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Colossal Kerfuffle Over Ownership of Falafel Café:

Was Hand-Written Note an Enforceable Contract of Sale?

Andres Tobon sued Pita Off The Corner, Inc., Falafel Off the Corner, Inc. Leor Yohanan, Miriam Yohanan and other members of their family for breach of contract, unjust enrichment, and fraud, arising from the failed sale of a Manhattan falafel restaurant. Tobon moved for summary judgment on his second and third causes of action in the principal sum of $50,000.

In support of his application, Tobon submitted the verified complaint. The attorney-verified answer with counterclaim; an attorney’s affirmation; a transcript of an appearance by Tobon by counsel, and Leor Yohanan, pro se, before Justice Kathryn Freed on an order to show cause filed by Tobor in a prior action; and a one-page, undated, handwritten document signed by Leor and purporting to memorialize the terms of the sale of the falafel restaurant to him.

According to the verified complaint, in or around November 2015, Tobon orally agreed to purchase a falafel restaurant owned by Miriam Yohanan for $65,000. At some point after Tobon paid $25,000 towards the purchase price, Leor, who claimed in an affidavit submitted in opposition to the motion that he was the “de facto owner-operator” of the restaurant, hand-wrote certain terms of the transaction on a blank piece of paper and signed it. While the writing was highly informal and fragmented, it contained a line that read, “upon receiving $50,000 — 100% of UES Restaurant gets transferred over.” Elsewhere, the writing appeared to indicate that the remainder of the purchase price as well as an $18,000 “deposit,” purportedly comprising a security deposit due in order to assume the lease for the restaurant, “can be financed over time.”

Tobon alleged in the verified complaint that he paid $50,000 to Leor as of January 9, 2016, but that the Yohanans did not transfer any interest in the restaurant to him. In May 2016, the Yohanans created a corporation that the restaurant could be transferred to, in which Tobon was to hold a 60% interest and Miriam Yohanan was to hold the remaining 40% interest.

On June 20, 2016, Leor informed Tobon that the restaurant had been sold to a third-party.

On September 14, 2016, Tobon  commenced an action, captioned Tobon v Pita Off the Corner, Inc., against the same defendants under Index No. 654873/2016 in the Supreme Court, New York County. The 2016 action sought relief virtually identical to that sought in the pending action. On September 26, 2016, a hearing on a proposed order to show cause with temporary restraining order that Tobon filed in the 2016 action was held before Justice Freed. At the hearing, Leor appeared, pro se, and gave testimony, under oath, in response to Justice Freed’s questioning. Leor confirmed to the court that he had agreed to sell the restaurant to Tobon who paid $50,000 to him—and subsequently sold the restaurant to an individual named Rafael Rafael. But Leor also contended that there was second page to the writing that provided for a schedule of further payments; the Yohanans gave control of the restaurant to Tobon after receiving the $50,000; and that Tobon subsequently mismanaged the restaurant: failed to take over the restaurant’s lease: or make any monthly rental payments. While some of his testimony was somewhat unclear, Leor further expressed that the parties had agreed that Tobon was to set up a corporation for transfer of the restaurant and its lease and that he never did so.

The affidavit of Leor Yohanan was submitted in opposition to Tobon’s motion. Leor acknowledged that he, as agent for Miriam, entered into an oral contract with Tobon for the sale of the restaurant in exchange for $65,000 plus $18,000 to reimburse a security deposit held by the restaurant’s landlord. Leor stated that the parties further agreed that Tobon was to substitute on the restaurant’s lease by execution of an assignment or new lease; open his own vendor and bank accounts and obtain a new Tax ID and food handler license; open his own corporation to transfer the restaurant operations; and perform other tasks necessary for him to assume operation of the restaurant.

Leor averred that “[t]he actual corporation was not being transferred to [Tobon], just the operations.” After they transferred operations to the Tobon, in accordance with the agreement, Leor alleged that Tobon mismanaged the restaurant and caused it to lose its Kosher certification. And Tobon breached the parties’ agreement by failing to make all required payments; obtain a new lease; open a new corporation; open new vendor and bank accounts; and pay electric and gas bills. When the Yohanans eventually created the corporation, with Tobon as majority interest holder, Leor alleged that Tobon operated the restaurant under the new entity for less than one month and then “abandoned the restaurant.” Since the lease was never transferred and remained in the name of the  original corporate entity, the Yohanans subsequently sold the restaurant and transferred the lease to another purchaser.

Tobon asserted that he was entitled to recover the $50,000 he paid under theories of breach of contract and unjust enrichment. To successfully prosecute a cause of action to recover damages for breach of contract, plaintiff is required to establish: (1) the existence of a contract: (2) plaintiff’s performance under the contract; (3) defendant’s breach of that contract; and (4) resulting damages.

There was no dispute as to the existence of a contract for sale of the restaurant between the parties and Tobon’s payment of $50,000 towards the purchase price. But the parties’ submissions raised several issues of fact as to the terms of the agreement; their respective obligations; and whether Tobon fully performed. And, because the terms of the parties’ agreement lacked clarity, there remained questions as to whether the parties contemplated transfer of the restaurant’s operations or transfer of the corporation under which the restaurant operated and whether Tobon’s failure to complete payments and arrange for assignment of the lease to a corporation in his name defeated his right to recover. So Tobon’s motion for summary judgment under a breach of contract theory was denied.

A cognizable claim for unjust enrichment requires a plaintiff to demonstrate that: (i) the other party was enriched: (ii) at that party’s expense: and (iii) it is against equity and good conscience to permit the other party to retain what is sought to be recovered. However, as a general rule, where a plaintiff seeks to recover under an express agreement, no cause of action lies to recover for unjust enrichment.

The parties’ submissions clearly indicated that all agreed there was a contract between Tobon and Leor, as agent for Miriam, requiring Tobon to pay certain sums towards purchase of the restaurant. There was substantial disagreement as to the whether the parties’ agreement contained additional conditions for sale that were not met and whether the writing called for the transfer of title to the restaurant in addition to operations. But no one questioned the agreement’s validity. So Tobon’s  motion seeking recovery on an unjust enrichment theory was also denied.

 

 

 

 

 

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