Opinion
FBTCV156052393S
04-03-2017
Zuklie Investment Firm, LLC v. JDMN, LLC et al
UNPUBLISHED OPINION
Filed April 4, 2017
MEMORANDUM OF DECISION PROCEDURAL BACKGROUND AND FINDINGS OF FACT
Alfred J. Jennings, Jr., Judge Trial Referee.
Zuklie Investment Firm, LLC (" Plaintiff" or " Zuklie") alleges in its First Count of the Amended Complaint that Defendant JDMN, LLC (" JDMN") breached its contract dated December 22, 2014, to purchase from the Plaintiff all of the assets of a bar and grill in the town of Stratford known as McCoy's Pub a/k/a McCoy's Irish Pub (the " Agreement") by failing to execute and deliver a note to the Plaintiff in the amount of $50,000, and by failing to pay that sum to the Plaintiff as required by the Agreement. The Second Count against the Defendant Jennifer Ferranti (" Ferranti") alleges that she defaulted under the terms of a promissory note which she executed in favor of the Plaintiff in the amount of $50,000, with interest, by failing to make the June 2015 payment and all subsequent payments called for therein, resulting in Plaintiff's acceleration of the debt. Plaintiff seeks money damages, interest, collection costs, attorneys fees, and costs of suit.
Defendants have filed an Answer, Special Defenses, and Counterclaim in which they deny liability to the Plaintiff as alleged in the Amended Complaint, and plead four special defenses to the First Count and one Special Defense to the Second Count. The special defenses to the First Count are (1) that the provision of the Agreement that required JDMN to execute a $50,000 promissory note to the Plaintiff had been waived by Plaintiff's acceptance at the closing of a $50,000 promissory note signed by defendant Jennifer Ferranti; (2) that the Agreement was expressly contingent on Plaintiff's landlord and JDMN entering into a lease of the premises for a term not less than five years with two five-year renewal options, but the lease entered into provided for a five-year term with only one renewal option which constituted a failure of contingency and a failure of consideration excusing payment of the unpaid balance of the promissory note; and (3) that Plaintiff had breached certain express or implied representations and warranties in the Agreement made to JDMN that the equipment and assets included in the sale would be at the time of closing free of defects, in good condition and repair and working order, which breaches of warranty excuse JDMN's performance under the Agreement; and (4) that, in addition to the breaches of express warranties alleged in No. 3, the plaintiff also breached the implied warranty of fitness for a particular purpose in violation of Conn. Gen. Stat. § 42a-2-315, which breaches of warranty excuse JDMN's performance under the Agreement. The Special Defense to the Second Count against Ferranti is that Ferranti was not obliged by the Contract to execute the $50,000 promissory note to the Plaintiff and that she not receive any consideration from the Plaintiff in exchange for executing the Note. Defendant's JDMN's Counterclaim alleges breaches of express warranty (First Count) and implied warranty of fitness for a particular purpose (Second Count) by the Plaintiff as to the representations and warranties made in the Agreement that the equipment and assets included in the sale would be at the time of closing free of defects, in good condition and repair and working order, causing economic damage to defendant JDMN, LLC.
Plaintiff has pleaded two special defenses to the Counterclaim: failure to give notice of alleged defects within a reasonable time, and that the plaintiff would not have sold the business to JDMC unless Jennifer Ferranti had agreed to execute the $50,000 note to the plaintiff. The case was tried to the undersigned as the court sitting without a jury on September 27 and 28, 2016. All parties were represented by counsel. Transcripts of the trial have been presented along with briefs of both parties. This Memorandum of decision is the court's decision of the case.
Findings of Fact
The court finds that the following facts have been proved by a preponderance of the evidence by the party having the burden of proof:
1. The plaintiff Zuklie Investment Firm, LLC operated a bar and grill known as McCoy's Pub a/k/a McCoy's Irish Pub at leased premises at 2399 Main Street Stratford, CT from about May of 2011 until about June of 2014. The landlord was Jarvis Brothers LLC.
2. Shortly after the business was closed it was listed for sale, and at some point the Plaintiff through its member Glenn Zulkie entered into discussions with defendant JDMN, LLC through its sole member Jennifer Ferranti to purchase the business. Those discussions led to a written agreement dated December 22, 2014 (the " Agreement, " Pl. Ex. 1) between plaintiff Zulkie Investment Firm LLC as seller and defendant JDMN, LLC as buyer of all of the assets of the business including all assets of the restaurant business located at 2399 Main Street, Stratford, Connecticut including all of the equipment, machinery, property, furniture, fixtures, leasehold improvement, small wares and all other items of personal property of every kind or nature, tangible or intangible owned by seller which are listed in the Schedule to Section 1.1 to the Agreement together with any and all warranties and/or guarantees which the seller may possess with respect to such items. The only schedule to the Agreement lists 74 items of equipment, appliances, kitchenware, glassware or other items of personal property (some being multiple items of a set). The Agreement was signed by Plaintiff and by Defendant JDMN, LLC on December 22, 2014.
The only attachment to the Agreement is a 3 1/2-page list of equipment entitled " Schedule A." The court finds that Schedule A is the same list as " Schedule to Section 1.1."
3. The total purchase price under The Agreement is $120,000 payable to Seller by Buyer JDMN as follows: $12,000 earnest money payable by Buyer prior to the date of the Agreement (which was also the closing date); $50,000 by Note and Security Agreement on all assets contained in Schedule to Section 1.1, attached thereto; and $58,000 by bank check upon the closing of title. It is undisputed that JDMN paid the $12,000 earnest money at or before the December 22, 2014 closing of title, and paid the $58,000 item at the closing of title.
4. At the closing of title on December 22, 2014, at which both parties were present represented by counsel, the Plaintiff presented a $50,000 Promissory Note (Pl. Ex. 2) payable to the Plaintiff for the individual signature of Jennifer Ferranti. Jennifer Ferranti voluntarily signed the Note and delivered it to the Plaintiff who accepted it. There was no demand on request at closing or any time thereafter that Defendant JDMN sign any promissory note.
5. The other closing documents consisted of: (1) a Bill of Sale from Plaintiff to Defendant JDMN dated December 22, 2014 (Def. Ex A) conveying ownership of all the personal property listed on Schedule A thereto (which is identical to Schedule A to the Agreement) and also all inventories, general stores, and spare parts, the right to use Seller's trade name and telephone number, warranties and guaranties from suppliers to the extent assignable, all transferable governmental licenses and permits, any rights in and to the lease and occupancy of 2399 Main Street, and all other tangible property owned by Seller at the Premises; and (2) a Security Agreement dated December 22, 2014 from JDMN to Plaintiff (Pl. Ex 5) giving Plaintiff a security interest in all equipment, machinery, property, furniture, fixtures, leasehold improvements, small wares, and all other items of personal property of every kind or nature, tangible or intangible owned by JDMN at the business. The Security Agreement describes the asset sale as a " financing transaction" for JDMN's purchase of the business and makes reference to " this Security Agreement and/or Note" but does not define or identify the " Note."
6. The Agreement contains a provision at Section 1.2 that " This Agreement is contingent upon the Seller's Landlord and the Buyer entering into a Lease Agreement for the Premises for a term not less than five years with two five-year options and a rental rate approved by the Buyer." The Buyer, JDMN, LLC, d/b/a Nikki's Bar and Grill (JDMN's trade name for the bar and grill) and the Landlord Jarvis Brothers, LLC had entered into a Lease dated December 1, 2014 (Def. Ex. B) with a five-year term plus one five-year option term. Defendant JDMN went through with the closing of title and paid $70,000 of the $120,000 purchase price without mentioning or attempting to invoke the Section 1.2 contingency.
7. On December 16, 2014, approximately six days prior to the closing of title, defendant JDMN had borrowed $20,000 from IP Products, LLC to use as part of the purchase price for McCoy's Bar and Grill from the Plaintiff. JDMN signed a $20,000 promissory note to IP Products secured by a " Collateral Assignment of Lease" from JDMN to IP Products granting to IP Products the right to take possession of and assume JDMN's rights under the December 1, 2014 Lease between JDMN and the landlord Jarvis Brothers, LLC " together with all fixtures, stock, supplies, and equipment. located therein, " in the event of JDMN'S default under the $20,000 promissory note. Ms. Ferranti gave testimony that the Collateral Assignment to IP Products was " on the closing table" on December 22, 2014 but that she " didn't know" if Mr. Glenn Zulkie (principal of Plaintiff) had seen it. She answered " I believe so" when asked if Plaintiff's lawyer had seen the document. Then, in response to a leading question asked by her attorney. " Okay, So it was disclosed at the closing, right? It was disclosed at the closing?" She answered " Yes" (Tr. 9/28/16, 44-45). Mr. Zulkie, who had testified prior to Ms. Ferranti) was not asked if he was aware of the Collateral Assignment to IP Products. The court finds that Ms. Ferranti's first answers were correct and there is no definitive proof that the Collateral Assignment to IP Products was disclosed to the Plaintiff.
8. In Section 3.13 of the Agreement, the Plaintiff expressly warranted and represented that the assets of the Plaintiff it was selling to JDMN were free from defects and in good condition and repair and working order, except for such defects that existed at the time of Buyer's inspection. Defendant JDMN did not conduct or have anyone else conduct an inspection of the premises and the equipment therein at any time before the closing of title. In November 2014 the sole member of JDMN, Defendant Jennifer Ferranti, was present at a required inspection of the premises conducted by an official of the Town of Stratford Health Department that lasted about 30 minutes. No request or demand for repairs or replacements of any equipment was made upon the Plaintiff at any time prior to the December 22, 2014 closing of title or at any time thereafter as a result of that inspection.
9. In Section 13.14 of the Agreement Plaintiff represented that its warranties and representations set forth in Section 13.13 were true.
10. The $50,000 promissory note (Pl. Ex 2) signed by defendant Ferranti at the December 22, 2014 closing is unconditional. It recites that it is given " For Value Received." The note provides for a 5.5% per annum rate of interest on the unpaid balance and an additional 3% per annum rate of interest to take effect fifteen days after receipt of notice of default sent by the Holder. The Note calls for 24 monthly instalments of principal and interest each in the amount of $2,204.78 commencing on March 15, 2015 and continuing in that amount on the 15th day of each succeeding month until payment in full. The maturity date of the Note is March 14, 2017. The Note provides for recovery of reasonable attorneys fees and costs of collection. There is a late charge of 5% of any monthly payment not made within fifteen days of the due date.
11. The first three monthly payments on the promissory note (March 15, April 15 and May 15, 2015) were made by Ms. Ferranti using checks drawn on the checking account of JDMN, LLC. The June 2015 payment was tendered, but then a stop payment order was issued before plaintiff could negotiate the check. No subsequent payments have been made. If not sooner. The plaintiff has accelerated the unpaid balance of this Note by commencing this lawsuit with a return date of September 15, 2015.
12. Defendant JDMN took possession of the premises after the December 22, 2014 closing, and opened the premises for business in early March of 2015 under the trade name Nikki's Bar and Grill. Nikki's Bar and Grill closed in or about July 2015. On August 13, 2015 JDMN surrenders all its right title and interest in and to its leasehold interest at 2399 Main Street together with all fixtures, stock, supplies, and equipment located therein and the business being operated therein to IP Media Products, LLC pursuant to the Collateral Assignment of Lease signed with IP Media Products LLC on December 16, 2014. IP Products, LLC accepted possession of the premises and the business together with all fixtures, stock, supplies, and equipment located therein in exchange for a release of any further obligation to IP Products, LLC under the $20.000 Note which was then in default. IP Products, LLC has operated the bar and grill at said premises under the name Kirby's Club Car since August 13, 2015. Further findings of fact will be made in conjunction with the following discussions and conclusions of law.
Discussion and Conclusions of Law First Count of the Complaint and First Special Defense Thereto
Plaintiff has no case against JDMN under the buy-sell Agreement or the Bill of Sale. It is undisputed that JDMN paid the earnest money of $12,000 and the cash balance of $58,000 under section 2.2 of the Agreement. Although the Agreement also called for JDMN to sign and provide a $50,000 promissory note to complete payment of the $120,000 purchase price, when the parties and their counsel got to the closing table on December 22, 2014 the plaintiff voluntarily changed that arrangement and asked that the $50,000 Note be signed instead by Jennifer Ferranti, the sole Member of JDMN, in her personal capacity. Defendant Jennifer Ferranti, also acting voluntarily, executed the note and delivered it to Plaintiff, who accepted it, and Jennifer Ferranti thereafter ratified her obligation under that note by causing three monthly payments under the Note to be made to plaintiff. It is irrelevant that she used the checking account of JDMN to make those payments. It was her obligation and she had total control over that account to make those payments by the LLC on her behalf. The Security Agreement signed by JDMN at the closing had probably been prepared in anticipation of JDMN being the maker of the $50,000 note. When that was changed, and Jennifer Ferranti became the maker of the Note, the Security Agreement between Plaintiff and JDMN, but not Jennifer Ferranti, became superfluous and void. JDMN had paid all its obligations under the Agreement at the closing. There was no post-closing indebtedness of JDMN to be secured by the Security Agreement.
" Waiver involves an intentional relinquishment of a known right . . . [i]t does not have to be express, but may consist of acts or conduct from which waiver may be implied . . . In other words waiver may be inferred from the circumstances if it is reasonable to do so." Town of Stratford v. A. Secondino & Son, Inc., 133 Conn.App. 737, 746, 38 A.3d 179 (2012), quoting from Banks Building Co., LLC v. Malanga Family Real Estate Holding, LLC, 102 Conn.App. 231, 239, 926 A.2d 1 (2007).
The foregoing sequence of acts and events amounts to proof, as defendant JDMN has alleged, by its First Special Defense, of a total waiver of Plaintiff's contract right to a promissory note signed by JDM or any obligation of JDMN to pay that $50,000 to the Plaintiff.
Second, Third, and Fourth Special Defenses to the First Count
The court having found that the defendant JDMN has proved its special defense of waiver, it is unnecessary to discuss the Second, Third, and Fourth Special Defenses to that Count. A defendant need only prove one of its special defenses to a given count to prevail on that count.
Second Count of the Complaint and Special Defense Thereto
The Second Count of the Complaint as to defendant Jennifer Ferranti sounds in breach of or default of the payment obligation of the $50,000 promissory note signed by Jennifer Ferranti on December 22, 2014 under the circumstances heretofore recounted. It is undisputed that Jennifer Ferranti signed the note at the closing and thereafter ratified her obligation as the maker of that note by causing three monthly payments to be made thereunder before defaulting on the fourth payment due June 15, 2015 and all twenty remaining payments. " When a party issues a promissory note, he agrees to pay the instrument according to its terms." Connolly v. Socarras, Superior Court, Judicial District of New Haven, Docket Number CV12-6033584S (Sept. 27, 2013, Wilson, J.), 2013 WL 5663851 at *2, See Conn. Gen Stat § 42a-3-412: " The issuer of a note or cashier's check or other draft drawn on the drawer is obliged to pay the instrument (i) according to its terms at the time it was issued . . ." There are no conditions limiting the obligation of the maker under the note. The note is not linked in any way to the condition of the equipment sold or the warranties given to JDMN under the Agreement between Plaintiff and JDMN. Ms. Ferranti's sole defense to liability under the Note therefore rests with her Special Defense that she " did not receive any consideration from the Plaintiff in exchange for being required to execute the $50,000 promissory note to the Plaintiff First of all, she was not " required" to execute the promissory note. Under the Agreement JDMN, LLC was the party required to execute the note. Ms. Ferranti could have insisted that the Plaintiff go forward with the closing upon receipt of a $50,000 note signed by JDMN. Secondly, the very first words of the Note recite in capital letters " FOR VALUE RECEIVED."
. . . [T]here is a presumption that every negotiable instrument has been issued for a valuable consideration and that every party whose signature appears on the instrument has become a party for value. Molk v. Micklewright, 151 Conn. 606, 201 A.2d 183 (1964). One who asserts a lack of consideration must prove it by a preponderance of the evidence. Taylor v. Hamden School, Inc., 149 Conn. 545, 182 A.2d 615 (1962).Gilbert v. Namin, Superior Court, Docket No. 117037 (April 30, 1999, Mihakolos, J.) 1999 WL 300640, *1 [24 Conn.L.Rptr. 424, ].
In this case the defendant Jennifer Ferranti has not overcome the presumption of consideration coming from her signature on the note " for value received." Under the Agreement JDMN was not obligated to deliver the Bill of Sale of the business assets until it had received a $50,000 promissory note signed by JDMN or other satisfactory maker. Ms. Ferranti voluntarily signed the Note and it was accepted by Plaintiff, resulting in Plaintiff delivering the Bill of Sale of the business assets to Ms. Ferranti's wholly-owed company, JDMN, LLC. That was adequate consideration. See Sullo Invs., LLC v. Moreau, 151 Conn.App. 372, 384, 95 A.3d 1144 (2014) (" We conclude that the trial court did not err in holding that the consideration underlying the note was the benefit that [the note maker] Aurelien Moreau received in helping [his son] Micheal Moreau purchase the restaurant equipment"). Nor is the obligation of the Note linked to the Condition Precedent of Section 1.2 of the Agreement regarding the term of the lease JDMN was able to obtain from the landlord. In any event, that condition was waived by JDMN when it proceeded with the closing, made the partial payments due at closing and accepted the Bill of Sale and possession of the business and its assets without raising the Condition Precedent. The defendant Ferranti has not proved the allegation of no consideration in her Special Defense to the Second Count. The plaintiff is entitled to judgment against her for the balance due on the unconditional promissory note, plus plaintiff's reasonable attorneys fees and costs of collection. Giving credit for the three $2,204.78 payments and accrual of interest at 5.5% per annum on the unpaid balances since December 22, 2014, the court has calculated the balance due on the Note to be $48,904.74 as of April 3, 2017. No default interest was included because there was no evidence of written notice of default given to Ms. Ferranti. No late charges were calculated because there was no evidence of demand for payment thereof. The award of attorneys fees was deferred by agreement to a postjudgment hearing.
Counterclaim of Defendant JDMN, LLC and Special Defenses Thereto
Defendant JDMN, LLC has pleaded a Counterclaim in two counts alleging Plaintiff's breaches of express warranties in the Agreement as to the condition of the equipment and assets sold to JDMN, and of the implied warranty of fitness for a particular purpose with respect to those assets in violation of Conn. Gen. Stat. § 42a-2-315. Both counts allege economic damage to the defendant JDMN, LLC and both counts ask for money damages against the Plaintiff.
In Defendant's Post-Trial Brief counsel for JDMN concedes with admirable candor that, since JDMN accepted the equipment and assets, it had a duty under the Uniform Commercial Code, Conn. Gen Stat. § 42a-2-607, to give notice to the Plaintiff within a reasonable time of its breach of warranty claims, and that there is no evidence in the record of such notice having been given. Accordingly it is conceded that defendant JDMN may not affirmatively use Plaintiff's breaches of warranties to obtain an award of damages for those breaches because it did not give the required notice to the Plaintiff. (Defendants' Post-trial Brief, p. 20.)
In light of that concession the defendant JDMN, LLC cannot prevail on its counterclaims and there is no need to discuss the Special Defenses thereto.
Judgment
For the foregoing reasons: (1) Judgment is entered for the defendant JDMN, LLC on the First Count; (2) Judgment is entered for the Plaintiff against the defendant Jennifer Ferranti on the Second Count in the amount of $48,904.74, plus attorneys fees and costs of suit to be determined at a postjudgment hearing; and (3) Judgment is entered for the Plaintiff on the Counterclaims of defendant JDMN, LLC.
The plaintiff may submit a motion for award of attorneys fees and costs within thirty days of this order. Defendants may respond within fifteen days after that motion is filed. The court will then schedule oral argument on the motion and any objection.