Opinion
11431/08.
Decided July 22, 2011.
Joseph H. Adams, Esq. P.C., Attorney for Plaintiffs.
Condon Associates, PLLC, Attorneys for Defendants.
This action arises from a series of transactions between the parties regarding a delicatessen situated at 80 South Broadway in Nyack, New York ("the premises"). Plaintiffs commenced this action, alleging causes of actions sounding in, inter alia, breach of contract, fraud, and breach of an alleged partnership agreement. Plaintiffs seek a money judgment, a declaratory judgment and equitable relief, including setting aside a lease of the premises, judicial dissolution of the alleged partnership and an accounting. Defendants assert various counterclaims, including breach of the covenant of quiet enjoyment and conversion. A trial was held before the Court on all issues.
It is undisputed that the premises are owned by J T Staprem, Inc., a corporation in which Timothy is the owner and sole shareholder.
Plaintiffs contend, in substance, that Timothy Murray, Michael Murray and Eileen Coyle (collectively "the individual parties"), all siblings, discussed moving the delicatessen from its previous location at 76 South Broadway to the premises on various occasions. Timothy claims that the individual parties ultimately entered into a partnership agreement concerning the ownership and operation of Murray's Deli of Nyack, Inc. d/b/a/ Murray's Delicatessen. They also agreed to keep the name Murray's Delicatessen because it possessed a license from the New York State Liquor Authority as well as family name recognition. Beginning in late 2006 and continuing through February 2007, Timothy renovated the building located on the premises for use as a delicatessen at a cost of approximately $225,000. From early 2007 through the Fall of 2008, the individual parties worked at Murray's Delicatessen. In 2008, Timothy asked Michael and Eileen to begin making monthly payments towards their capital contribution of $225,000 each pursuant to the partnership agreement. Michael and Eileen refused to do so and denied the existence of a partnership, prompting the instant litigation.
Michael Murray is the owner and sole shareholder of Murray's Deli of Nyack, Inc.
Defendants contend, in substance, that the individual parties never entered into a partnership agreement regarding the ownership and operation of Murray's Delicatessen. That Michael has always been the owner of Murray's Delicatessen and Eileen and Timothy worked there as employees. Defendants also allege that Murray's Delicatessen leased the premises from J T Staprem pursuant to a commercial lease dated May 1, 2007. Michael Murray did not testify at trial.
Partnership Between Timothy Murray, Michael Murray and Eileen Coyle Under Written Partnership Agreement
Plaintiffs claim that the individual parties established a partnership by signing a written partnership agreement regarding Murray's Delicatessen in January or February of 2007. In support of this assertion, Plaintiffs introduced three identical partnership agreements drafted by Eileen dated January 28, 2007 ("the initial agreement') that set forth the terms of the partnership.
The partnership agreement provided, inter alia, that the individual parties would not receive salaries from the business but would be paid an hourly wage and share the profits and losses of Murray's Delicatessen based upon the number of hours they worked at the deli. The initial agreement states that each of the individual parties made an initial capital contribution of $100,000 and that Michael and Eileen would pay Timothy $150,000 each in future capital contributions over the course of ten years by making monthly payments of $1,250 beginning on September 1, 2007 with no interest. According to Timothy, Michael and Eileen agreed to make capital contributions to him as consideration for his renovation expenditures and forbearance in renting the premises to a third party.
Timothy claims that he did not agree with the initial capital contribution term and requested that Eileen draft a revised partnership agreement. The revised agreement was identical to the initial agreement except for the capital contribution term, which was revised to read that Michael and Eileen would pay Timothy $225,000 each over 10 years plus interest at 7.75%. Timothy testified that the individual parties signed the revised partnership agreement containing this $225,000 provision and he retained a copy at his gas station. Timothy also testified that this copy of the fully signed revised partnership agreement "disappeared" around the time the instant controversy arose.
Timothy states that the 7.75% interest rate matched the rate of the note and mortgage against his personal residence he used to finance the renovation of the premises.
Defendants allege that no partnership exists between the individual parties because Michael refused to sign any partnership agreement. In support of this position, Eileen claims that although she drafted and signed three copies of the inital partnership agreement, she did not see Michael sign any partnership agreement. She does not believe Michael signed them because of his refusal to enter into any partnership. As such, Eileen claims that she worked and was compensated by Murray's Delicatessen as an employee rather than a partner beginning in early 2007.
A writing that in good faith expresses the full understanding of the obligations of the parties is sufficient to establish a partnership. Martin v. Peyton, 246 NY 213. "Partnership results from contract, express or implied." Martin v. Peyton, 246 NY 213, 217 [1927]; Alleva v. Alleva Dairy, 129 AD2d 663 [2d Dept 1987]. Partnership agreements are subject to all the rules of construction and interpretation applicable to any contract, including the Statute of Frauds. See Elias v. Serota, 103 AD2d 410 [2d Dept 1984][applying contract law and statute of frauds principles to a partnership agreement]; 4B N.Y.Prac., Com. Litig. in New York State Courts § 78:6 [3d ed.]["As a contract, the partnership agreement is subject to all the rules of construction that apply to any contract"].
"The statute of frauds, as incorporated in section 5-701(a)(1) of the General Obligations Law, provides that an agreement is void if it is not in writing and subscribed by the party to be charged therewith' when the agreement [b]y its terms is not to be performed within one year from the making thereof.'" Sheehy v. Clifford Chance Rogers Wells LLP, 3 NY3d 554.
Any agreement by Michael and Eileen to pay Timothy over a period of years would be subject to the statute of frauds based upon the length of the repayment period. The three copies of the initial agreement introduced at trial bear only Eileen's signature and are not signed by the other putative partners, to wit, Michael or Timothy. Although Timothy alleges that the initial agreement was subsequent revised to contain the $225,000 provision and was executed by all of the individual parties, he could not produce any version of that agreement or satisfactorily prove that the agreement existed and was executed. Accordingly, Plaintiffs have not established a partnership between the individual parties via a signed writing and Timothy's claims based upon Michael and Eileen's alleged agreement to pay him $225,000 each are barred by the statute of frauds.
Oral Partnership Between Timothy Murray, Michael Murray and Eileen Coyle
Plaintiffs state that even if the Court were to find that no partnership exists by means of a written agreement, an oral partnership was established between the individual parties regarding the ownership and operation of Murray's Delicatessen. Plaintiffs highlight the individual parties' conduct regarding the start-up, daily management and operation of Murray's Delicatessen from early 2007 to the fall of 2008 as indicia of such a partnership.
In response, Defendants claim that the individual parties' actions do not support the finding of an oral partnership. Specifically, Defendants state that Timothy Murray chose to renovate the premises and currently owns the now-improved fixtures contained thereon. Michael Murray owned and operated his own deli business since 2000 and therefore had no incentive to enter into a partnership arrangement with his siblings in 2007. Given this, Defendants allege that Michael was the sole owner of Murray's Delicatessen and both Timothy and Eileen worked and were compensated as employees at an hourly rate between $12.00 and $15.00 per hour rather than as partners in the business.
If the existence of a partnership is denied, ". . . it may be proved by the production of some written instrument; by testimony as to some conversation; by circumstantial evidence." Martin v. Peyton, 246 NY 213, 217 [1927]. "When there is no written partnership agreement between the parties, the court must determine whether a partnership in fact existed from the conduct, intention, and relationship between the parties. Factors to be considered in determining the existence of a partnership include (1) sharing of profits, (2) sharing of losses, (3) ownership of partnership assets, (4) joint management and control, (5) joint liability to creditors, (6) intention of the parties, (7) compensation, (8) contribution of capital, and (9) loans to the organization." Czernicki v. Lawniczak , 74 AD3d 1121 , 1124 [2d Dept 2010][internal citations omitted]; Brodsky v. Stadlen, 138 AD2d 662 [2d Dept 1988].
The Court finds the individual parties shared equally in the profits realized by Murray's Delicatessen. From early 2007 to the Fall of 2008, the individual parties operated the deli business in a profitable manner and each received $1,000.00 per week from the profits of the deli as well as an hourly wage for hours worked at the deli, initially at the rate of $12.00 per hour and subsequently at $15.00 per hour.
The Court further finds that the individual parties exercised joint management and control of Murray's Delicatessen in coordinating their schedules so that they would not overlap and ensuring that one of them would be present at all times. They all agreed to commit an equal amount of time of approximately 60 hours each per week towards operating the deli. Timothy purchased the initial deli inventory, continuously ordered and maintained this inventory, and wrote the majority of checks on behalf of Murray's Delicatessen. Michael operated and managed the deli on the premises and Eileen assisted him in running the day-to-day operation of the business and performed bookkeeping functions. The individual parties all conducted business and negotiated with vendors and other individuals on behalf of Murray's Delicatessen. The parties also held themselves out as partners to individuals when describing their involvement with Murray's Delicatessen.
Michael and Timothy identified themselves as President and Vice President, respectively, of Murray's Delicatessen on bank documents establishing a corporate bank account and both were authorized to sign checks drawn against this account. Furthermore, the individual parties' efforts to facilitate the transfer of the liquor license from Murray's Delicatessen's former location to its new location on the premises is indicative of their collaborative intent.
Based upon the evidence and testimony introduced, the Court finds that an oral partnership at will existed between the individual parties based upon their conduct and intention regarding the ownership and operation of Murray's Delicatessen.
Commercial Leases Regarding the Premises
Three commercial leases regarding the premises were admitted into evidence. Plaintiffs requests that this Court rescind or set aside all three leases on various grounds. Defendants claim that the May 1, 2007 is the only lease that is valid and remains in full effect.
January 28, 2007 Lease
The earliest of the three leases is an unsigned commercial lease agreement dated January 28, 2007 between J T Staprem, Inc. and the individual parties ("the partnership lease"). The partnership lease is for a term of 60 years at a rental rate of $6,000.00 per month and the lessees are responsible for all real estate taxes assessed regarding the premises.
Timothy testified that he signed the partnership lease in early 2007 simultaneously with the written partnership agreement. Eileen's undisputed testimony was that she drafted the partnership lease, arbitrarily selected 60 years as the lease term and did not confer or negotiate this terms with either Timothy or Michael. Eileen testified further that she did not see Michael sign the partnership lease.
"A contract for the leasing for a longer period than one year, or for the sale, of any real property, or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged . . ."General Obligations Law § 5-701(1); see Geraci v. Jenrette, 41 NY2d 660.
Although Timothy and Eileen claim to have singed the partnership lease, it has not been satisfactorily proven that Michael signed the document. The partnership lease does not contain a signature page and is not otherwise subscribed to by any of the individual parties. Accordingly, the partnership lease is void based its failure to satisfy the statute of frauds.
February 28, 2007 and May 1, 2007 Leases
The commercial lease dated February 28, 2007 is signed by Timothy and Michael in their individual capacities("the second lease"). It is for a term of 70 years at a rental rate of $6,300 per month, including parking privileges. Under the second lease, Michael is responsible for all real estate taxes assessed regarding the premises.
The commercial lease dated May 1, 2007 is signed by Timothy and Michael on behalf of J T Staprem, Inc. and Murray's Delicatessen, respectively ("the third lease"). The third lease is for a term of 92 years at a rental rate of $6,000.00 per month. Under the third lease, Murray's Delicatessen is responsible for all real estate taxes assessed regarding the premises.
Plaintiffs contend that the second and third leases do not constitute binding contracts between the signatories based upon various grounds, including fraud and mistake. In support of this assertion, Plaintiffs note that Murray's Delicatessen possessed a license from the New York State Liquor Authority to serve alcohol at its previous location at 76 South Broadway. In order to transfer this license to its new location on the premises, Murray's Delicatessen needed a valid lease regarding the premises. Given this requirement, Plaintiffs claim that the second and third leases were executed solely as a vehicle by which the individual parties could transfer the liquor license. Timothy testified that he signed the second and third leases with this intention and, therefore, did not read or expect to be bound by any of the substantive terms contained therein. Timothy states that $6,000.00 in monthly rent for 92 years is grossly inadequate as consideration in light of regular rent escalations that are commonplace in commercial leases for much shorter time periods.
Defendants argue that the third lease was validly executed.
Eileen testified that she drafted the third lease solely for the transfer of the liquor license, inserted the 92 year term without input or negotiation with her siblings, and did not read the lease. She contends that she did not want to be on the lease, as it was only for the liquor authority. Notwithstanding this testimony, Defendants assert that the third lease is valid and was intended to have legal effect upon the parties' rights in and to the premises. On April 11, 2011, Eileen executed an assignment that purports to assign the third lease from Murray's Deli to Murray's 7, Inc., a corporation in which Eileen is the sole shareholder of.
Eileen acquired 50% of the corporate shares in Murray's Deli via a May 10, 2010 Shareholders Agreement executed by herself and Michael.
"The fundamental rule in the construction of all agreements is to ascertain the substantial intent of the parties. The purpose to be accomplished and the object to be advanced may be considered and may, if necessary, be shown by parol evidence as bearing on the consideration for the written instrument. If it is claimed by [a party] that a construction should be placed on the contract other than has been indicated, or any doubt arises from the writing itself, the court must look into the intention of the parties to be derived not alone from the words used but it must be read, so far as they may be ambiguous, in the light of the surrounding facts and circumstances in which event parol evidence may be introduced as to those facts and circumstances without violating the parol evidence rule." M. O'Neil Supply Co. v. Petroleum Heat Power Co., 280 NY 50, 55-56 [1939].
The Court finds that the facts and the circumstances surrounding the execution of the second and third leases as well as the confidential relationship between the individual parties as siblings explains their willingness to execute two long term leases within months of each other and revise them in order to conform with the mandates of the State Liquor Authority. That the second and third leases were executed with the sole purpose of transferring the liquor license from Murray's Deli's previous location to the premises and not as a legally operative document giving rise to a bona fide landlord-tenant relationship. Accordingly, the second and third leases are deemed void based upon lack of intent to be bound on the part of the individual parties.
Dissolution of the Partnership and Accounting
In Plaintiffs' Verified Complaint, Timothy Murray seeks the judicial dissolution of the partnership between himself, Michael Murray and Eileen Coyle and an accounting regarding the partnership.
A partnership dissolution may be caused by, inter alia, "the express will of any partner when no definite term or particular undertaking is specified." Partnership Law § 62. The oral partnership between the individual parties for an indefinite period of time creates a partnership at will. See Green v. Le Beau, 281 AD 836[2d Dept 1953]. Such a partnership may be dissolved at any time when any of the partners expresses an intent not to continue longer. See Forbes v. Six-S Country Club, 12 AD3d 1049, 1051 [4th Dept 2004]; Green, 281 AD at 836. "Since a partnership between the parties has been judicially established, the plaintiffs are entitled to an accounting." DeMartino v. Pensavalle, 56 AD2d 589 [2d Dept 1977].
"The dissolution of a partnership at will may be implied from circumstances; but, when not the result of mutual agreement there must be notice by the party desiring a dissolution, to his co-partner, of his election to terminate the partnership, or his election must be manifested by unequivocal acts or circumstances brought to the knowledge of the other party, which signify the exercise of the will of the former that the partnership be dissolved" Spears v. Willis, 151 NY 443, 449 [1897].
The verified complaint in this action includes a request for the dissolution of the partnership and an accounting, thereby putting Michael and Eileen on notice of Timothy's intentions. In addition, Timothy's unequivocal act of bringing the instant action and commencing a summary proceeding seeking to evict Murray's Delicatessen from the premises is consistent with this intention. Eileen and Michael's actions of seeking and securing an order preventing Timothy from entering onto the premises are equally illustrative. Currently, only Eileen is involved in the daily operation of Murray's Delicatessen, as Timothy has not participated in the business since the signing of the order preventing him from entering the premises and Michael left the premises in January of 2011.
Given the Court's determination that a partnership exists between the individual parties for an indefinite period of time and the unequivocal acts demonstrating such acrimony between the individual parties, the partnership between the individual parties is hereby dissolved and an accounting is hereby ordered. This matter is hereby referred to Jack Schloss, Esq., 420 Route 59, Airmont, NY 10952, 845-425-420 to conduct an accounting regarding the individual parties' interests in the partnership by Order of Reference signed simultaneously herewith.