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P.A.Y. Commercial Holding, LLC v. Case

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


January 25, 2010

P.A.Y. COMMERCIAL HOLDING, LLC, PLAINTIFF-APPELLANT,
v.
GEORGE CASE, INDIVIDUALLY AND T/A GEORGE C'S TAVERN, DEFENDANT-RESPONDENT.

On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-2142-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted January 6, 2010

Before Judges Sabatino and J. N. Harris.

This appeal grows out of a convoluted and ultimately failed sale of a tavern. We are asked to reverse the Law Division judge who dismissed the complaint at a proof hearing because plaintiff could not prove its entitlement to a judgment to the satisfaction of the court. In a supplemental written opinion, submitted after the present appeal was filed, the judge held:

The court, having reviewed and considered the parties' written submissions, relevant law, and oral testimony and argument found that [plaintiff] P.A.Y. failed to prove by [a] preponderance of the evidence that a contract existed which entitled P.A.Y. to damages. The papers and documents themselves that were submitted lacked any resemblance to an enforceable contract, and failed on their own merit; and the testimony of the plaintiff did not prove any conduct by [defendant] Case, which would give rise to any claim even of the nature of quantum meruit. [(Emphasis added.)]

We disagree and reverse. Plaintiff is entitled to an entirely new proof hearing and shall be afforded an opportunity to prove anew both liability and damages. We do not intend to presage the outcome of that proceeding and instead leave it to the Law Division to proceed appropriately.

I.

The litigation initially involved only two parties: plaintiff P.A.Y. Commercial Holding, LLC (P.A.Y.)*fn1 and defendant George Case (Case).*fn2 P.A.Y is the owner of land and a building located at 198 Liberty Street in Trenton, the address of the tavern in question. It sued Case, an individual, for more than $100,000 on contract and quasi-contract theories for failure to pay a book account, failure to pay for goods sold and delivered, quantum meruit, and breach of an account stated.*fn3

Case denied the allegations contained in P.A.Y.'s complaint and, in turn, filed a third-party complaint against Gilliepie, Inc. (Gilliepie),*fn4 a corporation, and Dennis E. Young (Young), an individual, for $7,000, which Case claimed he had loaned to the third party defendants. Case also sought "all sums that may be adjudged against Third Party Plaintiff and in favor of P.A.Y. Commercial Holding, LLC" pursuant to an additional unspecified theory.

Gilliepie and Young both answered the third-party complaint. Gilliepie filed a counterclaim against Case for breach of contract relating to the acquisition of the tavern and for breach of a month-to-month commercial lease agreement relating to 198 Liberty Street. Young filed a counterclaim against Case seeking equitable relief in the form of an order compelling Case to re-transfer Gilliepie shares of stock to Young.

Subsequently, Case failed to participate in the litigation and defaults were entered against him.*fn5 On March 11, 2009, the Law Division judge conducted the proof hearing where only Young (who was sworn) and Case (who was not sworn) addressed the court. At the conclusion of the hearing, the court stated:

This case is dismissed. I am not satisfied that the plaintiff can prove that the defendant did anything other than the plaintiff took advantage of him. The case is dismissed. Judgment for the defendant. There's no proof here that I am satisfied with. Mr. Murphy, I'm sorry. Your client was taking Mr. Case for a ride. I'm not granting a judgment against him. Mr. Young has the property, he has the liquor license, he didn't lose anything. He lost a little bit out of a bad deal that he made. Case is dismissed.

Sharing some of the same frustration noted by the Law Division judge over the quality of the written and testimonial record, we piece together the transaction as best we can. Nevertheless, we differ with the Law Division's ultimate conclusion.

Distilled to its essence, the dispute revolves around the unsuccessful attempt by Young and Case to transfer Young's tavern business to Case. As it turns out, however, the transaction involved several business entities, only one of which--P.A.Y.--was a party to and participated in the proof hearing.

In June 2004, Young was introduced to Case, who indicated an interest in acquiring the tavern that Young's business entity--Gilliepie--owned and formerly operated at 198 Liberty Street.*fn6 In order to facilitate the transfer, Case was given a stock ownership interest in Gilliepie, the corporate owner of the establishment's liquor license. Eventually, Case was given the keys to the tavern and he took possession of the business. All of this was done without the benefit of any legal advice.

According to Young, based upon information obtained from the City of Trenton regarding the transfer's requirements, the parties decided to formalize their transaction in writing. On August 11, 2004, Gilliepie and Case executed a written Management Agreement, which allowed Case to operate Gilliepie's tavern business at 198 Liberty Street. Almost three weeks later, on August 31, 2004, Gilliepie and P.A.Y. entered into a "Commercial Lease with Option Agreement," which permitted Gilliepie to occupy the 198 Liberty Street premises for a bar and tavern over a five-year term. Contemporaneously, Case signed a "Personal Guaranty" in favor of P.A.Y., by which Case individually promised to guarantee all payments due by Gilliepie to P.A.Y. pursuant to their "Commercial Lease with Option Agreement." On the same date, Case also executed a "Stock Purchase Agreement," by which he agreed to acquire Young's stock ownership interest in the Gilliepie corporation.

On October 5, 2004, Gilliepie and Case formalized the change-of-ownership transaction by executing an "Agreement of Sale" that contemplated the acquisition by Case of Gilliepie's "assets, property, business, liquor license, personal property, fixtures, equipment, good will, trade name 'George C's,' and inventory of Gilliepie located at 198 Liberty Street . . . used in connection with the operation and maintenance of the business as a bar and tavern." On the same day, P.A.Y. and non-party George C's Tavern, LLC executed a "Commercial Lease with Option Agreement," which allowed George C's Tavern, LLC to rent the 198 Liberty Street premises for a bar and tavern for an unspecified term.*fn7 Case, individually, signed another "Personal Guaranty" on October 5, 2004, which promised to "unconditionally guarantee[] to Landlord [P.A.Y.], it successors and assigns, the due and punctual payment when due, whether by acceleration or otherwise, in accordance with the terms thereof, of the rents, additional rents, costs, and all other sums payable or stated to be payable, with respect to the Commercial Lease, made by the Landlord [P.A.Y.] to Tenant [George C's Tavern, LLC], dated the 5[th] day of Oct[ober], 2004."

On October 7, 2004, George C's Tavern LLC filed an application for a person-to-person transfer of a plenary retail consumption license relating to the establishment at 198 Liberty Street. Case signed the application himself on behalf of the applicant. In December 2004, paperwork was submitted to the New Jersey Division of Taxation for a tax clearance in connection with the bulk sale of the tavern business.

At an unspecified date in 2005, Case allegedly came to Young and told Young that Case had cancer, that he had only two years to live, and that he would like to get out of the contract immediately. Young refused. Several months later, Young learned that Case had acquired another bar,*fn8 abandoning the application for a transfer of the liquor license a relating to 198 Liberty Street. Case returned the keys to the tavern to Young in April 2005.

Young testified at the proof hearing that he immediately put the tavern up for sale after he received the building's keys. He indicated that he "had a lot of bites, a lot of people wanted to buy it, but they wouldn't give me enough money down, so I rejected a lot of the offers." Eventually, in August 2007, Young received a "legitimate offer," but the record does not indicate anything more about its terms, or what Young did with this "legitimate offer." The record is also barren regarding Young's efforts on behalf of the interests that he was promoting to mitigate damages for Case's anticipatory repudiation of the contractual arrangements.

When asked how he calculated his losses, Young testified to the following:

Q: And how - - what was the breakdown?

A: The rent was $24,000 for the year. Taxes were, like [$]3,300. Insurance is [$]1,800. Electric was $416. the was [$]315. the alarm system and the phone were $655.

Q: And since June of 2004 to August of 2007 when you accepted the deposit from the new buyer, what do[] those amounts translate into?

A: I don't understand the question.

Q: How much do you say, in August 2007, did Mr. Case owe you for those - - for the rents, for the taxes.

A: Oh. Up and through that period of time? $96,862.

Q: During the period of time that you were -- that the contracts were involving Mr. Case did you have - - did you spend legal fees with regard to this matter?

A: Yes. I spent $19,100 in legal fees.

After giving Case a credit for $2,000 previously paid, Young, on behalf of plaintiff, asked for damages totaling $113,962.

Although his pleadings had been suppressed and default had been entered against him in favor of P.A.Y., Case was still permitted to make unsworn statements to the court during the proof hearing. The essence of his declarations was, "I was conned into this whole deal." Case asserted that he was victimized by Young and Young's attorney (who was not the attorney at the time of the proof hearing). Case accused them of "throwing so many papers at me." Case, who elected not to be represented by an attorney during the contracts' preparation and execution, did not deny that he had signed the documents; rather, he claimed, "I didn't even know what I was signing." After Case finished speaking, plaintiff's attorney was not afforded an opportunity to cross-examine Case.

Case stated that he took over the tavern premises and invested his own money into refurbishing the bar, kitchen, and furniture, all while waiting to no avail for the seller to obtain tax clearances to permit the consummation of the transaction. When asked by the court for a copy of any tax clearance documentation from the Division of Taxation, Young stated, "I don't have it with me." Immediately thereafter, the court declared, "This case is dismissed. I am not satisfied that the plaintiff can prove that the defendant did anything other than the plaintiff took advantage of him [defendant]."

II.

In the context of a proof hearing, the trial court is obliged to view a plaintiff's proofs indulgently, and the general practice is "to require only a prima facie case." Heimbach v. Mueller, 229 N.J. Super. 17, 20 (App. Div. 1988); see Pressler, Current N.J. Court Rules, comment 2.2.2 on R. 4:43-2 (2010). A plaintiff is nevertheless required "to furnish proof on the issue of damages as well as liability." Johnson v. Johnson, 92 N.J. Super. 457, 464 (App. Div. 1966); accord Slowinski v. Valley Nat'l Bank, 264 N.J. Super. 172, 183 (App. Div. 1993). In fact, "judgment should not ordinarily be entered without a proof hearing, although the question of what proofs are necessary is inherently within the judge's discretion." Chakravarti v. Pegasus Consult. Group, Inc., 393 N.J. Super. 203, 210 (App. Div. 2007) (citations omitted).

We will not disturb the factual findings and legal conclusions of the Law Division judge unless they are "'so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.'" Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974) (quoting Fagliarone v. Twp. of N. Bergen, 78 N.J. Super. 154, 155 (App. Div.), certif. denied, 40 N.J. 221 (1963)).

In our view, this plaintiff did establish at least a prima facie contractual entitlement to award it a judgment against Case. Although the facts and law were inartfully stated and inelegantly presented to the Law Division, P.A.Y. appeared to have an enforceable contract with Case, individually, pursuant to both the August 31, 2004 Personal Guaranty and the October 5, 2004 Personal Guaranty. There were no other writings that directly linked plaintiff to defendant, and the judge's conclusion that "P.A.Y. failed to prove by [a] preponderance of the evidence that a contract existed which entitled P.A.Y. to damages" is understandable, because the existence of the guaranties was not specifically identified by plaintiff as a basis for liability. Nevertheless, and notwithstanding the difficulty engendered by plaintiff's presentation, this conclusion was erroneous.

We do agree with the Law Division that Young "failed to explain in any detail on the record the inter-relationship of the property owner, the holder of the liquor license, and the several entities involved." Yet, this need not distract the court or cause it to deny a judgment; rather, the Law Division should have demanded a fuller explanation from the parties to answer its unresolved questions. If some element of plaintiff's prima facie case were missing, judgment should be denied. Heimbach v. Mueller, supra, 229 N.J. Super. at 23. Competent evidence of damages must be presented. Id. at 26. But if the court determined that there had been a failure of proof, it should "point out the omissions and give plaintiff the opportunity to remedy them." Id. at 27.

Moreover, to the extent that the Law Division relied upon Case's unsworn in-court statements in dismissing plaintiff's claims, this was done in error. We have no doubt that the Law Division was entitled to swear in Case for testimony, expose him to direct and cross-examination as part of the proof proceeding, and then--if found credible--rely upon the evidence as part of fact-finding. See Douglas v. Harris, 35 N.J. 270, 276-77 (1961); Reilly v. Perehinys, 33 N.J. Super. 69, 72-74 (App. Div. 1954). However, that was not accomplished. Case was not sworn in, was not made available for cross-examination, and yet was permitted to assert the affirmative defense of fraud where his answer had been suppressed and default entered against him.

We also believe that the Law Division may have misread the two guaranties. It stated, "[n]ext, a Personal Guaranty was signed [on August 31, 2004,] between P.A.Y. and Gill[ie]pie, Inc., stating that Gill[ie]pie, Inc., would personally guarantee all rent payments to P.A.Y., the owner and landlord of the building in which the tavern operates." It later stated, "[f]ollowing the execution of the proposed sale agreement, a Personal Guaranty was signed on the same day, October 5, 2004, indicating that George C's Tavern, LLC would be held to unconditionally guarantee that the rent payments would be made to P.A.Y." As we read both guaranties, they were clearly the unconditional promise of Case--not that of Gilliepie or George C's Tavern LLC--to answer for the unpaid obligations of those principals. Accordingly, P.A.Y. has a right to actualize its rights under either or both of those guaranty contracts and attempt to obtain judgment upon proper proof of damages*fn9 against Case.

Accordingly, we reverse the dismissal by the Law Division. The matter is remanded for further proceedings in accordance with this opinion. We do not retain jurisdiction.


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