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Sean Wood, L.L.C. v. Hegarty Group, Inc.

422 N.J. Super. 500, 29 A.3d 1066 (App. Div. 2011)

CONTRACTS — Where a supplier does not have a reasonable and justifiable fear of non-payment such that it would be permitted to anticipatorily repudiate a contract, it cannot unilaterally impose a Cash On Delivery requirement on its customer.

A customer hired a contractor to rig and then transport thirteen stainless steel tanks to another location and to pump the oil from, and transport, three injection molding machines to the same location. A deposit was given. A second contract required the contractor to load and transport other tanks to a different location. Both contracts were executed on behalf of the customer by an individual who the contractor believed to be it owner. A business card listed him as the operations manager; a police report listed him as the owner. However, at trial, the individual denied being either a shareholder or employee and claimed instead that he simply was helping his wife’s company. He testified that he was unemployed and his wife had authorized him to make deals and sign contracts. He stated that neither he nor his wife received paychecks, and that the company’s only salaried employee was a receptionist. Further, he testified that he had used his own money to purchase the tanks and machinery.

The second contract was performed, but the customer did not pay the remaining balance to the rigger. At trial, the husband stated that discussions had taken place regarding joint marketing, and that the rigging contractor had agreed to contribute funds to the endeavor, amounting to the balance on the contract. The contractor acknowledged the discussions, but stated that he never agreed to make any monetary contribution to the effort.

The rigging contractor, concerned that he would not be paid for the first contract, decided that he would only deliver the remaining tanks on a COD basis. When payment was not made on delivery, the contractor ordered his trucks to retreat. It then informed the customer that, as the result of its refusal to pay the balance for the work performed, two oversize trailer loads had been placed in storage where they would remain until payment was received. It also told the customer that the cost of storage was $100 each per day, and that the customer would be responsible for that amount plus the additional charges incurred for the return of the two trailers. The customer responded in an undated letter, stating that there was no refusal, as the contract did not specify COD.

The rigging contractor claimed that it spoke with the customer’s representative who claimed that the customer had lost money as a result of the non-delivery, and that if the money were restored, the rigging contractor could do what he wanted with the tanks. The contractor obtained an offer for the tanks, but its customer rejected the offer. Instead, the customer took possession of the tanks with the assistance of police. The tanks were then unloaded in a way that destroyed their value.

The rigging contractor sued, and the court enjoined the customer from selling the tanks. The customer claimed to have entered into a contract to sell the tanks for scrap prior to service of the order.

The lower court rejected the customer’s testimony regarding a set-off for advertising expense, finding it less than credible. Otherwise, the lower court declined to award damages to the rigging contractor, determining that it had breached its contract with the customer by unilaterally seeking to add a COD provision to which the customer did not agree and, as a result, delivery was not effected. Further, the lower court ruled that the rigging contractor did not have a reasonable and justifiable fear of non-payment such that it would be permitted to anticipatorily repudiate the contract. Regarding a counterclaim by the customer, the lower court found that it had breached its common law obligation to mitigate damages when it sold the tanks for scrap, realizing a far lower return than they might have had the tanks been sold whole. Such a sale made calculation of potential damages speculative.

On appeal, the Appellate Division agreed with the lower court that the contractor had failed to demonstrate the reasonable value of its services in connection with a quantum meruit claim. There was inadequate proof to substantiate the claimed value of loading and shipping the thirteen tanks. Further, the Court refused to disturb the lower court’s finding that the evidence submitted by the rigging contractor failed to establish a valid reason for its unilateral addition of a COD condition.

The Court also rejected the rigging contractor’s Uniform Fraudulent Transfer Act claim, finding that the contractor had lost its creditor status by breaching the contract for delivery. However, the Court agreed with the contractor that the individual representing the customer, in fact, was an owner and had used the customer as an alter ego, making him jointly and severally liable for the claims against his company. The customer was underfunded, and the husband used personal funds and routinely interchanged his name for the name of his company in correspondence. Consequently, the Court dismissed the customer’s counterclaim, finding that the husband, with his own funds, had purchased the tanks and equipment at issue and that he was the real party in interest in connection with the counterclaim.

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