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Kalogeras v. 239 Broad Avenue, L.L.C.

A-4170-06T2 (N.J. Super. App. Div. 2009) (Unpublished)

LIQUOR LICENSES; CONTRACTS — Where there is no provision in a sales agreement stating that the transfer of a liquor license is conditioned on approval from the Division of Alcoholic Beverage Control, a court cannot order specific performance of the contract.

Two brothers, B and C, purchased a diner, its liquor license, and an adjoining lot to be used for parking. After twenty-six years, the brother’s relationship became strained such that B wished to buy C’s interest in the diner and property. The purchase price was to be roughly one-half of the asset valuation of $4 million. To finance part of the purchase price, B would accept a note of $950,000 which B was to repay in equal monthly installments over ten years, with interest. The brothers agreed that if B sold the business within two years after purchasing C’s interest, he would pay C one half of any sales amount over $4 million. A confirming letter summarizing the terms of the sale gave C a right of first refusal to purchase the assets so long as B remained obligated on the note. More than two years after the closing, B was presented with an offer to purchase the diner, liquor license, and real property for $6.5 million. B’s attorney advised that, under the buyout agreement, C had a right of first refusal that had to be included in any future sale contract. The attorney apparently did not inform B that C’s right of first refusal would expire when B fully paid the note. B executed a sales agreement with the buyer. C assigned his right of first refusal to another person and sought to exercise the right of first refusal on the same day B ultimately decided to cancel his agreement with the buyer and indicated that he was no longer interested in selling the diner.

C filed a complaint seeking performance under the right of first refusal. The lower court, after trial, found that B had ratified C’s right of first refusal when B signed a sales agreement with the prospective buyer and included such a provision. The lower court also held that B validly assigned the right of first refusal to the assignee. It enforced the agreement to sell the diner, liquor license, and real estate for the purchase price of $6.5 million. The lower court held that the agreement to sell the liquor license was contingent upon approval from the Division of Alcoholic Beverage Control (ABC) because the license had been referenced in the contract.

On appeal, the Appellate Division reversed the lower court’s judgment. The Alcoholic Beverage Control Law generally provides that a license to sell liquor is not property that can be sold or transferred except with the approval of the director of the ABC or other issuing authority. The Court reaffirmed the legal principle that specific performance may not be granted by a court for a contract of sale of a liquor license. The Court found that there was no provision in the sales agreement that stated the transfer of the license was conditioned upon ABC approval as a closing term. It concluded that the sales agreement could not be specifically enforced because B had an absolute contractual obligation to transfer the liquor license that was not conditioned upon ABC approval. The language of the agreement stated that the seller was the sole owner of the license and had the full right and capability to sell the license and would assist the buyer in its application for transfer of the license.

The Court additionally would not find any implicit condition of ABC approval in the agreement based upon the contract’s provision that the seller would assist the buyer with the application for transfer of the license. It also remarked that the lower court did not simply order B to assist in the transfer application process, but ordered specific performance of the sales agreement, including the provision for the transfer of the liquor license.

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