PETER VIGLIONE et al. v. MICHAEL FAVA

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-6065-04T16065-04T1

PETER VIGLIONE and H. NUTILE &

COMPANY, a New Jersey Corp.,

Plaintiffs-Respondents,

v.

MICHAEL FAVA,

Defendant-Appellant,

and

WILLIAM P. HORAN,

SOUTH PATERSON DEVELOPMENT, LLC,

a New Jersey Limited Liability

Company, SUPERIOR PRODUCE EXCHANGE,

LLC,

Defendants,

and

MICHAEL FAVA,

Third-Party Plaintiff,

v.

TAWAB NASERY,

Third-Party Defendant.

_____________________________________

 

Submitted: March 21, 2006 - Decided April 10, 2006

Before Judges Skillman and Axelrad.

On appeal from the Superior Court of New Jersey, Law Division, Passaic County, L-3923-03.

Vivino & Vivino, attorneys for appellant (Raymond S. Vivino, on the brief).

William Goldberg, attorney for respondents.

PER CURIAM

Defendant Michael Fava, guarantor on a note, appeals from denial of his motion for summary judgment and, following a bench trial, from the judgment entered in plaintiffs' favor and dismissal of his counterclaim and third party complaint. We affirm.

In May 2001, plaintiffs H. Nutile and Company, a wholesale produce distributor, and its president Peter Viglione entered into an agreement with appellant, defendant William Horan and third-party defendant Tawab Nassery to sell its business assets and realty for the sum of $1,100,000. The agreement provided for the seller to finance $200,000 of the purchase price, secured by a mortgage and a note containing the buyers' personal guarantees, and was subject to the buyers obtaining the balance of the financing from the Small Business Administration (SBA). In order for the buyers to obtain SBA financing, however, the cash and debt mix had to be restructured, and in order to save the deal, the seller agreed to increase its loan to $450,000.

At some point the buyers formed defendant South Paterson Development, LLC. The deal closed on October 15, 2001, and the seller loaned the buyers $450,000, evidenced by a contemporaneously executed financing agreement, note and mortgage. The financing agreement provided for a note at eight percent interest, with payments to be deferred for twenty-four months, and thereafter to be payable over a five-year period. The agreement further provided that each of the three principals would personally guarantee one-third of the debt. The unsecured term promissory note tracked the terms of the financing agreement, including the personal guarantees. It also contained the following additional clause inserted in accordance with the SBA "standby agreement" contained in the buyers' commitment, which is the focus of this appeal:

Repayment is conditioned upon the Maker achieving and maintaining a 1.25 Debt Service Coverage Ratio as required by the terms of the SBA Loan Authorization No. PLP 461-957-4004, Paragraph No. 6a.

Superior never met this ratio, ceased operation and became insolvent by October of 2002. Pursuant to a lawsuit by various creditors in federal court, in the spring of 2003 Superior was enjoined from conducting business, was ordered to place its cash assets in trust and was directed to sell the real property it had acquired from the seller. On April 23, 2003 plaintiffs sent default notices to appellant, Horan and Nassery. Plaintiffs thereafter filed a three-count complaint alleging breach of the sales contract by all defendants and breach of the guarantees by appellant and Horan. The limited liability corporation defendants were never served and were dismissed from the action for lack of prosecution.

Appellant asserted a variety of defenses and counterclaimed against Viglione and Nutile for misrepresentation, seeking rescission. He also cross-claimed against Horan for indemnification and contribution and filed a third-party complaint against Nassery as CEO of the limited liability corporations for breach of contract and an accounting.

Both parties moved for summary judgment. Appellant argued that the above cited SBA clause created a condition precedent to repayment of the debt, i.e., the existence of the obligation to repay was contingent upon the business achieving a l.25x DSCR. Since the requisite ratio was never met, appellant contended that, as a matter of law, both the debtor and guarantors were absolved of any repayment obligation under the note. By order of February 23, 2005, Judge Waks denied both motions.

Judge Miniman thereafter presided over a two-day bench trial. By written opinion of June 8, 2005, the court rejected appellant's interpretation of the SBA language in the note as "nonsensical, flying in the face of common sense and the whole of the sale documents." The court observed that appellant, Horan and Nassery's intention to guarantee the indebtedness was set forth in both the financing agreement and the promissory note and that neither of the guarantees contained any language that created an exception to liability if the designated DSCR was not achieved. The judge commented that "[i]t strains credulity to suggest that Viglione would take $450,000 of debt, which is more than 80% of the net to him from the sale of the business, with no right to collect a penny of it if the new owners did not achieve a l.25x DSCR."

Judge Miniman found that the SBA clause was inserted in the note as a timing provision to defer payment in the event that after two years Superior did not achieve the 1.25x DSCR but did not absolve the debtor of its obligation. Under the financing agreement executed contemporaneously with the note, the duty to repay accelerated upon default, even if the ratio was never achieved. She concluded:

It is entirely clear from all of the documents that the standby agreement was just that, an agreement to stand by and give the buyers 24 months to get on their feet financially with the business and to give priority to repayment of the SBA loan. It was not a contingency that had to be met in order to declare a default and recover a judgment. As a result, because there were three events of default - insolvency, sale of the real estate, and appointment of the [federal court] trustee - which were not contingent upon the 1.25x DSCR, Viglione and Nutile are entitled to a judgment on the guarantees.

The court also rejected appellant's offsetting claims against Viglione and his third-party claims against Nassery for lack of proof. The court's decision was memorialized in an August 29, 2005 judgment against appellant in the amount of $193,758.90 plus counsel fees and costs, representing his one-third share of the outstanding debt. This appeal ensued.

Appellant's challenge to the denial of his summary judgment motion does not have sufficient merit to warrant any additional discussion. R. 2:11-3(e)(1)(E). We are not persuaded by any of appellant's challenges to Judge Miniman's rulings and affirm substantially for the reasons set forth in her comprehensive written opinion of June 8, 2005.

 
Affirmed.

Defendant Superior Produce Exchange, LLC was its successor.

We note the promissory note and mortgage are dated October l6, 2001; however, there is no claim they were not executed at closing.

The formula is Net Profit + Non-cash expenses

Debt

The ratio is often used by creditors to determine the ability of a business to repay loans.

Plaintiffs intervened in the federal action, which was still pending as of the time of the trial court's judgment.

Both Horan and Nassery were served and placed in default.

(continued)

(continued)

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A-6065-04T1

April 10, 2006