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Saia v. McCusker

2006 WL 740530 (N.J. Super. Law Div. 2006) (Unpublished)

LIQUOR LICENCES; AGREEMENTS; SEVERABILITY—A court, summarizing the law governing transfers of liquor licenses, agrees that the government properly denied a license transfer, but nonetheless held the potential transferee liable under a purchase and sales agreement for a restaurant because the severability provisions of that agreement preserved the termination clause and the transferee breached that termination clause.

A business seller and buyer executed a contract for the sale of a tavern business which included, among other things, the plenary retail consumption license issued by the municipality. The contract was contingent on the municipality’s approval of the transfer of the liquor license. The seller had the right to cancel the contract if this contingency was not met by a certain date. As part of the transaction, the buyer and seller executed an agreement that permitted the buyer to operate the tavern business pending transfer of the liquor license and pending the closing. The agreement required the buyer to move forward with the acquisition as promptly as possible and to submit its application for the liquor license transfer by a certain date.

The buyer began to operate the tavern. The seller signed a consent for transfer of the liquor license to the buyer. For reasons unknown, the municipality took no action on the transfer application. Rather, the municipality and its chief of police called the seller to a meeting with the Alcoholic Beverage Commission (ABC). Several months later, the ABC filed charges against the seller. The seller worked to resolve the ABC charges. The seller and buyer agreed to cancel the sale of the tavern business. Ultimately, the ABC entered an order temporarily suspending the liquor license.

Following the cancellation of the sale, the seller sold the tavern business for a reduced price and received approval for the liquor license transfer. The seller then sought damages from the original, terminated buyer.

The Court summarized the law governing agreements relating to the transfer of liquor licenses. First, the local ABC Board has unfettered discretion to approve or deny a liquor license transfer application. Second, an agreement to consent to the transfer of the liquor license does not give the proposed transferee possessory rights in the liquor license. Third, a court will not order specific performance of an agreement to transfer a liquor license. Fourth, the holder of a liquor license who breaches an agreement to transfer it may be held liable for damages arising from the breach. Fifth, the holder of a liquor license may not allow another person to use or have control of the license.

In the present case, the agreement between the buyer and seller allowed the buyer to operate the tavern business pending approval of the liquor license transfer. The Court found that the effect of the agreement as written (and implemented) violated the “control” provisions of the Alcoholic Beverage Law.

Next, the Court stated that provisions in an agreement which create rights in or control over a liquor license will not be enforced. Again, in the present case, the seller pled guilty to ABC charges that arose during the buyer’s control of the liquor license. The seller was not charged with a “control” violation. When the seller resolved the charges, it resolved all issues related to the license and suffered a temporary license suspension. The ABC subsequently approved the license transfer to a new purchaser of the tavern. Accordingly, the Court found that the ABC’s interest in this matter ended with the resolution of the charges and the transfer of the license to a qualified entity.

The agreement between the buyer and seller included a severability clause. Even though those provisions of the agreement which provided for control of the license and for payments in exchange for control were thus unenforceable, the provision which addressed termination remained enforceable to the extent that it provided for monies that were unrelated to the “control” violation. Accordingly, the Court entered judgment in favor of the seller and against the buyer for damages in the amount calculated by the Court.

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