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Zulein, Inc. v. Hajiyerou


December 28, 2007


On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-430-05.

Per curiam.


Submitted: November 28, 2007

Before Judges Cuff, Lisa and Lihotz.

This appeal involves an option to purchase the property occupied by a commercial tenant. When the landlord ignored the tenant's attempt to exercise the option and then denied the validity of the option provision, the tenant commenced an action to enforce the purchase option. The landlord appeals from an order declaring that the tenant has a valid and binding option to purchase the premises, that the tenant validly exercised the option, and directing the landlord to promptly convey title to the tenant. We affirm.

In 1994, Bergen Commercial Bank (BCB) leased premises at 187 Williams Avenue in Hasbrouck Heights from defendant George Hajiyerou. The term of the lease was six years. In 1995, defendant Peter Hadjiyerou negotiated, on behalf of his father George, a modification of the lease agreement. A new lease, executed on November 30, 1995, granted BCB an option to renew the lease for five-year terms. The new lease also granted BCB an option to purchase the premises. Section 36 of the Rider to the lease provided that the purchase price would be $665,000, if BCB exercised the option during the initial five-year term. If the option to purchase was executed after the initial term and during a renewal term, the purchase price would reflect increases in the consumer price index.

Following execution of the November 30, 1995 lease, litigation ensued between BCB and the Hajiyerous. While the litigation proceeded, BCB negotiated a sublease of its premises to plaintiff Zulein, Inc. (Zulein). The stipulation of settlement between BCB and the Hajiyerous expressly recognized that the first option to renew the lease for five years had been exercised, that the option to purchase the premises extended through the entire term of the lease and all renewal terms, and that the Hajiyerous consented to the assumption by Zulein of all of BCB's rights and obligations under the November 30, 1995 lease, including the option to purchase the premises.

On March 30, 2005, Zulein advised defendants that it wished to exercise its option to purchase the property pursuant to paragraph 33 of the lease and paragraph 9 of the sublease. Plaintiff reiterated its desire to exercise the option in several letters between March and August 2005. On September 10, 2005, defendant's attorney requested a copy of the lease and five weeks later advised Zulein's attorney that defendant "never agreed to an open-ended option such as this."

Plaintiff filed a verified complaint for specific performance of the option to purchase the premises. On November 20, 2005, an order to show cause with temporary restraints was entered enjoining BCB and the Hajiyerous from taking any action to disturb plaintiff's possession of the premises. In their answer, defendants Hajiyerou claimed that the option agreement was a forgery.

At a case management conference on May 17, 2006, counsel for defendants Hajiyerou stipulated that the option to purchase would be deemed valid and defendants Hajiyerou would promptly convey title to the premises to Zulein, if an expert report of a document examiner retained by defendants was not rendered on or before May 25, 2006. The report was not rendered by that date, but Judge Contillo entered an order dated July 21, 2006, enforcing the prior stipulation and extending the time to produce the report until August 25, 2006. The report, produced on August 28, 2006, opined that there was "no evidence of page substitution," the typeface on the lease and the rider was consistent and that there had been alterations to the documents, but the "pages were intact and together when the purported initials of both signatories were written." As to the genuineness of the questioned initials, the examiner stated that he "must report inconclusively with respect to the genuineness or non-genuineness of the questioned Hadjiyerou initials."

Following submission of this report, Judge Contillo entered a final order enforcing the stipulation and declared that Zulein had a valid and biding option to purchase the premises, had validly executed its option to purchase the premises, and ordered the Hajiyerou defendants to promptly convey title of the premises to plaintiff. The judge also ordered the Hajiyerou defendants to pay the legal fees incurred by Zulein ($2,429.20) and BCB ($2,351.25) to attend a document production requested by the Hajiyerou defendants.

After a dispute arose regarding the calculation of the purchase price, Judge Contillo determined that the purchase price was $803,379.94, less credit due Zulein for rent paid following exercise of the option and security deposit of $108,390.08, for a net purchase price of $695,489.36. On appeal, the Hajiyerou defendants contend that forgery was not disproved, therefore, the option to purchase should not have been enforced. They also argue that the judge incorrectly calculated the purchase price, erroneously setoff rent paid by Zulein, and wrongly imposed counsel fees.

The central issue in this dispute was the authenticity of the lease and the rider to the lease that contained the option to purchase the premises. In other words, the Hajiyerou defendants argued that the option agreement was forged. In recognition of the centrality of this contention to the resolution of the dispute, the parties stipulated that the Hajiyerou defendants would have the opportunity to produce the report of a qualified document examiner. If a report was not produced or did not support defendants' claim of forgery, the parties stipulated that the option would be considered binding and validly executed. The August 28, 2006 report produced by defendants does not support their forgery contention.

Defendants' current argument ignores the stipulation and the plain language of the report it produced. The stipulation in which the Hajiyerou defendants obligated themselves to present a report of a qualified document examiner to support their defense of forgery and fraud is entirely consistent with the burden of proof assigned to them to support this affirmative defense. See Rendine v. Pantzer, 276 N.J. Super. 398, 434 (App. Div. 1994) (finding the burden of persuasion on the affirmative defense of mixed motive in an employment discrimination litigation is borne by the employer-defendant), aff'd, 141 N.J. 292 (1995); Pagano v. United Jersey Bank, 276 N.J. Super. 489, 500 (App. Div. 1994) (holding that the defendant bears the burden to prove its affirmative defense). Furthermore, the report of the document examiner is insufficient to carry defendants' burden of persuasion on their defense of forgery. Therefore, the order enforcing the stipulation is affirmed.

The Hajiyerou defendants also argue that Judge Contillo imputed terms to the option price formula. Paragraph 33 of the lease governs the adjustment of the purchase price and provides that if the tenant exercises the option to purchase, "[t]he option shall continue thereafter with the price adjusted annually by that past year's increase in the New York Metropolitan Area Consumer Price Index." Judge Contillo accepted the calculations submitted by plaintiff. He found that the calculations conformed to the measure identified by the parties and had been calculated in accordance with the guidance offered by the United States Department of Labor. He also found that defendants calculated the adjustment using only a portion of the prescribed formula.

We discern no basis to disturb this ruling. The interpretation of a contract provision is a question of law to be decided by the court. Driscoll Const. Co. v. State Dep't of Transp., 371 N.J. Super. 304, 313-14 (App. Div. 2004). Words in an agreement are given their ordinary meaning. Highland Lakes Country Club & Cmty. Ass'n v. Franzino, 186 N.J. 99, 122 (2006) (citing M.J. Paquet, Inc. v. N.J. Dep't of Transp., 171 N.J. 378, 396 (2002)). Judge Contillo recognized that the consumer price index is a commonly used index that has a particular meaning and a prescribed manner of calculation. We agree. The language in the option to purchase provision is clear, and the judge applied the plain meaning of the term to derive the purchase price.

We also reject the Hajiyerou defendants' contention that Judge Contillo lacked jurisdiction to setoff rental payments as damages. Plaintiff sought relief in a court of equity. The judge found that the option to purchase was binding and that plaintiff had validly exercised the option. By initially ignoring the exercise of the option and then advancing a baseless affirmative defense, plaintiff was deprived of the rights and benefits accorded to it under the lease. The adjustment constructed by the judge was plainly warranted to place plaintiff in its rightful position had defendants honored their contractual commitment. See Brick Plaza, Inc. v. Humble Oil & Refining Co., 218 N.J. Super. 101, 104-05 (App. Div. 1987) (recognizing authority of a court of equity to fashion a remedy consistent with "clearly fixed obligations" of the option-giver).

Defendants' final argument that the trial court abused its discretion in the award of counsel fees to plaintiff and defendant BCB is wholly without merit. R. 2:11-3(e)(1)(E).


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