Recently, the Appellate Division of the Superior Court of New Jersey was asked to decide whether a person who neither signed nor negotiated a contract was nevertheless, bound by its terms. YA Global Investments, LP v. Hackett, No. A-3033-09T2, 2011 WL 611200 (N.J.Super. 2010).
Patrick and Juliann Hackett owned Patrick Hackett Hardware Company (“PHHC”). Between 2001 and 2006, PHHC executed five promissory notes with Community Bank. N.A. totaling $2,730,000. In 2006, Patrick and Juliann each signed a “Commercial Loan Guaranty” and became personal guarantors of all loans from Community Bank, N.A. to PHHC.
In 2007, the Hacketts sold all shares of PHHC to Wisebuys Stores, Inc. As part of the sales agreement, Wisebuys agreed to ensure that the Hacketts were released from their personal guarantees to Community Bank, N.A. Shortly after the sale of the shares, Wisebuys was purchased by Seaway Valley Capital Corporation (“Seaway”). Seaway refinanced PHHC’s debt with YA Global Investments and borrowed additional monies from YA.
Several months later, YA and Seaway executed an Exchange Agreement (“Agreement”) that converted the five promissory notes into a single debt. The Agreement also stated that it was governed by New Jersey law and selected New Jersey as the forum state for any litigation.
In 2009, Seaway defaulted on the debt with YA. YA demanded payment of the full balance from the Hacketts under their earlier guarantees to Community Bank that Community claimed were transferred to it via assignment. YA filed suit against the Hacketts in the Superior Court of New Jersey, Hudson County.
The Hacketts asked the trial court to dismiss the case for lack of personal jurisdiction. They admitted that they had signed the original notes. However, they argued that the subsequent transaction to sell their business and be released from the notes rendered them free of that obligation. The trial court agreed with the Hacketts’ and dismissed YA’s case against them. YA appealed the trial court’s decision to the Appellate Division.
The Appellate Division affirmed the trial court’s decision, holding that the Hacketts were not liable under the notes since they were not parties to the Agreement. The Court reasoned that the plain language of the Agreement implied that the only parties to it were Seaway and YA. The Agreement was also negotiated and executed only by representatives of Seaway and YZ. The Appellate Division agreed with the trial court’s decision that the Agreement bound only Seaway and YA. Since the Hacketts were not parties to the Agreement, they were not bound by the forum selection clause.
The Court similarly rejected YA’s argument that extrinsic (outside of the agreement) evidence should be permitted to determine whether the Hacketts were intended to be parties to the Agreement and bound by its terms. Once again, the Court stated that the plain text of the Agreement made it clear that the only parties bound by its terms were Seaway and YA. Thus, there was no need to examine extrinsic evidence as the language analyzed was not susceptible to more than one interpretation.
© 2011 Nissenbaum Law Group, LLC