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Patel v. 323 Central Avenue Corp.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


March 19, 2008

MAHESH PATEL, PLAINTIFF-APPELLANT,
v.
323 CENTRAL AVENUE CORP., A CORPORATION OF THE STATE OF NEW JERSEY; HOSPITAL CENTER AT ORANGE, A CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANTS-RESPONDENTS, AND ESSEX ORANGE EQUITY, LLC, INTERVENOR-DEFENDANT-RESPONDENT.

On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, C-241-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued February 5, 2008

Before Judges Winkelstein and LeWinn.

Plaintiff, Mahesh Patel, is a physician who entered into a lease agreement (the lease) with defendant 323 Central Avenue Corp. (323 Central or the landlord), a New Jersey business corporation, for office space in a building at 203-205 South Essex Avenue in Orange. Defendant Hospital Center at Orange (HCO), is a New Jersey nonprofit corporation. Its sole member is Orange Mountain Healthcare, Inc. (OMH), another New Jersey nonprofit corporation. 323 Central is wholly owned by OMH. Cathedral Healthcare System, Inc. (Cathedral), is also a New Jersey nonprofit corporation. Cathedral, OMH and HCO are in the healthcare industry, and are parties to a November 26, 1997 affiliation agreement to provide "efficient delivery of patient care services to their mutual service areas." The record contains no evidence, aside from the affiliation agreement, of the parties' relationship to one another.

The lease, dated December 17, 1997, and signed by plaintiff on December 19, 1997, was to commence ninety days later, and terminate on March 19, 2005, eighty-four months after the date of commencement. It provided plaintiff with an opportunity to extend the term of the lease, and the right of first opportunity to purchase the property. After plaintiff unsuccessfully attempted to exercise those options, he filed suit against 323 Central and HCO.

In the first count of his amended complaint, plaintiff sought specific performance, to compel HCO to sell the property to him. In count two, he claimed damages against both 323 Central and HCO for breach of the contract of sale. In the third count, plaintiff sought damages against 323 Central for its failure to perform its duties under the lease, and for a breach of the implied covenant of good faith and fair dealing. In counts four through seven, plaintiff claimed 323 Central committed fraud and violated the New Jersey Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -112. In count eight, plaintiff alleged that HCO and/or a fictitious entity became the legal or beneficial owner of the property after the lease had been executed, and breached its duties under the lease to plaintiff. In the ninth count, plaintiff claimed HCO and/or the fictitious entity breached the CFA. He appeals from a summary judgment dismissing all counts of his complaint. We affirm.

The material facts underlying plaintiff's allegations are as follows. On February 3, 2004, plaintiff wrote a letter to Don Daniels, Chairman of the Board of Cathedral, at 219 Chestnut Street, Newark. Plaintiff wrote:

I would like to take this opportunity to bring to your kind attention my interest in buying the entire property at approximately $150,000 (the price being negotiable). Also if you prefer to lease the property as against selling it, I am willing to renew my lease for the next ten (10) years.

On February 20, 2004, HCO's attorney responded to plaintiff that HCO "may" be interested in selling the property, but the property would need to be appraised to determine its fair market value, and that HCO would contact plaintiff after the appraisal was complete. Approximately ten months later, on December 23, 2004, HCO sent an unsigned contract for sale of the property to plaintiff. The cover letter from HCO's counsel stated: "Enclosed please find a Contract between Hospital Center at Orange and Mahesh Patel, M.D. with regard to the above-entitled property. Please have your attorney review same and get back to me with any comments."

The enclosed contract named HCO as the seller. It called for a purchase price of $275,000 and an initial $27,500 deposit to be paid by plaintiff upon signing the contract. The contract provided that closing would take place on January 15, 2005, approximately three weeks after the date of the cover letter. The contract also included the following provision:

This contract is the entire and the only agreement between the Buyer and the Seller.

This contract replaces and cancels any previous agreements between the Buyer and the Seller. This contract can only be changed by an agreement in writing signed by both buyer and seller.

Plaintiff signed and returned the contract on January 18, 2005, three days after the proposed closing date. He made no changes to the contract, and included a cashier's check for $27,500 made payable to HCO. Plaintiff's counsel's cover letter stated:

Enclosed please find cashier's check in the amount of $27,500 representing the second deposit on the above purchase, along with the Contract executed by my client. Also enclosed is copy of title search. Please note title is in the name of 323 Central Avenue Corp. and there are several large judgments against it.

On March 7, 2005, plaintiff's counsel sent a letter to HCO's counsel inquiring as to the status of the sale. On May 4, 2005, HCO responded in a letter from counsel, stating that HCO was "no longer in a position to sell the [property to plaintiff]. In the event of a sale of the property, we will let you know and hope to provide as much advance noticed [sic] as possible so that [plaintiff] can make an orderly transition to new space." On August 3, 2005, HCO sold the property, along with other properties, to Essex Orange Equity (EOE) for $4.2 million. Plaintiff consequently filed this lawsuit.*fn1

On July 31, 2006, the court granted summary judgment to plaintiff on his first opportunity to purchase claim and EOE's quite title action. The court denied plaintiff summary judgment on the lease extension claim, finding that he had failed to properly exercise his rights under the lease.

EOE moved for reconsideration. Following oral argument, in two orders, dated January 30, 2007, and February 16, 2007, the court granted EOE's motion to quiet title and dismissed plaintiff's complaint against all defendants. The court vacated its previous order granting plaintiff summary judgment on the first opportunity to purchase claim.

At the outset, we observe that throughout plaintiff's arguments on appeal, he blurs the distinction between 323 Central and HCO. It is difficult at times to determine which defendant he is referring to. Plaintiff claims that HCO was the alter ego or the successor-in-interest in 323 Central, but he has submitted no evidence to establish those facts.

That said, we begin our discussion with plaintiff's claim against HCO in the first count of his amended complaint for specific performance of the contract that he signed, and in the second count against both HCO and 323 Central for breach of that contract. The trial court concluded that the statute of frauds barred plaintiff's claims as the contract was never signed by the owner of the property. We agree.

N.J.S.A. 25:1-13 provides:

An agreement to transfer an interest in real estate or to hold an interest in real estate for the benefit of another shall not be enforceable unless:

a. a description of the real estate sufficient to identify it, the nature of the interest to be transferred, the existence of the agreement, and the identity of the transferor and transferee are established in a writing signed by or on behalf of the party against whom enforcement is sought; or

b. a description of the real estate sufficient to identify it, the nature of the interest to be transferred, the existence of the agreement and the identity of the transferor and the transferee are proved by clear and convincing evidence.

Plaintiff argues that section b has been satisfied. Under that section, an agreement by which the parties intended to be bound may be evidenced by "'[t]he circumstances surrounding a transaction, the nature of the transaction, the relationship between the parties, their contemporaneous statements and prior dealings.'" Morton v. 4 Orchard Land Trust, 362 N.J. Super. 190, 197 (App. Div. 2003) (quoting Prant v. Sterling, 332 N.J. Super. 369, 378 (Ch. Div. 1999), aff'd o.b., 332 N.J. Super. 292 (App. Div.), certif. denied, 166 N.J. 606 (2000)), aff'd, 180 N.J. 118 (2004). Plaintiff asserts that N.J.S.A. 25:1-13b is applicable because he signed the contract sent to him by the property owner, he made no changes, and he returned the contract along with the required deposit. He claims that "a reasonable trier of fact could find that these circumstances amounted to clear and convincing proof of the fact of the defendants' agreement to be bound by the Contract their own attorneys had prepared." We disagree. "[T]here is no compelling proof - proof by clear and convincing evidence - that [HCO] manifested an intent to enter into an oral agreement" to sell the property to plaintiff. Morton, supra, 180 N.J. at 130. On the contrary, the evidence shows that the parties intended to be bound by a written contract.

To succeed on his claim that an oral agreement existed, plaintiff's proofs must be compelling. As the New Jersey Supreme Court indicated in Morton, supra, 180 N.J. at 126, to establish a contract pursuant to N.J.S.A. 25:1-13b, a "high standard of proof" must be met. Here, simply put, as was the case in Morton, "a binding, oral agreement [was] not suggested by the circumstances surrounding the negotiations, or by the relationship of the parties, or by the parties' contemporaneous statements and past dealings." Id. at 130. The circumstances show that the parties were considering a written agreement to sell the property, but that written agreement was never signed by the seller.

The Chancery Division addressed a similar issue in Prant, supra, 332 N.J. Super. at 378. There, the court determined that the surrounding circumstances were not sufficient to satisfy the requirements of N.J.S.A. 25:1-13b, which requires clear and convincing evidence that the parties did not intend to rely on a written contract. Id. at 378-79. The court quoted from the report of the New Jersey Law Revision Commission in 1991, which gave the following examples as to when an oral agreement to purchase real property could be binding under that statute:

The circumstances surrounding a transaction, the nature of the transaction, the relationship between the parties, their contemporaneous statements and prior dealings, if any, are all relevant to a determination of whether the parties made an agreement by which they intended to be bound. Thus, if the parties in question have been negotiating the sale of a multi-million dollar office building over many months through the exchange of a series of redrafted written contracts, it is unlikely that the parties intended to be bound other than in writing. Conversely, if the parties in question have engaged in a series of "handshake" agreements, for the purchase and sale of individual building lots in the past and have honored them in the absence of any writing, their prior conduct could tend to show that they intended to enter into a binding oral contract. [Id. at 378.]

Using these examples as a guide, we conclude that the parties did not intend to enter into an oral agreement. There was no series of "handshake" agreements for the sale of the property. The cover letter by HCO's attorney, sending the contract to plaintiff, did not indicate that HCO would be bound by the terms of the unsigned document. It simply asked plaintiff to have his attorney review the enclosure and "get back to [HCO's attorney] with any comments." The record contains no evidence that HCO intended to sell the property to plaintiff under the terms of the unsigned document or that the parties otherwise agreed to be bound by an oral agreement. As in Morton, supra, 180 N.J. at 130, the circumstances suggested that the parties intended to sign a written contract, not to be bound by an oral agreement, and the owner of the property never signed a contract to sell the property to plaintiff.

This conclusion is further supported by the language of the proposed contract that HCO sent to plaintiff. That document stated that it could only be changed by "an agreement in writing signed by" both parties. We are unable to reconcile that language with plaintiff's argument that the parties intended to be bound by an unsigned contract.

Plaintiff points to the deposition testimony of Harold Sterling, HCO's chief executive officer, who testified that it was his intention to sell the property to plaintiff. The question is not, however, simply whether Sterling intended to sell the property to plaintiff, but whether he intended to sell the property under the terms of the unsigned contract. And, Sterling did not testify that he intended to sell the property to plaintiff under the terms set forth in that document.

We are mindful that when plaintiff sent the $27,500 deposit it was in the form of a cashier's check. Under certain circumstances, a cashier's check is the equivalent of cash. See Parks v. Commerce Bank, N.A., 377 N.J. Super. 378, 386 (App. Div. 2005) (when bank issues cashier's check it becomes primarily obligated to honor the check when presented for payment). Nonetheless, although belatedly, HCO's counsel returned the cashier's check to plaintiff without having deposited it into his trust account. Merely holding the deposit without promptly returning it does not satisfy the requirements of N.J.S.A. 25:1-13b.

Next, we turn to plaintiff's argument that defendants breached his right of first opportunity to purchase the property. That argument too is without merit. A summary judgment motion will not be defeated by bare conclusions without factual support. Brae Asset Fund, L.P. v. Newman, 327 N.J. Super. 129, 134 (App. Div. 1999). Plaintiff has not set forth any factual support for his claim that defendants breached his right of first opportunity.

As noted, the lease gave plaintiff an opportunity to purchase the property. That provision was contained in a rider to the lease, which stated:

(a) Opportunity Right. Tenant shall have the right of first opportunity (the "Opportunity Right") to purchase the Building on the following terms and conditions.

(b) Conditions. The Opportunity Right may only be exercised with respect to the purchase of the Building. Tenant's Opportunity Right shall be conditioned upon (i) Tenant's full performance of all its duties and obligations under the Lease; (ii) Tenant's not having assigned this Lease or sublet the Demised Premises in whole or in part except as permitted under Article 12 and (iii) Tenant continuing to occupy the Premises. . . .

(c) Election. If the Building becomes available, Landlord shall give Tenant written notice ("Offer Notice") of the terms and conditions upon which a bona fide third party is interested in purchasing the Building. After Tenant has received the Offer Notice, Tenant shall then have ten

(10) business days to notify Landlord in writing of Tenant's determination to unconditionally purchase the Building as set forth in the Offer in the Offer Notice on the terms and conditions set forth in the Offer Notice. If Tenant accepts the terms of the Offer Notice, Landlord and Tenant shall enter a contract substantially in form and substance as real estate contracts for similar properties in the State of New Jersey, as prepared by counsel for the Seller (i.e. Landlord).

Plaintiff did not make a valid election under this provision. Sterling testified that he did not know when the negotiations for the property between HCO and EOE began, and plaintiff has not submitted evidence as to when that occurred. Put another way, no evidence exists as to whether either 323 Central as the legal owner, or assuming but not concluding that HCO was the beneficial owner of the property, that HCO had offered the property to a third party during the term of the lease. That offer was necessary to trigger plaintiff's first right of opportunity.

Plaintiff alternatively argues that his right of first opportunity to purchase continued in force after the lease expired under its own terms on March 19, 2005, and the sale of the property to EOE in August 2005 triggered that right. We agree with the trial judge that because plaintiff was a holdover tenant, he could not, after the lease expired, exercise the right of first opportunity. See Balsham v. Koffler, 8 N.J. Super. 48, 51 (App. Div. 1950) (option to purchase must be exercised during lease term). Here, the lease provided that it would expire at the end of eighty-four months. Thus, subsequent to March 19, 2005, plaintiff had no right to exercise his right of first opportunity.

Next, we address plaintiff's claim that he properly exercised his right to extend the lease because he effectively communicated his intention to extend the lease to defendants in his February 3, 2004 letter. The trial court found that the letter failed to meet the specific notice requirements under the lease. We agree.

"An optionee can accept the owner's offer to convey embodied in the option only by exercising the option in strict accordance with its terms and within the time designated." Robert and Richard Assoc. v. State of N.J., Div. of Purchase and Prop., 202 N.J. Super. 352, 365 (App. Div.) (internal quotation omitted), certif. denied, 102 N.J. 382 (1985). "It is generally held that where an option specifies the manner and time in which it is to be exercised, such terms must be strictly adhered to by the optionee in accepting the offer embodied in the option." Ibid.

Plaintiff's February 3, 2004 letter did not strictly abide by the lease terms for notification and was insufficient to exercise the option to extend the lease. The lease extension provision states:

Provided the Lease has not been previously terminated, Tenant [plaintiff] is occupying the Premises and Tenant is not then in default under the terms, covenants, conditions, provisions or agreements of the Lease (and any time to cure such default has expired), Tenant shall have the Option to extend the Lease for all but not less than all of the Premises thereunder for two terms of five (5) years, commencing on the date immediately after the termination date of the Lease or the First Renewal Term. Tenant shall give written notice of its election to extend the term of the Lease no later than four (4) months prior to the Termination Date of the initial term or First Renewal Term. . . . [emphasis added.]

The notice provision of the lease agreement, states:

Notices by either party to the other shall be in writing and shall be sent by registered, certified mail or overnight express mail addressed to Landlord or Tenant at their respective addresses hereinabove set forth, or to such other address as either party shall hereafter designate by notice as aforesaid.

The address set forth in the lease for 323 Central is 188 South Essex Avenue, Orange.

Plaintiff did not send the letter "by registered, certified mail or overnight express mail," he did not send it to the "Landlord," nor did he send it to the address provided in the lease. It was addressed to Don Daniels, Chairman of the Board of Cathedral, at a different location. And notably, in the letter, plaintiff merely expressed a willingness to renew the lease; he never elected to exercise the option. His letter failed to strictly adhere to the requirements of the lease; therefore, he failed to effectively exercise his option to extend the lease.

Finally, we address plaintiff's allegation in his amended complaint that 323 Central is liable for a breach of good faith and fair dealing as a result of the failure to permit him to extend his lease. That argument too is without merit.

The covenant of good faith and fair dealing is implicit in every contract. Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assoc., 182 N.J. 210, 224 (2005). The covenant requires that the parties to a contract "refrain from doing anything which will have the effect of destroying or injuring the right of the other party to receive the benefits of the contract." Id. at 225 (internal citation omitted). A party claiming a breach of the covenant of good faith and fair dealing must prove that "the party alleged to have acted in bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the parties." Ibid. (internal citation omitted).

Here, plaintiff has failed to establish the elements for a cause of action of breach of the covenant of good faith and fair dealing. He has submitted no evidence that 323 Central, or for that matter HCO, was responsible for plaintiff not receiving an extension of his lease term. The record does not show that either 323 Central or HCO took action to lull plaintiff into believing that he had properly exercised the option to extend the term of the lease. Indeed, it was plaintiff who failed to comply with the lease terms as to this issue.

Plaintiff's remaining arguments are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

Affirmed.


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