Kamens v. Fortugno

• Citation: 108 N.J.Super. 544,262 A.2d 11
• Parties: Harold KAMENS, Plaintiff, v. Alfred FORTUGNO et al., Defendants.
• Decision Date: 30 January 1970
• Court: Superior Court of New Jersey

Page 544

108 N.J.Super. 544

262 A.2d 11

Harold KAMENS, Plaintiff, v. Alfred FORTUGNO et al., Defendants.

Superior Court of New Jersey, Chancery Division.

Jan. 30, 1970.

Charles H. Hoens, Jr., Newark, for plaintiff (Lum, Biunno & Tompkins, Newark, attorneys).

Clive Cummis, Newark, for defendants Alfred Fortugno, Anna F. Camp, Adeline Fortugno, Connie Ruble, individually and as executrix, and Fortugno Realty Co. (Cummis, Kent & Radin, Newark, attorneys).

Crummy, Gibbons & O'Neill, Newark, for defendant Connie Fortugno, individually and as executrix.

Warren, Chasan, Leyner & Holland, Jersey City, for defendant Anthony Fortugno, individually.

LYNCH, J.S.C.

This case, in which plaintiff sues for legal fees, is before the court after remand from the Appellate Division pursuant to its opinion dated June 20, 1969. Therein the court reversed the trial judge's decision which had held that a written agreement, dated June 14, 1957, with reference to fees for services to be rendered in the United States Tax Court was unenforceable because made under duress. The trial court relegated plaintiff's right to recover fees for such services ¹ to a letter agreement of September 22, 1954 under which that court found that there was owing to plaintiff $6,000 and judgment was entered in his favor in that amount. In reversing, the Appellate Division directed that fees calculated pursuant to the 1957 agreement be awarded to plaintiff. Such calculation thereunder produces a fee owing to plaintiff in the amount of $72,200. ² There remains the question herein considered as to whether interest will be allowed on that sum and, if so, from what date interest will run.

The agreements concern legal services to be rendered by plaintiff in the United States Tax Court with reference to federal tax difficulties confronting defendants and involving the tax years 1940 to 1952. Defendants had deposited $1,000,000 in cash with the I.R.S. to be applied toward any taxes and penalties which might subsequently have been found to be owing, and to be refunded to defendants to the extent not so applied. Eventually all claims by I.R.S. were settled on October 2, 1962, for the sum of $214,000. The balance of the $1,000,000 deposit--$786,000--was refunded to defendants on July 30, 1965. Thereafter interest in the amount of $425,000 was later paid to defendants.

The principal dispute between the parties on remand here involves the question as to whether plaintiff shall recover interest on the principal of $72,200 now found to be due under the 1957 agreement and, if so, the period of time for which interest shall be allowed.

Defendants' basic argument against allowance of interest is that it does not follow as a matter of law. They argue that it should not be allowed where there is a 'bona fide dispute as to the validity of the claim'; that their contest of plaintiff's claim herein was bona fide and reasonable, as evidenced by the judgment of the trial court in finding the 1957 agreement unenforceable, and that the 'equities' should preclude an award of interest. Defendants assert that at least until the time of the Appellate Division decision on June 20, 1969, they did not know the amount which was owed to plaintiff, and until the amount legally due was finally ascertained by that decision they should not be considered in default so as to be liable for interest.

Plaintiff contends that his claim is a liquidated one; that it became due at the time the fee was earned, namely, the date of the settlement of the Government's claim on October 2, 1962, and that interest on the principal sum owed should run from that date.

In the case of Stout v. Sutphen, 132 N.J.Eq. 583, 29 A.2d 724 (Ch.1943), Vice-Chancellor Jayne stated the general rule with respect to payment of interest as follows:

Broadly stated, interest has been allowed by the courts of our State either by way of damages for the detention of a fund, or by way of profit earned or advantage attained. In the absence of a definitely controlling precedent, courts of equity are free to decide all questions pertaining to the allowance of interest according to the 'plainest and simplest considerations of justice and fair dealing' in the given case. (at 590, 29 A.2d at 728)

It is also true that considerations of 'fault' for nonpayment of a debt are indulged to influence the rule with respect to payment of interest. Thus, with respect to unliquidated damages interest is not recoverable except after judgment because the person who is liable for the debt does not know the sum he owes and cannot be in default until the amount he owes is determined by judgment. 47 C.J.S. Interest § 19, at p. 28. In Kearny v. New Jersey Suburban Water Co., 110 N.J.Eq. 214, 159 A. 520 (Ch.1932), the municipality had been ordered to pay the water company arrearages for water supplied. The company then sought interest on the arrearages. Vice-Chancellor Backes said:

Interest, however, would not have been warranted unless the complainants were at fault and they would have been in default only if the amount due for water could have been determined by computation based upon established market values or other generally recognized standard.

Holding that there was no measure of value or method to determine the amount due as arrearages, the court denied interest to the water company on the arrearages although allowing reimbursement to the company for interest that it had to pay for money borrowed during course of the litigation.

While we recognize the foregoing rule with respect to payment of interest on unliquidated claims, it is also true that 'Interest is allowed where the damages are readily ascertainable.' Bachman Choc.Mfg. Co. v. Lehigh Wrhse. & T. Co., 1 N.J. 239, 62 A.2d 806 (1949). This rule likewise invokes considerations of 'fault' on the part of the debtor, for the reason that since he knows what is due or could easily ascertain the amount, he could have stopped the running of interest by tendering payment thereof. 47 C.J.S. Interest § 19(b), at p. 30.

Defendants argue that 'where either the amount in dispute is unliquidated Or there is a bona fide dispute as to the validity of a claim the courts need not, and generally will not, allow interest.' (Emphasis defendants'). In support thereof they cite the cases of Jardine Estates v. Donna Brook Corp., 42 N.J.Super. 332, 126 A.2d 372 (App.Div.1956); Deerhurst Estates v Meadow Homes, Inc., 64 N.J.Super. 134, 155, 165 A.2d 543 (App.Div.1960), certif. den. 34 N.J. 66, 167 A.2d 55 (1960); Southern Painting Co. of Tenn. v. United States, 222 F.2d 431, 435 (10 Cir. (1955); Watson Lumber Co. v. Guennewig, 79 Ill.App.2d 377, 226 N.E.2d 270 (Ct.App.1967); Mid-South Engineering Co. v. Buchanan, 440 S.W.2d 600, 610 (Tenn.Ct.App.1967); Hunter v. Wilson, 147 Colo. 36, 362 P.2d 553 (Sup.Ct.1961); Baker County v. Huntington, 48 Or. 593, 89 P. 144 (Sup.Ct.1907).

An examination of the cases cited by defendants indicates that all of them involve unliquidated damages or cases where, for other reasons, the debtor was unable to determine the amount actually owed until after judgment. In every instance the amount due was in dispute.

But defendants argue in this case that they 'did not know' the amount owed to plaintiff until after the determination by the decision of the Appellate Division in sustaining the 1957 agreement and the subsequent denial of certification by the Supreme Court. Rhetorically, they ask how they could 'know' that $72,200 was due to plaintiff until after that decision, especially since up to that time the judgment of the trial court had denied that damages were owing to plaintiff under the 1957 agreement and had allowed damages in the amount of only $6,000 pursuant to the 1954 agreement. The argument is specious, Defendants are charged with knowledge of the only obligation which the courts have now finally imposed upon them, namely, the 1957 agreement, even though the prior trial court's judgment, now abortive, would have lifted that obligation from them. The decision of the Appellate Division established that the defendants were liable under the 1957 agreement. The trial court's judgment now has no meaning. However much we may respect it and its reasoning, it is now held to have been in error and serves as no monument to determine what was owing by defendants to plaintiff.

A judgment in favor of a debtor, if later reversed, does not toll the running of interest on a liquidated claim from the time it became due. Small v. Schuncke, 42 N.J. 407, 201 A.2d 56 (1964). That case involved a dispute between two insurance companies, Pennsylvania Threshermen & Farmers' Mutual Casualty Insurance Company (Pennsylvania) and Liberty Mutual Insurance Company (Liberty), as to coverage for liability arising out of an automobile accident. After several days of trial of the negligence suit the two companies agreed that the case should be settled by payment to the claimant of $20,000, leaving for future disposition the question of coverage as between the companies. Pursuant to this arrangement liberty paid the $20,000 on December 16, 1958 and the suit to determine coverages between the companies proceeded. On February 27, 1962 the Superior Court, Law Division, granted judgment holding Pennsylvania liable for coverage and ordering it to pay to Liberty $20,000 plus 6% Interest from December 16, 1958, with costs. On July 18, 1963 the Appellate Division reversed, holding that neither Liberty nor Pennsylvania was liable for coverage. On June 1, 1964 the Supreme Court reversed the Appellate Division, reinstated the trial court's judgment holding Pennsylvania liable to Liberty for the $20,000, and allowed Liberty interest from the date it made the payment of December 16, 1958.

It will be seen that in Small, during the period from July 18, 1963 (when the Appellate Division held Pennsylvania not liable) to June 1, 1964 (when the Supreme Court reversed), Pennsylvania was under the umbrella of...