December 24, 2007
ABBE L. BLOCK, TRADING AS ABBE L. BLOCK, INC., PLAINTIFF-RESPONDENT,
ALLEN LONGSTREET, ALICIA LONGSTREET, AND MARILEE RYAN, DEFENDANTS-APPELLANTS.
On appeal from Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-2265-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted December 3, 2007
Before Judges Weissbard and Baxter.
Defendants Allen Longstreet, Alicia Longstreet,*fn1 and Marilee Ryan appeal from a March 30, 2007 order that entered judgment against them and in favor of plaintiff Abbe L. Block, Inc., in the amount of $172,442. That sum consisted of $119,831, which was the principal amount on a mortgage note, $7,500 for the payment of plaintiff's legal fees, and pre-judgment interest totaling $45,111. We affirm in part, reverse in part, and remand for entry of a modified judgment in plaintiff's favor.
The March 30, 2007 judgment resulted from stipulated facts that were submitted to the trial judge. The parties testified under oath that they had voluntarily stipulated to those facts and that the facts contained in the stipulation were true. The judge relied on the stipulation when he entered the March 30, 2007 judgment. We summarize those facts. In February 2001, Allen Longstreet obtained a mortgage loan from Chase Manhattan Mortgage Corporation (Chase) in the amount of $104,000 on his home located at 305 Churchill Avenue in Hamilton Township. The mortgage and note were in the name of Allen Longstreet and his mother Marilee Ryan because Longstreet was unable to secure financing unless his mother co-signed the loan. Longstreet assured his mother that he would be solely responsible for payment of the Chase note, and she relied on his assurances. The Chase note was payable on March 1, 2031, at an initial interest rate of 8.25% per annum. The monthly principal and interest payment was $1,124.
In 2001, Longstreet lost his job and was unable to make payments on the Chase note, which resulted in default on the note. Consequently, Chase instituted a mortgage foreclosure action in January 2002. Longstreet then retained Michael Block, Esq.,*fn2 a principal of the now defunct law firm of Block & Sobel, L.L.C., to represent him in the foreclosure action and to negotiate a payment plan with the bank to avoid foreclosure of his home. Neither Ryan nor Alicia Longstreet retained Block, nor were they in contact with him concerning the foreclosure action or to negotiate a payment plan to avoid foreclosure. Block assured Longstreet that he would "take care of everything."
Over the next several months, Longstreet called Block numerous times to inquire about the status of the foreclosure action, but Block never returned his calls. Block failed to respond to the foreclosure action and did nothing to effectuate a new payment plan.
The first time Longstreet heard from Block was on July 22, 2002, when he received a phone call in which Block told Longstreet to leave his job and immediately come to Block's office or he would lose his home. The redemption period for the property was due to expire that day at 1:00 p.m. Longstreet and Ryan "had no means or ability to redeem the property on their own."
When Longstreet arrived at Block's office, Block gave him a check in the amount of $119,831 (the Block loan) to redeem the property. The check was drawn from the operating account of Block & Sobel, L.L.C.; however, Abbe Block, the wife of Michael Block, trading as Abbe L. Block, Inc., was the source of the funds. As security for the loan, Longstreet executed a promissory note and mortgage on the property in favor of Abbe L. Block, Inc. Block did not allow Longstreet to read the documents; he merely said "sign here now" and instructed Longstreet to take the check and proceed immediately to the Sheriff's Office to redeem his home. Block never discussed the terms of the mortgage or note with Longstreet, nor did Block ever provide Longstreet with a payment schedule or any other information regarding the note. Block never advised Longstreet to seek other counsel to review the mortgage or note, nor did he ever tell Longstreet that he represented Abbe Block or Abbe L. Block, Inc. Fearful of losing his home, Longstreet immediately signed the documents that Block had placed in front of him and told him to sign. Consequently, Longstreet did not know the terms of the note or mortgage at the time he signed them. Specifically, he did not know that the mortgage contained an interest rate of 14%. When he later discovered how high the interest rate was, he was "shocked" because he knew that mortgage rates were considerably less. His Chase loan was, at that time, at an interest rate of only 8.5%.
Longstreet also did not know that Abbe L. Block, Inc. was the mortgagee; as far as he knew, he owed the money to Block & Sobel. In addition, in his haste, Longstreet unknowingly warranted to plaintiff in the mortgage documents the he was the sole owner of the property.
In relevant part, the promissory note between Longstreet and Abbe L. Block, Inc. provided that Longstreet would repay the principal of $119,831 over a thirty-year term, with interest at an annual rate of 14% on the remaining balance. Although the note specified that monthly payments were to be made on the first day of each month commencing August 1, 2002, and ending August 1, 2032, the dollar amount of each monthly payment was left blank. The note also specified the following: any monthly payment that was more than ten days late would result in a late charge consisting of five percent of the payment; and if Longstreet failed to make any payment required by the note, or failed to comply with any other obligation specified in the note, Abbe Block, Inc. could declare him in default only and institute foreclosure proceedings. The note was signed by Longstreet and Bruce Sobel, Esq., of Block & Sobel, and bore no signature from either Michael Block or Abbe L. Block, Inc.
The mortgage listed Allen Longstreet as mortgagor and Abbe L. Block, Inc. as mortgagee. The mortgage specified a loan amount of $119,833, plus interest in accordance with the terms of the note. Like the note, the mortgage provided for monthly payments, but the line on which the dollar amount of such monthly payments would have been specified was left blank, as was the portion of the mortgage that specified the date on which "[a]ll sums owed under the note" were due. The mortgage document specified that if the lender declared Longstreet in default, he would be immediately required to pay the full amount of all unpaid principal, interest, and any other amounts due on the mortgage and note, in addition to the lender's attorney's fees and costs of collection. Like the promissory note, the only signatures on the mortgage were those of Longstreet and Bruce Sobel, Esq., of Block & Sobel.
Neither Ryan or Alicia Longstreet signed the mortgage or the note. Neither one had knowledge of Longstreet's dealings with Michael Block, nor did they know anything about the sheriff's sale, the foreclosure action, the redemption period, or the $119,831 check issued by Block & Sobel. At the time Longstreet signed the promissory note and mortgage, he was not married to Alicia, and they did not marry until almost a year later, in June 2003. Four months after their marriage, Ryan conveyed her interest in the property to Allen and Alicia as husband and wife. Ryan never lived in the house nor did she receive any benefit from acting as co-signer on the Chase note and mortgage. Longstreet never issued a single payment to Abbe Block, Inc., thereby entitling Abbe Block to consider the loan in default.
In the summer of 2004, Allen and Alicia Longstreet were able to refinance the Block loan without satisfying their indebtedness on the Block loan. By that point, Alicia Longstreet was aware of the Block loan, that the Block loan had not been satisfied, and that she and her husband had been using the funds from the new mortgage for their own personal use. It is unclear from the stipulated facts if one or both of them made the decision not to repay the Block loan.
On August 31, 2004, plaintiff instituted suit against Longstreet and Ryan. As to Longstreet, she alleged breach of contract, fraud, misrepresentation and breach of warranty. As to Alicia Longstreet and Ryan, she alleged unjust enrichment. Longstreet and Ryan filed a counterclaim alleging fraud, and a third-party complaint against Michael Block and Block & Sobel, alleging malpractice. Plaintiff later amended her complaint to add Alicia Longstreet as a party on a theory of unjust enrichment.
At the conclusion of the trial, the judge entered judgment in favor of plaintiff after finding that Longstreet was liable to plaintiff on an express contract theory. The judge reasoned:
[T]here's no doubt in this Court's mind, none, that the money for the loan came from Abbe Block and that Allen Longstreet knew exactly what he was doing, he knew exactly what he was getting, and he signed the papers. And those signatures have consequences which are unavoidable.
The contract requires an intent to enter into an agreement, a promise by one party to do something, and a consideration by the other in exchange for the promise. Here, there's no doubt Allen Longstreet signed the note. He signed the mortgage. He received the benefit. That was the money. The money came from Abbe Block in the form of a loan. . . . .
And that loan was used to redeem his property from the sheriff's sale. He and his wife and children got what they wanted.
They continued to live on the property. And he's not paid a dime back on the Abbe Block loan.
Here, Allen Longstreet signed these papers.
Allen Longstreet was an adult. He's responsible for what he signs. He should have read it. He should have familiarized himself with it. The fact that he didn't doesn't excuse him. He knew what was in the papers. He knew he was borrowing the money to redeem it-his property. Allen Longstreet benefited by the agreement because he received the money to-and saved his property. He hasn't paid any of it back.
So, he's breached the term of the note.
The court rejected each of Longstreet's arguments. On Longstreet's claim that the contract was void because it was an adhesion contract, the judge concluded that Longstreet "was getting what he wanted. He was getting the property redeemed." As to the argument that the contract was void because Block entered into a commercial transaction with his own client without notifying Longstreet that he should obtain independent counsel, the judge rejected that defense because the loan came from Abbe Block and not Michael Block. The judge stated, "the money for this loan--no matter what the paperwork trail--came from Abbe Block. She put up the money to redeem Mr. Longstreet's house."
As to the duress claim, the judge held that although plaintiff "might have been nervous, [or] might have been upset" about the possibility that his house might be lost at the sheriff's sale, Longstreet was not "under any duress whatsoever other than that which was normal, [or] would be normal in a situation where you're about to have your house foreclosed and sold out from under you." The judge observed that the situation Longstreet faced was "hardly the kind of duress that the court would excuse . . . . [I]t's almost as if he thinks he should be forgiven for [a] $120,000 loan."
As to Longstreet's claim that the Consumer Fraud Act and equitable estoppel were complete defenses to plaintiff's claim, the judge stated "the equities run the other way. The equities favor Abbe Block not Allen Longstreet. This is a real estate transaction and Mr. Longstreet is doing what he wants to do--doing what he can do to get himself a redemption of his . . . property out of foreclosure."
As we have explained, judgment was entered not only against Longstreet, but also against his wife and mother, even though neither one signed the promissory note or the mortgage. The judge found in plaintiff's favor against both Ryan and Alicia Longstreet, nonetheless, because each one had benefited from the $119,000 plaintiff lent to Longstreet, and would be unjustly enriched if permitted to retain the proceeds of that loan without the obligation to repay it.
In particular, the judge found that Ryan benefited because the Block loan discharged her liability on the Chase note and mortgage. As to Alicia Longstreet, the judge held that "she benefited by living in the home which was redeemed by the Abbe Block money." The judge also held that Alicia "benefited by using the home as collateral to obtain additional mortgages without repaying Abbe Block for the money [that was] used to redeem the house from foreclosure."
The judge also stated:
I just can't understand how it would be fair for Alicia Longstreet to engage in such conduct that is anathema to the rule of law. She had no contact with Abbe Block, she didn't sign the note and the mortgage. But she benefited mightily from the Block note. She wasn't kicked out on the street. Her house which was in foreclosure was redeemed. And her stay there was extended. And she paid nothing. Her husband paid nothing. And they didn't reimburse Abbe Block when they did get their mortgage-their mortgage recast.
But nevertheless, she knew about the Block loan when she mortgaged the property. That's a fact that's stipulated to. She signed the stipulation. She had an obligation to make sure that that was paid off. And she didn't do that. Her husband didn't do it. And she benefited from it. She had a lot of money to spend that she wouldn't otherwise have been entitled to.
And she paid nothing back.
So, even though Alicia Longstreet was not a party to the Block note, I find that she had a reasonable expectation-that Abbe Block that is, had a reasonable expectation of remuneration from her.
On appeal, all three defendants argue that the trial court made incorrect factual findings. In particular, they argue that the trial court "ignored the stipulated facts that were entered into the record and made findings which were in complete contradiction to that record." Defendants accordingly urge us to overturn the factual findings of the trial court.
When we review a judgment entered in a non-jury trial, we will not disturb the factual findings of the trial judge if those findings are supported by substantial, credible evidence in the record. Monogram Credit Card Bank of Georgia v. Tennesen, 390 N.J. Super. 123, 126 (App. Div. 2007). The deference to a trial judge's factual findings that we discussed in Monogram Credit, and in many similar cases before it, applies to circumstances where the trial judge heard the testimony of witnesses, evaluated their credibility, determined which witnesses were credible, and thereafter made factual findings. Ibid. That, however, is not this case. Here, the trial judge made no factual findings, but was instead presented with a set of stipulated facts, which were binding. Under such circumstances, the deference that would ordinarily be afforded a trial judge's findings under Monogram Credit is not due here.
Our review of the judge's findings of fact demonstrates that the judge's findings conflicted with the stipulated facts that were presented to him. For example, the judge stated that "Allen Longstreet knew exactly what he was doing, he knew exactly what he was getting" when he signed the Abbe Block promissory note and mortgage. That finding, however, directly contradicts stipulated facts number thirteen, twenty-three, twenty-eight and thirty-one which, taken together, specify that: Longstreet never heard the name Abbe Block until he was sued in this matter; Block did not allow him to read the note or mortgage and instead insisted that Longstreet "sign here now"; Longstreet did not know that the mortgage was at an interest rate of fourteen percent when he signed the documents; Block never discussed the terms of the mortgage or the note with Longstreet; Block never advised Longstreet to seek other counsel to review the mortgage or note; and as far as Longstreet knew, he owed Block & Sobel the money, not Abbe Block. Additionally, the judge's finding that Ryan and Alica Longstreet knew that the house was in foreclosure and that a sheriff's sale was pending is contradicted by stipulated fact number twenty-nine, which provides that Ryan and Alicia Longstreet "had no knowledge of the mortgage or note or what was going on with the house and the sheriff's sale." We give no deference to the judge's fact-finding because he was bound by the stipulated facts, from which he impermissibly deviated.
Nonetheless, we affirm judgments and not reasons. State v. Maples, 346 N.J. Super. 408, 417 (App. Div. 2002). If the judge reached a proper legal conclusion, we will affirm, even if the factual findings of a judge are incorrect. However, our review of a "trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Accordingly, our review of the judge's findings on the law, like our review of his factual findings, is de novo.
We begin with an analysis of the trial judge's legal conclusion that Ryan and Alicia Longstreet were liable for repayment of the Block note under a theory of unjust enrichment. To establish unjust enrichment: a plaintiff must show both that defendant received a benefit and that retention of that benefit without payment would be unjust. The unjust enrichment doctrine requires that plaintiff show that it expected remuneration from the defendant at the time it performed or conferred a benefit on defendant and that the failure of remuneration enriched defendant beyond its contractual rights. [VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 554 (1994) (citations omitted).]
Unquestionably, both Ryan and Alicia Longstreet benefited from the Block loan. Ryan benefited because the Block loan extinguished her liability on the Chase mortgage. Alicia Longstreet benefited because the Block loan represented an infusion of $119,831 into the marital estate. That they benefited from the loan is not, however, sufficient. Abbe Block, Inc. had no right to expect repayment from either Ryan or Alicia Longstreet because neither one was an obligor on either the promissory note or the mortgage documents. Block's loan was made only to Allen Longstreet, not to Alicia Longstreet or to Ryan.
Because none of the stipulated facts demonstrate that plaintiff "expected remuneration" from Ryan or Alicia Longstreet at the time the documents were executed, VRG Corp., supra, 135 N.J. at 554, the judge's reliance on the doctrine of unjust enrichment when he entered judgment against them was misplaced. Accordingly, we reverse the judgment entered against both Alicia Longstreet and Ryan.
We turn next to the arguments raised by Longstreet. Although he presents five arguments in support of his claim that the trial court erred when it held him liable under an express contract theory, our conclusion as to one of those five makes it unnecessary to resolve the other four. In particular, we agree with Longstreet that the contract is an adhesion contract and is unenforceable.
As the stipulated facts demonstrate, Block presented the note and mortgage to Longstreet literally moments before the sheriff's sale was about to begin, leaving Longstreet no option but to sign the documents Block had presented. Stipulated fact number twenty-three provides, "Mr. Block did not allow Allen Longstreet to read the note or mortgage and [Block] just said: 'sign here now.'" "Allen Longstreet did not know that the mortgage was at an interest rate of 14% because Allen Longstreet did not read anything as he was rushing to get to the sheriff's office before the house was lost."
Moreover, stipulated fact number twenty-eight provides: "Mr. Block never discussed the terms of the mortgage or note with Allen Longstreet," nor did he ever "advise Allen Longstreet to seek other counsel to review the mortgage or note. Fearful of losing his home, Allen Longstreet signed these documents as directed by Michael Block, Esquire." Under these circumstances, we agree with Longstreet that the circumstances surrounding his execution of the documents satisfy the elements of a contract of adhesion.
"[T]he essential nature of a contract of adhesion is that it is presented on a take-it-or-leave-it basis, commonly in a standardized printed form, without opportunity for the 'adhering' party to negotiate except perhaps on a few particulars." Muhammad v. County Bank of Rehoboth Beach, 189 N.J. 1, 15 (2006), cert. denied, __ U.S. __, 127 S.Ct. 2032, 167 L.Ed. 2d 763 (2007). The Court has observed that "[t]he determination that a contract is one of adhesion . . . 'is the beginning, not the end, of the inquiry' into whether a contract, or any specific term therein should be deemed unenforceable based on policy considerations." Ibid. In determining whether an adhesion contract is unconscionable and thus unenforceable, the Court has identified four factors to consider:
[(1)] the subject matter of the contract, [(2)] the parties' relative bargaining positions, [(3)] the degree of economic compulsion motivating the "adhering" party, and [(4)] the public interests affected by the contract. [Delta Funding Corp. v. Harris, 189 N.J. 28, 40 (2006).]
Applying the Delta Funding criteria, we conclude that the contract was presented to Longstreet on a take-it-or-leave-it basis and gave Longstreet no opportunity to negotiate the terms. Applying the first Delta Funding factor, we conclude that the "subject matter of the contract" concerned one of the most significant aspects of a person's life, namely his home. For that reason, Longstreet viewed the documents presented to him by Block as being critically important. He knew that unless he signed the documents Block directed him to sign, he and Alicia would lose their home. Indeed, it is difficult to conceive of any financial transaction more significant than that.
As to the second Delta Funding factor, the bargaining power between Longstreet and Block was markedly disparate. As Longstreet's attorney for this matter, Block was his fiduciary. Given this relationship, it stands to reason that Longstreet placed his utmost trust in Block to avoid foreclosure of his home, and he trusted that Block's instructions to him were in his best interest. The very nature of a fiduciary relationship creates a significant imbalance of power. See generally In re Gavel, 22 N.J. 248 (1956). Accordingly, we have no difficulty concluding that the fiduciary relationship between Block and Longstreet, and the dire circumstances that Block created by waiting until the eleventh hour to call Longstreet into his office, together created an extreme imbalance in bargaining power. The second Delta Funding factor is thus satisfied.
Third, the degree of economic compulsion driving Longstreet could not have been greater. The possible loss of a home creates a dire economic circumstance because of both the loss of all accumulated equity in the home and the likelihood of permanent damage to one's credit rating if the mortgage is foreclosed. Additionally, the timing of this contract left Longstreet with no other financial alternative. Because the transaction was at the eleventh hour, Longstreet could not have secured financing elsewhere, sought advice from a different attorney, or addressed the foreclosure at a later date. Moreover, it was through no fault of Longstreet that this transaction occurred as late as it did. He had no prior knowledge that the property was going to be sold at sheriff's sale on July 22, 2002, because Block delayed telling him until that day. The third Delta Funding factor is satisfied.
Fourth, if this contract is enforced, the public interest will be greatly affected because Block will be rewarded for conduct that may well constitute malpractice and unethical conduct. Block potentially violated multiple provisions of the Rules of Professional Conduct (RPC).*fn3 The "strongest influences of public policy require strict adherence" to an attorney's duty of fidelity and good faith. Petit-Clair v. Nelson, 344 N.J. Super. 538, 542 (App. Div. 2001)(quoting In re Nichols, 95 N.J. 131 (1984)). Unquestionably, it is in the public interest to protect individuals from overreaching by lawyers. The fourth Delta Funding factor is satisfied.
Accordingly, based on the Delta Funding factors, we conclude that the trial judge erred when he rejected Longstreet's argument that the promissory note and mortgage were void because they were a contract of adhesion.*fn4 Longstreet also urges us to void the contract because loans made by an attorney to a client are presumptively invalid. P & M Enters. v. Murray, 293 N.J. Super. 310, 312 (App. Div. 1996). We decline to decide this case on that basis, however, because the loan here was not between Michael Block and Longstreet, but instead between Block's wife and Longstreet. We recognize the possibility that Abbe Block, Inc. was merely the alter-ego of Michael Block, and was acting as a shield to protect him from liability and to circumvent the numerous reported opinions that would make such a loan presumptively invalid. The parties, however, have not briefed the issue of whether Abbe Block was her husband's alter-ego, nor have they briefed the issue of whether the corporate veil should be pierced. We do not address those issues because our determination that the contract was a contract of adhesion makes an analysis of those issues unnecessary.
On a similar note, although the parties have not raised the issue, it is possible that Abbe Block, Inc. did not comply with mortgage lending regulations. The record is silent on whether she complied with those regulations; accordingly, we likewise decline to address that issue.
We turn now to a determination of the remedy. When a contract is unconscionable, courts may refuse to enforce the contract in part or in whole. Muhammad, supra, 189 N.J. at 15. When a loan obligation is unenforceable from its inception, the lender is entitled only to the return of the principal and the cost of the money lent. P & M Enters. v. Murray, supra, 293 N.J. Super. at 312. Applying that principle here, we determine that Abbe Block is entitled to the return only of the principal amount of the loan, $119,831. Ibid. Longstreet is not liable for payment of the attorney's fees or contractual interest of 14% per annum that the trial judge applied. Ibid.
Longstreet is, however, obligated to pay pre- and post-judgment interest as provided for in the Rules of Court. Rule 4:42-11(a)(iii) and the accompanying Publisher's Note specify the applicable pre-judgment interest rate. Subsection (b) of that Rule provides for pre-judgment interest only in tort actions; however, it is clear that although the Rule addresses only tort actions, interest may run on contract claims as well. See Bak-A-Lum Corp. of Am. v. Alcoa Bldg. Prods., Inc., 69 N.J. 123, 131 (1976).
Affirmed in part, reversed in part and modified. Remanded for the entry of an amended judgment against only Allen Longstreet, in the amount of $119,831, plus pre- and post-judgment interest as we have specified above.