News & Noteworthy

Authored - NJ Contract Law Update - Contract-Substitute Claims
AUGUST 28, 2012 | Windels Marx - Commercial Litigation

Brant Screen Craft, Inc., Watermarc Graphics, Inc., 2012 WL 2522972 (D.N.J. June 28, 2012), dealt with three types of fraud "contract-substitute" claims. The alleged fact pattern was simple and of a recurring type. Brant sold products to Watermarc. Marc Vaccaro, a defendant potentially being added to the case, was the President of Watermarc. Brant claimed that Vaccaro "made false representations...when he stated he could not pay his outstanding invoices because of Footlocker's failure to pay him"--when "in reality, Defendants were [allegedly] paid by Footlocker...but kept the money". (Author's note: The alleged misrepresentation could also be viewed as a scheme of collecting money on the one hand, and not paying it on the other hand.)

The Court allowed this basic-common law fraud claim to proceed, because the allegations were deemed clear enough. Although the Court indicated a motion to dismiss the new allegations would be entertained, presumably the outcome of that motion would be influenced by Van Dam Egg Co. v. Allendale Farms, Inc., 199 N.J.Super. 452 (App.Div. 1985); which allowed a comparable claim.

Plaintiff's claim apparently was that the fraud occurred after the relationship started. The economic loss doctrine1 was not mentioned. The question of harm resulting from these post-formation frauds was not articulated; the only hint was that collection efforts were delayed, which certainly could form a claim under some circumstances. The question of damages beyond 'the balance due in the first place' would have to be examined (except for the possibility of punitive damages, of course). But the fraud claim would allow potential collection from the principal, if the company were insolvent.

The Court dismissed without prejudice two additional but (it implied) indecipherably-pleaded fraud claims--fraud in the inducement, and fraudulent conveyance--for lack of particularity.

Brant gives us only broad outlines of issues that often have to be litigated. For that limited purpose, it should be of general interest to practioners.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

1 Which entails a conflict between state and federal holdings about whether frauds in the performance are actionable. See Alpert, Guide to New Jersey Contract Law 304-321 (NJCLE 2d. Ed. 2011)

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