Poydan, Inc. v. Agia Kiriaki, Inc.
| Decision Date | 24 September 1974 |
| Citation | 325 A.2d 838,130 N.J.Super. 141 |
| Parties | , 15 UCC Rep.Serv. 739 POYDAN, INC., a New Jersey corporation, et al., Plaintiffs, v. AGIA KIRIAKI, INC., a New Jersey corporation, et al., Defendants. |
| Court | New Jersey Superior Court |
Donald W. Rinaldo, Union, for plaintiffs (Louis M. Minotti, Union, appearing).
Edward N. Stiso, Jr., Springfield, for defendants Constantine Zavolas and John Zavolas.
Rusignola & Pugliese, Newark, for defendants Nicholas Protopapas, Nikitas Protopapas and John Protopapas (Carmen Rusignola, Newark, appearing).
Sanford Silverman, Newark, for defendant AAA Importers, Limited.
This action arises out of a series of transactions dealing with a restaurant known as the Springfield Steak House situated on Route 22 in Springfield Township, Union County, New Jersey.
Plaintiff Poydan, Inc., a New Jersey corporation, owned the real property used by the restaurant. Springfield Steak House, a New Jersey corporation, owned the liquor license and the personal property and operated the restaurant. Both corporations were under the control of Frank Baldan, who was the equitable or principal owner of the stock.
On or about November 18, 1969 plaintiffs jointly agreed to sell the real and personal property, liquor license and restaurant to five individual defendants, Nicholas Protopapas, Inkitas Protopapas, John Protopapas, Constantine Zavolas and John Zavolas for $500,000, plus the value of the inventory. The contract provided for transfer of the assets to two corporations to be formed by the buyers. As it turned out the buyers formed only one corporation, named Agia Kiriaki, Inc. (hereinafter Agia Kiriaki) and took all of the assets in that corporation. The purchase price was to be paid partly in cash, partly by assumption of an existing mortgage, and partly by a purchase money note payable to Poydan, Inc., one of the sellers. The note was for $250,600. It was secured by the following:
1. A real estate mortgage dated June 10, 1970 from Agia Kiriaki, Inc. to Poydan, Inc.
2. A security agreement covering the personal property in the restaurant, made June 10, 1970 by Agia Kiriaki, Inc. to Springfield Steak House, Inc 3. The pledge to Springfield Steak House, Inc., Poydan Inc. and Frank Baldan of all of the issued and outstanding shares of stock of Agia Kiriaki, Inc.
The individual purchasers as well as the corporation formed by them were co-makers of the note, and became jointly and severally liable thereon.
The contract of November 18, 1969 contained the following, among other provisions:
4. The Buyers shall likewise enter into a buy and sell agreement whereby in the event any of the said Buyers desires to terminate his activity with the businesses herein named that the corporate stock so held by such terminating stockholder shall be first offered to the remaining stockholders or the corporation and the by-laws shall further provide that in the event none of said stockholders desire to purchase said stock that then and in that event the corporation may purchase same if it receives the prior written consent of Seller which shall not be unreasonably witheld. If neither the said stockholders or the corporation want to purchase the rpoferred stock or are able to purchase same, said stock may then be purchased by Seller or its main stockholder, Frank Baldan, but by no other person or entity of any kind whatsoever. The intent of the parties hereto is that as long as the Buyers are indebted to Seller and Operator that no persons strangers to the corporation shall be entitled to become stockholders of either of said corporations.
A rider dated November 22, 1969 provides:
9. Buyers represent that they will constitute the only stockholders of the corporation that will be formed by them provided however, that it is agreed by the Seller and Operator and the Buyers that one additional stockholder may be admitted providing that such additional stockholder is a blood relative of Constantine Zavolas.
A written agreement executed on June 10, 1970, at the closing of title, expressly continued these provisions of the contract and rider in effect after the closing.
In the mortgage note of June 10, 1970 it is provided:
4. Notwithstanding the foregoing, the unpaid balance of the principal sum of this note and interest hereon shall immediately become due and payable, at the election of the holder hereof, in the event of:
c. Any change in the ownership of the mortgaged property; * * *.
In the pledge agreement of June 12, 1970 it is provided:
* * * further that they will not severally, jointly or otherwise sell, assign, transfer, pledge or hypothecate any of said stock or any interest therein, nor suffer nor permit same to be pledged, assigned or hypothecated unless and until this agreement has been fully performed and the Promissory Note fully paid.
In the security agreement covering goods and chattels, dated June 10, 1970, it is provided:
2.2 Debtor is the owner of the collateral free of any other lien or security interest and will not sell, exchange, lease or otherwise dispose of the collateral. nor permit any person other than Secured Party to acquire a lien or security interest therein or file a financing statement covering the collateral.
4. DEFAULT: Debtor shall be in default under this agreement upon the
4.2 BREACH OF AGREEMENT BY DEBTOR. Failure by Debtor to keep, observe or perform any provision of this agreement.
On October 12, 1973 the five stockholders of Agia Kiriaki, Inc. entered into an agreement with defendant AAA Importers, Limited, a New Jersey corporation, (hereinafter AAA) to sell their stock in Agia Kiriaki, Inc. to AAA for $675,000. The attorney for the buyers drafted the agreement for the sale. Prior to execution of the agreement the attorney for the sellers inserted page 3(a) therein, which was agreed to by all parties. It included the following provisions:
7. (a) Notwithstanding anything hereinabove set forth the parties hereto do agree as follows:
A. The issued stock mentioned in Paragraphs 1(a) and (b) hereof has been pledged in connection with the mortgage mentioned in Paragraph 1(d) hereof in the amount of approximately $264,000.00, the pledgee being Poydan, Inc., and said stock certificates are presently in the possession of one Donald W. Rinaldo, attorney for said Poydan, in escrow, pending payment of the aforesaid mortgage and said stock may have been further pledged to Dr. Allen, the holder of the mortgage in the original amount of $125,000.00, also mentioned in paragraph 1(d) hereof. In lieu of the physical delivery of the stock certificates owned by the Sellers the Sellers will individually execute assignments of said certificates and will direct a letter to said Donald W. Rinaldo, Esq. authorizing him to turn over the said stock certificates to the Buyer herein upon the payment of the aforesaid mortgage in the approximate amount of $264,000.00 and will further direct a letter to the subsequent pledgee of said stock certificates of the same import.
The sale to AAA was consummated. Sixty percent of the stock of AAA was held by George O'Brien and Michael Daspin. Forty percent of the stock of AAA was immediately sold to Constantine Zavolas and John Zavolas, two of the sellers of the Agia Kiriaki stock. This was done secretly so that none of the other sellers knew about it at the time. However, Constantine and John Zavolas are minority stockholders, have ceased to be active in the operation of the restaurant, and have no control over the assets mortgaged to plaintiffs.
Plaintiffs seek a judgment for the balance remaining unpaid on the note. They seek an injunction against the payment of the balance of the purchase price by AAA to the sellers until plaintiffs' note has been paid in full.
It appears that AAA has been paying the installments on the note as they fell due. There is no evidence of any default in any term or condition of the instruments held by plaintiffs unless it be by the sale of the stock of Agia Kiriaki to AAA.
Plaintiffs contend that the sale of the shares of stock in violation of the provisions of the contract with plaintiffs constitutes a default which permits plaintiffs to accelerate the due date of the balance.
Defendants contend that:
1. The provision against sale of the pledged stock until and unless the debt to plaintiffs is fully paid is invalid under N.J.S.A. 12A:9--311 of the Uniform Commercial Code.
2. The instruments held by plaintiffs nowhere provide for acceleration upon breach of the terms of the contract as to sale of the collateral, and the covenants and conditions of the contract are independent.
3. The acceleration would constitute a forfeiture not...
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