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Federal Deposit Insurance Corp. v. Rosen

Decided: February 9, 1983.


On appeal from the Superior Court of New Jersey, Chancery Division, Hudson County.

Ard, King and McElroy. The opinion of the court was delivered by King, J.A.D.


[188 NJSuper Page 231] This is an appeal from the trial judge's refusal to permit the Federal Deposit Insurance Company (FDIC) to redeem a sublease assigned as mortgage security for a loan made to the sublessor. This is the procedural history.

In June 1966 Columbia Parking Holding Company, predecessor of Columbia Park Holding Associates (CPHA), subleased certain property in North Bergen to Surf Realty Company (Surf). On May 31, 1971 Surf assigned the sublease to First State Bank of Hudson County (bank) to secure a loan. When the bank subsequently failed, the FDIC acquired its interest in the property in June 1976.

The leased property has been the subject of several lawsuits by CPHA seeking to dispossess Surf for nonpayment of rent and taxes. One of Surf's subtenants and a related company, Columbia Park Liquors, Inc., and Surf filed petitions for reorganization under chapter XI and delayed the dispossess dispositions. On October 25, 1978 Judge O'Brien entered an order for possession in favor of CPHA. The FDIC unsuccessfully tried to enjoin the order. On July 26, 1979 Judge Gaulkin entered a judgment in favor of the FDIC, declaring the assignment from Surf to the bank to be a mortgage and foreclosing it. In this action the FDIC sought to redeem the lease.

The FDIC commenced this action by filing a complaint in the Superior Court, Chancery Division, Hudson County, on March 13, 1981. It named CPHA and the association's partners individually as defendants and sought judgment declaring its equitable right of redemption and restraining defendants from interfering with possession of the leased premises. Defendants' answer was filed April 2, 1981. It alleged that the FDIC had (1) refused to pay the leasehold's arrearages, (2) was bound by the judgments against Surf, (3) was guilty of laches, (4) was estopped from bringing the action, and (5) must deposit the amount of the arrearages with the court.

As the result of informal conferences before Judge Castano, the parties entered into and filed a stipulation of facts. Judge Castano subsequently disqualified himself and the matter was heard by Judge Geronimo on April 30, 1982. On May 10, 1982 he entered an order dismissing the complaint. In an oral opinion he found that the forfeiture was not harsh or oppressive in this

commercial context, particularly in view of the FDIC's repeated failure to post the arrearages.

The stipulation of facts under which the case was tried is attached as Appendix A. Based on these facts, Judge Geronimo found as follows

Well, Mr. Hanlon, I've carefully considered this matter, and it's the Court's opinion here that there is nothing unjust, nothing inequitable about this forfeiture, nothing harsh, oppressive or odious, and I base that on the past history of this entire situation, the fact that this was a commercial transaction, the fact that this is not a typical landlord situation or a typical mortgagor or mortgagee situation.

I further find that the FDIC has sat on its rights for over two years and three months. I further find that the lease between CPHA and Surf Realty was effectively terminated. There was nothing technical about this foreclosure at all. I therefore find in favor of the defendants.

On appeal the FDIC argues that the forfeiture was oppressive, that Surf's misconduct should not bar the redemption, that the commercial nature of the transaction is irrelevant, that the FDIC's status as a third party is irrelevant, and that it was not guilty of laches.

Case law regarding forfeiture of leases is sparse and somewhat confusing. In this State relief has been granted where a lessor waived the breach. See Brower v. Asbury Park Bd. of Comm'rs, 103 N.J. Eq. 176, 178 (Ch.1928) (acceptance of rent installments with knowledge of a violation waived the right of forfeiture). Relief has also been granted where only slight delays in payment occurred or where the tender occurred prior to the institution of the ejectment suit or immediately after judgment. See Vineland Shopping Center, Inc. v. DeMarco, 35 N.J. 459, 461 (1961); D. Paradis Co. v. North Hudson Holding Co., 137 N.J. Eq. 430, 432 (Ch.1946), (restraining forfeiture pending a full hearing on the tenant's suit); Azar v. Jabra, 167 N.J. Super. 543, 545-546 (Cty.D.Ct.1979). Also, where the forfeiture would be disastrous for the tenant, relief has been granted. See Rivoli Holding Co., Inc. v. Ulicny, 109 N.J. Eq. 54, 57 (Ch. 1931).

Before relief will be granted, the tenant must be capable of placing the lessor in the position it would have occupied if the breach had not occurred. 49 Am.Jur. 2d, Landlord and Tenant, § 1088 at 1047. There must be a strong expectation that the tenant will perform in the future. Id. § 1089 at 1048. Courts have split over whether a tenant's willfulness bars equitable relief, but agree that where a tenant has engaged in a course of conduct of nonpayment of rent, relief may be denied. Id. § 1091 at 1048. None of the cases in this area fully enumerate the factors which the court of equity should or should not consider in determining whether equitable relief is appropriate. The decisions are fact-sensitive, demonstrating that a broad inquiry into all the circumstances of the case and a balancing of all equities is required.

As the FDIC contends, relief from forfeiture is granted in commercial as well as residential leases. See Vineland, supra. Generally, no distinction has been made in the equitable redemption cases between the two types of leases. But see Stanger v. Ridgeway, 171 N.J. Super. 466, 474 (App.Div.1979) (recognizing the shortage of rental housing). But courts of equity are not precluded from considering the nature of the lease. Judge Geronimo based his denial of relief in part on the commercial nature of the lease. Contrary to the FDIC's contention, he did not apply an incorrect standard for relief. He considered the nature of the lease in assessing the equities of this situation. His comments concerning the nature of the lease recognized that the parties had some business experience: "But this is a commercial transaction. These are not naive people who bought a home once in a lifetime." Absent any evidence of overreaching, we presume the parties dealt at arms' length and knew that the terms of the lease could be enforced. The ...

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