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Garden State Plaza Corp. v. S.S. Kresge Co.

Decided: March 21, 1963.

GARDEN STATE PLAZA CORPORATION, A NEW JERSEY CORPORATION, PLAINTIFF-APPELLANT,
v.
S.S. KRESGE COMPANY, A MICHIGAN CORPORATION, AUTHORIZED TO TRANSACT BUSINESS IN NEW JERSEY, DEFENDANT-RESPONDENT



Conford, Gaulkin and Kilkenny. The opinion of the court was delivered by Conford, S.j.a.d.

Conford

Here again we face the problem of distinguishing between the proper application of the parol evidence rule and of the principle of admissibility of extrinsic circumstances to aid in the construction of an integrated written contract. See Atlantic Northern Airlines, Inc. v. Schwimmer , 12 N.J. 293, 302, 303 (1953); Harker v. McKissock , 12 N.J. 310 (1953). Contrast the emphasis in the first of these opinions on the factor of the search for meaning and intent with that in the second on the jural exclusiveness of the consensual integration. Both opinions were delivered on the same day by the same justice for a unanimous court.

The instant case poses the added question, one of first impression in this State, as to the enforceability of an express contractual provision precluding use of "previous negotiations,

arrangements, agreements and understandings * * * between the parties * * * to interpret or construe" the contract. (Section 17.23 of the lease)

This litigation arises from a dispute over the proper construction of the terms of a lease for certain store premises in a shopping center in Paramus owned by plaintiff (Garden State, hereinafter), demised to defendant (Kresge, hereinafter) by written lease executed May 11, 1956 for a term of approximately 25 years. The rented premises comprise about 16,000 square feet of floor space on the mall (main) level of the building and about 15,000 square feet of space below the mall level. The controversy involves section 4.3 and rider section 4.3(a), by which the tenant was obligated, over and above the stipulated rental for the leased premises, to pay a "Common Area charge," principally to compensate the lessor for maintenance of parking areas.

Section 4.3 provides that the common area charge for each fiscal year of the lease shall be the tenant's prorata share of the landlord's actual gross costs of maintaining the common areas, such share being fixed at "that proportion of the whole which the Floor Space in the Demised Premises bears to all Floor Space occupied during such period in the entire Shopping Center; in making such computation, (a) all Floor Space (including the Demised Premises) shall be weighted as follows: all such Floor Space on the mall level shall be weighted at one hundred per cent (100%) and all such Floor Space below or above the mall level shall be weighted at fifty per cent (50%); * * *."

No difficulty is presented as to the foregoing taken alone. The dispute arises from rider section 4.3(a), designed to set a maximum for the common area charge. It reads in pertinent part as follows:

"In the event that the areas of the mall level and lower level are substantially the same, the Landlord hereby agrees with the Tenant that the Common Area charge payable by Tenant as provided in Section 4.3 shall not exceed (i) the rate of twenty five cents (25 cents) per square foot of Floor Space in the Demised Premises for each

Lease Fiscal Year during the first seven (7) Lease Fiscal Years, and (ii) thereafter the rate of three-eights (3/8) of one per cent (1%) of Gross Sales in any Lease Fiscal Year. If the Common Area charge provided in Section 4.3 is not paid by the Tenant because of the application of the above limitations, the Landlord shall have the right to carry forward any such underage and add the same to the Common Area charge for any future Lease Fiscal Year, so long as the total of such Common Area charge plus such underage does not exceed the limitation applicable to such Lease Fiscal Year. This procedure of carryover shall continue for the entire Demised Term."

Kresge takes the position that the 25-cent maximum rate fixed by section 4.3(a) for the first seven lease fiscal years is applicable only to floor space on mall level, and that as to floor space below mall level the provision for weighting at half the mall level rate is intended to become effective, by clear implication from section 4.3, to which section 4.3(a) is a rider. Under that view the maximum common area charge for below mall level space is 12 1/2 cents per square foot, not 25 cents. Garden State, on the other hand, argues that rider section 4.3(a) must be read literally, and as so read calls for a maximum rate of 25 cents for all floor space demised, at either level. It emphasizes that "Floor Space" is a specially defined term under article XVI, section 16.1 of the lease, declared therein to have the meaning, "the actual number of square feet of floor space * * * within the exterior faces of the walls surrounding all floors, basements, sidewalk subspaces, or parts of any thereof, with respect to the premises in question * * *" (with additional provisions for measurement to the center of walls or partitions in certain situations, and miscellaneous other refinements). Kresge responds that this definition is intended only to identify the metes and bounds dimensions of the premises demised and is irrelevant to the here litigated issue.

Garden State further argues that there is no sound reason for carrying the weighting concept of section 4.3 into section 4.3(a). It points out, among other things, that the weighting of floor space, under section 4.3, is relevant only to the distribution of the landlord's reimbursable common area

maintenance costs as between all the tenants at the shopping center, and not to the setting of a fixed maximum annual rate for any tenant individually.

The parties agree that the small variance between the areas of mall level and lower level floor space demised to Kresge is not sufficient to prevent operation of the condition of section 4.3(a) that the mall area and lower level be "substantially the same." Although it is realized that this stipulation was drafted at a time before the precise amount of space at each level to be taken by Kresge was known, neither party has been able to indicate to us any logically persuasive reason for the stipulation relevant to the problem of interpretation before us.

It is conceded that under plaintiff's contention the maximum common area charge for each of the first seven years of the term would be $7,786.38; under the defendant's, $5,913.51; being a difference of $1,872.86 per year, or $13,110.02 for the seven years.

At the trial before the Law Division judge sitting without a jury, Kresge offered in evidence two writings constituting a part of the negotiation process antecedent to the execution of the lease, and it also sought to adduce testimony of two of its officers in support of its version of the meaning of the disputed provision. All these offers were excluded upon objection by Garden State. The trial court gave two reasons for its ruling: (a) the exclusionary stipulation in section 17.23, and (b) the fact that the provisions in question were not ambiguous. Defendant had argued that section 17.23 was void as an attempt by the parties "to control the rules of evidence," and that the proffered proofs were admissible to aid in the interpretation of the contract.

Although excluding the evidence referred to, the court nevertheless found defendant's tendered hypothesis as to the true meaning of the provision for a maximum common area charge to be correct, and entered judgment in its favor.

While we do not propose in this opinion definitively to construe the lease, regarding the evidentiary posture of the case as not yet complete, as we shall explain, we do have substantial

doubts whether Kresge's position on the merits could be sustained without the aid of the extrinsic proofs here debated. It thus becomes essential that the court pass upon the issues of admissibility, both as a matter of contract and evidence law, generally, and in relation to the issue of the validity of the exclusionary clause of the lease.

The respective arguments advanced on this appeal and our disposition of them require a brief outline of the matters offered but denied admission in evidence.

The first item, marked exhibit D-1 for identification, is a writing entitled "Memorandum of Agreement," executed on behalf of the parties January 11, 1955 while the shopping center was in course of construction. It states at the outset: "The following business terms have been tentatively agreed upon between the Landlord and Tenant whereby the Tenant will lease from the Landlord a store premises in Building B of Garden State Plaza Regional Shopping Center." There then follow in outline form what purport to be the basic terms of the proposed lease in nine paragraphs, with the concluding clause: "The above terms are conditioned upon further agreement between the parties, upon the specific form and provisions of the lease and such additional business terms as have not been resolved." Paragraph 6 reads as follows:

"6. At the present time, and under present conditions, it is estimated Tenant's share for support of such things as, but not limited to, the automobile parking areas, public malls, public area other than malls and the public portion of the underground delivery system will amount to between 20 cents and 25 cents per square foot per year for the mall level area and 50% of said amount for basement space per square foot per year."

It appears from the colloquy at the hearing that a first draft of proposed lease was submitted by Garden State to Kresge February 15, 1955, and that on September 9, 1955 a revised draft of lease was submitted. These were not offered in evidence. Kresge then caused to be prepared and sent to Garden State a typewritten ...


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