November 28, 2007
DPC CORP., A NEW JERSEY CORPORATION, DEMETRIOS CHRISTAKIS AND EFTHIA CHRISTAKIS, PLAINTIFF-RESPONDENTS,
VOISLAV SAJNOSKI AND VASA SAJNOSKI, DEFENDANTS-APPELLANTS.
On appeal from Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-278-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 30, 2007
Before Judges Coburn, Fuentes and Grall.
Defendants Voislav Sajnoski and Vasa Sajnoski appeal from the judgment of the Chancery Division, General Equity Part ordering specific performance of an option to purchase real estate included as part of a commercial lease agreement. The ten-year lease agreement provided plaintiff with an option to purchase the property for $225,000 within five years of the lease term, as long as he was not in default under the lease.
Two years into the lease, plaintiff notified defendant of his intent to purchase the property; defendant responded in letter form, claiming plaintiff could not exercise his option because he was in breach of the lease's insurance coverage requirements. Plaintiff sued after the parties were unable to resolve this issue.
After a bench trial, Judge Martinotti found that plaintiff had not complied with the lease's specific insurance requirements. Despite this breach, the court found that equitable principles militated in favor of plaintiff. Defendant appeals claiming the court erred in refusing to enforce the clear and unambiguous terms of the lease.
After reviewing the record before us, and in light of prevailing legal standards, we reject defendant's argument and affirm substantially for the reasons expressed by Judge Martinotti. We gather the following facts from the evidence presented at trial.
THE LEASE AGREEMENT
The lease agreement at issue here was a material part of the sale of a tavern business. Plaintiff acquired the tavern from defendant for $150,000.*fn1 Defendant also leased the building where the bar is located for ten years at a monthly rent of $2,500; the lease included an option to purchase the building within five years.
The option to purchase provision stated:
During the first five years of this lease, and provided that the tenant is not in default thereunder, tenant shall have the right to purchase the entire premises, with the sale price to be TWO HUNDRED TWENTY-FIVE THOUSAND DOLLARS ($225,000.00).
The lease required that plaintiff purchase and maintain:
(1) insurance coverage with a single limit amount of $1,000,000; (2) rental insurance for the primary benefit of the landlord; and (3) the insurance provider had to have an A rating by Best's Key Rating Guide. Plaintiff was obligated to present defendant with evidence of insurance coverage within twenty days of the signing of the lease; evidence of new coverage was due at least twenty days prior to expiration of the current policy.
Defendant could purchase additional coverage and obtain reimbursement from plaintiff if he was not satisfied with the coverage plaintiff purchased. Finally, the lease contained an indemnification provision, which required plaintiff to "defend, indemnify and hold harmless Landlord" for any losses which exceed the insurance coverage.
On the day the lease agreement was signed, defendant knew plaintiff had not obtained insurance. He nevertheless "felt comfortable" with this, because his old policy was still in place. Thus, defendant took no steps to notify plaintiff of this breach; he also did not take advantage of the provisions that permitted him to be reimbursed for any additional costs.
Plaintiff admitted that he did not read the lease when he signed it. He relied instead on his attorney's explanation as to what he needed to do to be in compliance of his contractual obligations, including the insurance coverage requirements.
A few days after the parties signed the lease, defendant took plaintiff to Kozma Insurance to meet with an insurance agent named Alex S. Popick. Kozma Insurance is located one block away from the tavern; the defendant owns the building in which the insurance offices are located. Defendant had purchased insurance through Kozma when he owned the tavern and also insures the building in which Kozma is a tenant through Kozma Insurance.
Both plaintiff and defendant claim defendant simply introduced plaintiff to Popick and then left. By contrast, Popick testified that both men remained after introductions, and discussed the insurance coverage. According to Popick, the parties brought with them a copy of defendant's insurance policy for the tavern, and requested that plaintiff obtain the same coverage. In rebuttal, defendant denied bringing a copy of his old policy or representing to Popick that he should provide plaintiff with similar coverage.
Plaintiff eventually decided to purchase insurance from another agency. The initial policy plaintiff obtained complied with the terms of the lease. Approximately a month thereafter, the insurer discovered that plaintiff had a disc jockey at the tavern. This triggered a premium increase from $6000 to $18,000; plaintiff could not afford this three hundred percent increase in insurance costs.
Plaintiff testified that after he advised defendant about the prospective cancellation of coverage, defendant once again took him to Kozma Insurance. Defendant denied ever visiting Kozma for a second time with plaintiff; Popick testified that plaintiff came alone this second time.
According to plaintiff, it was at this second meeting that defendant told Popick what coverage to provide plaintiff. Significantly, although Popick claimed that defendant was not present at this meeting, he testified that he wrote the specific coverage terms based upon the initial meeting, where all three men discussed the appropriate coverage. Popick also testified that he was never given or shown a copy of the lease containing the insurance requirements.
On November 1, 2002, Popick issued the new policy and either mailed or hand delivered a copy to plaintiff. Popick also claimed to have given defendant a Certificate of Insurance; defendant denied receiving it. Plaintiff did not read the new insurance policy; he assumed it complied with the lease because defendant told Popick what coverage to provide.
At no time prior to plaintiff's notice of intention to exercise the option to purchase did defendant inquire about the insurance coverage or request a copy of the insurance policy. He just assumed that plaintiff's new coverage complied with the lease because his previous policy complied with the lease.
NOTICE OF OPTION TO PURCHASE
In August 2004, plaintiff informed defendant that he had an offer from a buyer to purchase the business and the building for $650,000. He suggested that they should sell the business and the building; defendant declined. On October 15, 2004, plaintiff's counsel sent a letter to defendant's counsel seeking to exercise plaintiff's option to purchase the property for $225,000. Three days later, defendant's counsel requested plaintiff's counsel send him a form of contract.
After learning about plaintiff's intent to exercise his option, defendant consulted with his counsel about whether or not he was required to sell the property. Judge Martinotti found that defendant did not want plaintiff to exercise his option because he felt plaintiff would make too much of a profit. On October 29, 2004, defendant directly told plaintiff that he did not wish to sell the building.
On December 18, 2004, defendant's counsel sent plaintiff written notice that he was in default under the lease, and demanded plaintiff vacate the premises by January 1, 2005. The notice stated that plaintiff was in violation of the terms of the lease because he did not have the proper insurance coverage. Specifically: (1) the policy did not have a single limit coverage of $1,000,000; (2) there was no indication of rent coverage for the landlord; (3) the landlord was not carried as an additional insured; and (4) the insurer did not have a Best's rating of A-plus.
It is undisputed that plaintiff's policy had a single limit coverage of $500,000 instead of $1,000,000; it did not have rental insurance; and the provider only had a Best's rating of A-minus. Thus, plaintiff purchased, through Popick, a new insurance policy which cured all of the deficiencies identified by defendant in the notice of default. There had not been any fires or notice of third-party accidental liability during the leasehold.
Against this evidence, Judge Martinotti held that
[t]o strictly enforce the provisions of this lease, where Mr. Christakis was in compliance, save the insurance, and no harm has come to Mr. Sajnoski, would be draconian and inequitable. This would do an injustice to Mr. Christakis and provide a windfall to Mr. Sajnoski. The default was di minimis [sic] at best. Mr. Sajnoski's argument that there may be [an], "unknown claim out there" is speculative, at best.
Furthermore, under paragraph D of the insurance provision contained in the lease, Mr. Christakis must defend, indemnify, and hold Mr. Sajnoski harmless for any losses which occur during the leasehold, not otherwise covered by insurance. Therefore, once title is transferred to Mr. Christakis, he will have a significant asset from which any excessive judgment may be collected.
Lastly, Mr. Sajnoski has had the benefit of the rental income since this case was filed.
He has suffered no damage. Accordingly, this Court enters judgment in favor of the plaintiff, and against the defendant.
We agree. On appeal, we do not disturb a trial court's factual findings unless they are "'so wholly insupportable as to result in a denial of justice.'" Goodyear Tire and Rubber Co. v. Kin Propertie, Inc., 276 N.J. Super. 96, 106 (App. Div. 1994) (quoting Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 484 (1974)). Conversely, "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." State v. Elders, 192 N.J. 224, 252 (2007) (citing Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)).
Here, although plaintiff did not strictly adhere to the requirements of the insurance provisions in the lease, Judge Martinotti properly invoked equitable principles to avoid an unjustified result.