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Jones v. Marin

2009 WL 2595619 (U.S. Dist. Ct. D. N.J. 2009) (Unpublished)

NOTES; DEFAULT — Although a note holder’s breach of contract or tortious acts may excuse the obligor of its obligation to repay the note, if the note holder’s alleged breach is not material, the note must be paid.

Buyers purchased a shipping company and signed a promissory note for a portion of the sale price. The note had an acceleration provision, applicable if the buyers defaulted on their payments. When the buyers failed to make even one payment, the seller filed suit seeking the entire outstanding balance on the note plus interest. The buyers responded by claiming: (a) trade name infringement; (b) unfair competition; (c) breach of contract; (d) tortious interference; (e) fraud; (f) breach of implied covenant of good faith and fair dealing; (g) unjust enrichment; (h) promissory estoppel; and (i) interference with proprietary information.

The United States District Court ruled in favor of the seller. It rejected the buyers’ contention that the seller’s breach of contract and its tortious acts excused their own obligation to repay the note. First, it rejected the buyers’ fraud in the inducement claim, holding that even if the buyers detrimentally relied on their seller’s representation, they presented no evidence for a jury to infer that the seller made the representation with knowledge and belief of its falsity. Second, it rejected the buyers’ breach of contract claim. It found that even if one assumed that these acts or omissions violated the representation that the sale was free and clear of any debts, mortgages, or other liens or encumbrances, the breach was not material. Although such a determination is normally left to a jury, it held that there was no genuine issue for trial because no reasonable jury could find that the seller’s failure to pay the amounts in question excused the buyers’ obligation to satisfy the promissory note. It noted that the buyers might be entitled to a setoff for the amount owed to them. Third, the Court dismissed the buyers’ claims of breach of the implied covenant of good faith and fair dealing, breach of the duty of loyalty, and its other tort claims by finding that the contract did not contain a covenant not to compete. Even if it had, the Court held that the seller’s statement that he was careful to avoid competing with the buyers stood undisputed. Further, it found there was no admissible evidence of wrongful conduct or bad faith motive. Moreover, it decided that the tortious interference with prospective economic advantage, interference with proprietary information, unfair competition, and trade name infringement claims had to be dismissed because the buyers produced no admissible evidence that the seller had misappropriated protected trade name or information or that the seller competed unfairly. Finally, the Court dismissed the unjust enrichment and promissory estoppel claims. It ruled that quasi-contract claims cannot be maintained where, as here, a valid contract fully defines the parties’ respective rights and obligations.

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