Su Nam Bu v Sunset Park Deli of NY Corp.

[*1] Su Nam Bu v Sunset Park Deli of NY Corp. 2012 NY Slip Op 51584(U) Decided on June 13, 2012 Supreme Court, Kings County Schmidt, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 13, 2012
Supreme Court, Kings County

Su Nam Bu, Plaintiff,

against

Sunset Park Deli of NY Corp. and In Suk Cho, Defendants.



356/12



Plaintiff Attorney: E. Peter Shin, Esq., 158-14 Northern Blvd., 2nd Fl., Ste. UL2, Flushing, NY 11358

Defendant Attorney: Pro Se

David I. Schmidt, J.

The following papers numbered 1 to 7 read herein:

Papers Numbered

Notice of Motion/Order to Show Cause/

Petition/Cross Motion and

Affidavits (Affirmations) Annexed1-5

Opposing Affidavits (Affirmations)6

Reply Affidavits (Affirmations)7

Affidavit (Affirmation)

Other Papers

Upon the foregoing papers, plaintiff Su Nam Bu moves for an order, pursuant to CPLR 3212, striking defendants answer and granting summary judgment in favor of the plaintiff for the relief demanded in the complaint, less payments made.

The motion is denied.

Plaintiff commenced this action based on defendant In Suk Cho's default in making [*2]payments due on a promissary noted entered into between plaintiff and Cho on September 27, 2010. The promissary note was agreed to as part of Cho's purchase of a deli business from plaintiff for $220,000. Pursuant to the Stock Purchase Agreement (Agreement) governing the sale of the business, Cho was required to pay plaintiff $1,000 upon the execution of the agreement, $49,000 at the closing, and the remaining $170,000, as restated in the promissary note, was to be paid by way of a $50,000 lump sum payment on or before September 15, 2012, and 36 monthly installments commencing in March 2011. This promissary note was secured by a "Security Agreement" (also referred to as a "Chattel Mortgage") placing a lien on the property, fixtures, inventory, equipment and accounts receivable of the deli. Although Cho made the first six installment payments, it is undisputed that Cho's checks submitted for the seventh and eighth installments were returned for insufficient funds. Other than a $1,000 payment made after the action was commenced, Cho has failed to make any further payment required by the promissary note.

Plaintiff commenced this action in January 2011. In their answer, dated February 17, 2012, defendants asserted that plaintiff fraudulently misrepresented the income of the deli prior to the sale to be $15,000 to $17,000 per week, but that after defendants took over the business, the sales only averaged $11,000 to $12,000 per week. Shortly thereafter, plaintiff made this motion for summary judgment.

Turning first to plaintiff's motion for summary judgment on the promissary note, plaintiff has demonstrated her prima entitlement to judgment as a matter of law by demonstrating the existence of the note, the terms of repayment, and defendants' default in repayment (see Jin Sheng He v Sing Huei Chang, 83 AD3d 788 [2011]; Sce v Ach, 56 AD3d 457, 458 [2008]). The burden has thus shifted to defendants to come forward with sufficient evidence to raise a triable issue of fact (Jin Sheng He, 83 AD3d at 788; Sce, 56 AD3d at 458).

In addressing the fraudulent inducement defense, plaintiff and her husband, Yong Won Bu, submitted affidavits in which they asserted that, before the sale, that they had told Cho and her husband, Myung Won Bu, that, without accounting for lotto or ATM receipts, the deli's weekly gross sales ranged from $15,000 to $17,000 per week. Plaintiff, and her husband Yong Won Bu, whose affidavit is also before the court, both assert that the $15,000 to $17,000 figures represent a true and accurate accounting of the weekly gross business at the time shortly before the sale. Myung Won Bu also asserts that Cho and Kim did not raise the issue of the alleged misrepresentations until September 2011. Plaintiff has also submitted an affidavit from Michael Vazquez, an employee of the deli, who states that Cho and Kim fired him and two other deli employees around two weeks after they took over the operation of deli. Vazquez stated that around two weeks after he was fired, Kim rehired him, and that after he was rehired, he noticed that the new owners had difficulty operating the lotto machines, and that Kim lost business because of arguments he would get into with customers. Finally, plaintiff has submitted an affidavit from Hyun Chul Oh, who introduced [*3]the parties to the sale, and who asserted that he saw Kim at church around a month after sale, and Kim had told him that he had "introduced him to a very good store.'"

In opposition to the motion, Cho has submitted an affidavit from Kim, who asserts that he negotiated the purchase of the deli on his wife's behalf, and who claims that Yong Won Bu, plaintiff's husband (who negotiated the sale of the deli on the behalf of the plaintiff), represented that the deli's weekly sales ranged from $15,000 to $17,000. Although Kim concedes that he had an opportunity to observe the deli's operations before the purchase, he asserts that he was not allowed to inspect the cash register tapes or any books of the business. Further, Kim states that Yong Won Bu represented that the deli was a cash business, and that the books would not reflect its sales. In contrast to Yong Won Bu's claims, Kim asserts that the deli's sales for the first eighteen weeks after the sale averaged $11,000 to $12,000 per week.[FN1] Contrary to Yong Won Bu's assertion that the sales volume issue was not raised until September 2011, Kim claims that he raised the issue in July 2011, when he proposed returning the business to plaintiff. With respect to Vazquez's assertions, Kim states that he had previous experience operating a deli, that he quickly learned how to operate the lotto machine, and that he only had occasional arguments with customers. Kim adds that he had only made positive statements regarding the deli to Hyun Chul Oh because he did not want to create a scene at church in front of other church members.

The facts presented by defendants are sufficient to demonstrate the existence of factual issues with respect to the fraud in the inducement defense that warrant denial of plaintiff's motion. Initially, fraudulent inducement may properly be raised as a defense to payment of a promissary note. As the court stated in Slavin v Victor (168 AD2d 399 [1990]), "[p]romissary notes given in exchange for purchase of a business cannot be viewed in a vacuum where genuine issues of fact exist as to whether the transaction was induced by misrepresentation, even where the obligation is termed unconditional" (id. at 399 [internal quotation marks and citations omitted]; see also Sce, 56 AD3d at 459; Delmastro v Rescue Carting Corp., 2011 NY Slip Op 30725 [U][Sup Ct Suffolk County 2011]).

Likewise, the language of the parties' Agreement does not bar Cho's defense premised on fraudulent inducement. The Agreement provides that "This Agreement constitutes the entire contract between the parties. There are no oral representation (sic), understandings or agreements" (Agreement ¶ 8) and that "The parties acknowledge that there are no representations or warranties except as herein provided and that this agreement contains all the terms and conditions relating to the sale of the stock" (Agreement ¶ 10). Since these provisions do not specifically address representations relating to the deli's sales, they are general merger clause provisions, and thus do not bar parole proof of fraudulent misrepresentations (see Sabo v Delman, 3 NY2d 155, 160-162 [1957][general merger clause insufficient to bar parol proof of fraud in the inducement]; Joseph v NRT Inc., 43 AD3d 312, [*4]313 [2007]; Black Rock, Inc. v Z Best Car Wash, Inc., 27 AD3d 409, 409-410 [2006]; Cleangen Corp. v Filmax Corp., 3 AD3d 468, 469 [2004]; Culinary Connection Holdings, Inc. v Culinary Connection of Wesbury, 1 AD3d 558, 559 [2003], lv denied 3 NY3d 601 [2004]; cf. Citibank, N.A. v Plapinger, 66 NY2d 90, 94 [1985][specific disclaimer clause bars fraud in the inducement claim]; Danaan Realty Corp. v Harris, 5 NY2d 317 [1959]; Eklecco v Q of Palisades, LLC, 93 AD3d 1233, 1235 [2012]).

Kim's affidavit is also sufficient to allow a jury to infer that plaintiff fraudulently misrepresented the income of the deli prior to the sale. Namely, the inference may be drawn based on the difference between plaintiff's representation relating to the deli's sales prior to the sale and Kim's representations regarding the sales in the time immediately following the transfer that are supported by copies of his business ledgers (see Armstrong v Herman, 229 App Div 162, 165 [1930]; see also Hobart v Schuler, 55 NY2d 1023, 1024 [1982]; Yurish v Sportini, 123 AD2d 760, 761-762 [1986]; Westbury Small Business Corp. v Giglio, 122 AD2d 49, 49-50 [1986]; but see Great Neck Car Care Ctr. v Artpat Auto Repair Corp., 107 AD2d 658, 659 [1985], appeal dismissed 65 NY2d 606, 65 NY2d 857 [1985]; Van Alen v Trubenback, 159 NYS 153, 154 [App Term 1916]).[FN2] Plaintiff has submitted evidence through Vazquez's affidavit suggesting that the difference in income may have been the result of how Cho and Kim ran the deli after the sale. This evidence, however, does not preclude the fraudulent inducement defense as a matter of law given that plaintiff, other than through her conclusory assertions, has submitted no evidentiary proof supporting her representation relating to the deli's income prior to the sale. In addition, Kim's affidavit, to some extent, addresses Vazquez's assertions regarding the alleged mismanagement of the deli.

Other issues raised by the papers also fail to show that the fraudulent inducement defense must be rejected as a matter of law. Namely, Cho and her husband Kim do not appear to have consulted with counsel before purchasing the deli, and do not appear to be sophisticated business people. Further, the information relating to the deli's sales was "peculiarly" in the plaintiff's possession. Cho thus may not, as a matter of law, be deemed to have assumed the business risk of proceeding with the transaction without protecting herself better in the agreement, or obtaining more information relating to the deli's business before proceeding with the transaction (compare Yuris, 123 AD2d at 761-762; Hobart v Schuler, 78 AD2d 916 [1980], affd 55 NY2d 1023, 1024 [1982] with Clanton v Vasianelis, 187 AD2d 45, 46-48 [1993]; Curran, Cooney, Penney, 183 AD2d at 743; Great Neck Car Care Ctr., 107 AD2d at 659; see also Cleangen Corp., 3 AD3d at 469). Similarly, it does [*5]not appear that Cho's delay in seeking rescission was so long that she must, as a matter of law, be deemed guilty of laches, deemed to have ratified the transaction or otherwise deemed to have waived the right to seek rescission (compare Yorish, 123 AD2d at 762; Bernstein v Spatola, 95 AD2d 765 [1983] with Doby's Delicatessen v Brunkard, 202 AD3d 626, 627 [1994]; Great Neck Car Care Ctr., 107 AD2d at 659).

In sum, defendants have demonstrated that there are factual issues warranting denial of plaintiff's summary judgment motion.

This constitutes the decision and order of the court.

E N T E R,

J. S. C. Footnotes

Footnote 1: Kim has supported his assertions by providing copies of his ledger notations relating to the deli's business.

Footnote 2: The court notes that even if this evidence was insufficient to allow an inference regarding the deli's sales before the transfer, it would deny the motion as premature given that no discovery has taken place and given that the evidence relating to deli's sales prior to the transfer is in the exclusive control of plaintiff (see Evangilista v Kambaris, 74 AD3d 1278, 1279 [2010]; Hall Enters., Inc. v Liberty Mgt. & Constr. Ltd., 37 AD3d 658, 659 [2007]).