December 17, 2007
CLEVELAND PLAZA ASSOCIATES, LLC, PLAINTIFF-RESPONDENT,
CONTE ENTERTAINMENT OF CRANFORD, LLC; GREGORY CONTE, INDIVIDUALLY, DEFENDANTS, AND MARY JANE CONTE, INDIVIDUALLY, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Union County, L-1495-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted November 26, 2007
Before Judges Parrillo and Sabatino.
The crux of this appeal is whether the Law Division erred in denying a motion, pursuant to R. 4:50-1, to vacate a default judgment entered seventeen days before the motion was filed. The judgment declared appellant, Mary Jane Conte, personally liable for $55,994.90 in back rent and other charges on a commercial lease that plaintiff, Cleveland Plaza Associates ("the landlord"), had extended to a corporation in which appellant and her husband, Gregory Conte*fn1, were principals.
Because we are satisfied that appellant presented a potentially meritorious defense, namely the lack of her personal contractual liability for the corporation's rent, and because the landlord's evidentiary presentation of lease-related correspondence at the underlying proof hearing in the Law Division was incomplete and skewed, we vacate the judgment as to appellant and remand for a trial on the merits.
The following factual and procedural chronology informs our consideration of the issues on appeal. Appellant, along with her husband, operated a business called Sandy Deck's Parties. Beginning in March 2004, the business rented commercial space in landlord's shopping plaza in Cranford. The lease identified the tenant as "Conte Entertainment of Cranford, LLC" ("the LLC" or "the corporation"). Although the Contes owned and operated the LLC, they were not listed individually as tenants, and the lease did not contain any personal guarantees from them to be responsible for the LLC's rent obligations. The rent was $2,544.80 per month, for a lease term of sixty months, or five years.
About a year into the lease, the LLC fell behind in rent. Appellant acknowledged those rent arrearages in a letter she sent to the landlord's general partner, Anthony J. Vizzoni, on July 1, 2005. The letter was typed on the business stationery of Sandy Deck's Parties. In that letter, appellant admitted that the business was then $14,667.24 behind in rent payments, but stated that she "hope[d] to be current with [the] past due payments by October['s] [e]nd." She requested the landlord to "consider a payment plan."
Vizzoni responded in a letter to appellant dated August 12, 2005. His reply indicated that the landlord would allow the business to remain as a tenant, but only if appellant and her husband would personally guarantee the lease, both individually and jointly. Enclosed with Vizzoni's letter was a draft lease addendum, which contained signature lines to reflect the Contes' assent to such individual guarantees. The letter assured the Contes that the landlord had "extended the [proposed] payment schedule . . . whereby you would be current by the end of October 2005 to provide you with additional flexibility if you so elect."
The Contes did not sign the lease addendum. Instead, two months later, appellant wrote Vizzoni another letter, again on her company's letterhead. In that letter, dated October 7, 2005, appellant conceded that the rent was still in arrears. She explained that the company's other location in Basking Ridge was being sold, and that she was consolidating the company's operations at the Cranford store. Appellant anticipated that such consolidation would provide the business with the means to make the rent in Cranford current within a year.
Asserting that she planned to "sign and personally guarantee the [rent for the] next 12 months," appellant proposed in her October 7 letter that the lease be amended to include a right of assignment. She hoped that such an assignment would enable a potential future transfer of the business and the leasehold to a third party buyer.
On these various points, appellant's October 7 letter specifically stated:
When amending our lease, we will personally guarantee the rent for the next year. Additionally, I will kindly request an additional change. I would like to be able to assign the lease so that I have the ability to sell this location at anytime in the distant future. I realize that Cleveland Plaza has been more than patient.
I intend to bring current our past due amount. I will continue to make payments until this matter is resolved. [Emphasis added.]
The landlord responded to appellant's October 7 proposal through a letter from Vizzoni on November 10, 2005. That letter conveyed what it termed as the landlord's "final offer in the hopes of amicably resolving this matter." (Emphasis and bold face in original.) As described in the letter, the landlord's offer included a proposed schedule for repayment of the back rent, an agreement to allow the tenant to assign the lease, and a requirement that appellant and her husband "unconditionally personally guarantee the lease through the remaining term." The November 10 letter demanded a reply within ten days.
By this point, appellant had retained the services of an attorney, Anthony Ambrosio, Esq. On November 21, 2005, Ambrosio sent a letter to Vizzoni, confirming the substance of a telephone conversation he had with Vizzoni earlier that day regarding the lease negotiations. In the letter, Ambrosio confirmed his "client's agreement to 1) personally guarantee any past due rent; 2) [p]ay current rent going forward plus $500.00 on account of arrears." Ambrosio also proposed that "[i]f my client decides to close her business she will give the landlord 30 days prior notice, pay the current rent and continue to pay $500.00 per month on the unpaid past due rent . . . and will not be responsible for any future rent." At the conclusion of the letter, Ambrosio requested the landlord to "advise if the above terms are acceptable."
Despite the fact that the landlord had demanded personal guarantees from both appellant and her husband, Ambrosio's November 21 letter consistently used the singular in referring to Mary Jane Conte as his "client." Additionally, the "cc" on his letter copied only Mary Jane Conte and not Gregory Conte.
The next documented communication between the parties was an e-mail sent by Vizzoni to Ambrosio on December 7, 2005, to which Vizzoni attached a draft lease addendum for Ambrosio's review. The e-mail stated, in part, "[p]lease review and advise if [the draft] is acceptable so that we may get same signed up. We'd like to wrap it all up within the next week." The attached lease addendum recited that the LLC was in arrears a total of $20,620.14 through the end of November 2005. The proposed addendum also stated:
As additional inducement for Landlord forbearing in any collection and eviction actions, Mary Jane Conte and Gregory N. Conte . . . hereby unconditionally and irrevocably personally guarantee all the obligations of Conte Entertainment of Cranford, [LLC], (inclusive of the timely and punctual payment of rent when due) . . . . This guarantee is a joint and several guarantee of Mary Jane Conte and Gregory N. Conte. [Emphasis in original deleted.]
As it turned out, neither appellant nor her husband ever signed the amended lease containing such personal guarantees. Nor did the landlord ever attempt to evict the business from the shopping plaza. Rather, appellant moved out on her own accord.
The landlord learned of its tenant's impending departure though a January 26, 2006 letter from Ambrosio to the landlord's counsel, Glenn Cavanagh, Esq. Ambrosio stated in the letter that his client intended to vacate the premises by February 1, 2006.*fn2 Within the next six days, the LLC vacated the premises. The landlord did not secure another tenant for the premises until the summer of 2006.
Still owed money, the landlord filed a complaint in the Law Division against the LLC and both Contes in April 2006. The complaint initially sought $21,359.94 in compensatory damages and $112,402.40 in special damages, exclusive of costs and attorneys' fees. Although service of process was effected upon them, defendants did not answer the complaint. It is not entirely clear why they failed to file a timely responsive pleading or seek an extension of time do so, except that appellant, in her motion to set aside the judgment, certified that "[b]y the time the negotiations [with the landlord] ended unresolved the time to answer the complaint had expired." In addition, Ambrosio later certified, also in support of the R. 4:50-1 motion, that about this same time frame "negotiations were ongoing."
After the time for an answer had passed, the landlord requested that the court enter a default against all three defendants, which it did on June 7, 2006. Despite the default, the parties continued negotiations through the summer of 2006 on the arrearage and payment issues.
On August 9, 2006, Ambrosio communicated an offer to the landlord's attorney, Cavanagh, to settle the LLC's rent debt, payable in monthly installments.*fn3 At the end of this letter, Ambrosio requested, "please advise whether you will consent to vacate the default or otherwise extend the time to file an answer or whether I must file a motion."
The landlord rejected the settlement offer and declined to vacate the default. Instead, on September 27, 2006, Cavanagh sent a letter to Ambrosio with the landlord's counter-proposal to settle the debt. In that same letter, Cavanagh informed Ambrosio of an upcoming proof hearing scheduled for October 9, 2006. The record contains no written response to that letter.
The proof hearing was rescheduled, apparently at Ambrosio's request, to November 16, 2006. It went forward on that date. Neither the Contes nor an attorney on their behalf appeared. After considering the landlord's proofs as to the amount owed on the lease, the court entered a final judgment against the LLC, Mary Jane Conte and Gregory Conte. The judgment was in the amount of $55,994.90, inclusive of $47,528.74 in compensatory damages, with the remainder consisting of pre-judgment interest, attorney's fees, and costs. An amended version of the final judgment, which corrected a clerical error, was filed on December 5, 2006.
During the course of the proof hearing,*fn4 the landlord relied on appellant's October 7, 2005 letter. The landlord particularly emphasized appellant's statement that "I will sign and personally guarantee the [rent for the] next 12 months." The landlord did not supply the court with Vizzoni's reply letter from November 10, 2005 conveying the landlord's "final" offer. Nor did the landlord present any of the other communications between the parties and their representatives that had transpired after appellant's October 7, 2005 letter.
Seventeen days after the amended judgment was filed, appellant, represented by new counsel,*fn5 filed a motion to set aside the default judgment pursuant to R. 4:50-1. Her notice of motion stated, in relevant part, that "[w]hile good faith negotiations were on-going [the landlord] filed a default without the knowledge of [d]efendant. Defendants*fn6 have a meritorious defense in that [d]efendants Conte had no privity of contract with [the landlord] and never personally guaranteed the lease."
In her supporting certification, appellant asserted that she and her husband had never entered into an agreement to guarantee the lease personally, and that she therefore had a meritorious defense. Her former counsel, Ambrosio, filed a separate certification. Ambrosio attested, among other things, that he had reviewed the personal guarantees, as proposed in the draft lease addendum sent to him by Vizzoni on December 7, 2005, and specifically had advised his client not to sign it.
The landlord opposed the R. 4:50-1 motion, tendering a certification from Cavanagh, its own counsel. Cavanagh confirmed that he had been in negotiations over the lease with Ambrosio for approximately twelve months, through and including October 2006. He asserted that appellant should have been aware of the date and time of the proof hearing, that no one appeared in opposition, and that his adversary never stated or suggested that he had difficulty in communicating with his client.
Oral argument on the R. 4:50-1 motion was initially held on January 19, 2007 before the same judge who had entered the default judgment. Appellant's counsel argued to the judge that his client's willingness to personally guarantee the lease, as communicated in her October 7, 2005 letter, was merely an offer conditioned on the inclusion of certain provisions in an amended lease. He contended that those conditions were never fulfilled, and thus her offer was never accepted by the landlord. He further argued that the October 7 letter was only one part of a lengthy negotiating process between appellant and the landlord.
The dynamic nature of those negotiations, he asserted, was manifest from the other documented communications that the landlord had left out of its presentation at the November 2006 proof hearing.
In response, the landlord argued that appellant should be procedurally barred from obtaining relief from the judgment because of her prior inaction, including her failure to bring a timely motion under R. 4:43-3 to set aside the default before the proof hearing took place. When asked by the judge why the landlord had not produced all relevant exhibits at the November 2006 proof hearing, the landlord's attorney replied that he possessed "a plethora of documents" on the matter. Counsel also represented to the judge that he had been unaware of the December 7, 2005 e-mail from Vizzoni to Ambrosio attaching the proposed lease addendum.
During the course of that first oral argument, the judge initially considered whether misrepresentation would be an applicable ground for vacating the judgment under R. 4:50-1, given that the landlord had not supplied the court at the proof hearing with other relevant documents concerning appellant's supposed personal guarantee. After confirming that the landlord would supplement the motion record with a certification or an affidavit from Vizzoni about his communications with appellant and her representatives concerning the guarantee, the judge continued the oral argument for a month.
However, on the next hearing date, February 16, 2007, the landlord did not present a certification from Vizzoni. Instead, Vizzoni appeared in person at the hearing, along with the landlord's counsel. Vizzoni offered to testify about the substance of his negotiations with appellant and his version of the alleged understandings between them. The judge permitted Vizzoni to take the stand.
In his impromptu testimony, Vizzoni stated that the landlord had only allowed the business to remain in the leasehold because he believed appellant had personally guaranteed the lease. He elaborated:
I know Ms. Conte. We live in the same town. Her, her child goes to school with my daughter, they're in the same class, we, we have socialized before. And I was really trying my hardest to, to allow her to stay in there . . . to make a go of it, and make it work.
And basically . . . probably [six] to [twelve] discussions I had with her either at the premises, at school, over the phone, she was advising me that she would do personally, whatever she needs to do . . . .
After Vizzoni testified, appellant's counsel complained to the judge that "at our last hearing, I was under the impression that I was going to receive an affidavit [from Vizzoni] and I was going to submit one in response. That was my understanding, otherwise I certainly would have brought [my own client]." However, counsel did not move to strike Vizzoni's testimony, did not request an adjournment in order to produce appellant to testify, and did not submit any additional certifications from her or from Ambrosio to attempt to counteract Vizzoni's testimony.
Having considered this additional proof, the judge denied appellant's motion for relief from the judgment. In issuing her bench ruling, the judge substantially credited Vizzoni's testimony, remarking:
I'm glad you came, Mr. [Vizzoni]. This, helps clarify the idea, that . . . [the personal guarantee] wasn't kind of an offhand statement in the [October 17, 2005] letter that [appellant] . . . kind of threw out there, [that] she really didn't mean herself; but there was more to it than that.
The judge found that appellant had, in fact, personally guaranteed the lease, and that the landlord detrimentally relied on that guarantee in not evicting her business from the premises sooner. Consequently, the judge was persuaded that appellant lacked a meritorious defense to the landlord's complaint.
Although the judge did not make it an explicit ground for her decision, she briefly criticized the defendants for failing to respond to the lawsuit sooner. She observed, "I don't know why [defendants] . . . just let it slide, but they did."
The judge then revisited the amount of the default judgment. She expressed some doubts about her earlier decision in this regard, stating, "I guess the only question in my mind is if [appellant] only said in October  that she would guarantee the past due rent, maybe she isn't stuck for everything after October." However, when appellant's attorney sought clarification on this point, the judge declined to reduce the judgment amount, finding that the landlord was fully entitled to consequential damages.
This appeal ensued.
Appellant contends that the motion judge erred in failing to vacate the judgment under R. 4:50-1, and that she is entitled to a trial on the merits. In particular, appellant contends that the judge misinterpreted her October 7, 2005 letter as a conclusive and enforceable personal guarantee of payment of future rent. Appellant further asserts that the judgment is defective, because it emanated from an incomplete proof hearing at which the court was not presented with copies of other relevant documents. According to appellant, such documents would have revealed the ongoing and unresolved nature of the lease negotiations, and would have put the October 7, 2005 letter in a proper context.
Generally, we apply a deferential standard of review of determinations by trial judges on motions filed under R. 4:50-1. Hous. Auth. of Morristown v. Little, 135 N.J. 274, 283 (1994). However, we conclude that the idiosyncratic aspects of this particular case warrant the vacatur of the judgment as to appellant individually, without prejudice, and a remand for a trial on the merits. We reach that conclusion for several reasons.
Our system of justice strongly favors the disposition of matters on their merits rather than based on procedural failures. See Crispin v. Volkswagenwerk, A.G., 96 N.J. 336, 338 (1984). In keeping with that objective, R. 4:50-1 provides litigants with an avenue for relief from a judgment when the interests of justice so require. The Rule "'is designed to reconcile the strong interests in finality of judgments and judicial efficiency with the equitable notion that courts should have authority to avoid an unjust result in any given case.'" Baumann v. Marinaro, 95 N.J. 380, 392 (1984) (quoting Manning Eng'g, Inc. v. Hudson County Park Comm'n, 74 N.J. 113, 120 (1977)).
With respect to motions filed under R. 4:50-1 to set aside default judgments, the Supreme Court has instructed that "[a]ll doubts . . . should be resolved in favor of the parties seeking relief." Mancini v. EDS, 132 N.J. 330, 334 (1993); see also Marder v. Realty Constr. Co., 84 N.J. Super. 313, 319 (App. Div.), aff'd, 43 N.J. 508 (1964) (finding that "the opening of default judgments should be viewed with great liberality, and every reasonable ground for indulgence is tolerated to the end that a just result is reached"). The customary test for granting relief under R. 4:50-1 in such default contexts is well established. The party seeking relief ordinarily must show (1) that the failure to answer or defend was "excusable under the circumstances" and (2) that there appears to be a meritorious defense, either to the plaintiff's substantive claim, or to the assessed damages. Marder, supra, 84 N.J. Super. at 318; see also Pressler, Current N.J. Court Rules, comment 4.1 on R. 4:50-1 (2007). For purposes of our analysis, we shall consider these prongs in reverse sequence.
We first consider whether appellant has raised a potentially meritorious defense. This requires us to apply basic principles of contract law. It is well settled that "[a] contract arises from offer and acceptance, and must be sufficiently definite 'that the performance to be rendered by each party can be ascertained with reasonable certainty.'" Weichert Co. Realtors v. Ryan, 128 N.J. 427, 435 (1992) (quoting West Caldwell v. Caldwell, 26 N.J. 9, 24-25 (1958)). To be enforceable, a contract must "agree on essential terms and manifest an intention to be bound by those terms." Ibid.
"Where the parties do not agree to one or more essential terms . . . courts generally hold that the agreement is unenforceable." Ibid. See also Pop's Cones, Inc. v. Resorts Int'l Hotel, Inc., 307 N.J. Super. 461, 467-68 (App. Div. 1998) (upholding a trial court's ruling that no lease agreement existed where specific terms were not agreed upon); Malaker Corp. Stockholders Protective Comm. v. First Jersey Nat'l Bank, 163 N.J. Super. 463, 474 (App. Div. 1978), certif. denied, 79 N.J. 488 (1979) (finding no contract where the agreement was "so deficient in the specification of its essential terms that the performance by each party cannot be ascertained with reasonable certainty").
Assuming the offer contains definite terms, there must also be "'an unqualified acceptance to conclude the manifestation of assent.'" Weichert, supra, 128 N.J. at 435-36 (quoting Johnson & Johnson v. Charmley Drug Co., 11 N.J. 526, 539 (1953)). This manifestation of assent may be communicated through oral or written communication, or through other conduct creating a contract implied-in-fact. Id. at 436.
With these basic contract principles in mind, we are satisfied that appellant has a substantial argument that there was no offer and acceptance of specific and essential terms to create an enforceable contract for her personal guarantee of the LLC's rent obligations. It is undisputed that the original lease signed by appellant in October 2003 was solely between the landlord and the corporate entity, Conte Entertainment, LLC. It is also undisputed that the lengthy negotiations between appellant and the landlord throughout the fall of 2005 never culminated in a new lease agreement. Both parties admit that the negotiations "fell apart."
The question, then, is whether appellant's October 7, 2005 letter, insofar as it expressed her willingness to personally guarantee the lease, amounted to a clear and unequivocal offer that the landlord subsequently accepted. There are considerable reasons to conclude that it was not.
First, appellant's statement that she would "personally guarantee the rent for the next year," when read in the context of the whole letter, can reasonably be construed as merely a conditional offer, contingent on other conditions that the landlord never fulfilled. Her letter proposed additional terms, including a right to assign the lease to a third party. The letter also noted that that the matter had yet to be "resolved."
Second, Vizzoni's November 10, 2005 reply letter, which communicated the landlord's "final offer" to appellant, undermines its claim that it had accepted appellant's October 7 proposal. Moreover, the landlord's continued negotiations with appellant for about a year after its supposed final offer suggests that the landlord did not believe that it had a binding agreement with her.
Third, although the landlord consistently sought the personal guarantees of both appellant and her husband, the record is barren of any affirmation on the husband's part that he was willing to undertake such a guarantee. Hence, when appellant stated in her October 7 letter that she was willing to enter into a such a commitment individually, the absence of a parallel commitment from her spouse can be viewed as a material deviation from the landlord's proposals. This also casts doubt on whether the parties truly had a meeting of the minds.
Fourth, the various communications that followed the October 7 letter suggest that the parties did not come to closure on the precise scope of what would be personally guaranteed. The October 7 letter from appellant discussed a personal guarantee of the lease for twelve months. In contrast, the landlord's November 10 reply insisted on a personal guarantee for the remainder of the lease, which included another three years. Ambrosio's subsequent November 21 letter to the landlord did not match up, for it stated that appellant would only guarantee the past due rent, but that she would not be responsible for prospective rent if she vacated the lease. These diverse proposals strongly indicate that the parties never came to agreement on the essential terms of the guarantee.
As the motion judge acknowledged, many other essential terms of the new lease agreement, including the amount and schedule of arrears payments, and what would happen in the event of default, were never resolved. This also supports appellant's claim that there was no enforceable contract that obligated her to guarantee payment of the rent personally.
For these many reasons, we believe that the motion judge erred in finding that appellant had not raised a meritorious defense to the landlord's complaint. Although we do not and need not decide the merits of the contract issues here with finality, there is ample reason to require those issues to be determined at a trial, with appropriate testimony and credibility findings.
As an alternative to its breach of contract theory, the landlord argues that it justifiably relied on appellant's alleged guarantees of payment to its detriment. The landlord thus seeks recovery under the alternative rubric of promissory estoppel. See Pop's Cones, Inc., supra, 307 N.J. Super. at 472. That, in turn, would limit the landlord's damages. On a promissory estoppel claim, the prevailing party is only entitled to recover "damages resulting from its detrimental reliance upon promises made during contract negotiations despite the ultimate failure of those negotiations." Id. at 470. See also LoBiondo v. O'Callaghan, 357 N.J. Super. 488, 500 (App. Div.), certif. denied, 177 N.J. 224 (2003).
An essential ingredient of a claim of promissory estoppel is a "clear and definite promise" made by the defendant. Pop's Cones, supra, 307 N.J. Super. at 469. As we have already discussed, the record before us is murky, both as to the clarity of appellant's supposed personal guarantee and the definitiveness of that promise in light of the ensuing year of failed negotiations. Although the motion judge found that the landlord had indeed relied on appellant's alleged guarantee to its detriment, that finding was made without the benefit of any live testimony from the appellant. At a minimum, we are satisfied that appellant has raised a potentially meritorious defense on this issue as well.
Concerning the excusable-neglect prong of R. 4:50-1, we begin by concurring with the motion judge that appellant did not show that her untimeliness was induced by any misrepresentations of the landlord. The complaint was personally served on appellant, so she clearly should have been aware of the pendency of the case. There is nothing in the record to indicate that she lacked notice, through her then-attorney, of the clerk's entry of default against her and of the ensuing proof hearing. She points to no misleading statement by the landlord or its agents about the status of the litigation. Hence, we agree that the judgment should not be vacated on that particular basis.
Even so, we cannot be confident from the record before us that appellant's failure to respond to the lawsuit was completely inexcusable. In her bench ruling, the motion judge focused almost entirely upon the second prong of the traditional test--the question of a meritorious defense. The judge did not make an explicit finding as to whether the continuation of the year-long negotiations between appellant and the landlord caused appellant to assume in good faith, however incorrectly, that the case would not go to judgment until those negotiations had finished.
We recognize that appellant's then-attorney was given notice of the proof hearing, and had an obligation to protect his client's interests. We are also mindful that "excusable neglect" as it applies in R. 4:50-1 refers to neglect "attributable to an honest mistake that is compatible with due diligence or reasonable prudence." Mancini, supra, 132 N.J. at 335. However, since there is no finding by the trial court on this point, we are loathe to exercise our original jurisdiction and decide the question of excusable neglect ourselves.
In any event, we need not resolve the presence or absence of excusable neglect here. That is so because our case law recognizes that, in limited situations, a party may be entitled to relief from a default judgment under R. 4:50-1, even where that party's failure to have contested the complaint in a timely fashion is not readily explained. In particular, R. 4:50-1(f) provides that a court may vacate a judgment for "any other reason justifying relief from the operation of the judgment or order." When considering this basis for relief, [n]o categorization can be made of the situations which would warrant redress under subsection (f). . . . the very essence of (f) is its capacity for relief in exceptional situations. And in such exceptional cases its boundaries are as expansive as the need to achieve equity and justice. [Court Inv. Co. v. Perillo, 48 N.J. 334, 341 (1966); see also Hous. Auth. of Morristown, supra, 135 N.J. at 286.]
At times our courts have afforded relief from judgment under subsection (f) of R. 4:50-1 in certain instances where the party seeking such relief did not provide a compelling excuse for failing to respond to the lawsuit. See, e.g., Morales v. Santiago, 217 N.J. Super. 496, 505 (App. Div. 1987) (vacating a default judgment where defendants offered a meritorious defense, but presented a questionable explanation for their failure to respond); see also Siwiec v. Financial Res., Inc., 375 N.J. Super. 212, 219-20 (App. Div. 2005) (vacating a default judgment despite defendant's failure to respond, where plaintiffs had advanced a novel legal theory of defendant's liability at the proof hearing).
Morales involved an alleged breach of contract between plaintiffs, the buyers of real estate and defendants, the sellers. The plaintiffs sued and obtained a default judgment against defendants, who promptly moved thereafter to set it aside. Morales, supra, 217 N.J. Super. at 499. Defendants claimed that there was no binding contract of sale, thereby raising a potentially meritorious defense. Id. at 503-504. Defendants also asserted that they were never served with the complaint, or alternatively, that their failure to respond to it was due to excusable neglect. Ibid.
We recognized in Morales that the sheriff's return of service form contradicted defendants' assertions of lack of notice. Id. at 504. Nonetheless, we held that, even if defendants had indeed been served and had no justifiable excuse for not responding, the judgment should still be vacated due to "the cumulative effect of our misgivings about this default judgment." Ibid. Those misgivings were based on findings that (1) the trial judge failed to explain sufficiently why he had denied the motion for relief under R. 4:50-1; (2) defendants had not been well-served by their attorneys; (3) defendants had promptly moved to vacate the judgment; and (4) defendants "suffered a substantial judgment that appear[ed] to be undeserved on the merits." Id. at 504-05. Taken as a whole, these misgivings persuaded us in Morales that "[t]he interests of justice are further served by vacating the default judgment," regardless of whether excusable neglect was present. Id. at 505.
Likewise, in Siwiec, we considered a defendant's motion to vacate a default judgment that plaintiffs, a husband and wife, had procured against a mortgage lender that had denied their refinancing application. Siwiec, supra, 375 N.J. Super. at 215. After the complaint was served on the defendant by certified mail, the parties engaged in e-mail communications attempting to settle the case. Id. at 216. When the case did not settle, plaintiffs obtained a default. At the ensuing proof hearing, plaintiffs relied upon various documents, although they did not present a written mortgage commitment from the defendant lender. Ibid. Nonetheless, the trial judge granted plaintiffs a default judgment for damages. Id. at 217.
Within two weeks of the judgment's entry in Siwiec, defendant moved to vacate it, pursuant to R. 4:50-1. Ibid. The motion was supported by a certification from the defendant's president, who contended that the lender had not filed an answer to the complaint because he had been incorrectly told by a subordinate that the case had settled. Ibid. The trial court denied the motion for failure to establish either excusable neglect or a meritorious defense. Ibid.
In assessing these circumstances in Siwiec, we agreed with the trial court that defendant had not demonstrated excusable neglect for failing to file a timely answer to the complaint. Id. at 218. Despite that failure, we vacated the default judgment, in part "because we perceive[d] significant issues concerning the sufficiency of plaintiffs' proofs on both liability and damages." Ibid. As a matter of law, we observed that plaintiffs were advocating a novel theory of recovery based upon a mortgage application processed through the Internet. Id. at 218-19. We also noted that defendant had offered a meritorious explanation for not closing the loan, although the truth of that explanation would be need to be tested at a trial. Id. at 219. Therefore, we reversed the denial of the motion and remanded the case to be decided on the merits. In doing so, we stated:
Where either the defendant's application to re-open the [default] judgment or the plaintiffs' proofs presented at the proof hearing raise sufficient questions as to the merits of plaintiffs' case, courts may grant the application even where defendant's proof of excusable neglect is weak. [Id. at 220.]
Similar concerns guide us here. Procedurally, we are troubled by the motion judge's decision to allow Vizzoni to testify at the adjourned oral argument, without any advance notice to the appellant. Vizzoni was allowed to testify as to the substance of conversations he had with appellant regarding the lease, and as to his state of mind, without an opportunity for appellant to prepare to cross-examine his testimony or to line up rebuttal proofs. The potential prejudice from that procedure is accentuated by the fact that the judge explicitly relied on Vizzoni's testimony in rendering her decision, even while recognizing that the testimony she heard was "one-sided."
Moreover, we are especially concerned that the trial judge predicated her ruling at the proof hearing upon evidence that was incomplete and skewed. The judge was deprived at that time of important post-October 7 documents that would have shown the arguably indefinite nature of appellant's commitment to enter into a personal guarantee. Indeed, the motion judge admitted that she had reservations about the way the matter had been first presented to her at the proof hearing, stating in her subsequent ruling, "I'm not going to say anybody intentionally misled me [at the proof hearing], but I think I got misled."
We also do not lose sight of the fact the judgment against appellant individually is substantial. The judgment includes not only unpaid rent, but also what the judge termed "consequential damages," plus substantial interest and other costs. In addition, appellant moved to vacate it quickly, less than three weeks after it was entered.
To be sure, there are equitable factors weighing against vacating this judgment, first and foremost being the fact that appellant seemingly brought most of these woes on herself by failing to respond or appear in the lawsuit and defend herself. We also recognize that a remand proceeding will cost the parties time and money. We are also cognizant that appellant was able to prolong her business's occupancy of the premises for many months without making the rent current.
Given the totality of circumstances, we remain convinced that the better course here is to vacate the judgment, solely as to appellant, leaving it intact as to the two other defendants who did not appeal. The grounds for relief under R. 4:50-1 are more than present. The circumstances here are unusual and exceptional, particularly in light of the documents and events qualifying appellant's October 7 letter that were omitted from the proof hearing, and the unanticipated manner in which the second day of oral argument on the R. 4:50-1 motion was transformed into a one-sided plenary hearing centered on the landlord's key witness. The claims against appellant should be tried on their merits, consistent with the indulgent policies espoused in our case law.
The default judgment against appellant*fn7 is vacated, and the matter is remanded for further proceedings on the merits.