Telephone Dynamics Corp. v Morrisey

[*1] Telephone Dynamics Corp. v Morrisey 2005 NY Slip Op 51006(U) Decided on June 29, 2005 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on June 29, 2005
Supreme Court, Nassau County

TELEPHONE DYNAMICS CORP., Plaintiff,

against

MATTHEW MORRISEY and MB TELEPHONES, INC., Defendants,



8558-04



COUNSEL FOR PLAINTIFF

Scott Lockwood, Esq.

1600 Deer Park Avenue

Deer Park, New York 11729

COUNSEL FOR DEFENDANTS

Thaler & Gertler, LLP

900 Merchants Concourse

Suite 414

Westbury, New York 11590

Leonard B. Austin, J.

BACKGROUND

This action arises out of Defendants' alleged failure to pay a promissory note, with regard to the sale of Plaintiff's business located at 2475 Charles Court, Bellmore, NY. Plaintiff was engaged in the business of installing, setting up and selling telephone equipment.

By Contract of Sale, Rider and Additional Rider dated May 22, 2003, the parties agreed that the sale price of Plaintiff's telephone business was $375,000.00. After a deposit of $75,000.00, they agreed that the remaining $300,000.00 would be paid over time at the rate of seven (7%) percent per annum. The payment obligation was memorialized by a promissory note. The promissory note was secured by the personal guaranty of Morrisey, President of MB Telephone, dated May 22, 2002.

Dynamics asserts that Defendants breached the promissory note by not making the payments due thereunder. According to the note, an initial payment of $25,000.00 was to be made on November 22, 2002. That payment was never made.

Furthermore, Dynamics claims that Defendants agreed that monthly payments of $5,445.33 would be made from July 22, 2003 until June 22, 2008. Defendants thus far have failed to fulfill their obligations thereunder. The July 2003 payment was late. MB Telephones paid only $2,000.00 in each of September, October and November, 2003. No further payments have been made by the Defendants.

Paragraph 6 (a) of the promissory note for the sale of Dynamics, dated May 22, 2002, provides that MB Telephone would be in default when it breached any of the obligations pursuant to the promissory note and such default was not remedied within ten days. Furthermore, paragraph 6 (b) of the promissory note required that, in the event of a default, Dynamics was to give MB Telephone a five day written notice of the default.

Dynamics asserts that it sent a five day notice to cure on May 3, 2004, but Defendants failed to cure their default. As a result, Plaintiff claims that, pursuant to the terms of the promissory note and guaranty, the sum of $334,119.80 is now due and owing.

Defendants have interposed a counterclaim alleging fraud in the inducement.

DISCUSSION

Summary judgment is a drastic remedy which will be granted only when it is clear that there are no triable issues of fact. Alvaraz v. Prospect Hosp., 68 NY2d 320 (1986) and Andre v. Pomeroy, 35 NY2d 361 (1974). [*2]

The party moving for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law. Lesocovich v. 180 Madison Avenue Corp., 81 NY2d 982 (1993) and Zuckerman v. City of New York, 49 NY2d 557 (1980). Once the party seeking summary judgment has made a prima facie showing of the entitlement to judgment as a matter of law, the party opposing the motion must come forward with proof in evidentiary form establishing the existence of triable issues of fact or must demonstrate an acceptable excuse for its failure to do so. Zuckerman v. City of New York, supra; Davenport v. County of Nassau, 279 AD2d 497 (2nd Dept. 2001); and Bras v. Atlas Construction Corp., 166 AD2d 401 (2nd Dept., 1990).

Summary judgment should be denied if the court has any doubt as to the existence of a triable issue of fact. Kolivas v. Kirchoff, 14 AD3d 493 (2nd Dept. 2005); and Freese v. Schwartz, 203 AD2d 513 (2nd Dept.1994).

When deciding a motion for summary judgment, the court must view the evidence in a light most favorable to the non-moving party and must give the non-moving party the benefit of all reasonable inferences which can be drawn from the evidence. Negri v. Stop & Shop, Inc., 65 NY2d 625 (1985); and Erikson v. J.I.B. Realty Corp., 12 AD3d 344 (2nd Dept. 2004).

Plaintiff establishes a prima facie case by submitting proof of the existence of a promissory note executed by the defendant containing an unequivocal and unconditional obligation to repay and the defendant's default. Constructamax, Inc. v. CBA Associates, Inc., 294 AD2d 460 (2nd Dept., 2002); and Colonial Commercial Corp. v. Breskel Assocs., 238 AD2d 539 (2nd Dept., 1997). See also, Seaman-Andwall Corp. v. Wright Machine Corp., 31 AD2d 136 (1st Dept., 1968), aff'd, 29 NY2d 617 (1971); Chemical Bank v. Nemeroff, 233 AD2d 239 (1st Dept., 1996); and Key Bank v. Munkenbeck, 162 AD2d 503 (2nd Dept. 1990).

Once plaintiff has established a prima facie case, the defendant must come forward with evidence establishing the existence of triable issues of fact or a bona fide

defense. Colonial Commercial Corp. v. Breskel Assocs., supra; and Silber v. Muschel, 190 AD2d 727 (2nd Dept., 1993).

Plaintiff establishes a prima facie claim on a guarantee by establishing the existence of the underlying promissory note, the guarantee and the failure of the prime obligor to make the payments required by the promissory note. E.D.S. Security Systems, Inc. v. Allyn, 262 AD2d 351 (2nd Dept., 1999); and I.P.L. Corp. v. Industrial Power & Lighting Corp., 202 AD2d 1029 (4th Dept., 1994).

Once the plaintiff has established a prima facie entitlement to judgment as a matter of law on the guarantee, the defendant must establish through admissible evidence the existence of triable issues of fact or the existence of a viable defense to the action on the guarantee. See, Federal Deposit Ins. Co. v. Jacobs, 185 AD2d 913 (2nd Dept., 1992).

Defendants assert that there are several triable issues of fact in this case warranting denial of summary judgment. Defendants purchased Telephone Dynamics, allegedly relying upon the truth of the oral statements made by Plaintiff concerning the [*3]customer base and good will. They later learned that these statements, among others, were not true. As a result, Defendants claim that, at the closing, Plaintiff fraudulent misrepresented that: (1) Plaintiff had a customer base of approximately 1,500 valid customers; (2) there was no litigation or threat of litigation; (3) there was no issue with its employees or with any of its customers or accounts; and (4) Plaintiff had a distributorship agreement with Panasonic.

Based upon Plaintiff's alleged fraud, Defendants determined to stop paying the promissory note and counterclaimed for $500,000.00.

Paragraph 8(a) of the Contract of Sale contains a merger clause which provides:

PURCHASER acknowledges that SELLER has made no representations or warranties to PURCHASER, of any kind or nature whatsoever, including, but not limited to, the current or past sales of the selling corporation, its operating expenses, or any other matter or thing associated with the operation of the business other than as specifically set forth in this Agreement, and the PURCHASER has not relied on any such representations, including, but not limited to, those provided for by any broker or other source whatsoever. PURCHASER further acknowledges that he has had an opportunity to observe the operation of the business herein and accepts the same "as is". Notwithstanding the foregoing, SELLER represents that the fixtures and equipment shall be in working at Closing.

This clause clearly provides that Defendants did not enter into the contract in reliance upon any representations made by or on behalf of Telephone Dynamics. Such a clause bars this Court from entertaining evidence relating to the negotiation leading up to the agreement prior to its execution except as to fraud in the inducement. See, Mosca v. Kiner, 277 AD2d 937, 939 (4th Dept. 2000), where the Fourth Department held:

Although general merger clauses do not serve to exclude parol evidence of fraud in the inducement . . . specific disclaimers contained within an agreement can provide an effective defense against allegations in a complaint which assert that the agreement was executed in reliance upon oral misrepresentations (Schooley v. Mannion, 241 AD2d 677, 678). Here, any misrepresentations concerning the condition of the premises were specifically covered by the disclaimers in the contract of sale, which provided that Plaintiff had inspected the premises and was taking the premises 'as is' (see, McManus v. Moise, 262 AD2d 370, 372).

See also, Cohan v. Sicular, 214 AD2d 637 (2nd Dept. 1995); Castrol Inc. v. Parm Trading Co., 228 AD2d 633, (2nd Dept. 1996); and Chimart v. Paul, 66 NY2d 570 (1986).

Conclusory, unsubstantiated assertions will not suffice to defeat a motion for summary judgment. Barclays Bank of New York, N.A. v. Sokol, 128 AD2d 492, 493 (2nd Dept. 1987). "[A] party who signs a written contract 'is conclusively presumed to know its contents and to assent to them' the signer of a written agreement is conclusively bound by its terms unless there is a showing of fraud, duress or some other wrongful act on the part of the other party to the contract. see, Barclays Bank of New York v. Sokol, supra." Renee Knitwear Corp. v. ADT Security Systems, 277 AD2d 215, 216 (2nd Dept. 2000). A cause of action based upon fraud must be pleaded in detail. CPLR 3016 (b). See, Kaufman v. Cohen, 307 AD2d 113 (4th Dept. 2003); and Orix Credit [*4]Alliance, Inc. v. R.E. Mable Co., 256 AD2d 114 (1st Dept. 1998). In order to establish an action for fraud, a party must establish the knowing misrepresentation of a material fact and justifiable reliance on any such misrepresentation. See, Chimart v. Paul, supra; and Barclay Arms Inc v. Barclay Arms Associates, 74 NY2d 644 (1989). Defendants have not make a prima facie showing with regard to the cause of action based upon fraud. It is not clear from Defendants' submissions how they suffered harm as a result of the alleged fraud. Nor is it clear how Defendants relied upon the alleged misrepresentations and how the misrepresentations were false.

The alleged fraudulent misrepresentations were orally made at the closing. Defendants apparently failed to conduct any due diligence investigation to ascertain the bona fides of Plaintiff's claims. A key element to a fraud claim is detrimental reliance. See, Channel Master Corp. v. Aluminum Ltd Sales, Inc., 4 NY2d 403 (1958); and Brown v. Lockwood, 76 AD2d 721 (2nd Dept. 1989). Such reliance must be based upon a reasonable investigation and due diligence inquiry, Defendants' reliance was not reasonable. See, Cohen v. Cerrier, 243 AD2d 670 (2nd Dept. 1997).

Additionally, Defendants accepted the benefit of the bargain by making partial payments pursuant to the Contract of Sale and promissory note. See, Weinstein v. Weinstein, 109 AD2d 881 (2nd Dept. 1985). MB Telephone's payment when combined with its acceptance of the benefit of the contract without protest until the commencement of this action leads to the conclusion that Defendants ratified the

Contract of Sale. See, Sternlieb v. Normandie Nat'l Securities Corp., 263 NY 245 (1934).

Finally, the promissory note provides that, in the event of a default, Plaintiff would be entitled to recover costs and expenses incurred in enforcing the note including legal fees. Agreements to pay legal fees are enforceable. Arent Fox Linter Plotkin & Kahn, PLLC v. Lurzer GmbH, 297 AD2d 590 (1st Dept. 2002). Legal fees are awarded on the basis of quantum meruit. Simoni v. Time Line, Ltd., 272 AD2d 537 (2nd Dept 2000); and Borg v. Belair Ridge Development Corp., 270 AD2d 377 (2nd Dept. 2000). The question of legal fees is respectfully referred to a Special Referee to hear and determine the amount of legal fees Plaintiff is entitled to recover in connection with prosecution of this action.

Accordingly, it is,

ORDERED, that Plaintiff's motion for summary judgment against the Defendants Matthew Morrisey and MB Telephones, Inc. is granted; and it is further,

ORDERED, that Defendants' counterclaim is hereby dismissed; and it is further,

ORDERED, that the matter is respectfully referred to Special Referee Frank Schellace on July 27, 2005 at 9:30 a.m. to hear and determine all issues relating to the fair and reasonable attorney's fees to be awarded to Plaintiff's attorney; and it is further,

ORDERED, Plaintiff's attorney shall serve a copy of this order with Notice of Entry and a Note of Issue and shall pay the appropriate filing fees on or before July 13, 2005; and it is further,

ORDERED, that upon the Special Referee determining the fair and [*5]reasonable attorney's fees , the County Clerk, Nassau County shall enter a judgment in favor of the Plaintiff and against the Defendants, Matthew Morrisey and MB Telephone, Inc. in the sum of $334,119.80 together with interest at the rate of 6.75% per annum on the principal sum from November 23, 2003 to the date of entry of the judgment together with legal fees as determined by the Special Referee and costs and disbursements as taxed by the Clerk.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY ____________________________

June 29, 2005Hon. LEONARD B. AUSTIN, J.S.C.