff advanced defendant an emergency loan of approximately $26,000 for environmental clean-up, which was to be repaid in 1993.

Defendant's husband died in 1994, and she closed the automobile repair part of the service station. As a result, gasoline sales declined. Defendant could no longer purchase the quantities of gasoline she was obligated to receive under the sales agreement, and was unable to make the payments on the construction loan as anticipated from the gasoline sales. Defendant made some payments on account through May 23, 1999. In January 2000, defendant apparently purchased another brand of gasoline which she commingled with the Texaco fuel; plaintiff ceased delivery and demanded full payment of the outstanding account balance.

On August 30, 2000, plaintiff filed suit for unpaid invoices, balance of the loans, and also sought lost profits. Following a bench trial, the court rendered its decision on the record on January 29, 2002, with two supplemental oral entries on March 19 and 25, 2002. By orders of February 20 and March 18, 2002, judgment was entered in favor of plaintiff in the amount of $56,149.90 for unpaid gasoline invoices and the outstanding balance of the loans, and $30,415.95 for lost profits. The court found that a binding contract had been created for the sale of gasoline, that plaintiff had advanced $66,629 in construction and environmental clean-up loans, and that defendant had breached the product sales agreement. The court declined to apply the four-year statute of limitations for the sale of goods, N.J.S.A. 12A:2-725, to bar plaintiff's cause of action, determining that

the parties continued to do business up to March 31, 2000 and that payments made by Defendant Mrs. Kulis towards the unpaid balance owed Plaintiff, in particular, a large payment of $20,000 on May 23, 1999, and numerous discussions and meetings with Plaintiffs to attempt to repay the unpaid balance was an expressed acknowledgment by Defendant Mrs. Kulis and these actions clearly eliminate the bar of the Statute of Limitations from application to Plaintiff's lawsuit.

The court relied on Van Ness Motors, Inc. v. Vikram, 221 N.J. Super. 543 (App. Div. 1987), and found that plaintiff was a lost volume seller and entitled to an anticipated lost profit of five cents per gallon on 608,319 gallons, the outstanding minimum purchase obligation under the contract, in addition to the outstanding contractual balance. The court further found,"after evaluating all of the evidence and the testimony of the parties," including plaintiff's waiver of defendant's breaches, continuation of the business relationship, and the fact that the loans were non-interest bearing, the"equities of this case precluded the allowance of pre-judgment interest to the plaintiff...."

We agree that under the unique circumstances of this case, defendant's conduct demonstrated an acknowledgement of the entire debt and tolled the four-year statute of limitations as a defense to this action. See Deluxe Sales and Service, Inc. v. Hyundai Eng'g & Constr. Co., 254 N.J. Super. 370 (App. Div. l992); Farbstein v. Eichmann, 23 N.J. Super. 484 (App. Div. 1952). This case is more akin to a running book account with partial payments made as part of a larger debt, rather than payments made against a pre-existing debt. Both the construction loan and gasoline shipments were part of a single integrated agreement between the parties. Plaintiff allocated half of defendant's $20,000 payment made on May 23, 1999 to the gasoline account receivable balance and half to the outstanding loan balance, without any objection by defendant. Moreover, the parties' discussions regarding payment of the account and their ongoing business relationship through January 2000 extended the term of the contract, including defendant's payment obligation for the entire debt.

Nor can defendant successfully prevail on a defense of impracticability of contract due to the death of her husband in 1994. See Restatement (Second) of Contracts §261 and §262 (1981); Duff v. Trenton Beverage Co., 4 N.J. 595, 606 (1950). Both defendant and her husband negotiated and executed the contract, and defendant acknowledged she was aware of her obligations under the agreement. Defendant was co-owner of the service station, and assumed an active role in its management and day-to-day operations. Moreover, although the business slowed down after Danilo's death and the closing of the automobile repair shop, defendant continued to purchase gasoline from plaintiff and operate the station pursuant to the product sales agreement for almost six years.

The record does not support plaintiff's entitlement to lost profits based on defendant's inability to make the minimum purchase of 2,000,000 gallons under the contract. This element of damages is not provided for in the contract and, based on the parties' relationship, did not appear to be contemplated by the parties. Moreover, plaintiff failed to demonstrate it was a lost volume seller and that normative contract damages were inadequate to put it in as good a position as performance would have done. Additionally, the testimony ...

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