In re K-Rom Const. Corp.

• Decision Date: 21 February 1985
• Docket Number: Bankruptcy No. 82 B 20595,No. 84 ADV. 6027.,84 ADV. 6027.
• Citation: 46 BR 745
• Parties: In re K-ROM CONSTRUCTION CORPORATION, Debtor. K-ROM CONSTRUCTION CORPORATION, Plaintiff, v. George J. BEHLING, Jr. and Elaine C. Behling, Defendants.
• Court: U.S. District Court — Southern District of New York

46 B.R. 745 (1985)

In re K-ROM CONSTRUCTION CORPORATION, Debtor.

K-ROM CONSTRUCTION CORPORATION, Plaintiff, v. George J. BEHLING, Jr. and Elaine C. Behling, Defendants.

Bankruptcy No. 82 B 20595, No. 84 ADV. 6027.

United States District Court, S.D. New York.

February 21, 1985.

Barr & Faerber, Spring Valley, N.Y., for debtor.

Jeffrey L. Sapir, Yonkers, N.Y., for defendants.

DECISION ON COMPLAINT FOR BREACH OF CONTRACT

HOWARD SCHWARTZBERG, Bankruptcy Judge.

This case involves a non-core matter, which is related to a bankruptcy case under title 11, where the parties have consented on the record, as permitted under 28 U.S.C. § 157(c)(2), that the bankruptcy judge determine the controversy and enter an appropriate final order and judgment, that are subject to review under 28 U.S.C. § 158. The plaintiff is a Chapter 11 debtor which has brought this action to recover for work, labor and services provided by the plaintiff to the defendants' restaurant pursuant to a written contract between the parties. The defendants deny the plaintiff's claim and assert that the contract in question is a nullity because it calls for a usurious rate of interest.

FINDINGS OF FACT

1. The plaintiff, K-Rom Construction Corporation, filed with this court its petition for reorganization under Chapter 11 of the Bankruptcy Code on September 29, 1982. Pursuant to 11 U.S.C. § 1108, the plaintiff is a debtor in possession authorized to operate its business as a general contractor in the construction of stores in shopping centers.

2. The defendants, George J. Behling, Jr. and Elaine C. Behling, are husband and wife, who were the owners of a proposed restaurant to be located in the Galleria Mall, White Plains, New York and referred to as Foodworks, Inc.

3. Pursuant to a written contract dated September 23, 1980, the plaintiff agreed to construct a store for the defendants in the White Plains Galleria Mall for $173,000 in accordance with the following schedule:

FIRST: An Escrow Account will be established, within seven (7) days of the signing of this contract, in the amount of ONE HUNDRED AND FIFTEEN THOUSAND ($115,000.00) Dollars.

SECOND: Forty-five (60KOR) days after this contract is initiated, a payment of TWENTY-SEVEN THOUSAND ($27,000.00) Dollars will be payed by the Owner to the Company.

THIRD: The balance of this contract, THIRTY-ONE THOUSAND ($31,000.00) Dollars will be paid by the Owner to the Company in weekly installments in the amount of ONE THOUSAND ($1,000.00) Dollars per week. The first of these $1,000.00 installments will be due and payable SEVEN (7) DAYS after the store is open and conducting business. Interest charges on the unpaid balance will be computed on a monthly basis at a rate of TWO Per Cent (2%) above the applicable Prime Interest Rate, as established by the Nanuet National Bank.

4. The parties to the contract were identified as follows:

PROJECT NAME: FOODWORKS RESTAURANT

ADDRESS: Space. # 222 The Galleria Mall, White Plains, N.Y.

THIS AGREEMENT made this 23rd day of September 1980 A.D. between K ROM CONSTRUCTION CORP., hereinafter called the Company and the Owners of FOODWORKS RESTAURANT, GEORGE BEHLING AND ELAINE BEHLING hereinafter called the Owner.

5. The defendants agreed to guaranty the payments to the plaintiff pursuant to the language in paragraph "FIFTH" as follows:

FIFTH: All payments and monies due are to be guaranteed by George Behling and Elaine Behling.

6. The contract was signed by the parties as follows:

K ROM CONSTRUCTION CORP. By: s/ George Behling George Behling By: s/ Kurt O. Rom By: s/ Elaine Behling Kurt O. Rom, President Elaine Behling

7. On October 20, 1980, the plaintiff submitted an invoice to the defendants for $50,000 covering work, labor and services supplied to the project to date. Thereafter, the defendant, George J. Behling, Jr. signed a check on the account of Foodworks, Inc., dated October 29, 1980, payable to the order of the plaintiff in the sum of $35,000. However, the check was twice dishonored for insufficient funds. The defendants' bank then caused a certificate of protest to be issued with respect to the dishonored check.

8. It appears that the defendants expected to obtain financing for their venture from the father of George J. Behling, Jr. However, such financial support was not made available to them. The plaintiff was required to discontinue construction work after the defendants were unable to pay the plaintiff pursuant to the contract terms.

9. In November of 1980, the plaintiff filed with the Clerk of Westchester County, New York a notice under the New York Mechanic's Lien Law for $106,000, for labor and materials furnished to the defendants' space at the Galleria Mall, White Plains, New York.

10. On January 11, 1981, Foodworks, Inc. filed with this court a petition for reorganization under Chapter 11 of the Bankruptcy Code. In an affidavit sworn to on January 19, 1981, pursuant to Bankruptcy Rule XI-2, the defendant, Elaine C. Behling said:

The debtor commenced the construction of the interior of said store premises with the work and materials being performed and furnished by K ROM CONSTRUCTION CORP. as general contractor. Due to various circumstances and lack of completion expenses the construction and preparation of the store for occupancy has been delayed. However, two thirds (2/3) of said construction work has been completed. (Emphasis added).

In schedule A annexed to her Rule XI-2 affidavit, defendant, Elaine C. Behling, listed the plaintiff as an unsecured creditor in the sum of $106,000, which claim was designated as "disputed."

11. In an attempt to reduce the contractual obligation, the co-defendant, George J. Behling, Jr., signed a proposed agreement, dated July 20, 1981, which reads in pertinent part as follows:

AGREEMENT

WHEREAS, GEORGE BEHLING and ELAINE BEHLING were the owners of FOODWORKS RESTAURANT at Space No. 222, Galleria Mall, White Plains, New York; and

WHEREAS, K ROM CONSTRUCTION CORPORATION of Virginia Avenue, West Nyack, New York, supplied certain labor and materials upon the premises of the owner on Space No. 222, Galleria Mall, White Plains, New York, pursuant to an agreement made the 23rd day of September, 1980; and

WHEREAS, said GEORGE BEHLING and ELAINE BEHLING have personally guaranteed payment to K ROM CONSTRUCTION CORPORATION the sum due and owing said K ROM CONSTRUCTION CORPORATION for the labor and materials supplied; and

WHEREAS, K ROM CONSTRUCTION CORPORATION claims said GEORGE BEHLING and ELAINE BEHLING are duly indebted to K ROM CONSTRUCTION CORPORATION pursuant to said contract in an amount in excess of One Hundred Thousand ($100,000.00) Dollars; and

WHEREAS, K ROM CONSTRUCTION CORPORATION has agreed to release said GEORGE BEHLING and ELAINE BEHLING from any personal responsibility with regard to said contract with FOODWORKS upon the following terms and conditions;

NOW, THEREFORE, the parties hereto agree as follows:

1. K ROM CONSTRUCTION CORPORATION shall reduce its claim against GEORGE BEHLING AND ELAINE BEHLING personally to the sum of Fifty Thousand ($50,000.00) Dollars, provided, however, said GEORGE BEHLING and ELAINE BEHLING Shall pay to K ROM CONSTRUCTION CORPORATION the sum of Fifty Thousand ($50,000.00) Dollars by payment upon the signing of this agreement of the sum of FIVE THOUSAND ($5,000.00) Dollars and the balance of Forty-five Thousand ($45,000.00) Dollars, including interest as agreed upon which is reflected in the following installment payments, shall be paid as follows: $5,400.00 each year commencing one year from this date and then for eight years thereafter.

However, the proposed agreement was never signed by the co-defendant, Elaine C. Behling, nor by the plaintiff.

12. In light of the fact that the defendant, Elaine C. Behling, stated in the Rule XI-2 affidavit sworn to on January 11, 1981, that the plaintiff completed two-thirds of the construction work, it is apparent that the remaining $31,000 portion of the contract, which called for interest charges at the rate of two percent over the applicable prime rate established by the Nanuet National Bank, never came into effect. This point is further evidenced by the fact that the plaintiff claims that it is owed $106,000, less a $5,000 deposit tendered as part of the proposed settlement, dated July 20, 1981, for a total debt of $101,000, against a contract figure of $173,000. The $31,000 balance, against which interest charges would accrue, would come into effect only after $142,000 of the contract had been satisfied. Accordingly, no portion of the plaintiff's claim includes any interest charges.

13. It is amply established that while the plaintiff was to furnish labor and materials for the construction of a restaurant which was to be operated as Foodworks, Inc., the plaintiff dealt with the defendants as individuals. They signed the September 23, 1980 contract in their individual capacity, in which they personally guaranteed the payments individually. This personal liability was acknowledged by George J. Behling, Jr. when he signed the proposed agreement dated July 20, 1981. Additionally, the defendants conceded this point in paragraph 5 of their answer to the complaint, which states:

That said contract annexed to the complaint as Exhibit A, was duly executed by the defendants individually.

14. The plaintiff has established by a preponderance of the evidence that it furnished work, labor and materials in the sum of $106,000, less the $5000 deposit, for the construction of a restaurant in the White Plains Galleria Mall pursuant to a written contract signed by the defendants individually, under which they personally guaranteed payment to the plaintiff.

DISCUSSION

JURISDICTION—CONSENT TO FINAL ORDER

The court's jurisdiction to hear and determine this case starts with 28 U.S.C. § 1334(a) and (b), pursuant to which "the district courts . . . have original and exclusive jurisdiction of all cases under title 11" and "original but not...