Opinion
Civ. No. 97-4851 (DRD).
September, 1999
Baker Daniels, John Joseph Tanner, Esq., Ji-Qing Liu, Esq., Indianapolis, Indiana, Cole, Schotz, Meisel, Forman Leonard, Edward S. Kiel, Esq., Hackensack, New Jersey, Attorneys for the Plaintiff.
Stryker, Tams Dill, LLP, Harold Friedman, Esq., Newark, New Jersey, Attorneys for the Defendants.
O P I N I O N
This is a diversity action in which plaintiff, Qingdao Import and Export Corporation, a corporation of the People's Republic of China ("QIEC") seeks recovery for goods sold to and delivered at the direction of defendants Taroco Enterprises Inc., a New York Corporation with its principal place of business in New Jersey (Taroco) and Taroco's owner and president David Chang (named Zhang in the Complaint) ("Chang"). QIEC has moved for summary judgment for $967, 662.64, the purchase price under three contracts for the sale of shoes to Taroco, and for $600,000 representing four checks totaling that amount which Taroco delivered to QIEC and which were dishonored. Chang moves for summary judgment on the grounds that liability, if any is that of the corporation Taroco and that as a matter of law he cannot be held individually liable. The parties have submitted voluminous certifications and numerous exhibits in support of their respective positions. For the reasons set forth below both motions will be denied.
SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate where the moving party establishes that "there is no genuine issue as to any material fact and that [it] is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party must show that if the evidentiary material of record were reduced to admissible evidence in court, it would be insufficient to permit the non-moving party to carry its burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
Once the moving party has carried its burden under Rule 56, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts in question." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986), rev'g, 723 F.2d 238 (3d Cir. 1983). The opposing party must set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials of its pleadings. Sound Ship Bldg. Corp. v. Bethlehem Steel Co., 533 F.2d 96, 99 (3d Cir.), cert. denied, 429 U.S. 860 (1976).
At the summary judgment stage the court's function is not to weigh the evidence and determine the truth of the matter, but rather to determine whether there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The mere existence of some alleged factual dispute between the parties, however, will not defeat an otherwise properly supported motion for summary judgment. Id. at 247-248.
The Parties' Rationale
A. Undisputed Facts
There are certain basic facts which are not in dispute.
Starting in 1993, QIEC and Taroco entered into a business relationship by which QIEC would sell and Taroco would purchase shoes supplied by QIEC. On November 5, 1994, June 16, 1995 and March 13, 1996 Taroco agreed to purchase and QIEC agreed to supply shoes. Each sale was confirmed in a Sales Confirmation. The shoes were not shipped to Taroco; rather they were shipped directly to a Russian company, Taros.
Nevertheless, QIEC invoiced Taroco for the shoes, and Taroco was to make the payments for the shoes. The amount owed on account of the three contracts referred to above totaled $1,182,516.44 plus freight charges of $28,858.00 for a total amount of $1,211,374.44. Taroco paid QIEC $243,711.80 on account of the purchase price but did not pay the balance of $967,662.64.
QIEC demanded payment and Taroco promised full payment to QIEC, asserting that its failure to pay was due to cash flow problems. On December 20, 1995 Taroco promised to pay QIEC on the following schedule: $100,000 by March 31, 1996; $200,000 by April 28, 1996, $200,000 by May 31, 1996; $200,000 by June 30, 1996 and the balance plus interest, by July 30, 1996. Taroco promised to send four post-dated checks in those amounts before the end of 1995.
Taroco delivered to QIEC four checks each signed by Chang as follows: i) check dated March 31, 1996 in the amount of $100,000, ii) check dated April 30, 1996 in the amount of $100,000; iii, check dated May 31, 1996 in the amount of $200,000; and iv) check dated June 30, 1996 in the amount of $200,000. When QIEC attempted to cash the checks two were dishonored for insufficient funds and two were dishonored because they did not bear two signatures. Pursuant to N.J.S.A. 2A:32A-1 notice was given to Taroco of QIEC's demand for payment of the dishonored checks and QIEC's intention to invoke the right and remedies under that statute.
B. QIEC's Rationale
QIEC argues that on the basis of the undisputed facts Taroco is obligated to pay the unpaid balance of the purchase price of the shoes. A buyer must pay the contract price for goods that it accepts. N.J.S.A. 12A2-607(1). In addition, where one party has breached, the other party is entitled to receive interest and other damages sufficient to reasonably restore the party to the position as if no breach had occurred. N.J.S.A. 12A:2-709; 12A:710.
Insofar as Chang is concerned, QIEC asserts that the facts established that he was the alter ego of Taroco and the person with whom QIEC conducted the transactions involved in the case. Thus, Chang is personally liable as to the contract claims.
QIEC argues that as a minimum both Taroco and Chang are liable on the checks totaling $600,000. Pursuant to N.J.S.A. 2A:32A-1, any person who writes a check which is subsequently dishonored for lack of funds or other reason listed in the statute, and who fails to pay the amount of the check after receiving notice and demand for payment "shall be liable to the payee, in addition to the amount owing upon the check, draft or order, for attorneys' fees, court costs and the costs of mailing the written demand for payment and for damages in an amount for which the check, draft or order is drawn or made, whichever is greater. However, damages recovered under this section shall not exceed by more than $500, the amount of the check, draft or order."
QIEC points out that Chang was the sole shareholder and president of Taroco and that he executed all four checks, knowing that they would not be honored because they lacked the requisite signatures. In these circumstances QIEC contends, Chang is personally liable under New Jersey law, Stochastic Decisions, Inc.v. James DiDomenico, 236 N.J. Super. 388 (1989), cert. denied, 121 N.J. 607 (1990).
C. Chang's Rationale
Chang moved for summary judgment dismissing the complaint against him. For the purposes of his motion he assumes that i) the corporate party with potential commercial liability to QIEC is Taroco and not Taros and ii) the four Taroco checks transmitted to QIEC were transmitted without any limitations on their being negotiated for payment.
Chang first notes that no phase of the transactions involved him individually as distinguished from the corporate defendant Taroco. The Sales Confirmation Agreements were between QIEC and Taroco, and he did not even sign the documents on behalf of Taroco. Taroco, not Chang, issued the purchase orders. All other written documentation for ordering and invoicing for payment were exchanged between QIEC and Taroco. Taroco made payments on invoices directed to it. There was no signed written agreement evidencing the guaranty that QIEC alleges Chang gave to it. The dishonored checks were Taroco checks drawn upon Taroco accounts.
Chang argues that the Uniform Commercial Code's statute of frauds provision bars QIEC from suing on an alleged contract of sale between him and QIEC. N.J.S.A. 12A:2-201 provides:
(1) Except as otherwise provided in this Section, a contract for the sale of goods for the price of $500 or more is not enforceable by way of action . . . unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the parties against whom enforcement is sought or by his authorized agent or broker. (emphasis added)
Thus, Chang maintains, even if there were a valid contract between QIEC and Taroco, Chang cannot be held liable on it.
As for liability on the dishonored checks, Chang points out that the checks on their face were solely Taroco checks drawn on Taroco's account. N.J.S.A. 2A:32A-1 provides redress to a payee only against the maker of the check (Taroco) which is dishonored for lack of funds. The Uniform Commercial Code N.J.S.A. 12A: 3-402(c) makes clear that when a corporate check is signed by a person who is authorized to be a signatory on the account, it is only the corporation that is liable:
If a representative signs the name of the representative as drawer of a check without indication of the representative status and the check is payable from an account of the represented person who is identified on the check, the signer is not liable on the check if the signature is an authorized signature of the representative. [Emphasis added]
Issues of Material Fact
Although, as recited above, the operative events of the transactions in this case are undisputed, the fundamental nature of the sales arrangement and the circumstances of the delivery of the four check are the subject of dramatic dispute. There will be set forth below each party's version. In the case of a motion for summary judgment it is the court's function to view the evidence most favorably to the non-moving party and to draw all permissible interferences in favor of that party. In the present case, the evidence may weigh heavily towards one version or another with respect to the parties' conflicting factual contentions, but it is not the court's function at this juncture to weigh the evidence. There is some support in the certifications, depositions, transcripts and documents for each side's version of events.A QIEC's Version
Chang was the sole owner and chief executive officer of Taroco. Helen Shan was authorized to act on his behalf. Prior to the sale of shoes QIEC had not done business with either Chang or Taroco. When approached about selling shoes QIEC was told that it would be doing business with Chang, a person of considerable assets, and that he would pay for the shoes that are the subject of this action. Chang informed QIEC that Shan was authorized to represent him and that QIEC should deal with her. At the outset QIEC did not know of Taroco or Taros, and later was led to believe that Chang and Taroco were one and the same.
From December of 1994 until the spring of 1996 QIEC provided shoes pursuant to the three contracts, those of November 5, 1994, June 16, 1995 and March 13, 1996. Shan as Chang's representative executed the Sales Confirmation Agreements. She issued purchase orders and instructed QIEC how to prepare the necessary documentation. As she requested, QIEC shipped the shoes to Russia, but QIEC only later learned that they were delivered to Taros.
When payments became delinquent Chang met with representatives of QIEC and confirmed on numerous occasions that he would pay the debt. He agreed to secure payment with real estate owned by him and/or Taroco. The real estate was owned by a company of which Chang was the sole shareholder. In consideration of Chang's promise, QIEC delayed pursuing the amounts owing to it and continued shipping shoes.
As a part of these continuing assurances Chang signed and caused Taroco to issue the four checks totaling $600,000 knowing that they could not be cashed. QIEC was unaware that the checks could not be cashed and were never so informed. It relied on receipt of the checks to continue to ship shoes. When it sought to cash the checks QIEC discovered that two signatures were required and that there were insufficient funds to honor them.
B. Chang's and Taroco's Version
Chang and Taroco present a very different version of these events. Initially they emphasize that Chang never acted in his individual capacity and that, as QIEC was very well aware, QIEC was dealing with Taroco and not Chang. Further, according to Taroco and Chang, Taroco was serving in the sales and purchases as an intermediary on behalf of and as agent for the Russian company Taros. For legal and practical reasons (such as the inability of Taros to obtain insurance) Taroco served as the named purchaser with all the paper work running to it; and the real deal was between QIEC and Taros. Consequently, although QIEC invoiced Taroco and received payment from it, it was understood that Taro's payments to QIEC were to be dependent upon payment to it by Taros.
Taros found the shoes to be defective and ceased making payments to Taroco. As a result Taroco did not pay QIEC. All this was known by QIEC from the outset.
Taroco sought to resolve the conflict with Taros and obtain payment from it to forward to QIEC. It made some payments to QIEC against QIEC's promise that the problems with the shoes would be corrected and adjustments worked out in the future in the context of a global settlement between QIEC, Taroco and Taros.
During these discussions between Taroco and QIEC, QIEC personnel indicated that they needed some evidence to show to their superiors that progress towards agreement was being made. To satisfy that need Taroco agreed in December 1995 to provide QIEC with the four checks. It was anticipated that settlement with Taroco would produce the funds required to pay the amounts set forth in the checks. QEIC was aware that the checks could not be negotiated with only one signature and that either new checks or an additional signature would be required. QIEC required the invalid checks simply as a means of satisfying bureaucratic inquiries from superiors, knowing that it should not attempt to cash them in the form in which they were delivered.
Discussion
It should be readily apparent from the recital of the parties' contentions that there are substantial issues of fact relating first to the very nature of the purchase and sale transactions, second to the circumstances of the delivery of the four checks and third to the role Chang played. These issues are material and preclude granting either motion for summary judgment in whole or in part.
With respect to QIEC's motion for summary judgment on Taroco's liability for payment of the balance of the purchase price of the shoes, it is true that the documentation fully supports QIEC's position that Taroco ordered the shoes, the shoes were delivered pursuant to the order and were accepted and that Taroco has failed to pay for the shoes in accordance with the Sales Confirmation Agreements and invoices. This is powerful evidence supporting QIEC's position that the balance of the purchase price is due and owing to it.
As this juncture, however, there is evidence in the form of Chang's testimony and certifications that the transactions were not what they appeared to be on paper. According to Chang the reality of the transactions was a sale by QIEC to Taros with Taroco acting simply as an intermediary, transmitting payments to QIEC when received from Taros. Implausible as this version may seem in light of the documentary evidence and contrary testimony and certifications, resolution of the conflict calls for credibility evaluations which cannot be made on a summary judgment motion.
QIEC's motion for summary judgment on the four checks presents the same problem. The documents on their face call for judgment in QIEC's favor. However, Chang has testified and certified that the delivery of the checks was not what it would seem to be upon a review of documents. Rather it was a device sought by QIEC to provide documents which would enable QIEC to satisfy superior authorities that negotiations seeking resolution of the non-payment problem were proceeding in a promising way. QIEC, according to Chang, was aware that two signatures were required to make the checks valid and that the additional signatures would be provided or new checks issued only when Taros paid Taroco, enabling Taroco to pay QIEC. If QIEC were a party to the plan to issue invalid checks it would not be in a position to charge Taroco or Chang with fraud. Again a credibility issue arises precluding summary judgment.
With respect to Chang's motion for summary judgment on QIEC's claim that he is personally liable for the purchase price and on the checks, there is dramatically conflicting testimony and certifications about the role he played. If all inferences from QIEC's evidence were resolved favorably for QIEC it might be found that the purchase transaction was in substance with Chang and that Taroco was a vehicle lacking legal substance. The documents alone would not support the inference but the conflicting testimony and certifications about Chang's and Taroco's role prevents granting his motion for summary judgment.
Conclusion
For the reasons set forth above QIEC's motion for summary judgment for the balance of the purchase price of the shoes and on the four checks delivered to it is denied and Chang's motion for summary judgment on QIEC's claims against him individually is denied. An order implementing this opinion will be entered.