ANNE MARIE COMPTON v. VICTORIA SANTA MARIA SOANES et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1669-05T31669-05T3

ANNE MARIE COMPTON,

Plaintiff-Respondent,

v.

VICTORIA SANTA MARIA SOANES and

FUSION MAGAZINE, LLC,

Defendants-Appellants.

________________________________________________________________

 

Argued October 11, 2006 - Decided October 26, 2006

Before Judges Skillman and Lisa.

On appeal from the Superior Court of New Jersey, Chancery Division, Camden County, General Equity, C-118-04.

Justin T. Loughry argued the cause for appellants (Loughry and Lindsay, attorneys; Mr. Loughry, on the brief).

Steven E. Angstreich argued the cause for respondent (Levy, Angstreich, Finney, Baldante, Rubenstein & Coren, attorneys; Mr. Angstreich, Amy R. Brandt and Matthew A. Green, on the brief).

PER CURIAM

Defendant, Victoria Santa Maria, appeals from a $17,550 judgment entered against her by way of enforcement of a provision in a settlement agreement, and from denial of her reconsideration motion. We affirm.

Santa Maria and plaintiff, Anne Marie Compton, were participants in a business venture involving Fusion Magazine, LLC. A dispute arose, resulting in this litigation. The parties were ordered by the court to mediate the dispute. They met in the law office of the mediator in May 2005, and reached an agreement to settle the litigation.

At the outset of the mediation, Compton demanded $45,000 in damages. The agreement ultimately reached required Santa Maria to pay Compton $14,000, of which $1,400 would be paid immediately, and the balance, without interest or security, in thirty-six monthly installments of $350. Santa Maria represented she could not provide security for the indebtedness. She claimed she could not give a mortgage on the home, in which she lived, because she was not the sole owner. She said she believed the title to the home continued to be in the joint names of her and her former husband.

The settlement agreement contained these provisions, which led to the judgment that is now before us:

2. The payments provided for in paragraph 1 above shall be due and payable on the first day of each month and shall be deemed late if not received on or before the eleventh (11th) day of the month. In the event of a default (defined as failure to pay within the ten (10) day grace period or a breach of any of the material terms hereof, Plaintiff, upon application to the Superior Court of New Jersey, shall have judgment entered in an amount equal to $20,000 less credit for any amounts actually paid Plaintiff by Defendants. Defendants' sole defense that may be advanced in the proceeding shall be a claim of timely payment.

. . . .

4. Defendants make the following material representations which representations are express inducements to Plaintiff to enter into this Agreement and which if proven false shall entitle Plaintiff to make application in accordance with paragraph 2 hereof:

. . . .

(b) Defendant Victoria SantaMaria represents that she is not the sole and exclusive titled owner, as appears in the books and records of the Recorder of Deeds for the real estate located at 4 [sic] Tansgate Boulevard, Berlin, New Jersey 08009.

The settlement agreement is dated June 15, 2005. After the mediation session, Santa Maria's attorney engaged the services of a title company to ascertain the title status of Santa Maria's home. On May 23, 2005, the title company faxed to Santa Maria's attorney a copy of the 1993 deed, by which Santa Maria and her husband, John Soanes, acquired title. The deed was accompanied by a memorandum stating that this was "the most recent Deed" for the property and the owners are "John and Victoria Soanes, H/W." After the settlement agreement was signed by all parties, Santa Maria made the initial payment and began paying the monthly installments.

On July 27, 2005, Compton's attorney informed Santa Maria's attorney that he discovered Santa Maria was indeed the sole title owner. He forwarded a copy of a deed dated July 25, 2000, recorded February 15, 2001, from John Soanes and Victoria Soanes to Victoria Soanes. He demanded that Santa Maria immediately obtain a loan for the difference between $20,000 and the payments made to date, and pay that amount. Otherwise he would apply to the court to enforce Compton's rights under paragraph 4(b) of the settlement agreement. Santa Maria's attorney immediately contacted the title company that furnished the earlier information. On July 29, 2005, the title company sent him a memorandum apologizing for its earlier error and transmitting a copy of the July 25, 2000 deed placing title in Santa Maria's sole name.

Santa Maria refused to pay the increased amount. Compton moved for entry of judgment. Compton contended she agreed to accept a reduced settlement amount and an unsecured payout based upon Santa Maria's representation that her home remained titled to her and her former husband. She further contended that because the settlement took place in the mediator's office without an opportunity to verify Santa Maria's representation, she accepted the settlement terms, but insisted that paragraph 4(b) be inserted in the event Santa Maria's representation about the status of title was untrue. Santa Maria opposed the motion on the grounds that her representation was made in good faith and paragraph 4(b) was premised upon a mutual mistake. The motion judge rejected Santa Maria's arguments and entered judgment for $17,550, representing $20,000 minus credit for payments made. Santa Maria moved for reconsideration, in the course of which she argued that paragraph 4(b) constituted a "penalty" which should not be enforced. The motion was denied and this appeal followed.

On appeal, Santa Maria argues that paragraph 4(b) is an unenforceable penalty clause that violates equitable principles. She further argues that equitable grounds exist for reformation or rescission of the settlement agreement, as there was either a mutual mistake, or a unilateral mistake on her part and fraud or sharp practices on Compton's part. She urges that we reverse the trial court order and either reinstate the settlement agreement without paragraph 4(b) or rescind the settlement and reinstate the litigation.

As a general proposition, New Jersey courts will not enforce a contract that fixes a penalty for its breach. Westmount Country Club v. Kameny, 82 N.J. Super. 200, 205 (App. Div. 1964). This general prohibition on the enforcement of penalties aims "to avoid [the] extortion and injustice which a free power to stipulate damages would invite[.]" Id. at 206. Agreements to settle lawsuits are contracts subject to the same legal principles applicable to other contracts, Pascarella v. Bruck, 190 N.J. Super. 118, 124-25 (App. Div. 1983), and consequently penalty clauses in settlement agreements are also unenforceable.

These general principles, however, do not establish a per se ban on provisions such as paragraph 4(b). Stipulated damages clauses, which specify damages payable in the event of a contractual breach, may be classified as "liquidated damages" or "penalties" based upon the legal determination as to their enforceability. Wasserman's Inc. v. Twp. of Middletown, 137 N.J. 238, 248 (1994) (quoting Kenneth W. Clarkson et al., Liquidated Damages v. Penalties: Sense or Nonsense?, 1 978 Wis. L. Rev. 351, 351 n.1). Distinguishing a clause as either a valid liquidated damages clause or an invalid penalty clause requires determining whether the clause is reasonable based on the totality of the circumstances. Metlife Capital Fin. Corp. v. Wash. Ave. Assocs., 159 N.J. 484, 495 (1999) (quoting Wassenaar v. Panos, 111 Wis.2d 518 (1983)).

Specifically, New Jersey courts consider whether the sum negotiated in a stipulated damages clause "'is a reasonable forecast of just compensation for the harm that is caused by the breach' and whether that harm 'is incapable or very difficult of accurate estimate.'" Wasserman's Inc., supra, 137 N.J. at 250. Courts evaluate the facts of the case and not merely the words employed by the parties in labeling the clause. Id. at 251. Stipulated damages clauses are presumptively reasonable and the party challenging the clause has the burden of proving otherwise. Id. at 252. But, if after considering the entire agreement it is unclear whether the provision is intended as a penalty or liquidated damages, "it will be construed as a penalty[.]" Westmount Country Club, supra, 82 N.J. Super. at 206.

We are satisfied from the factual complex presented here that paragraph 4(b) does not constitute an impermissible penalty clause. Collectability is typically a material consideration in settlement negotiations such as this. The terms of the agreement make clear that the title status of Santa Maria's home constituted a "material representation" which was an "express inducement" to Compton to enter into the agreement. From the four corners of the agreement, it is clear that the parties acknowledged and agreed that if Santa Maria was the sole owner, she would be capable of paying more by way of settlement and Compton could obtain a better deal than a $14,000 settlement, payable without interest or security over three years. The parties agreed that the better deal would be $20,000 payable immediately. That amount is far less than Compton's original claim for $45,000, and thus is not arbitrary, unreasonable, or penal. It bears a reasonable relationship to, and is within the parameters of, the matter in controversy.

Compton's damages in forgoing a larger settlement, in light of Santa Maria's misrepresentation, were difficult to estimate. It is difficult or impossible to determine after the fact whether the parties would have been able to reach a compromise had the truth regarding ownership of Santa Maria's home been uncovered sooner. Paragraph 4(b) was a reasonable forecast of reasonable compensation flowing from the breach, and constituted a permissible stipulated damages clause, not an unenforceable penalty clause.

Santa Maria further argues that the agreement should be reformed or rescinded to avoid operation of paragraph 4(b) because the agreement was premised upon a mutual mistake or her unilateral mistake coupled with fraud or inequitable conduct by Compton. We do not agree.

The general rule allowing reformation or rescission of an agreement, where it is premised upon mutual mistake, applies to settlement agreements. Wallace v. Summerhill Nursing Home, 380 N.J. Super. 507, 509-10 (App. Div. 2005) (holding that a compromise resulting from a mutual mistake is "not binding and consent to a settlement agreement is not considered freely given when it is obtained as the result of a mistake"); s `ee also, Lampley v. Davis Mach. Corp., 219 N.J. Super. 540, 550 (App. Div. 1987). Mutual mistake capable of invalidating an agreement occurs when both parties "labor[] under the same misapprehension as to [a] particular, essential fact." Bonnco Petrol, Inc. v. Epstein, 115 N.J. 599, 608 (1989) (quoting Beachcomber Coins, Inc. v. Boskett, 166 N.J. Super. 442, 446 (App. Div. 1979) (emphasis added)). Evaluation of a claim of mutual mistake or fraud requires the court to "look beyond the four corners of the contract." Conforti v. Guliadis, 128 N.J. 318, 327 (1992).

Santa Maria contends both parties operated under the same mistaken belief, that she was not the sole title owner of her home, in negotiating the settlement agreement. The record, including the terms of the agreement, belie this contention. Compton wanted security for Santa Maria's obligation and believed that Santa Maria's home was the appropriate collateral to provide security. Compton and her attorney suspected that Santa Maria was the sole owner. Compton's agreement to finalize the settlement in circumstances in which she could not confirm her belief that Santa Maria was the sole owner does not establish a mistaken belief by Compton that Santa Maria was not the sole owner. The insertion of paragraph 4(b) in the agreement evidences Compton's position that the parties both recognized the potential falsity of Santa Maria's representation.

Santa Maria's concurrence with the provision demonstrated her acknowledgment that the title status was uncertain. The parties did not share a mistaken belief that Santa Maria's ownership was joint. If both parties believed that, there would have been no reason to include paragraph 4(b). Santa Maria's attorney's uncertainty was shown by his ordering a title search after the mediation session, but before his client signed the agreement. The fact that the parties negotiated and agreed upon an alternative outcome depending on the title status supports the conclusion that the parties did not share a mistaken belief regarding ownership of Santa Maria's home.

Whether Santa Maria's representation of joint ownership was in good faith is not dispositive. She was a party to the deed conveying title into her sole name. For five years before the settlement agreement, she enjoyed that status and was living in the home. We do not know from this record whether she relied upon the May 23, 2005 memorandum from the title company in going forward with the agreement. The point is that the representation of joint ownership was a material inducement to Compton to agree to the lesser amount and less favorable payment provisions, and the parties agreed that if that representation was "proven false" an alternate amount and payment provision would apply. Whether the representation was intentionally or unintentionally false does not alter its materiality as a trigger for the enhanced settlement provision.

We are further unpersuaded by Santa Maria's argument that even if she was unilaterally mistaken as to the status of title, that mistake, combined with Compton's "fraud or sharp practices," should result in rescission or reformation of the agreement. A unilateral mistake by one party coupled with fraud or unconscionable conduct by the other will justify rescission or reformation of an agreement. St. Pius X House of Retreats v. Diocese of Camden, 88 N.J. 571, 577 (1982). We find unpersuasive Santa Maria's argument that Compton and her attorney conclusively knew at the time of the mediation session that Santa Maria was the sole title owner of her property, and that they withheld this information to gain an advantage in reaching the agreement. Santa Maria presents no evidence to support this contention. On the contrary, at the mediation session, Compton and her attorney raised the suspicion that Santa Maria was the sole owner of the property. They were not then in a position to confirm or rule out their suspicion. In order to bring the matter to a conclusion, they agreed, as did Santa Maria, to the alternate outcome arrangement provided in paragraph 4(b).

The disputed fact here, the title status to Santa Maria's home, is information more likely to be within Santa Maria's knowledge than Compton's. This is especially so because Santa Maria was a party to the deed conveying title into her sole name and lived in the property for five years at the time of the settlement agreement while it was in her sole name. No evidence supports the contention that Compton possessed and intentionally withheld superior knowledge of the title status of Santa Maria's home. We will not speculate that she did.

There is a strong public policy favoring settlement of litigation. Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). The parties are in the best position to determine how to resolve a contested matter in a way that is least disadvantageous to everyone. Dep't of the Pub. Advocate v. N.J. Bd. of Pub. Utils., 206 N.J. Super. 523, 528 (App. Div. 1985). Courts will therefore give effect to the terms of settlement agreements and enforce them whenever possible. Ibid. We have no hesitancy in upholding the enforcement of this settlement agreement. It was fully negotiated between represented parties with the aid of a mediator. The disputed provision, paragraph 4(b), was, for the reasons we have explained, fair, reasonable, and enforceable.

Affirmed.

 

The individual defendant is identified in the caption by her former name, Victoria Santa Maria Soanes. However, since her divorce from John Soanes, she apparently is now known as Victoria Santa Maria, and we will use that name in this opinion. Fusion Magazine, LLC, is also an appellant. However, we note that the judgment from which the appeal is taken is against Santa Maria only.

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A-1669-05T3

October 26, 2006