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Days Inn Worldwide, Inc. v. Satyam Shivam Associates

August 12, 2008


On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-1938-05.

Per curiam.


Submitted April 28, 2008

Before Judges Gilroy and Baxter.

This is a breach of contract action, arising out of defendant's Satyam Shivan Associates, LLC, a limited liability company d/b/a Days Inn Kingsland (SSA), default under a guest lodge licensing agreement (Agreement) with plaintiff Days Inn Worldwide, Inc. SSA and the individual defendant guarantors of the Agreement, Manish Saraswat, Mahesh C. Saraswat, and Manju Saraswat (collectively, the defendants), appeal from the June 8, 2007 order of the Law Division, which granted plaintiff partial summary judgment in the amount of $726,005.55.*fn1 We affirm in part; reverse in part; and remand the matter to the trial court for further proceedings consistent with this opinion.

On February 16, 1998, plaintiff entered into the Agreement with SSA for the operation of a Days Inn guest lodging facility located in Kingsland, Georgia (the Facility) for a term of fifteen years. The Agreement required SSA to periodically pay plaintiff "recurring fees," which primarily consisted of royalty fees and basic reservation system user fees. The royalty fee is equal to 6.5% of the gross room revenues earned at the Facility, and the basic reservation system user fee is equal to 2.3% of gross room revenues. SSA was required to report the amount of gross room revenue to plaintiff.

Pursuant to the Agreement, SSA agreed to maintain accurate financial information, including books, records, and accounts, relating to the gross room revenues of the Facility and agreed to allow plaintiff to examine and audit the accounts. Under Section 11.4 of the Agreement, plaintiff could suspend the Facility from its reservation system for any default under the Agreement, although during such suspension, all reservation fees would continue to accrue.

Section 11.2 of the Agreement permitted plaintiff, on notice to SSA, to terminate the Agreement, for various reasons: including SSA's (1) failure to pay amounts due under the Agreement; (2) failure to remedy any other default of its obligations or warranties under the Agreement within thirty (30) days after receipt of written notice specifying one or more defaults under the Agreement; and (3) receipt of two or more notices of default under the Agreement in any one-year period, whether or not the defaults were cured.

Pursuant to Section 11.2, SSA agreed that in the event of a termination of the Agreement, it would pay liquidated damages to plaintiff in an amount not less than the product of $2,000 multiplied by the number of guest rooms at the Facility.

Interest would be payable on any past due amounts at the rate of 1.5% per month, or the maximum rate permitted by law, whichever is less. Under Section 17.4, the parties agreed that if either party instituted legal proceedings to enforce its rights under the Agreement, the non-prevailing party would "pay all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party to enforce the Agreement or collect amounts owed under this Agreement."

On January 26, 2004, plaintiff and SSA entered into an Addendum to the Agreement for Satellite Connectivity Services (Addendum). Section 13(a) of the Addendum provided that plaintiff could terminate the Addendum if SSA defaulted under the Agreement. Section 13(c) of the Addendum provided that in the event of termination of the Addendum, SSA would pay liquidated damages to plaintiff in the amount of $1,000 within ten days following the date of termination.

Defendants Manish Saraswat, Mahesh C. Saraswat, and Manju Saraswat, jointly and severally, guaranteed SSA's obligations under the Agreement (the Guaranty). Pursuant to the terms of the Guaranty, the individual defendants agreed that on SSA's default, they would immediately make all payments and perform all other obligations required under the Agreement.

SSA failed to properly report the gross room revenues, and repeatedly failed to timely pay the recurring fees as required by the Agreement. On October 11, 2004, plaintiff conducted an audit of the Facility's accounts. On November 11, 2004, plaintiff sent SSA a letter advising that an audit assessment of $234,013.03 was due because of discrepancies revealed during the audit, that is, "differences between revenues transmitted through [plaintiff's reservation system] and the amounts reported to [plaintiff]. By letters dated February 9, 2005, July 22, 2005, and December 1, 2005, plaintiff advised SSA that (1) it was in breach of the Agreement for failing to pay the recurring fees, (2) it had thirty days within which to cure the default, and (3) if the default was not cured, then the Agreement might be terminated. Defendants failed to cure the default.

On March 15, 2006, plaintiff sent defendants a letter, terminating the Agreement and Addendum, as "a result of your failure to cure your default under the Agreement, due to your failure to meet your financial obligations." The letter further advised defendants that they were to: 1) immediately discontinue the use of plaintiff's trade name, service mark, signs, and advertisements, indicating that the guest lodge facility operated as a Days Inn; 2) pay plaintiff $241,000 liquidated damages for premature termination of the Agreement and Addendum; and 3) pay plaintiff all outstanding recurring fees through the date of termination, which, as of March 8, 2006, was estimated at $340,092.10. Defendants failed to pay the amounts due.

On July 6, 2005, plaintiff filed its complaint, seeking monetary and equitable relief alleging defendants defaulted under the Agreement, the Addendum, and the Guaranty. On March 27, 2006, the trial court entered default judgment against defendants in the amount of $341,440.83, representing $336,299.93 in ...

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