CRAIG J. SPENCER, et al. v. t/a TWIN ELECTRIC

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3563-03T53563-03T5

CRAIG J. SPENCER, d/b/a CRAIG

SPENCER CONSTRUCTION;

MICHAEL EAGLES d/b/a EAGLE

EXCAVATING; and MITCHELL PAGE

t/a TWIN ELECTRIC,

Plaintiffs-Appellants,

v.

LONG VALLEY INN, INC., a New

Jersey Corporation, JACK

BORGENICHT, an individual,

Defendants-Respondents,

and

THE MPH GROUP, INC., a New

Jersey Corporation, Individually,

and d/b/a LONG VALLEY PUB AND

BREWERY, GEOFFREY B. PRICE, and

WILLIAM B. MAGENHEIMER,

Defendants.

______________________________________

 

Submitted September 26, 2005 - Decided

Before Judges Parrillo, Holston, Jr. and Gilroy.

On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. MRS L-2183-96.

Mandelbaum, Salsburg, Gold, Lazris, Discenza & Steinberg, attorneys for appellants Craig J. Spencer and Michael Eagles; (Avrom J. Gold, of counsel; Mr. Gold and Ricki Anne Sokol, on the brief).

Gebhardt & Kiefer, attorneys for respondents Long Valley Inn, Inc., and Jack Borgenicht (Joseph F. Trinity and Leslie A. Parikh, on the brief).

PER CURIAM

Plaintiffs, Craig J. Spencer (Spencer), a mason contractor, and Michael Eagles (Eagles), an excavating contractor, appeal from an order of final judgment entered on January 23, 2004, after a jury trial, awarding plaintiffs damages and prejudgment interest against defendants Jack Borgenicht (Borgenicht), and Long Valley Inn, Inc. (LVI). For reasons expressed, we affirm.

This action, by order of March 9, 1997, was consolidated with two Chancery matters filed under Docket Nos. MRS-C-263-95 and MRS-C-254-96, and stayed by the same order pending resolution of the Chancery proceedings. Because the trial and the issues of the present matter are intertwined with the trial and resolution of the Chancery proceedings, we set forth the following procedural and factual history relating to both matters.

In 1993, Borgenicht, through a wholly owned company, LVI, owned a tract of land in Long Valley, Washington Township, Morris County, on which was located three different businesses consisting of a neighborhood bar, a seafood restaurant and a Chinese restaurant. The neighborhood bar was owned by LVI and the other two restaurants were operated by third parties who paid LVI or Borgenicht rent, including a percentage of gross revenues. The three establishments were covered by a single alcoholic beverage license owned by LVI. Also located on the property was a 200 year old barn.

In 1993, defendants, William Magenheimer (Magenheimer), a bank officer, and Geoffrey Price (Price), approached Borgenicht regarding their leasing and renovating the barn into a microbrewery/restaurant (microbrewery). Magenheimer and Price were equal shareholders in a corporate entity known as the MPH Group, Inc. (MPH). On September 22, 1994, a lease agreement was entered into between MPH, as lessee, and LVI and Borgenicht, as lessor, granting MPH a thirty-year lease with the right to open a microbrewery on the site. MPH was responsible for renovation of the barn and for operating the business. MPH had the right to use the liquor license owned by LVI for the microbrewery. In return, MPH agreed to pay LVI and Borgenicht rent. Borgenicht only wanted to be a landlord, deriving revenue from rent, and had no desire to own, operate, or be affiliated with the microbrewery.

In the interim, Magenheimer and Price reached an understanding whereby Magenheimer would be responsible for financial planning, management and organizing the project, including raising investment capital. Price was responsible for the hands-on work including supervision and construction. Initially, Price engaged Lloyd Wolencheck, t/a Concept Renovations, as the general contractor for the project. In September 1994, Wolencheck was discharged, and Price appointed Eagles to serve as general contractor. Magenheimer raised between $400,000 and $500,000 from various investors, and MPH issued promissory notes to the investors. Work commenced on the project in early 1995 after MPH obtained necessary governmental approvals for the renovation of the barn.

In April 1995, the principals of MPH and LVI agreed to convert the lease into two contracts. Under the first contract, MPH agreed to purchase from LVI the entire tract of land with all buildings thereon for the sum of $1,500,000. Under the second contract, MPH agreed to purchase the liquor license from LVI for an additional $1,000,000.

In May or June 1995, MPH commenced to have financial problems requiring it to raise additional investment capital. Spencer advanced $25,000 to MPH and received from MPH a promissory note, with interest at the rate of 15% per annum, with payment due in November 1995. MPH used the funds to meet obligations with other contractors working on the project. Financial problems continued requiring MPH to raise additional funding. Borgenicht, through LVI, agreed to commit $950,000 to the project. In consideration therefore, the parties agreed that the two contracts to purchase for $2,500,000 were void; and Borgenicht and LVI assumed the right to complete the construction of the microbrewery. Price continued to manage the project and relieved Eagles of his duties as general contractor. In August 1995, Price entered into a written construction agreement with Spencer for Spencer to construct a brick and masonry patio outside the microbrewery for $34,600, with an amendment for additional work in the amount of $3,900. The agreement required that if payment was not made within thirty days of completion, Spencer was to receive interest on the balance due at 18% per annum.

In August 1995, Borgenicht met with the contractors, including Spencer and Eagles, advising of his control of the project and assuring them that they would be paid for their work. In September 1995, Price and Eagles agreed that Eagles, as partial payment for his service, would receive a promissory note from MPH in the amount of $65,000 payable in September 1997, with interest at the rate of 15% per annum. Price signed, and delivered the note on behalf of MPH.

In September 1995, the New Jersey Division of Alcoholic Beverage Control (Division) was concerned how the June 1995 restructuring of the business affected the indebtedness owed to the investors. At this time, Price and Magenheimer each owned one-half share of LVI. Magenheimer and Price advised the investors that they needed to reissue new notes to satisfy the Division. New notes were issued to the investors by Magenheimer and Price, not MPH or LVI.

The microbrewery opened on October 6, 1995. On October 10, 1995, Borgenicht ordered Magenheimer to leave the premises. Magenheimer filed a complaint in Chancery in December 1995, under Docket No. MRS-C-263-95 against Borgenicht, LVI, Price, Long Valley Pub and Brewery and others, asserting his interest in the microbrewery, together with a claim for damages. A second suit was filed in Chancery in 1996 under Docket No. MRS-C-254-96 by the investors asserting a claim for ownership, together with damages against the same defendants and Magenheimer. Price continued to operate the microbrewery for LVI and Borgenicht until October 1996, when he was dismissed by Borgenicht. Price then joined in Magenheimer's action against Borgenicht and LVI.

On June 25, 1996, Spencer, Eagles and a third contractor instituted the present action in the Law Division under Docket No. MRS-L-2183-96 for payment on their invoices for labor and materials rendered on the project, and payment on the two promissory notes. This action, together with several other book account actions by other contractors, was consolidated with the Chancery actions under Docket No. MRS-C-263-95 by the case management order entered by Judge Stanton on March 9, 1997. The order also stayed the Law Division actions, pending further order of the court after completion of trial in the Chancery matters resolving the ownership interests to the microbrewery.

Following a bench trial, Judge Stanton issued an oral decision on March 13, 2000, concluding that Borgenicht and LVI owed an obligation to consider the interests of Magenheimer and Price fairly, and that all four parties owed an obligation to consider the interests of the Muenzen Investors fairly; and as such, the court fashioned a remedy which was reduced to a consent judgment entered on May 17, 2000, signed by counsel for all parties, as to both form and substance.

The consent order granted Price, Magenheimer and MPH an option to purchase the entire property and liquor license from Borgenicht and LIV pursuant to the terms of the two contracts entered into between the parties on April 18, 1995, for the original agreed price of $2,500,000, together with an additional $950,000, representing funds invested by Borgenicht. Price, Magenheimer, and MPH were required to obtain a firm lending commitment to finance the purchase on or before July 31, 2000. If they failed to obtain the necessary financing commitment, then the Muenzen Investors were granted an option to purchase the property and liquor license for the same price provided they obtained a lending commitment by September 15, 2000. Concerning the contractor's claims, the consent order provided in Paragraphs 12, 13, 14, and 15 as follows:

12. Should either [Magenheimer, Price and MPH] or [Muenzen Investor Plaintiffs] close title, [they] shall be responsible to adjust, pay or otherwise resolve all pending and future claims of any and all contractors, subcontractors, or materialmen relating to the renovation, construction, and furnishing of the Brew Pub, including the claim on the note issued by Magenheimer, Price and/or MPH Group, Inc. to Michael Eagles (in the principal amount of $65,000), and all current and future claims which are or may be consolidated with this action in accordance with paragraph 7 of the Order of March 9, 1997 (collectively, the "Contractors' Claims"); provided, however, that by this assignment of liability, the Court is not adjudicating the Contractors' Claims, but only fixing liability in the event these claims are appropriately proved. The claims of libel asserted by certain contractors against Seller and the claim of Craig Spencer upon a note in the amount of $25,000.00 issued by MPH and guaranteed by Magenheimer and Price are not to be deemed to be "Contractors['] Claims" are not resolved by this Consent Judgment, and are reserved for future disposition by the Court.

13. In the event that [Magenheimer, Price and MPH] or [Muenzen Investor Plaintiffs] close[] title, all Contractors' Claims shall be deemed to be automatically dismissed with prejudice and without costs as against Defendants Borgenicht, Long Valley Inn, Inc., and Donald P. Fedderly.

14. In the event that [Magenheimer, Price and MPH] or [Muenzen Investor Plaintiffs] close[] title, all claims of Price, Magenheimer, MPH, and the Muenzen [Investor] Plaintiffs against Defendant Donald P. Fedderly shall be deemed to be automatically dismissed with prejudice and without costs.

15. In the event that neither [Magenheimer, Price and MPH] nor Muenzen Investor Plaintiffs close[] title, Seller shall remain responsible to adjust, pay, or otherwise resolve all Contractors' Claims, and all such claims shall be deemed to be automatically dismissed with prejudice and without costs as against Defendants Price, Magenheimer and MPH Group, Inc.

Because neither option holders were able to obtain the necessary financing to purchase the property, on November 5, 2000, Judge Stanton entered an order terminating the rights of Price, Magenheimer, MPH, and the Muenzen investors to purchase the property, including the microbrewery and liquor license. The net effect of the order confirmed that the ownership of the land, buildings and businesses, including the microbrewery, remained in Borgenicht and LVI. On January 27, 2001, an order was entered lifting the stay of the Law Division matters and transferred them back to the Law Division for trial. All claims settled except for those of Spencer and Eagles.

After a seven-day jury trial before Judge Cramp, the jury returned a verdict in favor of Spencer in the amount of $42,911 and in favor of Eagles for $147,300. Plaintiffs moved for an award of prejudgment interest from either the date the work was completed, January 1, 1996, or in the alternative, the date the complaint was filed, June 25, 1996. Spencer also sought interest on the patio contract claim at the contract rate of 18% per annum. By written opinion of December 31, 2003, Judge Cramp awarded prejudgment interest only from November 5, 2000, the date of the order dismissing the claims of Price, Magenheimer, MPH and the Muenzen Investors that confirmed ownership of the property in LVI and Borgenicht, and directed that interest be calculated at the rate provided by R. 4:42-11.

On appeal, plaintiffs argue that the trial judge erred: 1) directing that prejudgment interest is to run only from November 5, 2000, rather than January 1, 1996, or June 25, 1996, and only at the rate permitted by court rule; 2) barring the admission into evidence of the $65,000 note held by Eagles; and 3) dismissing Spencer's claim on the $25,000 note held by Spencer.

I.

Plaintiffs contend that the court should have awarded prejudgment interest without interruption from either January 1, 1996, the date the work was completed, or June 25, 1996, the date of filing of the complaint. Plaintiffs argue that the trial judge erred in his letter opinion wherein he held in part that prejudgment interest "is in essence a penalty or in the nature of a penalty," citing Tobin v. Jersey Shore Bank, 189 N.J. Super. 411, 415 (App. Div. 1983). Plaintiffs assert that the trial judge did not make findings of fact in support of his opinion that interest should accrue as of the date of Judge Stanton's November 5, 2000, order. While it is unfortunate that the trial judge referenced the aforementioned phrase of Tobin, out of context, we conclude that the date fixed for accruing of prejudgment interest was equitable under the facts of this case.

Prejudgment interest on contract claims is allowed in accordance with equitable principles, not as a matter of law and is not to constitute a penalty. See N, Bergen Rex Transp., Inc. v. Trailer Leasing Co., 158 N.J. 561, 575 (1999); Bak-A-Lum Corp. of Am. v. Alcoa Bldg. Prods., Inc., 69 N.J. 123, 131 (1976). The exercise of the court's discretion regarding prejudgment interest will not be disturbed on appeal unless it constituted a manifest denial of justice. In re Estate of Lash, 169 N.J. 20, 34 (2001).

The trial judge's decision to commence prejudgment interest from November 5, 2000, was based on the judge's determination that this was the date of the Chancery order that settled: 1) the question of ownership in the property; and 2) the legal obligation to pay contractors' claims for work performed on the project. Up until that date, pursuant to the terms of a consent judgment entered in the consolidated Chancery/Law Division action, either one of the two sets of plaintiffs in the Chancery proceedings who held options under the terms of the order, could have purchased the property and would have been the party obligated to satisfy the debts of the contractors, not Borgenicht or LVI. This fact was recognized by the trial judge:

[T]wo groups of investors were given the opportunity to bid on the restaurant, and if they had been successful in obtaining sufficient investors to make the appropriate bid, they would have owned the property and would have been obligated to pay these plaintiffs [Spencer and Eagles]. A second group was offered a second opportunity to raise sufficient funds to make a bid on the project, and if they were unsuccessful, then this defendant [LVI and Borgenicht] would end up owning the property and owe the plaintiffs.

. . . .

[A]ny determination in the awarding of interest is subject to the overriding consideration that interest should be allowed in accordance with principles of equity in order to accomplish equity in each particular case, and that the equities may demand consideration for the period of time that defendants withheld the payments of the debt from the plaintiff after they received the avails of the service. In determining this question, the Court must take into consideration that during a period of time after the work was done, there was simply no ability of the defendant to pay the claims since the ownership interest was in dispute, and since defendant[s] would not have been obligated to pay any of the charges unless the other investors failed to obtain sufficient funds to make a bid. The [c]ourt is satisfied in this case that there was sufficient question about the contracting party that was involved here, sufficient question about the right of this defendant to make the payment during the time that ownership was in question, that fairness and equity requires that the prejudgment interest start to run at the time that defendant achieved ownership of the property . . . .

We conclude that there was no abuse of discretion by the judge in assessing prejudgment interest from November 5, 2000.

Plaintiffs also contend that the judge should have awarded prejudgment interest to Spencer on his claim for damages for services performed and materials rendered on the patio contract at the contract rate of 18%, rather than the rate fixed by R. 4:42-11. Plaintiffs argue that the contract provisions setting forth a specific interest rate should be enforced against parties to the contract. While we acknowledge the general principle cited, we determine that it is not applicable to the present matter.

In New Jersey, the rate at which prejudgment interest is calculated is within the discretion of the court. Musto v. Vidas, 333 N.J. Super. 52, 74 (App. Div. 2000). Barring unusual circumstances, an award of prejudgment interest for breach of contract cases should be made in accordance with R. 4:42-11. Benevenga v. Digregorio, 325 N.J. Super. 27, 35 (App. Div. 1999), certif. denied, 163 N.J. 79 (2000). Here, there are no unusual circumstances justifying an application of the contract rate because neither LVI nor Borgenicht were parties to the contract at the time it was entered into. Nor does the 2005 consent judgment lend support to plaintiffs' claim. Paragraph 15 of the consent judgment provides that if neither the Muenzen Investors nor MPH (Price and Magenheimer) are able to purchase the microbrewery, then Borgenicht and LVI would then remain "responsible to adjust, pay, or otherwise resolve all Contractors' Claims." The consent judgment does not obligate Borgenicht or LVI to be responsible for 18% interest pursuant to an agreement that they never signed, nor was it disclosed to them by any of the parties to the contract, including Spencer.

Plaintiffs next contend that the trial judge erred in not admitting Eagles's $65,000 note into evidence. Plaintiffs argue that Borgenicht and LVI are responsible for satisfaction of the note, together with the 15% interest thereon.

Contrary to plaintiffs' contention, the note was admitted into evidence for consideration by the jury. The judge held that the $65,000 note, given to Eagles by Price for his general contracting work, could be considered by the jury as evidence of Eagles's "contractor's" claim, and concurred that Borgenicht and LVI should be responsible for the value of the work performed by Eagles. However, the court determined that the jury would not be asked to enforce the terms and conditions of the note because neither Borgenicht nor LVI were parties to the note.

In support of their claim, plaintiffs argue that there was new consideration for the note, making LVI and Borgenicht responsible. Plaintiffs contend that Eagles agreed to accept the note and defer payment. We determine any forbearance by Eagles did not bind Borgenicht or LVI. Nor do we find that Price executed the note with "apparent authority" of Borgenicht and LVI.

An agency relationship is established when one party authorizes another to act on its behalf while retaining the right to control and direct any such acts. Sears Mortgage Corp. v. Rose, 134 N.J. 326, 337 (1993). "Even if a person is not an 'actual agent' he or she may be an agent by virtue of apparent authority based on manifestations of that authority by the principal." Id. at 338.

Apparent authority is established where a principal "acts in such a manner as to convey the impression to a third party that the agent has certain power which he may or may not possess." Lampley v. Davis Machine Corp., 219 N.J. Super. 540, 548 (App. Div. 1987). This authority must be established clearly and convincingly by the actions of the principals, not of the alleged agent. Lobiondo v. O'Callaghan, 357 N.J. Super. 488, 497 (App. Div. 2003). "'[T]he factual question is whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business uses, . . . is justified in presuming that such agent has the authority to perform the particular act in question.'" Alicea v. New Brunswick Theological Seminary, 244 N.J. Super. 119, 129 (App. Div. 1990), aff'd, 128 N.J. 303 (1992) (quoting Wilzig v. Sisselman, 209 N.J. Super. 25, 35 (App. Div. 1986), certif. denied, 101 N.J. 109 (1987)). The record is devoid of any facts supporting plaintiffs' contention that Eagles was misled by Borgenicht or LVI into believing that Price had authority to execute promissory notes on their behalf. As stated by Judge Cramp in his decision, "I do [not] think that there [is] any evidence in this case from anybody's point of view that Mr. Borgenicht authorized Price to enter into this promissory note with 15 percent interest or 18 percent interest. It [is] just not in the case." We concur.

We also determine that the consent judgment does not support plaintiffs' claim that Borgenicht and LVI is responsible for the $65,000 note. Paragraph 12 of the consent judgment only establishes responsibility of MPH for the $65,000 note. Paragraph 15, which spells out Borgenicht and LVI's responsibilities in the event they retained ownership of the property, is silent regarding the note.

Lastly, plaintiffs argue that the trial judge erred in dismissing Spencer's $25,000 promissory note claim. Plaintiffs contend that the claim on the note should not have been dismissed because: 1) It was a loan, not an "investment," and 2) Borgenicht agreed to pay the note.

Spencer's assertion that the consent judgment excluded the $25,000 note as an investor's claim is unpersuasive. Nowhere in the consent judgment does it indicate that the note should be excluded as an investor's claim. In fact, the form of the note and other investors' notes are identical. The interest return on the investment is the same or greater than other investors' notes, and the purpose of the monies, to finance the construction of the brew pub, is identical to other investors' notes. In his testimony, Spencer even acknowledged that he executed the promissory note because he got involved in their dream. Magenheimer testified that he signed the note in response to an "infusion" of money as the other investors had done.

Further, even if the transaction was a loan and not an investment, this claim was properly dismissed as it did not constitute a contractors' claim as defined in the consent judgment. Judge Stanton determined that defendants LVI and Borgenicht did not have any responsibility for anything that was not a contractors' claim. As appropriately noted in defendants' brief, paragraph 15 of the consent order specifically limits their potential liability to appropriately approved contractors' claims based on work performed and excludes the $25,000 note as being part of the contractors' claims. Accordingly, the Judgment does not assign liability to LVI or Borgenicht for any notes, agreements or other contracts entered into between the plaintiffs and MPH. Additionally, paragraph 17 of the consent judgment dismisses, with prejudice all such claims against defendants LVI and Borgenicht.

Plaintiff alternatively argues that because Borgenicht allegedly agreed to pay the note, the claim should have been allowed regardless of whether it is a contractors' claim or not. This contention is without merit. The testimony adduced at trial does not support such contention. Spencer never testified that Borgenicht agreed to pay off the note. During his deposition Spencer testified that he did not know whether Borgenicht was in any way involved with the MPH Group, or had any responsibility or involvement with the May 17, 1995 promissory note.

During trial, Spencer further testified that when he met with Borgenicht in August 1995, he brought up monies owed to him for work performed and also claims to have brought up the promissory note in question. At both his deposition and at trial, Spencer conceded that Borgenicht said nothing when the note was mentioned. Based on the evidence adduced at trial, the Court concluded:

I'm not going to allow this note to be part of the case for the following reasons. The only testimony that we've had about Mr. Borgenicht's responsibility for this note is that there was a meeting in which Mr. Spencer says I showed him everything, including the promissory note and Mr. Borgenicht said it would be paid.

But on cross-examination he was asked specifically did you talk to him about the promissory note. Yes. And did Mr. Borgenicht - - - isn't it true that Mr. Borgenicht didn't answer. Yes, he didn't answer. That is enough as far as I'm concerned.

In other words, I think the evidence is clear. It's not a question of credibility. You don't raise issues of credibility that way. This is the same witness testifying on direct and cross, and he just explaining on cross-examination what happened when he asked specifically about this note, and Mr. Borgenicht did not agree to pay it. He says that. So that's the end of it.

 
Accordingly, Judge Cramp considered the testimony adduced at trial in connection with Judge Stanton's decision and the consent judgment, and appropriately dismissed Spencer's claim on his $25,000 note.

Affirmed.

Long Valley Pub and Brewery is only a trade name for the microbrewery.

Collectively, the investors are hereinafter referred to as the "Muenzen Investors" with the first named plaintiff investor being Diane T. Muenzen.

Donald P. Fedderly is the attorney who represented Borgenicht and LVI during the period of the lease negotiations and Borgenicht's $950,000 investment in the microbrewery.

(continued)

(continued)

20

A-3563-03T5

December 22, 2005