Schluth, W. v. Krishavtar, Inc.

J-A26018-21
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
WILLIAM SCHLUTH : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
KRISHAVTAR, INC. AND BAKRUSHNA :
PANCHAL :
: No. 745 EDA 2021
Appellants :
Appeal from the Order Entered March 8, 2021
In the Court of Common Pleas of Philadelphia County
Civil Division at No: June Term, 2017 No. 2871
WILLIAM SCHLUTH : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
KRISHAVTAR, INC. :
:
Appellant : No. 746 EDA 2021
Appeal from the Order Entered March 8, 2021
In the Court of Common Pleas of Philadelphia County
Civil Division at No: June Term, 2017 No. 3382
BEFORE: BOWES, J., STABILE, J., and McCAFFERY, J.
MEMORANDUM BY STABILE, J.: FILED MARCH 9, 2022
This contract dispute case returns following our remand to the Court of
Common Pleas of Philadelphia County with instruction to (a) determine if there
was a modification of payment terms of a Note and Mortgage and (b) enter
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an amount of damages consistent with those findings.1 The trial court
complied and entered its order on March 8, 2021. Krishavtar, Inc.
(“Krishavtar”) and Barkrushna Panchal (“Panchal”) (together “Appellants”),
filed the instant appeal from that order, contending the trial court erred in
concluding there was no modification and in awarding damages to Appellee,
William Schluth (“Schluth”), in the amount of $92,616.09.
By way of background, the trial court’s findings of fact following the
parties’ 2018 bench trial reveal that Schluth owned a gasoline service station
in Philadelphia for 24 years. In 2008, Panchal, president of Krishavtar,
approached Schluth, asking whether the gas station was for sale. Although
Panchal had no experience operating a gas station, he was interested in doing
so as part of his retirement. Findings of Fact, 3/13/19, at 3.
On September 4, 2008, the parties entered into an agreement of sale
for the gas station and the property on which it was located. Under terms of
the agreement, Krishavtar agreed to pay $695,000, with $136,000 to be paid
at the time of the agreement and installment payments totaling $559,000 to
be paid over 83 months. A final payment would cover the remaining balance
of the principal and interest, calculated at an annual rate of 6.75%. Id. at 4.
Essentially, Schluth represented that there was no environmental
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1 See Schluth v. Krishavtar, Inc., Nos. 2013 and 2014 EDA 2019,
unpublished memorandum at 30 (Pa. Super. filed June 30, 2020), appeal
denied, 242 A.3d 1249 (Pa. 2020).
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contamination on the property. However, in the course of a due diligence
review, testing disclosed contamination that requiring remediation. Id. Initial
projections anticipated remediation at a cost of approximately $50,000 over
a two-year period. Krishavtar opted to proceed with the purchase if Schluth
agreed to pay for remediation. Schluth agreed, believing the cost would be
$50,000, an amount that was escrowed for that purpose. Id. at 5.2
Ultimately, it was determined that the scope, time frame, and cost of
remediation greatly exceeded initial projections. After Panchal threatened to
withhold mortgage payments,3 the parties discussed a proposed amendment
to the Note and Mortgage with a lower interest rate and an extended term,
with monthly payments reduced from $4,250.43 to $3,022.41. Schluth’s
counsel sent modification documents to Panchal. Although Panchal never
signed the documents, in May 2015 he began making monthly payments in
the proposed reduced amount of $3,022.41, after not making any payment
for the previous two months. Id. at 12.
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2“On April 9, 2009, Schluth and Krishavtar entered into an Amendment to the
2008 Agreement (Amendment), Environmental Escrow Agreement, Mortgage
and Note. Panchal signed a personal Guaranty.” See Schluth, supra, at 4.
3 As this Court observed, the firm retained to conduct environmental testing
undertook remediation activities that spanned several years. See Schluth,
supra, at 2-12. In January 2015, “Panchal notified Schluth that he was
withholding Krishavtar’s mortgage payment based on the departure from the
two-year completion requirement for the site cleanup until Schluth provided
him with ‘satisfactory environmental clearances’ from the [Pennsylvania
Department of Environmental Protection (PADEP)].” Id. at 12.
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In 2017, counsel for Schluth sent a letter to Appellants, putting them on
notice pursuant to the Note and Mortgage that they were in default. The
balloon payment had become due and Appellants had failed to make three
monthly payments in a row. Id. at 14.
Under the terms of the Mortgage, Schluth was entitled to receive
payments in accordance with the Note, including interest at an annual rate of
6.75% and late payments of 5%. Under the terms of the Mortgage, Schluth
was also entitled to legal fees totaling 5% of the outstanding sum due. Id. at
15. Following a bench trial conducted in December 2018, the trial court
determined that Schluth suffered damages totaling $555,942.96, representing
the principal balance of $453,211.26 plus late charges, interest, and legal
fees. Id.
In its conclusions of law, the court found Krishavtar breached the
contract when it failed to make the final balloon payment upon receipt of an
early-2017 approval letter from PADEP. Id. at 15-16. Further, Panchal
breached his guaranty contract by failing to make the payments when
Krishavtar defaulted on the Mortgage. Id. at 17. As a result of the breaches
by Krishavtar and Panchal, Schluth suffered damages. Id. at 15-20.
Appellants filed an appeal to this Court from the trial court’s March 2019
judgment entered in favor of Schluth. This Court affirmed in part but vacated
the damages award and remanded because the trial court failed to address
whether the parties modified the terms of the Note and Mortgage. The Court
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instructed the trial court “to make factual findings whether the parties
modified the payment terms under the Note and Mortgage and enter an
amount of damages consistent with those findings.” Schluth, supra, at 30.
On remand, the trial court directed the parties to submit proposed
findings of fact and conclusions of law. Based on its review of the submissions,
as well as the testimony and evidence presented at the December 2018 bench
trial, the trial court issued its findings of fact and conclusions of law. Findings
of Fact and Conclusions of Law, 3/8/21. The trial court concluded that there
was no modification of the contract and that Schluth incurred damages in the
amount of $92,616.09. The court directed that judgment be entered in favor
of Schluth and against Appellants, jointly and severally, in that amount.
Order, 3/8/21, at 1. This timely appeal followed.
Appellants ask us to consider two issues in this appeal:
1. Whether the trial court erred in finding the payment terms of
the contract were not modified based upon the parties’
conduct.
2. Whether the lower court err[ed] in calculating Appellee’s
damages when sufficient proofs were presented that Appellants
did not owe any money as a result of the putative breach of
contract.
Appellants’ Brief at 4.
In Stephan v. Waldron Elec. Hearing & Cooling LLC, 100 A.3d 660(Pa. Super. 2014), this Court reiterated:
Our appellate role in cases arising from non-jury trial verdicts is
to determine whether the findings of the trial court are supported
by competent evidence and whether the trial court committed
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error in any application of the law. The findings of fact of the trial
judge must be given the same weight and effect on appeal as the
verdict of a jury. We consider the evidence in a light most
favorable to the verdict winner.
Id. at 664 (quoting Wyatt, Inc. v. Citizens Bank of Pennsylvania, 976
A.2d 557, 564 (Pa. Super. 2009) (internal citations omitted)). “We will respect
a trial court’s findings with regard to the credibility and weight of the evidence
unless the appellant can show that the court’s determination was manifestly
erroneous, arbitrary and capricious or flagrantly contrary to the evidence.”
J.J. DeLuca Co., Inc. v. Toll Naval Assoc., 56 A.3d 402, 410 (Pa. Super.
2012) (quoting Ecksel v. Orleans Const. Co., 519 A.2d 1021, 1028 (Pa.
Super. 1987) (citation omitted)). Further:
We will reverse the trial court only if its findings of fact are not
supported by competent evidence in the record or if its findings
are premised on an error of law. However, [where] the issue . . .
concerns a question of law, our scope of review is plenary.
Stephan, 100 A.3d at 664-65 (quoting Wyatt, 976 A.2d at 564).
Here, the trial court was charged with determining whether the parties
modified the payment terms under the Note and Mortgage. While Appellants
argue the contract was modified, they do not suggest that it was modified in
writing. Appellants correctly recognize that “a written contract not for the sale
of goods may be modified orally, even when the written agreement provides
that modifications may only be in writing.” Appellants’ Brief at 24 (citing
Somerset Comm. Hosp. v. Allen B. Mitchell & Assoc., Inc., 685 A.2d 141,
146 (Pa. Super. 1996)). See also Accu-Weather, Inc. v. Prospect
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Communication, Inc., 644 A.2d 1251, 1255 (Pa. Super. 1994), (“agreement
prohibiting non-written modification may be modified by a subsequent oral
agreement if the parties’ conduct clearly shows an intent to waive the
requirement that amendments be in writing”). However, it is established that
an oral contract modifying a prior written contract “must be proved by clear,
precise and convincing evidence.” Somerset Comm. Hosp., 685 A.2d at 146
(citing Pellegrene v. Luther, 169 A.2d 298, 300 (Pa. 1961)).
Appellants submit that “[t]he changes were memorialized via a course
of conduct of Appellee accepting lesser payment amounts.” Appellants’ Brief
at 20. We are mindful that “[w]hether the parties’ conduct evidenced the
intent to orally modify a written contract is a question of fact to be determined
by the fact-finder.” Schluth, supra, at 29 (citing Accu-Weather, 644 A.2d
at 1255 n. 5).
In its findings of fact issued following remand, the trial court
acknowledged that the parties discussed modifying their written contract, but
also recognized that Panchal refused to sign the modification documents.
Findings of Fact, 3/8/21, at ¶¶ 4-5. The court noted that Schluth was willing
to permit the modifications, based on Panchal’s complaints that business was
not going well. Id. at ¶ 6. Despite Panchal’s failure to sign the modification
documents, Panchal remitted payment in May 2015 in the amount proposed
in the modification documents, after not making any payments for March or
April 2015. Id. at ¶ 8. While Appellants argue that Schluth’s acceptance of
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the reduced May 2015 payment, as well as subsequent reduced monthly
payments, constitutes evidence of a modification of the contract, the trial
court determined that Schluth “accepted the aforementioned checks due, in
part, out of necessity to timely make bill payments, while still complaining to
Panchal that the modifications were never formally executed and that the
payments should have been in the original amount[.]” Id. at ¶ 8. The court
further found that Schluth “did not intend to modify the agreement by
accepting a lesser amount of payment and was not willing for forego collection
of the remaining total due of each payment, including any future payments.”
Id. at ¶ 9 (citing Notes of Testimony, 12/5/18, at 196-97).4
With regard to the trial court’s findings of fact, Schluth contends that
Appellants “are attacking the trial court’s findings of fact, but they have not
even alleged that the facts are not supported by the record. Instead, they
argue their interpretation of the facts and insert allegations of ‘fact’ not of
record. This cannot be a basis for reversing the trial court.” Appellee’s Brief
at 12 (emphasis in original). We agree. Despite Appellants’ protestations to
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4Schluth’s Trial Exhibit 15 reflected payments made by Panchal. The exhibit
documented that no payments were made in March or April of 2015; that
Panchal made payments in the lower amount of $3,022.41 from May 2015
until February 2017; and that Schluth kept a running total of the balance owed
based on the difference between the payments made and payments required
under the Mortgage. See Notes of Testimony, 12/5/18, at 196-97. In
addition, the exhibit included the amortization schedule reflecting that the
amount of the balloon payment would be $426,194.82. Schluth testified that
no other amortization schedule was agreed to. Id. at 197-98.
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the contrary, we find that the trial court’s factual findings are supported by
competent evidence of record.
In its conclusions of law, the court determined that there was no binding
agreement to modify the payments and that Appellants failed to prove by clear
and convincing evidence that a modification occurred. Conclusions of Law,
3/8/21, at ¶¶ 1-2 (citing Accu-Weather, 664 A.2d at 1255; Brinich v.
Jencka, 757 A.2d 388, 399 (Pa. Super. 2000)). Appellants assert that a
modification was established by the parties’ course of conduct from March
2015 through February 2017. Appellants’ Brief at 26. The court rejected
Appellants’ assertion, finding that “[Schluth’s] acceptance of partial payments
did not constitute a willingness to forgo collection of the remaining amount
due of each payment and an intention to modify the agreement.” Conclusions
of Law, 3/8/21, at ¶ 3. Importantly, the court concluded the evidence
established that Appellants “refused the condition proposed by [Schluth]—the
release of environmental responsibility—in exchange for payment
modification.” Id. The court determined that none of Schluth’s actions
constituted “clear and convincing evidence that, by accepting reduced
payments, he intended to modify the Note and Mortgage.” Id. at ¶ 4. Nor
did Schluth’s receipt and deposit of the monthly checks “constitute an oral
modification or any other kind of modification by action of the Note.” Id. at
¶ 5.
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We find no error of law in the trial court’s conclusion that the payment
terms of the contract were not modified by virtue of the conduct of the
parties.5 Because the trial court’s findings of fact are supported by competent
evidence and those findings are not premised on any error of law, Appellants’
first issue fails.
In their second issue, Appellants argue that the trial court erred in
calculating damages because Schluth failed to provide sufficient proof that
Appellants owed him any money for breaching the contract. As reflected
above, the trial court was charged with entering an amount of damages on
remand consistent with its findings on the modification—or lack thereof—of
the payment terms under the Note and Mortgage.
The trial court set forth the components of its damages award, arriving
at an award in the amount of $612,878.93 on Schluth’s claims for breach of
the Note. Trial Court Award, 3/8/21, at ¶¶ 1-3. The court then reduced the
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5 As Schluth correctly observes,
the trial court did not improperly analyze any law and [Appellants]
do not even assert on appeal any law which they contend was
improperly applied. The court was not required on remand to
make a legal determination such as the interpretation of a
contract, but . . . was asked to make findings of fact and
conclusions of law as to whether the evidence presented at trial
was, in essence, clear and convincing evidence of an oral
modification of the terms of the Note. The court concluded it was
not.
Appellee’s Brief at 14 (emphasis in original).
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amount of the award to reflect the net sum of $509,090.92 received by
Schluth following a sheriff’s sale and a subsequent private sale and also to
reflect an adjustment of the interest calculations, taking the sale into
consideration. Id. at ¶ 4. The court arrived at a total damages award in the
amount of $92,616.09. Id.
Appellants dispute the calculations, in part based on the proposed 2015
loan documents that were not executed and in part based on IRS filings that
were not presented at trial. Appellants’ Brief at 26-32. Appellants also
suggest that the value of the property was more than the amount for which it
sold, id. at 32-34, despite the lack of any such evidence presented at trial.
Schluth counters that “Appellants have offered nothing to this Court to
establish that the trial court committed reversible error in its calculation.”
Appellee’s Brief at 16. We agree. We find that the court properly considered
the terms of the Note and Mortgage as well as Schluth’s purchase of the
property at sheriff’s sale and his subsequent sale of the property. As Schluth
submits, “Simply put, as it was directed to do, the trial court found that there
was no oral modification and then applied the 6¾% Note interest.” Id. at 16.
We find no basis for disturbing the court’s award. Appellants’ second issue
fails for lack of merit.
Order affirmed.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 3/09/2022
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