Poonja v. International Contact Technologies Incorporated

UNITED STATES BANKRUPTCY COURT
For The Northern District Of California
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-1-	MEMORANDUM DECISION
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
MESATRONIC USA, INC.,
Debtor.
____________________________________
MOHAMED POONJA,
Plaintiff and Cross-Defendant,
v.
INTERNATIONAL CONTACT
TECHNOLOGIES INCORPORATED,
Defendant and Cross-Complainant.
Case No. 08-53287 SLJ
Chapter 7
A.P. # 09-5049
MEMORANDUM DECISION FOLLOWING TRIAL ON COMPLAINT
AND CROSS COMPLAINT
I. 	INTRODUCTION
The court conducted a trial in this adversary proceeding on November 30, 2010. Plaintiff
Mohamed Poonja (“Poonja”), trustee in the main case, was represented by Dennis Davis, Esq.
The following constitutes
the order of the court. Signed December 06, 2010
________________________________________
Stephen L. Johnson
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
December 06, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-05049 Doc# 59 Filed: 12/06/10 Entered: 12/06/10 14:31:05 Page 1 of 6

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1 The following discussion constitutes the court’s findings of fact and conclusions of
law. Fed. R. Bankr. P. 7052(a).
-2-	MEMORANDUM DECISION
Defendant International Contact Technologies Incorporated (“ICT”) was represented by Breck
E. Milde, Esq.
For the reasons set out below, the court concludes that Poonja is entitled to judgment
against ICT in the amount of $97,399.
II. 	FACTS1
Debtor Mesatronic, Inc. (the “Debtor”) filed a chapter 7 bankruptcy petition on June 23,
2008. Poonja was appointed trustee of the estate. Shortly after his appointment, Poonja hired
Barry Milgrom, Esq. (“Milgrom”) and the Luce Forward law firm to represent the estate’s
interests.
At the time of filing, the Debtor possessed certain personal property including equipment
and furnishings. Poonja did not do an inventory of the estate’s assets initially. Instead, he relied
on discussions with the Debtor’s representative, Bernard Berger (“Berger”), and counsel for the
Debtor, Michael Lewis (“Lewis”). Just a few days prior to the bankruptcy filing, the Debtor
leased the estate’s assets to a competitor known as Spire. In July 2008, Lewis sent a list of the
Debtor’s assets – then on lease to Spire – to Poonja. The list included an item referred to as a
PBRX III. However, Berger told Poonja that the PBRX III did not belong to the Debtor. In fact,
he told Poonja the PBRX III was owned by the Debtor’s French parent and would be dealt with
by the parent’s bankruptcy trustee or French equivalent.
On August 12, 2008, Poonja, with the assistance of Milgrom, filed a Notice of Trustee’s
Intent to Sell Equipment at Auction and Opportunity for Hearing (the “Trustee’s Sale Notice”).
The Trustee’s Sale Notice stated that Poonja would sell on behalf of the estate “all of the estate’s
right, title and interest in and to the manufacturing machinery and equipment, and the office
equipment and software described on Exhibit A hereto.” 	Exhibit A does not include a PBRX
III. Poonja testified that the PBRX III was omitted because he had been told by Berger that it
did not belong to the Debtor. 	The Trustee’s Sale Notice states in clear terms that the sale is “as
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-3-	MEMORANDUM DECISION
is where is” and “with all faults.”
Prior to the auction sale, ICT’s representatives inspected the Debtor’s equipment, then in
use by Spire. They took photographs of the equipment. The photographs show a PBRX III.
The auction was held by telephone on September 24, 2008. Present on the telephone was
Poonja, Milgrom, Berger, Robert Arthur of Spire, and Paul Geary, an executive of ICT
(“Geary”). Poonja and Milgrom both announced at the auction sale that the PBRX III was not
part of the sale lot. Geary admits he was told by Poonja and Milgrom at the auction that the
PBRX III was not part of the sale lot. There were two bidders at the sale, Spire and ICT. ICT
submitted the winning bid at $250,000. Because it gave Poonja $36,000 in earnest money, ICT
was obliged to pay immediately $214,000 to Poonja. In an e-mail dated September 26, 2008,
Geary promised to send a check.
ICT never paid the balance due, in spite of Geary’s promise to do so. Both Poonja and
Milgrom made demands for the balance due. Concluding the auction had failed, Poonja resold
the equipment at an auction, obtaining $125,601 from the purchaser. He sold minor items
originally included in the ICT sale for $1,000. He incurred $10,000 in moving costs. He
brought this lawsuit to recover the balance due.
ICT responded by filing a Counterclaim (the “Counterclaim”) against Poonja. ICT
maintains the parties did not form a contract at the auction sale due to mistake – either unilateral
or mutual. In short, ICT explains that it did not pay the balance due because the sale failed to
include a PBRX III. Geary explained at trial that prior to the auction, the equipment on Spire’s
premises included a PBRX III. ICT photographed the machine. Geary testified that he reviewed
the original list of equipment provided by Lewis, and that list included a PBRX III. Based on
that list and his photographs, he thought he was bidding on a PBRX III, among other assets.
III. 	DISCUSSION
The essential question is whether the parties formed a contract during the conduct of the
auction. A contract can be found where the parties have the capacity to contract, have given
their consent, the subject of their consent is a lawful object, and there is consideration. 1 B.
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2 The same can be said for ICT’s claim that Poonja did not deliver software required to
operate the equipment. The Trustee’s Sale Notice identifies equipment for sale which includes
office software. The Sale Notice did not specify the trustee was selling any other type of software.
The evidence at trial showed that Spire needed to remove its software but the equipment would
otherwise be useful when it was transferred. In the end, the equipment was never transferred
because ICT failed to pay for it.
-4-	MEMORANDUM DECISION
Witkin, SUMMARY OF CALIFORNIA LAW (10th ed.) Contracts § 1; Cal. Civ. Code § 1550. The
only dispute in this case pertains to consent. ICT maintains there is no consent due to a mutual
or unilateral mistake of fact.
If a mistake is mutual, it can be plead as a defense to a contract. 1 B. Witkin, SUMMARY
OF CALIFORNIA LAW (10th ed.) Contracts § 258; Marin Storage & Trucking, Inc. v. Benco
Contracting & Engineering, Inc., 89 Cal. App. 4th 1042, 1049 (2001). “The existence of mutual
assent is determined by objective criteria, not by one party's subjective intent. The test is
whether a reasonable person would, from the conduct of the parties, conclude that there was a
mutual agreement.” 	Marin Storage & Trucking, Inc. v. Benco Contracting & Engineering, Inc.,
89 Cal. App. 4 th at 1050.
The court finds an agreement was made at the auction sale and ICT breached that
agreement. There was no mutual mistake. The Trustee’s Sale Notice had a list of equipment
attached. It did not include a PBRX III. At the auction, Poonja and Milgrom both said the
auction did not include a PBRX III. Indeed, Geary admitted at trial that Poonja and Milgrom
told him the sale did not include a PBRX III. Thus, Geary and ICT were aware that the
bankruptcy trustee was not selling a PBRX III.2 In spite of this, ICT bid at the sale. It is
impossible to conclude on this record that there was a mutual mistake.
A unilateral mistake may be grounds to find that a contract has not been formed properly.
But a unilateral mistake is not grounds to void a contract if the party making the mistake failed to
investigate properly. Under the Restatement (Second) of Contracts § 154, a party bears the risk
of mistake when “he is aware, at the time the contract is made, that he has only limited
knowledge with respect to the facts to which the mistake relates but treats his limited knowledge
as sufficient.” At trial, it was clear there were several lists of equipment owned by the Debtor.
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-5-	MEMORANDUM DECISION
Geary testified that he relied exclusively on the list Lewis gave Poonja in July, which shows a
PBRX III. Geary ignored better information, including the Trustee’s Sale Notice – which
omitted the PBRX III. He also admits being told at the auction the PBRX III was not included.
The court finds that ICT bore the risk of making this mistake because it failed to investigate or
confirm that the PBRX III was included in the sale after being told the equipment was not
included.
This is not a case in which the trustee or his counsel allowed ICT to labor under a
misapprehension about what was being sold. Rather, the trustee testified that he knew the PBRX
III was an issue for ICT and he took pains to announce that the machine was not included in the
sale.
ICT also asserts under California Civil Code § 1485 that any obligation it had to the
bankruptcy estate was extinguished when ICT tendered full payment for the auction price.
Section 1485 provides that an obligation to perform can be extinguished when “an offer of
performance” is made. The Trustee’s Sale Notice required payment in good funds. Geary
admitted he never gave the trustee a check for the balance due. Section 1485 does not apply to
this case.
Claims 1, 2 and 3 of ICT’s Counterclaim are denied because the court finds a contract
was entered into by the parties and breached by ICT. Claim 4 is denied because it is not
consistent with the findings noted above. As they pertain to ICT, the facts showed that Poonja
confirmed that the PBRX III was not included and told Geary it was not included. Poonja’s
statutory duty to inventory assets runs to the bankruptcy estate, not to a third party bidder at a
sale who had equal opportunity to determine what the estate possessed, what was for sale, and to
evaluate its condition.
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3 Calculated as follows:
Original Sales Price 	$250,000
Less: 	Deposit 	($36,000)
Later Sale of Assets 	($125,600)
Later Sale of Assets 	($1,000)
Plus: 	Moving Costs 	$10,000
Net 	$97,399
-6-	MEMORANDUM DECISION
IV. 	CONCLUSION
For the foregoing reasons, judgment will be entered for Poonja and against ICT in the
amount of $97,399.3 The trustee shall submit a form of judgment.
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