INTEK AUTO LEASING, INC. v. GHAZI GHARIB d/b/a LOACES MAC AUTO SALES; LOACES MAC AUTO SALES, INC.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5173-04T25173-04T2

INTEK AUTO LEASING, INC.

Plaintiff-Respondent

v.

GHAZI GHARIB d/b/a LOACES MAC AUTO SALES;

LOACES MAC AUTO SALES, INC.,

Defendants-Appellants,

and

SAMUEL LOPEZ and FELIX T. GUTIERREZ,

Defendants.

_______________________________________________________________

 

Submitted February 27, 2006 - Decided March 15, 2006

Before Judges Holston, Jr. and Gilroy.

On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-5835-03.

Meyner and Landis, attorneys for appellants (Linda T. Snyder, on the brief).

No brief filed on behalf of respondent.

PER CURIAM

Defendants, Ghazi Gharib and Loaces Mac Auto Sales, Inc. (Loaces), appeal from the Law Division's April 21, 2005 judgment entered in favor of plaintiff, Intek Auto Leasing, Inc. (Intek), and against defendants in the amount of $8,500 and dismissing plaintiff's claim against co-defendant, Samuel Lopez. We affirm in part, reverse in part and remand in part.

Intek is in the business of leasing motor vehicles. Loaces is a New Jersey corporation in the business of selling and repairing trucks. Gharib is the president and sole shareholder of Loaces. Lopez's livelihood is the delivery business. In June 2001, Lopez offered to purchase a used 1995 GMC truck for sale at Loaces. In turn, Loaces referred Lopez to Intek for financing of the truck.

Intek purchased the truck from Loaces on June 11, 2001 and on June 14, 2001 entered into a forty-eight month lease of the vehicle with Lopez in the amount of $26,187, with monthly payments of $609. Lopez was current on his lease payments until January 2002, when his truck became disabled. At that time $22,533 was outstanding on the lease.

On January 25, 2002, six months after entering into the lease, the truck broke down in upstate New York and was towed to Loaces for repair. Gharib, an experienced mechanic, examined the truck for about twenty minutes before making his repair diagnosis. Gharib provided Lopez with a signed written estimate to "overhaul" the engine in the amount of $3,500, with a required down payment of $2,000. Lopez made the required deposit as verified by the written estimate, which shows receipt by Loaces of $700 in cash and a $1,300 check.

Thereafter, Lopez visited Loaces on a daily basis, inquiring about its progress in making the repairs, as he was anxious to return to work and have a source of income for his lease payments. About twelve days after the truck had been towed to Loaces for repair, Gharib notified Lopez that after dismantling the engine to determine the extent of damage, he concluded that the engine was not repairable. Gharib found that the oil line had broken in two pieces, leaving no oil inside the engine, as a result of which it had seized, damaging the engine block and crank case.

According to Gharib's testimony, a new engine would cost "between eight to ten to eleven [thousand]." According to Gharib, he found a used engine with a one-year warranty. Gharib's testimony did not indicate the cost. According to Lopez's testimony, "the cheapest [used engine] that [Gharib] found was for $6,000." Gharib testified, however, that if Lopez bought the engine that he would install it for the $2,000 down payment. No written estimate was prepared.

Because Lopez could not afford to continue the lease payments and advance the cost of the purchase of a used engine, he consulted with Intek regarding financing for a used engine. According to Lopez and Paul Garfunkel, Intek's lending manager, Lopez was approved for refinancing of the loan, with a condition that prohibited the repair of the truck by Loaces. The loan condition was imposed because of a prior bad experience by Intek with Loaces.

Lopez was given three months abatement on his lease payments by Intek and together with Intek attempted to obtain possession of the truck so repairs could be completed by another company. Loaces, however, notified Intek by letter dated August 19, 2002 that it would not release the truck unless storage charges in the amount of $5,000 ($25 per day), retroactive to January 25, 2002, were paid. Loaces agreed, however, that storage charges would be waived provided Loaces did the repair work. Intek would not consent and release of the truck was not forthcoming until June 2003, when Intek finally took steps to repossess the cab, chassis and body of the truck. However, the engine, transmission, radiator, wire harnessings and other internal parts were missing from the vehicle. Thereafter, on June 18, 2004, as a result of Intek's demands, the transmission and engine parts, with the exception of the drive shaft, were delivered to Intek by Loaces.

Intek's used truck manager, Alvin Madwakins, testified that when the truck and engine were returned, the engine was broken into "little pieces." "When I say little pieces, every little part that could be unbolted was unbolted. The cab shaft was unbolted. The head was totally off. All the bolts were brought out, rock arms were dismantled. The engine was stripped down to the block -- engine block is the lower part of the engine -- was stripped." The various engine parts that had been taken apart by Loaces were also exposed to the elements and rusted, eliminating any salvageable value.

Intek sued Loaces and Gharib for damaging the vehicle beyond repair and Lopez for the balance due under the lease plus repossession charges. Loaces counterclaimed for storage charges. Lopez counterclaimed for indemnification and costs of defense.

The trial judge in a six-page written opinion found that the relationship between Intek and Lopez and Loaces and Gharib was that of bailor and bailee, that the bailment was one of mutual benefit, and that Loaces and Gharib failed to exercise reasonable care for the safekeeping of the truck, causing the truck to sustain damage. Specifically, the judge determined:

[t]he bailment was predicated upon a lawful . . . transaction voluntarily entered into between the defendants. The transaction to undertake the repair of the vehicle was consensual and [d]efendants Loaces and Gharib placed no limitations with either time, materials or the nature of the repair other than requiring the initial $2,000 deposit. Clearly, this was not a gratuitous bailment but one for mutual benefit. The circumstances relative to the release and delivery of the vehicle cannot obviate [d]efendant Loaces and Gharib's breach of their duty of care. The failure to timely release or notice plaintiff of the status of the vehicle, the dismantling of the vehicle engine beyond repair coupled with the lack of care for the parts to render them ostensibly unsalvageable, together constitutes negligent conduct on the part of these defendants.

The judge continued: "Defendants Loaces and Gharib are liable for their failure to exercise that degree of care which should be shown by a reasonabl[y] prudent bailee-mechanic under the circumstances. Additionally, the financial inability of [d]efendant Lopez to reclaim the truck is not contributory negligence."

The judge further determined that the credible proofs supported a damage award in favor of Intek and against Loaces and Gharib in the amount of $8,500, representing the cost of a used replacement engine in the amount of $6,500 and $2,000 for the cost of labor to place an engine into the vehicle. The judge rejected the testimony of Garfunkel that the measure of damages was $23,775.35, the balance due on the lease plus repossession charges, because the vehicle had no value in its present condition. The court stated:

[c]entral to any measure of damages is whether the parties took steps to mitigate the damages. The facts fail to support the identification of any steps taken by [p]laintiff to mitigate damages. To the contrary, [p]laintiff failed to take steps, during August 2002 to June 2003 to gain possession of the vehicle; no evidence as to the value of the vehicle or resale value and no evidence that any efforts had been extended to ascertain same nor was explanation offered. . . . This argument must be considered in concert with [d]efendant Lopez' argument that plaintiff failed to mitigate damages by good faith efforts to obtain the highest price for the collateral or offering testimony in support of why they have held the collateral in the absence of a sale.

The judge dismissed Intek's complaint as to Lopez and found that "N.J.S.A. 12:9-504(3) and companion provisions of the Uniform Commercial Code" were both instructive and controlling. The judge concluded:

An examination of the notice of default dated June 25, 2003, one month prior to the filing of the subject complaint, recites the amount of $23,775.35 as due and owing under the terms of the lease agreement. It is significant to note that this notice recites that "Vehicle still in inventory, not yet sold." Essential to the determination of defendant Lopez' liability, if any, is consideration of whether plaintiff breached the implied covenant of good faith and fair dealing that exists in every contract. Plaintiff is not seeking to recover a deficiency judgment but rather the full value of the lease agreement plus additional sums. The good faith and reasonable commercial standards set forth in our Uniform Commercial Code required plaintiff to at least make an attempt to dispose of the vehicle and seek any remaining values after appropriate credits were afforded to defendant Lopez. Thus, defendant Lopez was not afforded an opportunity for making any necessary arrangements for protection of his financial interest in the collateral and therefore to hold defendant Lopez liable for the value of the lease agreement would be manifestly unjust.

The judge additionally stated, "It is well worth noting that even though [p]laintiff acknowledge[s] that [d]efendant Lopez under the lease agreement is primarily responsible for payment to [p]laintiff[,] they attribute his default to the unlawful actions of the other defendants." The judge also determined that Intek had "failed to satisfy its burden of proof as to any ascertainable damage suffered by the negligent conduct of [d]efendants that equates with the value of the leasehold," i.e., the truck's value at the time it was returned to Intek by Loaces, but "clearly the vehicle's value had decreased due to the conduct of the [d]efendants Loaces and Gharib."

The judge concluded that the proofs do not:

support a finding of damages equal to the lease agreement amount plus the option fee, option to purchase, repossession fee and late charges that total the $23,775.35 amount that [p]laintiff demands. 'The law abhors damages based on mere speculation.' Lewis v. Read, 80 N.J. Super. 148 (App. Div.), certif. denied, 41 N.J. 121 (1963); Caldwell v. Hayes, 136 N.J. 422 (1994). The burden of establishing the existence of a fact or circumstance is on the party relying thereon. Snyder v. I. Jay Realty Co., 53 N.J. Super. 336 (App. Div. 1958). While [p]laintiff contends that their measure of damages is $23,775.35, the burden is clearly upon defendants to come forward with substantial credible evidence of such damages. The record does not contain such evidence. Considering the proofs as a whole and the credibility of the witnesses, this court finds the proofs warrant a finding in favor of plaintiff for the value of the engine and labor costs in the amount of $8,500.00. Defendant Lopez is discharged from payment of the loan since [p]laintff's burden as to liability and the value was not met.

Loaces and Gharib present the following arguments for our consideration:

POINT I

THE TRIAL COURT ERRED IN GRANTING JUDGMENT IN FAVOR OF PLAINTIFF IN THAT THE JUDGMENT WAS AGAINST THE WEIGHT OF EVIDENCE.

POINT II

PLAINTIFF SUBMITTED NO EVIDENCE TO SUPPORT ITS CLAIM THAT GHAZI GHARIB WAS INDIVIDUALLY LAIBLE.

"The scope of appellate review of a trial court's fact-finding function is limited. The general rule is that findings by the trial court are binding on appeal when supported by adequate, substantial, credible evidence." Cesare v. Cesare, 154 N.J. 394, 411-12 (1998). See also Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974).

I

The record here discloses that there was adequate, substantial, credible evidence to support the findings made by the trial judge as to the liability of Loaces to Intek and as to Intek's failure to prove the liability of Lopez to Intek or damages due from Lopez to Intek. We also are satisfied that the judge's finding of the quantum of damages from Loaces to Intek is supported by the evidence, if the order for judgment is reduced from $8,500 to $8,000 to conform to Lopez's testimony that the cost of a used engine according to Gharib is $6,000.

In Jasphy v. Osinsky, 364 N.J. Super. 13, 18 (App. Div. 2003), we determined that "a bailment is established when property is turned over into the possession and control of the bailee." "When a bailment has mutual benefit for the bailor and bailee, the bailee has a duty to 'exercise reasonable care for the safekeeping of the chattel bailed.'" Ibid. (quoting Parnell v. Rohrer Chevrolet Co., Inc., 95 N.J. Super. 471, 477 (App. Div. 1967)). We are satisfied that once the vehicle was delivered to Loaces and, based on a written estimate, $2,000 was paid to Loaces to repair the vehicle, Loaces thereafter became a bailee for the mutual benefit of Loaces, Lopez and Lopez's known principal, Intek, to which Loaces owed a duty to reasonably care for the vehicle and its engine parts. "Once a bailment exists and the loss of the goods while in the bailee's possession is established, a presumption of negligence arises, requiring the bailee to come forward with evidence to show that the loss did not occur through its negligence or that it exercised due care." Id. at 19.

Our decision in Parnell, supra, is factually similar and instructive. In Parnell, John Parnell, the owner of a 1962 Chevrolet, left his car on October 9, 1964 with defendant automobile agency for repairs, a "valve job," for which the plaintiff was charged $134.88. Id. at 476. Plaintiff was notified October 14, 1964 that the car was ready but he did not pick it up until November 9, 1964 because he did not have the money to pay the bill and Rohrer refused to release the car without payment. Ibid. While waiting to be picked up, the car was kept in a large cyclone-fenced enclosure behind the Rohrer building, which was locked at night. Ibid. When plaintiff called for the car, he was told it had been stripped of four wheels and tires, the rear axle and rear end, battery, transmission, carburetor, radiator and manifold distributor valve cover when a vandal apparently gained access to Rohrer's lot by cutting a hole in the fence. Ibid. A stipulated repair bill for labor, parts and rehabilitation of the car was $1,662.84. Ibid.

Liability against Rohrer, for its asserted negligence as a bailee in safekeeping plaintiff's car, depended on the nature of the bailment. Id. at 477. If the bailment were one for the mutual benefit of the bailor and bailee, the duty owed the bailee is to exercise reasonable care for the safekeeping of the chattel bailed. Ibid. Rohrer, however, contended that it was merely a gratuitous bailee at the time of the loss because a reasonable time after completion of the repairs had elapsed without Parnell taking the car and thereafter the bailment was only for the benefit of the bailor and thus the lesser duty of a gratuitous bailee applied. Ibid.

We disagreed and determined that the bailment was still one for mutual benefit, since Rohrer had a security interest in the car of a garage keeper's lien for the amount due it. Ibid. Thus, Rohrer retained sufficient interest in the property to continue the character as one for mutual benefit until the loss. Ibid.

In this case, Loaces retained Lopez's $2,000 deposit for repairs and indeed has never refunded it. Additionally, as a result of Loaces disassembly of the engine, the truck was rendered undriveable and the removed engine parts were not carefully stored but left to rust and deteriorate.

Under a mutual benefit form of bailment, once a bailment exists and there is a loss of goods while in the bailee's possession, "a presumption of negligence arises, requiring the bailee to come forward with evidence to show that the loss did not occur through its negligence or that it exercised due care." Jasphy, supra, 364 N.J. Super. at 19.

The photographs of the engine parts when they were returned, as testified to by Madwatkins, demonstrate that the damage to the vehicle occurred while in the possession of Loaces and that Loaces failed to come forward with evidence sufficient to dispute the presumption of negligence in the vehicle's safekeeping. We are also in agreement with the judge's finding that Lopez could not reasonably be found comparatively negligent by his financial inability to pay for a used replacement engine. See Parnell, supra, 95 N.J. Super. at 478 ("[P]laintiff could not reasonably be accounted contributory negligent by mere reason of his financially inability to reclaim his car sooner.").

We are likewise convinced that while not stating so explicitly, the court, as a result of determining Loaces liable for breach of the bailment that had been created for the parties' mutual benefit, inferentially determined that Loaces was not entitled to storage charges. Such a finding is supported by the evidential record.

The judge correctly determined that Intek failed to satisfy its burden of proof that Lopez was liable to it for damages in the amount of the balance due on the lease plus repossession charges. The court stated,

The evidence introduced in support of the alleged damages is a dismantled vehicle and accompanying damaged and corroded parts. There are no facts offered that would be independently provable by extrinsic evidence apart from speculation and unreliable estimates, that the value of the vehicle is evidenced by the lease agreement. Moreover, paragraphs 14(c) and 20 of the lease agreement contain provisions that not only recite the value of the lease but include some measure of profits. They have failed to rebut the presumption that the value of the collateral is equal to the amount of the debt.

In Security Savings Bank, SLA v. Tranchitella, 249 N.J. Super. 234, 245 (App. Div. 1991), we held:

that the creditor who does not dispose of collateral in a commercially reasonable manner . . . must . . . overcome the presumption that the value of the collateral at least equaled the debt it secured. The presumption may be overcome by introducing independent proof of the fair and reasonable value of the collateral . . . and comparing it with the price achieved at the actual sale. Similarly, the debtor should be afforded opportunity to present such independent proof of value.

In this case, Intek has not repaired the vehicle or attempted to sell or lease it in a commercially reasonable manner. There is, therefore, no basis to determine what, if any, deficiency remains after giving Lopez due credit for any change in market value due to Intek's delay in repossessing the vehicle and effectuating repairs. There was no evidence presented rebutting the presumption that the value of the truck was equal to the debt owed. See also Block v. Diana, 252 N.J. Super. 650, 657 (App. Div.), certif. denied, 127 N.J. 564 (1992).

II

We are convinced, however, that the court erred in granting judgment against Gharib individually. The uncontradicted testimony of Gharib was that Loaces is a New Jersey corporation with the corporate name, Loaces Mac Auto Sales, Inc., and is engaged in the business of selling and repairing trucks. The corporation has been doing business for over thirteen years. Gharib is the corporate president and the corporation's sole shareholder.

Loaces had prior business dealings with Intek and Intek always dealt with Loaces under its corporate name. Gharib never dealt with Intek on a personal basis but rather as Loaces Mac Auto Sales. There is, thus, no evidence in the record that refutes Gharib's contention that Intek knew Loaces was a corporation. Indeed, Intek's complaint specifically named Loaces Mac Auto Sales, Inc. as a defendant. Lopez testified that he recognized that Loaces was a corporation and that Gharib was its president.

Intek submitted no proof that Gharib acted in any capacity other than as president of Loaces or that Intek believed it was dealing with Gharib in his individual capacity. The only testimony was by Garfunkel, who stated that he addressed a letter to Gharib, Loaces Auto Sales, because it was the name that was given to him. Garfunkel testified that he was familiar with the company, Loaces Mac Auto Sales, Inc., by reputation and that he only knew Gharib from the matter before the court. Moreover, Garfunkel did not know why Gharib was sued individually.

It is well-settled that a corporation is considered a separate entity from its shareholders. Lyon v. Barrett, 89 N.J. 294, 300 (1982). In the absence of fraud or injustice, a court will generally not pierce the corporate veil. State v. Arky's Auto Sales, 224 N.J. Super. 200, 207 (App. Div. 1988). There is no question that Intek did not offer any proof of fraud or injustice by Gharib. As noted by the court: "[T]he burden of establishing the existence of a fact or circumstance is on the party relying thereon." Snyder v. I. Jay Realty Co., 53 N.J. Super. 336, 347 (App. Div. 1958), aff'd in part, rev'd in part, 30 N.J. 303 (1959). In this case, no such circumstances were shown.

The judge failed to address the issue of the personal liability of Gharib in her decision. Nevertheless, the judge entered judgment against Gharib individually. Because plaintiff presented no evidence demonstrating why Gharib should be held individually liable, we are convinced the judgment against Gharib must be vacated.

Accordingly, we affirm that part of the April 21, 2005 judgment that entered liability in favor of Intek Auto Leasing, Inc. against Loaces Mac Auto Sales, Inc. and which dismissed the claim against Samuel Lopez. We reverse the entry of judgment against Ghazi Gharib individually, and we remand the matter for entry of an amended judgment in favor of Intek Auto Leasing, Inc. and against Loaces Mac Auto Sales, Inc. in the amount of $8,000 to conform to the testimonial evidence at trial.

 
Affirmed in part, reversed in part, and remanded in part.

Neither Intek nor Lopez filed briefs in this appeal. Defendant, Felix T. Gutierrez, was never served and did not participate in the trial below.

The judge in her opinion indicated that Gharib testified that a used engine would cost $6,500. Although our thorough search of the record does not corroborate that finding, the written closing statement of Intek's counsel states erroneously, "the only testimony offered by Mr. Gharib regarding the cost of repair is that a [used] engine could be found for $6,500." Additionally, the affidavit of Lopez in opposition to Loaces and Gharib's motion for summary judgment deposes, "After 4 months went by, he said he had located a motor that cost $6,500.00." We speculate only that these sources may be the reason for the judge's finding in that respect.

(continued)

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A-5173-04T2

March 15, 2006