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Tang v. Avitable

Supreme Court of Arizona

December 14, 1953

TANG et al.

Page 836

Page 837

[76 Ariz. 350] Hugh M. Caldwell, and Conner & Jones, Tucson, for appellants.

Darnell, Robertson & Holesapple, and Thomas Chandler, Tucson, for appellee.

UDALL, Justice.

Anthony G. Avitable, plaintiff (appellee), sought to recover damages from copartners Joe W. Tang, Joe Y. Wey, and Sam Dong,

Page 838

for the breach of a contract to sell a nightclub business. The cause was tried to the court without a jury and plaintiff was awarded $32,300 in damages. The partners perfected this appeal and raise several interesting questions of law. For convenience we shall refer to the parties by their last names.

The trial of this case lasted some three days; the reporter's transcript covers 588 pages and there are numerous exhibits. Our task in preparing the opinion in this involved matter has been greatly facilitated by the excellent briefs filed by counsel for the respective parties. As to various [76 Ariz. 351] phases of the case the evidence is in sharp conflict. On appeal, however, it is our duty to view the facts in the light most favorable to sustaining the judgment of the lower court, and stated in this light, the material facts are as follows:

Tang, Wey, and Dong, as partners, owned a nightclub business called the 'Flamingo Club', in Tucson. Tang was the active partner and represented the partnership in all its transactions with third parties. On May 10, 1948, Philip R. Vetari by written contract purchased this business from the partners.

The agreed sale price was $40,000. Vetari paid $5,000 cash, transferred a piece of real estate agreed to be worth $7,000, assumed an installment loan contract in the sum of $5,000 owed by the partners to the Southern Arizona Bank & Trust Company, and executed a $23,000 promissory note payable eighteen months from date with interest at 6% payable monthly. The note was secured by a mortgage on the business and all of its assets. Vetari went into possession of the premises as sublessee of Tang, who was lessee of Ivancovich, the owner. Vetari spent more than $11,000 for repairs and capital improvements. By January, 1949, for unexplained reasons, Vetari was in dire financial circumstances and in default under many terms of his contract of purchase.

Tang instructed Glenn Ginn, a Tucson attorney, to proceed to forfeit Vetari's rights under the contract. Vetari engaged Frank Watkins, another Tucson attorney, to represent him in a series of negotiations with the partnership designed to arrive at some workable, reasonable and fair settlement of the financial problems. These negotiations culminated in a written contract dated April 21, 1949.

Under this contract the parties intended that Tang should go into possession and operation of the business in an undefined capacity: (1) Tang would enter as owner, declaring a forfeiture of whatever rights the purchaser had acquired by his payments, but, (2) if during the ensuing 18 months Vetari paid his accrued defaults he should have the right to take back the business as owner, in which event Tang would be treated as having entered as a creditor, not as owner, operating the business for the purpose of realizing a profit to be applied to the satisfaction of Vetari's debts. The whole gross income from the business would then be treated as Vetari's, Tang would receive some reasonable compensation for his personal services, and an accounting would be had from Tang to Vetari to determine the amount still due upon the undefaulted obligation (the $23,000 note).

The agreement provided Vetari should execute promissory notes due one year from date, to cover his accrued defaults on rent, the bank loan, interest payments on the $23,000 note, $888 on a collateral liquor purchase contract, and smaller amounts on [76 Ariz. 352] utilities and prorated insurance. These accrued defaults totaled approximately $6,000.

As security for payment of the newly-executed promissory notes, Vetari assigned to Tang a $24,000 note he owned which was secured by a mortgage on Tucson real property. Furthermore, Vetari executed an option whereby he granted to Tang the right to purchase the $24,000 note for about $6,000 less than the face value thereof.

In the agreement of April 21, 1949, there is the following paragraph:

'7. That within the eighteen (18) calendar months from the date hereof the said Buyer-Lessee (meaning Vetari) shall have the right to purchase back said business at a price ...

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