Schluth, W. v. Krishavtar, Inc.

• Court: Superior Court of Pennsylvania
• Decided: March 9, 2022
• Docket: 745 EDA 2021
• Status: Unpublished

Opinion

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37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 J-A26018-21

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.

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

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

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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