Friedman v. Hudson

1

MARK FRIEDMAN Appellant v. WILLIAM HUDSON

No. 1881 EDA 2021

No. J-S31002-22

Superior Court of Pennsylvania

May 16, 2023

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

Appeal from the Judgment Entered November 22, 2021 In the Court of Common Pleas of Montgomery County Civil Division at No(s) 2019-00890

Joseph D. Seletyn, Esq.

BEFORE: BOWES, J., NICHOLS, J., and STEVENS, P.J.E ^[*]

MEMORANDUM

BOWES J.

Mark Friedman appeals from the judgment entered on the non-jury verdict in favor of the defendant, William Hudson in a contract dispute concerning investment properties. We reverse and remand with instructions.

Hudson is a contractor who owned investment property located at 439 Beech Street ("439 Beech Street") in Pottstown, Montgomery County. While that property was not encumbered by a mortgage, Hudson owed an unsecured debt of $20,000 to a third party for property-related expenses. On September 25, 2015, Hudson entered into a partnership agreement with Friedman, a work acquaintance with moderate construction experience as an unskilled laborer. Hudson drafted the handwritten agreement ("the Partnership Agreement"), which provided as follows:

9/25/15

William C. Hudson and Mark W. Friedman as of today will start a Properties Company.

• William C. Hudson offers property 439 Beech St. Pottstown, Pa.

• Mark W. Friedman offer[s $]25,000.00 which is to pay off loan, against said house.

• Doing this Mark W. Friedman will be added to the title of said House and become half owner.

I agree to this agreement.

[Signatures of both parties]

N.T., 2/8/21, 17-18 Exhibit P-2. As the trial court accurately observed, "[t]he agreement does not contain an integration clause." Trial Court Opinion, 2/17/22, at 3.

The trial court continued,

For his part, Friedman invested a total of $25,000.00 in the partnership and orally agreed to help Hudson with the repair and renovation of the properties in the partnership. For his part, Hudson offered up his unencumbered 439 Beech house with a purported market value of approximately $90,000.00 to $100,000.00 as collateral and orally agreed to bring his general contractor skills to repair and/or renovate the residential properties purchased by the partnership. Friedman agreed the condition of 439 Beech was "very good," it was "ready to go" and was "a nice house." He explained that he would not have invested his money in it if it were not.

. . . .

According to Hudson, sometime following the signing of the written agreement, Friedman informed Hudson that he was concerned that adding his name to the title of 439 Beech would negatively affect Friedman's employment claim with Vanguard and that Friedman's bad credit would negatively affect the partnership's ability to get a loan. Consequently, the parties orally agreed that, although Friedman's name would not be added to the deed for 439 Beech, Friedman would continue to own 50% interest in the business. This amendment to the contract was not contained in any writing.

Id. at 3-5.

Hudson rented the property periodically between 2015 and 2019. He either reinvested the rental proceeds into repairs and renovations that he performed between tenants or used the money to satisfy property-related expenses such as insurance and property taxes. The parties dispute whether Friedman helped Hudson complete any repairs or manage the property.

On May 3, 2016, Hudson, acting on behalf of the partnership, used the property to secure a loan for $64,500, but he neglected to inform the mortgage lender that Friedman owned a fifty-percent interest in the real estate. Thereafter, Hudson and Friedman agreed to use approximately one-third of the loan proceeds to purchase a second investment property on Beech Street ("20 Beech Street"). However, a subsequent dispute concerning the postponed settlement date caused a rift between the two men so severe that the partners did not communicate for several months.

In October 2016, Friedman informed Hudson that he wanted the return of his $25,000 investment. Hudson agreed but, as he was unable to access cash to pay in a lump sum, proposed a series of $500 monthly payments to satisfy the debt. Friedman rejected that proposal, but in the winter of 2016, he subsequently accepted two checks for a total of $6,000 and agreed to defer the remaining $19,000 debt until Hudson either sold or mortgaged the 20 Beech Street property.^[1] The memo line on the first check read "Pay Back Payment" and the second check noted "Balance $19,000.00." N.T., 2/17/21, at 87, Exhibits D and E.

Over the ensuing two-year period, Hudson neither sold nor mortgaged the 20 Beech Street property, and he did not make any additional payments to Friedman. In January 2019, Friedman initiated the lawsuit that is the genesis of this appeal. He subsequently filed an amended complaint asserting: (1) that Hudson was in breach of the Partnership Agreement by failing to pay $42,606.31, which Friedman averred was his equal share of the alleged profits from the partnership; and (2) that Hudson was in breach of the 2016 repayment agreement because he failed to satisfy the remaining $19,000 debt. Friedman also presented a third, alternative count of unjust enrichment, i.e., "Friedman conferred on Hudson the benefit of the estimated $42,606.31 in Partnership profits and the $19,000 in Partnership interest [and u]der the circumstances, it would be inequitable and unjust for Hudson to retain the benefit of Friedman's money without paying for the value of that benefit." Amended Complaint, 12/27/19, at 6.

In his answer and new matter Hudson denied that the partnership realized any profit for the ventures at 20 Beech Street or 439 Beech Street. See Answer and New Matter Counterclaim, 2/18/20, at 4,5. As to the October 2016 agreement to pay Friedman $25,000, which he framed as a mutual rescission, Hudson asserted that Friedman breached that agreement by filing this lawsuit and demanding payment before Hudson was able to sell or mortgage 20 Beech Street.^[2] Id. at 6. The concomitant counterclaim asserted that Friedman was in breach of the Partnership Agreement because Friedman failed to provide labor or any further capital for 439 Beech Street and utterly abandoned his responsibilities for renovating 20 Beech Street. He opined, "Friedman's breach[es] of the [Partnership Agreement] have caused Hudson to suffer loss in the amount of $75,000." Id. at 9.

During the bench trial, both parties proffered testimony that was generally consistent with their pleadings. Friedman stated that his only obligation under the Partnership Agreement was to contribute $25,000 to the venture. See N.T., 2/17/21, at 116. He believed that he was purchasing one- half interest in the rental property and would receive rental income when it was occupied. Id. at 116. For his part, Hudson testified that, in October 2016, after the dispute regarding the settlement date for 20 Beech Street, Friedman informed him that he wanted to terminate the partnership. Id. at 83. Hudson recalled, "[H]e told me he wanted out. He did not want to be in this anymore. He changed his mind. He would like his money back." Id. Thereafter, Hudson outlined the two payments that he made to Friedman totaling $6,000, confirmed the $19,000 balance, and explained why he subsequently refused to pay the amount remaining on the debt. Id. 84-86, 87-88, 95. He reasoned:

[W]hen I had that money to pay him back, . . . that's when we got the lawsuit that he wanted a ridiculous amount of money for his interest, and I then decided not to give him the $19,000 and we'll wait for what the court decides, if he wants to take it to court and not, you know, do what we had agreed.

Id. at 95.

At the close of testimony, the trial court held a non-record sidebar and then directed counsel to submit proposed findings of fact and conclusions of law. In pertinent part, Friedman's submission noted the $6,000 repayment but did not outline his position as to the remaining $19,000. Instead, he focused on recovering what he asserted were "the benefits of his ownership," i.e., $57,602.52, which included interest on any unpaid profit. Plaintiff's Proposed Findings of Facts and Conclusions of Law, 2/18/21, at 8. As it relates to the $19,000 balance, Hudson reiterated his position that Friedman breached the 2016 repayment agreement by initiating the instant lawsuit seeking additional damages. See Defendant's Proposed Findings of Fact and Conclusions of Law, 2/19/21, at 4-5.

On June 15, 2021, the trial court entered a self-styled "Decision" outlining defense verdicts against Friedman's breach of contract and unjust enrichment claims and Hudson's counterclaim for breach of contract. As to Friedman's request for substantial damages relating to the accruing benefits of ownership under the partnership agreement, the trial court found that the 2016 repayment agreement was "a novation of the partnership agreement . . in which Friedman agreed to relinquish any stake in the partnership for the return of his original $25,000.00 investment." Trial Court Decision, 6/15/21, at 19. It found that "Friedman's consent to the novation [wa]s evidenced by his acceptance of $6,000 toward the agreed upon amount of $25,000.00[.]" Id. Hence, the court concluded that Friedman did not establish that Hudson breached the written contract: "The evidence adduced at trial demonstrates that the original written instrument documenting the partnership agreement was subsequently amended by valid oral agreements such that the original terms of the written instrument were no longer controlling." Id. at 20. Presumably referencing that oral agreement, the court further concluded, without any explanation, that Friedman did not establish that Hudson breached "their" contract. Id....