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Authored - NJ Contract Law Update - Equitably Defrauded By An Arguable Leap Of Faith?
FEBRUARY 28, 2014 | Windels Marx - Commercial Litigation

What is the most likely explanation for the outcome in Cocuzza v. Renna, 2013 WL 4728443 (N.J.App.Div. Sept. 4, 2013)? Perhaps certain facts not given great emphasis by the Court: such as (1) the fact that the purchaser was not conversant in the English language; (2) the fact that plaintiff's lawyer did not attend the closing; and (3) the fact that there was a contractual change at the closing that plaintiff was not alerted to, and which was not translated for him1.

In any event, the trial Court came down on the side of the plaintiff. The Appellate Division came down on the side of the trial Court, in terms of deference--and thus affirmed the ruling for the plaintiff.

Let us consider the findings of the Court, apart from those referenced above. Defendant was selling his pizzeria and met with plaintiff, telling plaintiff that the restaurant generated between $11,000 and $12,000 in gross sales per week. That was shortly after the end of the year 2006. 'After the fact', a sales record--contained in the computers that plaintiff inherited upon the sale--showed almost $556,000 in sales. That amount included sales tax, so the gross could also be considered to be $524,279 a year. The Court did not address whether or not these numbers were all-encompassing, including all cash sales.

Please keep in mind that this author knows nothing about the facts of the case apart from what the Opinion appears to recite; so the commentary here is not upon the actual facts of the case, but rather upon the law arising from the facts assuming arguendo that they are as they appear in the Opinion (or as they may need to be 'translated' from the Opinion by best-guess analysis).

There seems to have been a 'hot contest' in Cocuzza as to whether any misstatement was material (the courts found an approximately 10% differential prior to closing). Though recited in the Opinion, the 'body' of alleged misstatements logically should have excluded further downturns after the closing. We can assume that any such inclusion in the misrepresentation claim was disputed in terms of causation--since one set of ownership does not necessarily run the business the same as the prior owner; or know the same customer base well enough to attract the same level of business; etc. Moreover, there seems to have been evidence that the seller was ill; so that the reduction in sales early in 2007 may not have had much significance in terms of 'misrepresentation', as opposed to a transaction that did not end well.

More interesting, perhaps, is that although the entity had gone out of business, as of trial, not only was equitable fraud found--but in addition, the transaction was rescinded. As interpreted in Cocuzza, this meant that every dollar paid by plaintiff to defendant was returned to plaintiff--even though defendant (1) was found not to have intentionally misrepresented anything; and (2) because the restaurant had gone out of business, the plaintiff could not be restored to the prior status quo, as would normally be required for rescission (an issue not discussed in the Opinion).

All in all, a curious case; but one worth studying if the issues you face include:

  1. Legal versus equitable fraud.
  2. Quantum of proof.
  3. Rescission and restoring the status quo ante.
  4. Restitution or comparable damages.
  5. Reasonable reliance.
  6. Materiality.
  7. Interplay between a business' prior performance and future performance.
  8. The wisdom, for either party, of proceeding with a closing without counsel being present on both sides--especially where the English language is an issue.

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 and now in its third edition. His updates on New Jersey contract law are based on 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 Although that change seemed to be of the type that would normally be made where the modified documents being signed were 'now' the final documents, the courts nonetheless focused on that change. Moreover, the Opinion does not recite whether there was an express clause (as there normally is) indicating (a) that the contract supersedes all prior representations and understandings; and (b) that such representations and understandings would be of no effect. If present, such a clause may have affected the courts' perception of the plaintiff's "reasonableness".

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