Opinion
011390/08
10-31-2011
WorldCo Petroleum NY Corp., Plaintiff, v. Frank Keshtgar, LEXICO ENTERPRISES, INC., KENNETH L. GELLER, AS ESCROW AGENT, Defendants.
Attorney for Plaintiff Paul Steinberg, Esq. Attorney for Defendant Kenneth Geller, P.C.
Attorney for Plaintiff Paul Steinberg, Esq.
Attorney for Defendant Kenneth Geller, P.C.
Jeffrey S. Brown, J.
Plaintiff, as a potential purchaser of a gas station franchise, commenced this action for breach of contract, fraud and conversion, and requests that this Court direct defendants to return to plaintiff the "down payment" of $40,700.00, which is currently held in escrow, or in the alternative, to deposit said sums in accordance with applicable provisions of the CPLR, award plaintiff damages in the amount of $81,400.00 or such amount as may be determined at trial, and such other an further relief as this Court deems just and proper. Defendants assert that plaintiff breached the agreement for sale ("Agreement"), and, as a result, is not entitled to the "down payment."
Plaintiff WorldCo Petroleum NY ("WorldCo" or "Buyer"), and its president Ihab Mohamed, entered into a contract for sale with defendants Lexico Enterprises ("Lexico" or "Seller") and its president, Frank Keshtgar, on or about March 12, 2008, for the purpose of purchasing the assets of a gas station business leased by Lexico. The gas station was located at 2030 Sunrise Highway, Merrick, New York 11566 (referred to hereinafter as the "Merrick site"). The total purchase price to be paid to Lexico was $407,000. As indicated in the agreement, WorldCo provided a "down payment" of $40,700.00, ten percent of the total purchase price, to Lexico's attorney who has been holding the down payment in an escrow account. The Agreement notes that the down payment will be paid to Seller upon execution and delivery of the bill of sale or upon the buyer's failure to close in accordance with the terms of this Agreement.
Furthermore, as a condition precedent to the execution of the transaction, plaintiff must obtain written consent to the assignment of the lease from the gas station's operator and supplier, Cumberland Farm, Inc. ("CFI") . Paragraph 16.1 of the Agreement notes that the "Closing will take place at the office of Seller's attorney within 10 days after Buyer receives approval by CFI, but in no event later than May 31, 2008." Paragraph 6(a) mentions that "if CFI's consent to [the] transaction is not obtained by the Closing Date, either party may cancel [the] Agreement upon written notice to the other."
Paragraph 19.19 provides:
"Within 10 days of the Effective Date Buyer will submit to CFI all the necessary documents, including by way of example and not limitation, an application, credit documents, business plan, financial records, or authorizations, this Agreement, application fee, and any other documents necessary for CFI to process Buyer's application to operate the Business at the Premises. If Buyer does not comply with this section or acts in bad faith in his dealings with CFI, either failure is a material breach of this Agreement and Seller may at its sole option, cancel this Agreement and keep the Down Payment."
Paragraph 19.24 provides:
"If CFI requires Ihab Mohamed or the entity to which this Agreement is assigned "key person" to attend a training class, within 10 days after the Effective Date he will submit all the documents necessary to attend the first CFI training school offered to prospective CFI franchisees after the Execution Date. If Buyer does
not comply with this section 19.24 or acts in bad faith in his dealings with CFI, either failure is a material breach of this Agreement and Seller may at its sole
option, cancel this Agreement and keep the Down Payment."
The contract also provides for the down payment to be a liquidated damage clause upon a default by the purchaser of any obligation, promise, representation, warranty or covenant contained within the contract.
Paragraph 10.1 states:
"If Buyer fails to close on the Closing Date in accordance with this Agreement, or otherwise defaults under any of its obligations, promises, representations, warranties or covenants, Seller is entitled to keep the Down Payment. The Parties agree and acknowledge that it is impossible to more precisely calculate the damages to be sustained by the Seller upon Buyer's non-performance or breach of this Agreement. The Parties expressly agree and acknowledge that retention of the Down Payment is intended not as a penalty but as full liquidated damages. Seller's right to retain the Down Payment as full liquidated damages is its sole and exclusive remedy in the event of
non-performance or breach of this Agreement by Buyer."
Additionally, the Agreement contains a "no oral modification" clause. Paragraph 48 states that "any modification of [the] Agreement . . . will be binding only if evidenced in writing and signed by each Party or an authorized representative of each Party."
Finally, paragraph 52 provides that any and all notices or other communications which either party is required, or may elect to provide the other pursuant to this agreement will be in writing unless otherwise agreed. Further, any notices shall be either personally delivered, sent by telecopy sent by a nationally recognized courier service or by certified mail return receipt requested to then counsel's respective office.
Both Mohamed and Keshtgar provided their testimony as to what occurred after both parties signed the Agreement. The following facts are clear and uncontested. On or about April 22, 2008, Mohamed, as president of WorldCo, met with representatives of CFI to determine whether he was a qualified purchaser of the gas station leased by Lexico. CFI did not approve Mohamed for three reasons. First, he lacked adequate training at the Merrick location. Second, CFI did not receive a revised and completed profits and loss sheet using the most current pricing and current credit card fees. Third, Mohamed was required to investigate the true cost of what his insurance wouldcost him per month. Once all requirements were complete, CFI was willing to have a second interview with Mohamed.
Even though CFI claimed that Mohamed was inexperienced to operate the gas station as a result of lack of training at the actual site, Mohamed did receive approximately two weeks of training at another site owned by Keshtgar's brother prior to the meeting with CFI. Mohamed was trained in day-to-day operations of a service station, inventory reconciliations, environmental responsibilities and the point of sale system. Keshtgar insisted that Mohamed be trained at a different location in order to prevent the employees working at the Merrick location from knowing that the gas station was being sold.
Immediately after the meeting with CFI on the April 22nd, Mohamed called Keshtgar to discuss what had occurred. Mohamed explained to Keshtgar that CFI required the purchaser to be trained at the location being bought, and that he was the second candidate that CFI asked Keshtgar to train at the site being purchased. Mohamed also mentioned that CFI revealed to him an ongoing complication involving the sewer system located at the Merrick site. Mohamed claims that CFI told him that Keshtgar's remedy of pouring two gallons of bleach down the drain every week would not fix the problem. Keshtgar was furious as to why CFI would inform Mohamed of such information, and assured Mohamed that he was only pouring one gallon of bleach down the drain every week.
Both Keshtgar and Mohamed provide conflicting testimony of what occurred after their phone conversation on April 22, 2008.
Mohamed testified that Keshtgar called him approximately two or three days after the April 22, 2008 phone call. Keshtgar requested a letter from Mohamed detailing what occurred at the Cumberland Farm meeting. Keshtgar wanted to use the information to sue Cumberland Farms. However, Mohamed felt uncomfortable and did not provide such a letter. Mohamed later learned that a lawsuit was commenced, and he was subpoenaed to the United States District Court to testify at the trial.
Mohamed testified that he was still anxious to purchase the station. His lawyer contacted Cumberland Farms but they would not talk to him. They requested that all communication go through the franchisee, Keshtgar.
Mohamed testified that the discussion of training at the Merrick site came up in a face-to- face meeting and a telephone conversation with Keshtgar after the Cumberland Farm meeting. Keshtgar stated that training at the Merrick site would be impossible because his employees would learn that he was selling the property and as a result would walk out on him and look for other jobs. Mohamed testified he was willing to undergo additional training at the Merrick site. There were no written letters or documentation sent by Mohamed cancelling the contract or requesting any written modification of the contract.
Keshtgar testified that he told Mohamed that there was no problem with the sewer system. Further, Keshtgar asked Mohamed when he would be available to be trained at the Merrick location. Mohamed allegedly told Keshtgar that he would have to think about it and would call him back. The next day Mohamed called Keshtgar and told him that he was no longer interested in the property. A letter to that effect was never sent. Keshtgar testified that Mohamed would send a letter only if Keshtgar would "break" the contract and return his down payment.
Keshtgar received an e-mail from Cumberland Farms' regional manager on or about April 23, 2008. Three items were listed that were conditions precedent to Cumberland Farms setting up a second interview with Mohamed: 1) extensive training at the Merrick site; 2) submission of a revised profit and loss statement using the most current pricing and credit card fees; and 3) Mohamed must investigate the true cost of insurance per month. The regional manager followed up with a phone call to Keshtgar. At that time Keshtgar advised him that Mohamed was no longer interested in the property because he did not want to complete the additional training. Keshtgar testified that during a phone call with his regional manager on or about April 24th or 25th, Cumberland Farms agreed that two weeks of training at the Merrick site would be sufficient. However, he conceded at his prior deposition that Cumberland would approve Mohamed after a second interview was scheduled. No evidence of additional training needed to be provided to CFI. Keshtgar testifed that CFI would take his word. Keshtgar subsequently testified that CFI had not approved Mohamed on the 24th of April.
On or about May 6th, 2008 Keshtgar testified that CFI sent him a letter disapproving Mohamed. However, no letter was introduced into evidence. Keshtgar testified that the Merrick site was subsequently closed. The site is now open under new management, but he has no idea how the new owner came into possession of that site.
"It is axiomatic that Courts are obliged to interpret a contract so as to give meaning to all of its terms." Lespinasse v. Fannie Mae, 2003 NY Slip Op 51029U (Sup. Ct. NY County 2003). "Since a contract is a voluntary undertaking, it should be interpreted to give effect to the parties' reasonable expectations." Sutton v. East Riv. Sav. Bank, 55 NY2d 550, 555, 450 N.Y.S.2d 460, 435 N.E.2d 1075 (1982); see Mionis v. Bank Julius Baer & Co., Ltd., 301 AD2d 104, 109, 749 N.Y.S.2d 497 A.D. (1st Dep't 2002). "The role of the court is to interpret a contract and not to rewrite it." Tri-Messine Const. Co. V. Telesector Resources Group, Inc., 287 AD2d 558, 731 N.Y.S.2d 648 (2d Dep't 2001); see also Ingle v. Glamore Motor Sales, Inc., 111 AD2d 746, 747, 490 N.Y.S.2d 240 (2d Dep't 1985) ("It is fundamental that courts enforce contracts and do not rewrite them . . . The courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.").
"A condition precedent is 'an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises'" [citations omitted] (Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 690 [1995]; see also U.S. Fidelity & Guar. Co., 369 F3d at 51; 120 Greenwich Development Associates, LLC v. Reliance Ins. Co., 2004 WL 1277998, [SD N.Y.2004]). "Express conditions must be literally performed" (Oppenheimer, supra, at 690). Substantial compliance with a condition precedent is insufficient (see Id. at 692—693; see also MHR Capital Partners LP v. Presstek, Inc., 12 NY3d 640, 654 [2009] ; East 49th Street Development II v Prestige Air & Design, LLC. 33 Misc 3d 1205[A]).
"However, it is equally settled that 'a party may not frustrate the performance of an agreement by bringing about the failure of a condition precedent'(Creighton v Milbauer, 191 AD2d 162, 165, citing Lindenbaum v Royco Prop. Corp., 165 AD2d 254, 260). The party seeking to enforce a contractual obligation generally bears the burden of proof with respect to a condition precedent (Lindenbaum v. Royco, supra, at 258, quoting Calamari and Perrillo, Contracts § 140 at 228)" (Curtis Props. Corp v Greif Cos., 212 AD2d 259, 628 NYS2d 628 [1ST Dept 1995]). As a result, there is also no burden upon Mohamed to enforce the condition precedent.
There are sharp issues of fact between Mohamed and Keshtgar. "The credibility of the witnesses, the reconciliation of conflicting statements, a determination of which should be accepted and which rejected, the truthfulness and accuracy of the testimony, whether contradictory or not, [are] issues for the trier of the facts. The memory, motive, mental capacity, accuracy of observation and statement, truthfulness and other tests of the reliability of witnesses can be passed upon with greater safety by a trial judge who sees and hears the witnesses than by appellate judges who simply read the printed record (Barnet v Cannizzaro, 3 AD2d 745, 747, 160 NYS2d 329 [1957] [citation omitted]; see LeBron v Brentwood Union Free School Dist., 212 AD2d 512, 513, 623 NYS2d 117 [1995]; Segal v McDaniel Ford, 201 AD2d 717, 608 NYS2d 324 [1994])" (Healy v Williams, 30 AD3d 466 [2nd Dept. 2006])
There is no documentary evidence that memorializes the respective positions of the parties. No letters were ever exchanged documenting the telephone conversations. There is no demonstration that Keshtgar attempted to declare a default by Mohammed with respect to any of the provisions of the contract of sale. Nor was there ever any demonstration that plaintiff intended to cancel the contract. Neither party demonstrated that any notices were sent as required by paragraph 52 of the contract of sale.
Paragraphs 19.19 and 19.24 gives Lexico the option to cancel the agreement if Mohamed fails to provide CFI with the necessary documents to process the application or attend the training school offered by CFI. If Lexico contends that WorldCo failed to comply with these provisions of the contract, it was incumbent upon Lexico to provide written notice of any alleged breach and its election of the option to cancel the contract. It is settled that when a contract requires that written notice be given, the notice is ineffective unless the writing is actually received (see, Maxton Builders, Inc v Lo Galbo, 68 NY2d 373). Lexico never provided written notice to WorldCo that it was declaring it indefault and electing to cancel the contract.
It is incredible that plaintiff would not want to continue his training at the location he intended to purchase. The credible evidence reveals that defendant may have frustrated performance by requiring plaintiff to train at another location. It is also incredible that defendant did not want to train plaintiff at the Merrick location because he did not want his employees to know that the location was up for sale. It is apparent that consent of CFI was never obtained. Lexico subsequently sued CFI in the United States District Court alleging such a fact. Further, there is no demonstration that the buyer acted in bad faith.
The court, therefore, grants the requested relief to the extent that plaintiff WorldCo is entitled to the return of the $40,700 presently held in escrow. No other proof was elicited that would cause this court to find either evidence of fraud or conversion on the part of Lexico. As a result, plaintiff is entitled to the return of the down payment presently held in escrow by the escrow agent.
For all the foregoing reasons, defendant Kenneth L. Geller, the escrow agent, is directed to return the down payment in the amount of $40,700 to plaintiff.
Submit Judgment on notice.
ENTER :
HON. JEFFREY S. BROWN
J. S. C.