JOHN DEAN v. LEIGH JAYNES PROVISOR (L-1351-20, MORRIS COUNTY AND STATEWIDE) ( 2022 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1199-20
JOHN DEAN and ALENA DEAN,
Plaintiffs-Respondents,
v.
LEIGH JAYNES PROVISOR,
Defendant-Appellant.
____________________________
Argued January 5, 2022 – Decided July 13, 2022
Before Judges Gilson, Gooden Brown, and Gummer.
On appeal from the Superior Court of New Jersey,
Law Division, Morris County, Docket No. L-1351-20.
Michael Confusione argued the cause for appellant
(Hegge & Confusione, LLC, attorneys; Michael
Confusione, of counsel and on the brief).
Jonathan S. Goodgold argued the cause for
respondents (Maitlin Maitlin Goodgold Brass &
Bennett, attorneys; Jonathan S. Goodgold, of counsel
and on the brief).
PER CURIAM
Defendant Leigh Jaynes Provisor appeals from a December 7, 2020 Law
Division order granting summary judgment in favor of plaintiffs John and
Alena Dean, and awarding damages resulting from defendant's breach of
contract in connection with a personal loan. We affirm in part, vacate the
award of damages, and remand for further proceedings.
I.
We derive the following facts from the competent evidence in the
motion record, "giv[ing] the benefit of all favorable inferences" to defendant.
Angland v. Mountain Creek Resort, Inc., 213 N.J. 573, 577 (2013) (citing Brill
v. Guardian Life Ins. Co., 142 N.J. 520, 523 (1995)).
Defendant, a "well-known female wrestler" within the wrestling
community, partnered with John 1 in two female wrestling entities, Chick
Wrestler LLC, and Chicks Wrestling LLC, established to "support the growth
of girls wrestling." On February 1, 2019, the parties executed a partnership
agreement for Chick Wrestler LLC. Under the partnership agreement,
defendant held the "management role" of "Founder, Chairwoman & CMO,"
and John held the "management role" of "CEO."
1
Because plaintiffs share the same surname, we use their first names to avoid
confusion and intend no disrespect.
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Article VI, captioned "Capital Contributions," of the partnership
agreement provided as follows:
Each of the Partners has contributed to the capital of
the Partnership, in cash, property, or services in
agreed upon value, as follows . . . :
a. [Defendant] – $510 . . . .
b. John T. Dean – $490 . . . .
Article XI, titled "Interest and Authority," provided:
The Partners' ownership interest in the Partnership
will be as follows:
a. [Defendant] – 51% . . . .
b. John T. Dean – 49% . . . .
On February 17, 2019, the parties executed an operating agreement for
Chick Wrestler LLC. Under Article IV of the operating agreement, disputes
among members would be decided "by a majority vote[,] . . . according to th[e
m]ember's percent of ownership interest."
Chicks Wrestling LLC was a related entity. Although no corporate
documents related to Chicks Wrestling LLC's operation were provided,
defendant would receive monthly monetary distributions from the business if
certain funding conditions were met.
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Shortly after the businesses were created, defendant began experiencing
financial difficulties in her personal life and accrued various high-interest
debts. To enable defendant to consolidate these debts at a lower interest rate,
plaintiffs agreed to obtain a $38,000 personal loan from Bank of America with
a four percent flat borrowing fee and zero percent interest for twelve months.
Thus, the total cost of the loan would be $39,520 if repaid in one year. In turn,
plaintiffs would loan the funds to defendant, and defendant agreed to repay
plaintiffs for the loan in accordance with specified terms.
On April 13, 2019, in a memorializing email between the parties,
plaintiffs provided the terms of the loan agreement as follows:
[Defendant] agrees to repay this loan with a minimum
of making the monthly minimum payment (or $800[],
whichever is greater) to keep the account in good
standing. [Defendant] will make monthly payments of
$2,500[] if funding is achieved and she starts
receiving $5,000[] per month as distributed from
Chicks Wrestling[] LLC. [Defendant] will maintain
the account in good standing and if a balance remains
after [twelve] months, [defendant] will be responsible
for all costs incurred to keep the account in good
standing whether it is paid off or transferred to another
account for additional payments at a lower rate.
If [defendant] defaults on this agreement, for
each month that passes where there is no payment or
remedy made to correct the unpaid balance, [five
percent] of ownership interest in Chick Wrestler[]
LLC will be transferred to the ownership of John
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Dean. Current ownership levels are [fifty-one percent
defendant] and [forty-nine percent] John.
I, [defendant], agree to these terms and
conditions.
On the same date, defendant sent an email to plaintiffs with the same
text but added her name and the date typed at the bottom, thus acquiescing to
the terms of the agreement. Subsequently, plaintiffs transferred the funds to
defendant, and defendant provided plaintiffs with eight post-dated checks,
each in the amount of $800, to make the first eight monthly payments on the
loan.
In July 2019, the parties' business relationship began to sour, and a battle
ensued for control over the businesses. Defendant made no further payments
to plaintiffs on the loan other than the first eight checks. Thus, by December
2019, defendant was in default on the loan. The zero-interest promotion on the
Bank of America loan ended in March 2020. Subsequently, Alena borrowed
funds from her 401k to pay off the balance of the Bank of America loan as
permitted under the loan agreement. The 401k loan carried a 4.75% annual
interest rate.
On July 2, 2020, plaintiffs filed a complaint against defendant, asserting
claims for breach of contract, breach of implied covenant of good faith and fair
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dealing, unjust enrichment, and a book account balance. Plaintiffs alleged
defendant entered "a loan contract" with them for a total of $39,520, and, since
December 2019, failed to pay the minimum of $800 per month "to keep the
loan in good standing." Plaintiffs also asserted "the loan provided that for
each month there was no payment or remedy on the unpaid balance of the loan,
[five percent] of the ownership interest in Chick Wrestler LLC would be
transferred to John Dean." Plaintiffs further alleged that due to defendant's
default, "[they] had to cover the loan proceeds with additional funds that bear
interest and add to the costs due from [d]efendant," leaving an "open, unpaid
loan, in the amount of $33,346.29 . . . , plus costs."
Representing herself, on August 25, 2020, defendant filed an answer,
asserting she was "making payments [on the loan] . . . per [their] agreement"
until plaintiffs began "to take over [her] company, harass friends and family,
[and] call current and former business partners making untrue statement[s]."
No affirmative defenses or counterclaims were asserted in the answer.
On September 22, 2020, plaintiffs moved for summary judgment,
"seeking a judgment of $33,777.65[,] inclusive of contractual pre-judgment
interest and costs as of August 31, 2020." In support, plaintiffs submitted a
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statement of material facts in accordance with Rule 4:46-2(a) and John's
certification attesting to those facts.
In response, defendant submitted a certification dated October 23, 2020,
providing, "plaintiff[s had] offered [her] a personal loan after she complained
about working [six] days a week for . . . [them] at the gym for no wage[s]."
On November 5, 2020, defendant submitted a second document titled
"Counter-claims Statement of Fact," reiterating that plaintiffs "offered [her]
the personal loan" to alleviate the "financial hardship" caused by plaintiffs'
failure to adequately compensate her for her work in the wrestling businesses
as well as use of her name and image in a fund-raising campaign that fell short.
In the November 5, 2020 submission, defendant also accused plaintiffs
of acting in bad faith when they improperly ousted her from the businesses.
Additionally, she asserted numerous claims against plaintiffs in connection
with their business disputes, including fraud, defamation, breach of fiduciary
duty, breach of contract, breach of implied covenant of good faith and fair
dealing, tortious interference with contractual relations, tortious interference
with prospective economic advantage, oppression of a shareholder, conversion ,
and theft.
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On November 13, 2020, the judge conducted oral argument on plaintiffs'
summary judgment motion and noted that there was "a lot of discussion
regarding other issues" and "other claims." When the judge inquired whether
there were any other actions or lawsuits pending between the parties, the
parties replied there were none. Plaintiffs asserted that because defendant
failed to file a conforming statement of material facts, in accordance with Rule
4:46-2(b), plaintiffs' facts should be deemed admitted and summary judgment
should be granted in their favor. Instead of adjudicating the motion, however,
the judge adjourned the matter to allow defendant time to properly respond.
Thereafter, defendant submitted an affidavit in which she admitted that
she had "accepted a personal loan from . . . plaintiffs" but stated that the loan
and the disputed business matters were "related." Defendant maintained that
when plaintiffs declared that "[she] was in breach of contract" and "'voted
[her] out' as a [fifty-one percent] owner of Chick Wrestler[] LLC," plaintiffs'
right to any damages under the agreement was extinguished.
Nonetheless, in the affidavit, defendant averred that each month, until
June 2020 when she was served with the summons and complaint, she
"continued to deposit checks" in the amount of "$800 . . . into an interest-
bearing checking account in good faith" pending "resolution of th[e] dispute."
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Defendant also submitted a second affidavit attaching a twenty-six-page
transcript of a business meeting she had recorded between herself, plaintiffs,
and others.
On December 4, 2020, the judge again conducted oral argument during
which he pointed out that defendant's submission of the second affidavit and
the transcript was "not authorized under the Court Rules" and the documents
were not relevant to the loan default. During oral argument, defendant stressed
that because plaintiffs had drafted the agreement and had intertwined the
default on the personal loan with the ownership of the business, she essentially
"paid [John] when he seized control of [the business]." Therefore, according
to defendant, summary judgment was improper as plaintiffs had been paid
through the penalty provision in the agreement.
In a December 7, 2020 order, the judge granted summary judgment "in
favor of [p]laintiffs . . . in the amount of $33,120[], plus interest of $657.65
from April 1, 2020[,] through August 31, 2020 and continuing to accrue for a
total judgment amount of $33,777.65." In an accompanying written decision,
initially, the judge noted defendant's November 5, 2020 submission "would not
be considered as opposition or as an amended pleading, in that it was nothing
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more than a long recitation of grievances," lacking "any relevance to the
pending lawsuit," and non-compliant "with the Court Rules."
Next, after reciting the governing legal principles, the judge found it was
"undisputed that the parties entered into an agreement for the repayment of the
personal loan and . . . [d]efendant ceased making payments in accordance with
that agreement." According to the judge, "[a]lthough [defendant] continued to
make payments into an interest-bearing checking account" until June 2020,
"those payments were not paid or ever forwarded to . . . [p]laintiffs."
Therefore, the judge determined it was "undisputed that [d]efendant
breached her obligation under the contract by failing to make the $800[]
monthly payments to . . . [p]laintiffs," that "$33,777.65 remain[ed] due and
owing pursuant to the loan agreement," and "[t]he [c]ourt was not presented
with any defense to enforcement of the contract or any evidence to suggest that
the entry into the agreement was improper, unconscionable, or coerced."
The judge described "[t]he separate grievances that [d]efendant
articulate[d] in her papers" as "wholly distinct from the narrow issue before
th[e c]ourt." The judge explained:
The [c]ourt is unconvinced that any type of grievance
regarding the formation of a partnership or Limited
Liability Company . . . between [p]laintiffs and
[d]efendant relates to the personal loan which was
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extended by [p]laintiffs to . . . [d]efendant. . . .
Defendant did not file a counterclaim as to her
business-related claims against . . . [p]laintiffs that is
cognizable under our Court Rules, and she was
afforded additional time to do so. She did not.
The judge also rejected defendant's contention "that her obligation to
repay the loan was satisfied in whole or in part by virtue of the existence of a
'penalty provision.'" The judge expounded:
There is a portion of the loan agreement, drafted by
[p]laintiffs, that purports to transfer [five percent]
of . . . [d]efendant's interest in Chick Wrestl[er] to
John Dean in the event that [d]efendant failed to make
any single monthly payment. There is no evidence
before th[e] court that that provision, whether it is
considered a "penalty provision" or otherwise was
ever enforced, or, if enforced, whether that [five
percent] interest has or had any monetary value.
Thus, the judge concluded "as a matter of law," plaintiffs were "entitled to
summary judgment based on [d]efendant's undisputed breach of the
agreement."
The judge underscored that the November 5, 2020 submission filed by
defendant would "not be considered as an amendment to the previously filed
[a]nswer" because "[t]o do so would have required the filing of a formal
motion by [d]efendant as well as a proposed amended [a]nswer and
[c]ounterclaim," which defendant failed to do. The judge stressed , "[a]ny
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claims" pertaining to or arising "from the business known as Chick Wrestler []
LLC," were "not addressed by the [c]ourt in th[e] case, and th[e] decision . . .
[was] without prejudice to the right of any aggrieved party to pursue such
claim/s in an appropriate forum."
In this ensuing appeal, defendant raises the following arguments for our
consideration:
THE TRIAL COURT ERRED IN GRANTING
SUMMARY JUDGMENT FOR THE PLAINTIFFS
ON THEIR BREACH OF CONTRACT CLAIM
BECAUSE THE SUMMARY JUDGMENT RECORD
SHOWED THERE WERE FACTUAL DISPUTES
IMPACTING THE ELEMENTS OF THE BREACH
OF CONTRACT CLAIM – MOST NOTABLY THE
MEASURE OF DAMAGES TO WHICH
PLAINTIFFS ARE ENTITLED.
A. The Measure Of Damages Awarded
By The Trial Court Is Alone Ground For
Reversing The Grant Of Summary
Judgment For Plaintiffs.
B. There Were Material Disputes Over
Whether Defendant Breached The Loan
Agreement In The First Place.
C. Summary Judgment Was Improper,
Also, Because Defendant's Summary
Judgment Filings Raised Affirmative
Defenses To Plaintiff[s'] Breach Of
Contract Claim That A Jury Can Consider
In Determining Whether There Was A
Breach.
A-1199-20
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II.
We review "the trial court's grant of summary judgment de novo under
the same standard as the trial court." Templo Fuente De Vida Corp. v. Nat'l
Union Fire Ins. Co. of Pittsburgh, 224 N.J. 189, 199 (2016). That standard is
well-settled.
[I]f the evidence of record — the pleadings,
depositions, answers to interrogatories, and affidavits
— "together with all legitimate inferences therefrom
favoring the non-moving party, would require
submission of the issue to the trier of fact," then the
trial court must deny the motion. On the other hand,
when no genuine issue of material fact is at issue and
the moving party is entitled to a judgment as a matter
of law, summary judgment must be granted.
[Steinberg v. Sahara Sam's Oasis, LLC, 226 N.J. 344,
366 (2016) (citations omitted) (quoting R. 4:46-2(c)).]
See also Brill, 142 N.J. at 540.
If no genuine issue of material fact exists, the inquiry turns to "'whether
the trial court correctly interpreted the law.'" DepoLink Ct. Reporting & Litig.
Support Servs. v. Rochman, 430 N.J. Super. 325, 333 (App. Div. 2013)
(quoting Massachi v. AHL Servs., Inc., 396 N.J. Super. 486, 494 (App. Div.
2007)). We "accord no deference to the trial judge's conclusions on issues of
law." Ibid. "The practical effect of [Rule 4:46-2(c)] is that neither the motion
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court nor an appellate court can ignore the elements of the cause of action or
the evidential standard governing the cause of action." Bhagat v. Bhagat, 217
N.J. 22, 38 (2014).
The cause of action pertinent to this appeal is breach of contract. "To
establish a breach of contract claim, a plaintiff has the burden to show that the
parties entered into a valid contract, that the defendant failed to perform his [or
her] obligations under the contract and that the plaintiff sustained damages as a
result." Murphy v. Implicito, 392 N.J. Super. 245, 265 (App. Div. 2007).
"Interpretation and construction of a contract is a matter of law for the court
subject to de novo review." Fastenberg v. Prudential Ins. Co. of Am., 309 N.J.
Super. 415, 420 (App. Div. 1998). "Accordingly, we pay no special deference
to the trial court's interpretation and look at the contract with fresh eyes."
Kieffer v. Best Buy, 205 N.J. 213, 223 (2011).
"In interpreting a contract, a court must try to ascertain the intention of
the parties as revealed by the language used, the situation of the parties, the
attendant circumstances, and the objects the parties were striving to attain."
Celanese Ltd. v. Essex Cnty. Improvement Auth., 404 N.J. Super. 514, 528
(App. Div. 2009). "Generally, the terms of an agreement are to be given their
plain and ordinary meaning." M.J. Paquet, Inc. v. N.J. Dep't of Transp., 171
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N.J. 378, 396 (2002). "If the terms of a contract are clear, [courts] must
enforce the contract as written . . . ." Graziano v. Grant, 326 N.J. Super. 328,
342 (App. Div. 1999). However, interpretation of a contract should not be
decided on summary judgment when "there is uncertainty, ambiguity or the
need for parol evidence in aid of interpretation." Great Atl. & Pac. Tea Co. v.
Checchio, 335 N.J. Super. 495, 502 (App. Div. 2000).
Applying these principles, it is undisputed that the parties entered a valid
contract, that defendant failed to perform her obligations under the contract,
and that plaintiffs sustained damages as a result. We reject defendant's
assertion that there was no breach of contract because "she continued to
deposit checks of $800 each month into an interest-bearing checking
account . . . until . . . she was served with the [c]omplaint and [s]ummons."
The contract expressly states that defendant agreed to pay plaintiffs a
minimum monthly payment of $800, which defendant concedes she failed to
do. There was no provision in the contract for payments into an escrow
account. See Sullivan as Tr. of Sylvester L. Sullivan Grantor Retained Income
Tr. v. Max Spann Real Est. & Auction Co., 465 N.J. Super. 243, 265 (App.
Div. 2020) ("Contract terms must be given their plain and ordinary meaning."),
aff'd as modified, __ N.J. __, __ (2022).
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Equally unavailing is defendant's claim that the affirmative defenses of
unconscionability and duress, pled in her November 5, 2020 submission, raised
material disputed facts that should have been submitted to a jury for a
determination as to whether she breached the contract. As the judge correctly
pointed out, defendant's November 5, 2020 submission was not cognizable as
an amended answer because defendant failed to comply with the Court Rules.
See R. 4:9-1 (providing that once ninety days after service of a responsive
pleading have elapsed, a party may amend a pleading by filing a motion for
leave to amend with a copy of the proposed amended pleading annexed
thereto).2
In any event, we reject defendant's claim that a jury could find "that the
contract was unconscionable or invalid" because the stress of her personal
finances caused her to agree to the loan terms under duress. We have
previously recognized that feeling pressure about personal finances "do[es] not
constitute economic duress in the legal sense, which has been defined as a
wrongful or unlawful act that deprives the victim of his [or her] unfettered
will." Minoia v. Kushner, 365 N.J. Super. 304, 312 (App. Div. 2004).
2
For the same reason, we reject defendant's contention that the allegations
contained in her November 5, 2020 submission were relevant to the damages
to which plaintiffs were entitled on their breach of contract claim.
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Defendant proffers no credible evidence to suggest plaintiffs' conduct
dominated her in such a way as to deprive her of her "unfettered will."
Finally, defendant contends that the judge erred in calculating damages
because he "accelerat[ed] the total amount of the debt" when "[t]he terms of
the agreement [did] not contain an acceleration clause" and failed to consider
the stipulated damage clause providing for the transfer of ownership interest in
Chick Wrestler LLC to John for each month of defendant's nonpayment.
We first address defendant's argument regarding the absence of an
acceleration clause in the contract. "Courts have used the 'installment contract'
approach in a variety of situations." Metromedia Co. v. Hartz Mountain
Assocs., 139 N.J. 532, 535 (1995). "'[A] breach of an installment contract by
non-payment does not constitute a breach of the entire contract.'" In re Est. of
Balk, 445 N.J. Super. 395, 401 (App. Div. 2016) (quoting U.S. Bank Nat'l
Ass'n v. Gullotta, 899 N.E.2d 987, 992 (Ohio 2008) (holding that "by agreeing
to an acceleration clause, . . . parties . . . [can] avoid[] the . . . rule that
nonpayment on an installment loan does not constitute a breach of the entire
contract")).
"The installment contract method provides that 'claims based on
installment contracts or other divisible, installment-type payment requirements
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accrue with each subsequent installment,'" and, "[u]nless there is a repudiation,
'a plaintiff may sue for each breach only as it occurs.'" Id. at 400 (quoting
Cnty. of Morris v. Fauver, 153 N.J. 80, 107-108 (1998)). "A repudiation
'entails a statement or "voluntary affirmative act" indicating that the promisor
"will commit a breach" when performance becomes due.'" Id. at 401 (quoting
Franconia Assocs. v. United States, 536 U.S. 129, 143 (2002)).
Thus, "a missed payment is insufficient to constitute a total breach of an
installment contract or agreement unless accompanied by anticipatory
repudiation indicating a failure to perform future obligations specified in the
contract." Id. at 401. But, as Justice Cardozo succinctly expressed in Smyth
v. United States, 302 U.S. 329, 356 (1937): "[T]he doctrine of anticipatory
breach has in general no application to unilateral contracts, and particularly to
such contracts for the payment of money only." See also N.Y. Life Ins. Co. v.
Viglas, 297 U.S. 672, 680 (1936) (finding "a party to a contract who has no
longer any obligation of performance on his side, but is in the position of a
creditor exacting payment from a debtor, may be compelled to wait for the
instal[l]ments as they severally mature," in the same way that "a landlord may
not accelerate the rent for the residue of the term because the rent is in default
for a month or for a year").
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Moreover, other jurisdictions facing this issue have determined the
"anticipatory breach" doctrine does not apply to unilateral contracts,
particularly for the payment of money only. See, e.g., Phelps v. Herro, 137
A.2d 159, 164 (Md. 1957) (holding "the doctrine of anticipatory breach of a
contract has no application to money contracts, pure and simple, where one
party has fully performed his undertaking, and all that remains for the opposite
party to do is to pay a certain sum of money at a certain time or times");
Mabery v. W. Cas. & Sur. Co., 250 P.2d 824, 828-29 (Kan. 1952)
("'[A]llowing the promisee immediate recovery is nothing but a direct bonus to
the promisee beyond what he was promised and a direct penalty to the
promisor.'" (quoting 5 Williston on Contracts § 1328 (rev. ed. 1937)));
Rosenfeld v. City Paper Co., 527 So.2d 704, 706 (Ala. 1988) (explaining "the
use of the 'acceleration of maturity of payment' clause is in recognition of the
nonapplicability of the anticipatory breach doctrine in installment payment
contracts"); Meigs v. Est. of Mobley, 134 So.3d 878, 889 (Ala. 2013) (holding
"a borrower must specifically agree to the acceleration of payments" in both
written and oral agreements); see also Restatement (Second) of Contracts §
243(3) (Am. Law Inst. 1981) (stating "[w]here at the time of the breach the
only remaining duties of performance are those of the party in breach and are
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for the payment of money in installments not related to one another," the
"breach by non-performance as to less than the whole, whether or not
accompanied or followed by a repudiation, does not give rise to a claim for
damages for total breach.").
Here, when the judgment was entered, defendant had missed twelve
payments from December 2019 to December 2020. Because the contract did
not contain an acceleration clause providing for the accelerated maturity of all
installment payments upon default, plaintiffs' only claims were for the missed
payments as of December 4, 2020, plus interest. Thus, the judge erred in
awarding judgment to plaintiffs for the entire unpaid balance that remained
due and owing under the agreement. See Gen. Elec. Credit Corp. v.
Castiglione, 142 N.J. Super. 90, 97 (Law. Div. 1976) ("Absent a clause
providing for the accelerated maturity of all installment payments upon
default, there can be no such acceleration. To be enforceable the option to
accelerate must be clear and certain. It will not be supplied by mere
inference.") (citing Krosnowski v. Krosnowski, 22 N.J. 376, 383 (1956)).
Next, we turn to the contract provision providing John with five percent
ownership in Chick Wrestler LLC for each month of defendant's default. In
addressing the issue, we must first determine whether the provision "is an
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enforceable liquidated damages provision or is an unenforceable penalty
clause." Wasserman's Inc. v. Twp. of Middletown, 137 N.J. 238, 248 (1994).
Historically, New Jersey courts have distinguished between liquidated
damages and penalty clauses. Ibid. On the one hand,
[l]iquidated damages is the sum a party to a contract
agrees to pay if he breaks some promise, and which,
having been arrived at by a good faith effort to
estimate in advance the actual damages that will
probably ensue from the breach, is legally recoverable
as agreed damages if the breach occurs.
[Ibid. (quoting Westmount Country Club v. Kameny,
82 N.J. Super. 200, 205 (App. Div. 1964)).]
On the other hand, "'[a] penalty is the sum a party agrees to pay in the
event of a breach, but which is fixed, not as a pre-estimate of probable actual
damages, but as a punishment, the threat of which is designed to prevent the
breach.'" Id. at 248-49 (quoting Westmount, 82 N.J. Super. at 205). As to the
latter, because "'[t]he settled rule in this State is that such a contract is
unlawful,'" "'[p]arties to a contract may not fix a penalty for its breach.'" Id. at
249 (quoting Westmount, 82 N.J. Super. at 205).
"Thus, '"[l]iquidated damages" and "penalties" are terms used to reflect
legal conclusions as to the enforceability or nonenforceability, respectively, of
stipulated damage clauses.'" Id. at 248 (alteration in original) (quoting
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Kenneth W. Clarkson et al., Liquidated Damages v. Penalties: Sense or
Nonsense?, 1978 Wis. L. Rev. 351, 351 n.1 (1978)). "The decision whether a
stipulated damages clause is enforceable is a question of law for the court."
Id. at 257. "As the law has evolved, . . . 'reasonableness' emerges as the
standard for deciding the validity of stipulated damages clauses." Id. at 249.
Consistent with the principle of reasonableness, New
Jersey courts have viewed enforceability of stipulated
damages clauses as depending on whether the set
amount "is a reasonable forecast of just compensation
for the harm that is caused by the breach" and whether
that harm "is incapable or very difficult of accurate
estimate."
[Id. at 250 (quoting Westmount, 82 N.J. Super. at
206).]
However, "[u]ncertainty or difficulty in assessing damages is best
viewed not as an independent test, but rather as an element of assessing the
reasonableness of a liquidated damages clause." Ibid. (citations omitted).
Thus, "the more uncertain the damages caused by a breach, the more latitude
courts g[i]ve the parties on their estimate of damages." Metlife Cap. Fin.
Corp. v. Wash. Ave. Assocs. L.P., 159 N.J. 484, 494 (1999). "'[T]he parties'
characterization of stipulated damages as "liquidated damages" or as a
"penalty" should not be dispositive.'" Holtham v. Lucas, 460 N.J. Super. 308,
318 (App. Div. 2019) (quoting Wasserman's, 137 N.J. at 251). "Since
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'considerations of judicial economy and freedom of contract favor enforcement
of stipulated damages clauses,' a party challenging such a clause bears the
burden to show it is unreasonable." Ibid. (quoting MetLife, 159 N.J. at 496,
504).
The agreement at issue explicitly stated if defendant defaulted on the
loan, John was entitled to five percent ownership of Chick Wrestler LLC "for
each month that passes where there is no payment or remedy made to correct
the unpaid balance." Although the question of whether a stipulated damages
clause is enforceable "is one of law, it may require resolution of underlying
factual issues." Wasserman's, 137 N.J. at 257.
Here, the judge did not resolve the underlying factual issues, finding
instead that "[t]here [was] no evidence before th[e] court" that the provision
"was ever enforced, or, if enforced, whether that [five percent] interest has or
had any monetary value." Because we are convinced that resolution of those
factual issues is crucial to a determination of whether the stipulated damages
clause is enforceable and, if so, the proper measure of damages, we remand the
matter to the trial court to consider the reasonableness of the clause in light of
this opinion. See Rosen v. Smith Barney, Inc., 195 N.J. 423, 427 (2008) ("[A]
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contractual term fixing an unreasonably large liquidated damage amount is a
penalty, which is unenforceable on grounds of public policy.").
In sum, we affirm the December 7, 2020 order granting plaintiffs
summary judgment on their claim against defendant for breach of contract.
We vacate the judgment awarding plaintiffs $33,777.65 in damages and
remand for the trial court to recalculate damages and enter an appropriate final
order consistent with this opinion. We leave to the sound discretion of the trial
court the extent to which additional proof is necessary to resolve the issues
involving valuation and ownership of Chick Wrestler LLC.
Affirmed in part, reversed in part, and remanded for further proceedings
consistent with this opinion. We do not retain jurisdiction.
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