August 5, 2009
SCOTT SIEGELMAN, PLAINTIFF-RESPONDENT,
ELIYAHU WEINSTEIN, A/K/A ELI WEINSTEIN, DEFENDANT-APPELLANT.
On appeal from Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-307-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted June 2, 2009
Before Judges Collester and Graves.
In this contract action, defendant Eliyahu Weinstein appeals from a final judgment entered in favor of plaintiff Scott Siegelman on August 27, 2008, in the amount of $161,500 with prejudgment interest from March 13, 2006. Defendant's primary argument is that there was no default because the course of dealing between the parties demonstrated that plaintiff tolerated and accepted late payments from defendant.
On December 31, 2004, the parties executed a handwritten promissory note in which defendant acknowledged a debt to plaintiff in the amount of $1,061,500. On January 19, 2005, plaintiff filed a complaint in part based on breach of contract. Defendant had signed two demand notes. The first for $1,121,468.28 and the second, after a partial payment, for $1,061,500. On March 13, 2006, the parties entered into a settlement agreement that required defendant to pay plaintiff the total sum of $900,000. Defendant agreed to pay $100,000 on March 13, 2006, $250,000 by April 13, 2006, and the balance of $550,000 in monthly installments over two years, beginning on May 13, 2006. To secure the payments, defendant agreed to give plaintiff a mortgage on property he owned. The settlement agreement provided: "[Plaintiff] shall have right to enter a default judgment against Defendant of any payment required within this settlement with a 5 day grace period only." It also provided: "In event of default Plaintiff may enter Judgment in the amount of [$]1,061,500, less any payments made to date of default, plus interest at judgment rate." Defendant was late making the initial payment of $100,000, as well as the subsequent payment of $250,000. On April 21, 2006, plaintiff moved to enter default judgment, and on May 12, 2006, default judgment was entered.
On May 16, 2006, defendant moved to vacate the default judgment. The judge declined to enforce the settlement agreement finding "substantial compliance" by the defendant, and suggested that plaintiff should receive $25,000 as compensation for expenses. As a result, on June 23, 2006, the parties entered into a handwritten supplemental settlement agreement which required defendant to pay the $250,000 that was due on April 13, 2006, $24,376.34 that was due on May 13, 2006, and $24,376.34 that was due on June 13, 2006. In addition, defendant paid plaintiff the sum of $25,000 as compensation for "late payments and legal expenses." Defendant also gave plaintiff a deed to some property, and, in the event of a default, defendant authorized plaintiff to sell the property in a commercially reasonable manner if defendant did not make the payments authorized in the prior agreement at the end of the five-day grace period and to retain the outstanding balance owed by defendant. The agreement was amended by court order on August 25, 2006, allowing as substitution of collateral seven mortgages and deeds with the total value of $1.5 million.
After the parties entered into the supplemental settlement agreement, on numerous occasions plaintiff accepted late payments from defendant. When payments were not received for July 2007, October 2007 and November 2007, plaintiff's counsel sent defendant's counsel fax cover sheets on November 14, 2007, with messages stating that if the respective payment was not received by a certain date, plaintiff would "proceed to his available remedies without further notice." Plaintiff did not specifically declare defendant in default under the parties' agreement, and he did not proceed to any remedies available to him under those agreements. Rather, he accepted defendant's late payments.
Notwithstanding plaintiff's November 14, 2007, notice, defendant made no payment for November or December 2007. Nonetheless, plaintiff did not move to enter default judgment. The parties entered into another agreement whereby defendant was to pay plaintiff a $7,500 late fee together with November and December 2007 payments in order to cure the default.
The November and December 2007 payments, plus the $7,500 late fee, were sent via overnight mail on January 4, 2008, and by letter dated January 4, 2008, defendant advised plaintiff's counsel: "The January 2008 check shall be paid to your Client within the time set forth on the Stipulation of Settlement." However, the January 2008 payment was not received by January 18, 2008. As a result, on January 22, 2008, plaintiff, without notice to defendant, had his attorney acting as the escrow agent remove two of the deeds from escrow and record them. Thereafter, on January 25, 2008, plaintiff accepted defendant's January 2008 payment.
On February 8, 2008, defendant filed an order to show cause seeking: (i) invalidation of the transfer of real property placed as collateral; (ii) payment by plaintiff of all costs and fees associated with filings necessary to invalidate the deeds filed; (iii) imposition of sanctions against plaintiff for his frivolous and baseless actions; and (iv) imposition of sanctions against the escrow agent for breach of duty. On February 18, 2008, the February 2008 monthly settlement payment was delivered to plaintiff, but plaintiff claimed there were insufficient funds in defendant's account so that he did not deposit the check.
On February 20, 2008, plaintiff filed his response to defendant's order to show cause as well as an application to enter judgment by default based on late payments by defendant. While both applications were pending before the court, the plaintiff accepted payments from defendant for February, March, April, May and June 2008. When the matter was heard, defendant had paid $900,000 under the settlement agreement.
Because the January payment was not received until January 25, 2008, the court ruled that there was a default by defendant and entered final judgment for $161,500. The court explained:
This settlement was reached where the plaintiff agreed to discount the amount of money which [he] felt [he] was entitled to by $160,000. That discount came with terms and conditions.
One of the requirements was that if the defendant was late, the plaintiff would move to enter a default and seek the full amount of the payment.
The Court doesn't find that the fact that the other payments were made somehow vacates the agreement or that provision of the agreement. The Court recognizes that payments have been made for February, March, April, May. The Court, however, is restrained to interpret and uphold the agreement. And the agreement requires that the full amount of money be paid if there is a default.
The Court finds as a matter of law that there has been a default. The Court enters judgment on behalf of the plaintiff for the full amount of the settlement, which is . . . . [PLAINTIFF'S COUNSEL]: The additional amount is $161,500.
THE COURT: So I will do this.
Defendant argues the following on appeal: (1) the parties' course of dealing under the settlement agreements precluded a finding of default; (2) any default was cured by plaintiff's depositing and cashing of the January 2008 payment; (3) the default remedy requiring defendant to pay an additional $161,500 was an impermissible penalty; and (4) plaintiff was not justified in declaring defendant in default as the result of a late payment because the settlement agreements did not specifically make time of the essence. Defendant does not challenge the court's finding that payments were due on the thirteenth of each month.
We agree with the trial court's ruling that defendant defaulted under the parties' settlement agreements and plaintiff was thereby entitled to the default remedy.
Defendant first argues that because the settlement agreements are governed by the principles of contract law, the trial judge erred in failing to consider the parties' course of dealing and that this course of dealing with late payments precluded a finding of default based on the late payment in January 2008. We find the argument unpersuasive.
A settlement agreement between parties to a lawsuit is a contract generally governed by contract law. Thompson v. City of Atl. City, 190 N.J. 359, 379 (2007); Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). The polestar of contract construction is to discover the intention of the parties as revealed by the language used by them. Jacobs v. Great Pac. Century Corp., 104 N.J. 580, 582 (1986). To this end, the language used must be interpreted "'in accord with justice and common sense.'" Krosnowski v. Krosnowski, 22 N.J. 376, 386-87 (1956) (quoting Clark v. State St. Trust Co., 270 Mass. 140 (1930)). To discover the intention of the parties, and to determine whether a contract is ambiguous, courts may consider extrinsic evidence offered in support of conflicting interpretations. Teamsters Inds. Employees Welfare Fund v. Rolls-Royce Motor Cars., Inc., 989 F.2d 132, 135 (3d Cir. 1993). Such evidence may include the structure of the contract, the bargaining history, and the conduct of the parties that reflects their understanding of the contract's meaning. Ibid. "There is no requirement that an agreement be ambiguous before evidence of a course of dealing can be shown[.]" Restatement (Second) of Contracts § 223 Comment b (1981).
However, "where the terms of a contract are clear and unambiguous there is no room for interpretation or construction and the courts must enforce those terms as written." Karl's Sales & Serv., Inc. v. Gimbel Bros., Inc., 249 N.J. Super. 487, 493 (App. Div.), certif. denied, 127 N.J. 548 (1991). Although courts may use course of performance and course of dealing in interpreting contract terms, "express terms are given greater weight than course of performance [and] course of dealing." Restatement (Second) of Contracts § 203(b) (1981). Here, both settlement agreements specifically state that defendant was provided with a five-day grace period and that plaintiff could record the deeds given by defendant if any of the monthly payments were not received by the end of the grace period. Defendant defaulted by failing to make the monthly payment by the eighteenth of the month, and under the express terms of the parties' agreement, no additional notice to defendant was required before plaintiff could record the deeds.
Further, defendant's argument that it was the parties' course of dealing for plaintiff to accept late payments is not supported by the facts. Plaintiff was not tolerant of the defendant's late payments, for he entered default judgments against defendant following late payments. Further, on two occasions, June 2006 and December 2007, plaintiff only accepted the late payments after defendant agreed to pay substantial late fees in addition to the regular monthly payment and promised that future payments would be timely. After defendant defaulted the very next month, January 2008, plaintiff availed himself of the default remedies set forth in the parties' agreement.
Accordingly, we find that the trial judge properly found that defendant defaulted on the settlement agreement, and properly rejected the parties' course of dealing to alter or amend the express terms of the agreements.
Defendant next argues his January 2008 default was cured by plaintiff's accepting and depositing his payment later that month. We disagree. If defendant's defaults were cured by his late payments and plaintiff's acceptance of those payments, defendant would be unilaterally altering the parties' agreements by making the agreed upon default provisions meaningless. Under the agreements defendant's failure to make the payments as required in the settlement agreements constituted a default. The mere depositing or cashing of the January 2008 payment did not cure defendant's default, for there was no proof presented of an agreement or understanding that defendant's late payment would cure his default. That payment simply served to reduce that debt.
Defendant next argues that the default remedy in the settlement agreement requiring payment of an additional $161,500 is an impermissible penalty. The argument is without merit. Defendant executed a promissory note establishing his indebtedness to plaintiff for $1,061,500. After plaintiff filed suit, the parties negotiated a settlement whereby plaintiff agreed to discount the amount of money owed to him, provided certain terms and conditions were met. Defendant failed to satisfy the specified terms and conditions agreed upon, and therefore, defendant was required to repay to plaintiff the original amount he agreed to pay and what he acknowledged was owed to plaintiff.
Generally, a provision in an agreement granting the lender the option to accelerate the maturity of the debt upon a default in the payment of principal, is a legitimate contractual stipulation. Eisen v. Kostakos, 116 N.J. Super. 358, 366 (App. Div. 1971). See also Investors Sav. & Loan Ass'n v. Ganz, 174 N.J. Super. 356, 360 (Ch. Div. 1980) ("Where an acceleration clause is express and certain in its terms, such a clause requiring the payment of the entire balance due on the mortgage upon default in the performance of any covenant or condition of the mortgage is held to be legitimate contractual obligation for credit on condition and not a penalty or forfeiture clause."); Poydan, Inc. v. Agia Kiriaki, Inc., 130 N.J. Super. 141, 150 (Ch. Div. 1974) ("The acceleration of a mortgage debt by reason of the failure of the mortgagor to perform the terms of the contract is not a penalty or forfeiture disfavored in the law or in equity.").
Defendant failed to show that the default provision in the settlement agreement is unreasonable or amounts to a penalty. See Wasserman's Inc. v. Township of Middletown, 137 N.J. 238, 253 (1994). Accordingly, we reject his argument.
Defendant argues that plaintiff was not justified in declaring him in default when he made a late payment because the settlement agreements did not specifically make time of the essence. This argument is unpersuasive. It is well-settled that "where no time is fixed for the performance of a contract, by implication a reasonable time was intended." Becker v. Sunrise at Elkridge, 226 N.J. Super. 119, 129 (App. Div.), certif. denied, 113 N.J. 356 (1998). However, if a contract expressly provides that time is of the essence, or if such a conclusion is necessary implied by the nature and circumstances of the contract, then "prompt performance is essential." Paradiso v. Mazejy, 3 N.J. 110, 115 (1949).
In this case, the agreements did not need to say that time was of the essence because they stated a time for payment and the consequences for not paying on time. The nature and circumstances of the parties' agreement, together with the express language of the agreement - a five-day grace period only - necessarily implied that prompt performance was essential. Ibid. Indeed, the supplemental settlement agreement specifically provided that plaintiff could record the deeds placed in escrow if any of the monthly payments were not received by the end of the grace period. No additional notice was required by plaintiff before he held defendant in default and recorded the deeds.
On the issue of damages, the trial court entered final judgment for plaintiff for $161,500, "plus interest at the judgment rate since March 13, 2006." Defendant argues the trial court erred because the amount of the final judgment does not properly credit him for all amounts paid under the settlement agreement. This argument is not supported by the facts. The total amount due plaintiff under the settlement agreement, assuming no default on the part of defendant, was $900,000. In the event of defendant's default, plaintiff was entitled to judgment for the full amount of the original debt, "[$]1,061,500, less any payments made to date." Defendant correctly states that the full principle amount due under the settlement agreement was paid. However, because he breached the settlement agreements, he was obliged to pay the additional $161,500 due. The trial court did not err in calculating defendant's credit, or the damages owed to plaintiff under the parties' agreements.
However, we hold that the trial judge was incorrect in setting March 13, 2006, the date the parties entered into the settlement agreement, as the date for accrual of prejudgment interest. The settlement agreement specifically provided for prejudgment interest: "In event of default Plaintiff may enter Judgment in the amount of [$]1,061,500, less any payments made to date of default, plus interest at judgment rate." While the settlement agreement does not specifically state that interest runs from the date of default, "[t]he equitable purpose of awarding prejudgment interest is compensatory, 'to indemnify the claimant for the loss of what the moneys due him would presumably have earned if the payment had not been delayed.'" County of Essex v. Waldman, 244 N.J. Super. 647, 667 (App. Div. 1990), certif. denied, 126 N.J. 332 (1991) (quoting Busik v. Levine, 63 N.J. 351, 358 (1973)). The law imposes a duty to pay interest from the time payment of principal is due, or from the time of the wrongful detention. Twp. of Wayne v. Ricmin, Inc., 124 N.J. Super. 509, 514 (App. Div.), certif. denied, 63 N.J. 583 (1973). Pursuant to the settlement agreement, plaintiff was not entitled to the additional $161,500 until defendant's default on January 19, 2008. There is no legal basis to award prejudgment interest prior to that time.
We affirm except for the award of prejudgment interest, which is to commence on January 19, 2008. We remand to the trial court to recalculate the interest amount and amend the judgment accordingly.
Affirmed in part. Reversed and remanded in part.
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