Case Law Summaries

Mason v. Murawski

• Opinion Date: August 17, 2001
• Business Law
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CONTRACTS; INJUNCTIONS—Where a contract-seller is acting in ways that can substantially damage the value of a business in the process of being sold, a buyer may be entitled to injunctive relief to stop those acts.

Intending to purchase a restaurant business and relying upon the seller’s “professed good intentions,” a buyer quit his job at a restaurant and began to work without pay. About three months later, a written contract was presented to the seller and negotiations ensued. During the course of negotiations, the buyer applied to the Division of Taxation for bulk sales releases and also with the State for transfer of the restaurant’s liquor license. The parties intended to close within a month or two. The Division of Taxation approved the sale with the condition that an amount greater than the sales price be held in escrow pending completion of a tax audit. Similarly, the liquor license was approved, contingent upon completion of all requirements of the Division of Taxation. The seller balked and closed the restaurant, refusing to proceed with the matter. Not much later, the restaurant owner told the buyer that the transaction could proceed, but 120 days were needed to negotiate an audit with the State. The seller proposed that the sales contract be signed and that a lease be signed with closing to take place in 120 days. Additionally, the seller proposed that the buyer sign a management agreement, allowing the buyer to operate the restaurant, change the business’ name, and make any necessary renovations and alterations. Both agreements were signed. The time for closing passed, and the buyer contended that he heard nothing from the seller about proceeding to closing. Shortly after the contemplated closing date, the seller refused to honor one of the agreements by refusing to make certain repairs and, in fact, advised his employees that when the state visited the restaurant, they could not speak with the state representative. The seller’s discussions with the state went nowhere and the buyer filed suit against the seller. Further, the seller allowed its liquor license to lapse and then the license was inappropriately transferred to a corporation related to the seller. As a result, the buyer was forced to close the business. A week later, the seller broke into the restaurant and changed the alarm and locks. The buyer then sought specific performance of the contract by compelling the seller to sell the restaurant business or, in the alternative, sought an award of monetary damages. The buyer’s argument was that if the business was sold to another party, the buyer would be irreparably harmed. The claim was clearly based upon an established legal right within the contract of sale. Most importantly, the buyer argued that “the equities clearly preponderate in favor of the [buyer]. [Further the buyer has] never, at any time, done anything wrong or inappropriate.” In addition, according to the buyer, the seller “engaged in a pattern of delay and ... intentionally and deliberately caused [the buyer] to close [the] business.” In opposition, the seller argued that the state was requiring that an amount well in excess of the purchase price be placed in escrow and that it was inappropriate for the seller to agree to such a condition or to agree to “a never-ending audit while all funds were held in escrow.” Lastly, the seller argued that there was no fraud, nor was it able to transfer the property, nor could the Court order a transfer, “since the tax sales issue has not been resolved with the State of New Jersey.” Under New Jersey law, “a preliminary injunction is appropriate where: (1) the material facts are undisputed; (2) the legal right underlying the plaintiff’s claim is well settled; (3) absent a preliminary injunction the applicant will suffer irreparable harm; and (4) the applicant will suffer the greater hardship if injunctive relief is denied than the opponent will if granted.” The Court found that the buyer had satisfied all of those requirements. To the Court, the terms of the contract were put in writing and it clearly was the seller’s intent to enter into the contract for sale. As to a showing of irreparable harm, the Court stated that, “[i]n certain circumstances, severe personal inconvenience can constitute irreparable injury justifying issuance of injunctive relief.” To the Court, if the seller attempted to transfer any assets, then the expectation of purchase by the buyer would change. Lastly, the seller admitted that it still intended to sell the business to the buyer. Therefore, the Court decided that the seller would suffer no harm if relief were to be granted. Consequently, “[i]n balancing the harm between the parties, ‘the equities favor[ed] the grant of temporary relief to maintain the status quo pending the outcome of a final hearing.’ Consequently, injunctive relief was granted in favor of the buyer.

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