MARK A. KEARNEY, District Judge.
Investors signing a contract with a company promising them an annuity stream of income in exchange for the investors' lump sum payment are entitled to return of their lump sum if the company cannot produce the annuity. This is bedrock contract law. The defendant company will argue a third party caused their failure to perform and they have no control over the third party. The defendant company may also look to its attorney who opined as to the bona fides of the annuity before the investors turned over the lump sum payment. The company may be correct as to "someone else is liable" but their remedy is with the third parties. The defendant company has no legal right to withhold repayment of the lump sum under the contract with the investors. In the accompanying Order, we grant the investors' motion for summary judgment and deny the company's cross-motion.
I. Undisputed Facts
Bob and Linda Wall decided to invest in structured annuities which, for purposes of this case, are investments promising, in exchange for a lump sum payment paid to a settling personal injury plaintiff who otherwise would receive an annuity stream of income over time but who prefers to get paid now at a slight discount, the full settlement payment but over the annuity term. The Walls' broker knew of a company selling these financial products, Altium Group LLC, which signs agreements with investors, like the Walls, to acquire these annuities from companies who purchase the annuity payments at a discount from injured individuals who settled their injury claims.
The Walls contracted with Altium to purchase a structured annuity from Florida resident Kenneth Stevens ("Stevens Annuity") who had settled a personal injury case in exchange for annuity payments.
On November 8, 2011, the Walls and Altium signed a "Master Structured Settlement Receivable Purchase and Sale Agreement and Non-Circumvention Agreement" ("Agreement") to purchase the Stevens Annuity. "The purpose of this Agreement, and the intent of the Parties in entering into this Agreement is to establish the terms and conditions under which [Altium] will convey such streams of payment to [the Walls], and [the Walls] will purchase such streams of payment from [Altium]."
The Agreement detailed the obligations and relationship between the Walls and Altium. The Walls agreed to pay Altium $5,000 within 48 hours of signing the Agreement.
The parties agreed "[i]f court approval of a transaction is denied or if the Closing Book is not provided to [the Walls] within 180 days of the execution of the [Agreement] . . . [Altium] will . . . immediately refund Payment One to [the Walls]. . ."
The parties agreed New Jersey law governed the "validity, construction, and enforcement" of the Agreement "[i]n any action to enforce this Agreement, the prevailing party shall be awarded all . . . court costs and reasonable attorney's fees incurred."
On November 8, 2011, the Walls wired Altium $5,000 under the Agreement.
On January 19, 2012, Altium and Corona Capital agreed Altium would buy the Stevens Annuity from Corona for $136,487.
On March 28, 2012, a Sumter County Florida circuit court judge approved Kenneth Stevens' petition to transfer his annuity payments to the Walls.
On April 17, 2012, Altium's lawyer, Amy Rose Olivier, conducted the required due diligence review of the Stevens Annuity transfer.
With its lawyer's approval, on April 19, 2012, Altium presented the Closing Book for the Stevens Annuity to the Walls.
Almost two years later, on April 15, 2014, a circuit court judge in Sumter County granted Kenneth Stevens' motion to set aside the March 28, 2012 Order approving the transfer of the Stevens Annuity because Kenneth Stevens did not sign or see any of the documents submitted in the petition to transfer his annuity.
The Walls paid Altium $152,833.37. The Walls never received "60 monthly payments of $3,000.00 from 6/1/2014 to 511/2019 with 3% annual increase in payments."
The Walls and Altium both moved for summary judgment.
A. Altium breached the Agreement.
The Walls and Altium's Agreement "establish[ed] the terms and conditions under which [Altium] will convey such streams of payment to [the Walls], and [the Walls] will purchase such streams of payment from [Altium]."
To state a breach of contract claim, the Walls must prove: (1) existence of a contract; (2) breach of a duty imposed by the contract; and (3) damages arising from such breach.
We find, as a matter of law, the Walls and Altium have a contract defined by their Agreement. We find, as a matter of law, Altium breached its duty under the Agreement because the Walls never received the 60 monthly payments or their $152,833.37 returned from Altium. We find, as a matter of law, the Walls suffered $152,833.37 in damages.
Altium argues the Walls "failed to identify any provision of the . . . Agreement or . . . Addendum that created the contractual obligation" to provide 60 monthly payments.
Altium's obligations to the Walls did not end on April 23, 2012 when Altium presented the Closing Book to the Walls and the Walls paid $152,833.37. We recognize Altium then paid the Walls' money to Corona Capital and eventually to Kenneth Stevens (or the person fraudulently signing his name); however, Altium breached its contractual obligation to the Walls and must pay the damages. There is a signed contract for Altium to arrange a monthly stream of income in exchange for $152,833.37. The Walls paid the consideration. Altium's lawyer approved the bona fides of the Stevens Annuity. Altium did much more than simply acquire a signature as a middle man. It, through its Agreement and its lawyer's approval, stood behind the consideration. It now must repay the Walls as the promised return consideration never materialized. Altium can elect to pursue recovery from Corona Capital and others.
B. Altium's affirmative defenses fail as a matter of law.
After arguing there is no contract, Altium argues two affirmative defenses, impracticability of performance and frustration of contractual purpose, attempting to excuse the breach of its duty under the Agreement.
1. Background of contractual affirmative defenses.
Impracticability of performance and frustration of contractual purpose arise when an unknown supervening event fundamentally alters the nature of the parties' contract but apply to different factual events. New Jersey law treats impracticability (or impossibility) of performance and frustration of contractual purpose as "doctrinal siblings within the law of contracts."
Impracticability of performance applies where the supervening event, not contemplated by the parties and outside their control, rendered a party's performance "literally impossible, or at least inordinately more difficult."
Frustration of contractual purpose looks at the parties' purpose in making their contract, and does not examine the (in)ability of a party to perform his or her contractual obligation. It applies where a supervening event fundamentally changes the nature of a contract "mak[ing] one party's performance worthless to the other, frustrating his purpose in making the contract."
Altium raises both defenses; however, impracticability of performance is the applicable defense because at the time Altium presented the Closing Book to the Walls, Altium owned the Stevens Annuity. The supervening court order affected Altium's performance, not the purpose of the Agreement. Frustration of contractual purpose does not apply because the parties did not contemplate an outside event in the future instead, they agreed the Walls would pay Altium $152,833.37 and Altium would guarantee "60 Monthly Payments of $3,000.00. . ." and had its counsel review and approve the transfer.
2. Impossibility of performance does not excuse Altium from restitution.
There is no dispute the supervening event of underlying fraud in Stevens' Annuity transfer rendered Altium's performance impossible but it does not excuse Altium from restitution.
The Restatement (Second) of Contracts' chapter on "Impracticability of Performance and Frustration of Purpose" recognizes "[i]n any case governing by the rules stated in this Chapter, either party may have a claim for relief including restitution."
We find the supervening event, the underlying fraud in the Stevens Annuity transfer, made Altium's performance impossible. While we are not entirely satisfied the underlying fraud is "one that had not been anticipated at the time the contract was created" because Altium sought protection against possible irregularities in its agreements and its lawyer's due diligence, we find Altium's duty to make restitution is not excused.
Our finding Altium is excused from performance does not mean Altium gets to keep the Walls' money. Altium did not perform any part of its obligation to the Walls, unlike the banquet hall in Facto, where the banquet hall partially performed because the outage excused its performance and the court still ordered the banquet hall to make restitution of the couple's prepayment minus the cost of partial performance.
In the accompanying Order, we grant the Walls' motion for summary judgment on their breach of contract claim and we deny Altium's cross-motion. We dismiss the Walls' unjust enrichment as mooted by finding a contract existed.