September 9, 2011
ADP STATEWIDE INSURANCE AGENCIES, INC., PAUL R. MONACELLI AND DONNA M. CUNNINGHAM, PLAINTIFFS-RESPONDENTS,
BLANCHARD SECURITIES CO., L.L.C., DEFENDANT-APPELLANT/ THIRD-PARTY PLAINTIFF,
CUSHMAN & WAKEFIELD OF NEW JERSEY, INC., CB RICHARD ELLIS/BRO AND WEICHERT COMMERCIAL REAL ESTATE, THIRD-PARTY DEFENDANTS.
On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-2768-09.
Argued November 29, 2010
Before Judges A. A. Rodriguez, C. L. Miniman and LeWinn.
Defendant Blanchard Securities Company L.L.C. (Landlord) appeals from the December 15, 2009 declaratory judgment in favor of its former tenant, plaintiff ADP Statewide Insurance Agencies, Inc. (ADP), and ADP's owners, plaintiffs Paul R. Monacelli and Donna M. Cunningham. Following a bench trial, the judge determined that ADP had not renewed its existing lease, and that the Landlord had breached the covenant of good faith and fair dealing. We affirm on the lease issue, and reverse on the covenant issue.
In 1999, the parties entered into a ten-year lease for office space at 170 E. Hanover Avenue in Cedar Knolls (Hanover Building). The lease provided for two successive renewal terms of five years each pursuant to the following procedure:
The right, option, and privilege of the Tenant to renew this lease as hereinabove set forth above is expressly conditioned upon the Tenant's delivering to the Landlord, in writing, by certified mail, return receipt requested, twelve (12) months prior notice of its intention to renew, which notice shall be given to the Landlord by the Tenant no later than twelve (12) months prior to the date fixed for termination of the relevant term of this lease, time being of the essence.
Rental value for the renewal periods was governed by the same section:
1) No less than 14 months prior to the expiration of the relevant term, duly-authorized representatives of the Landlord and Tenant shall meet . . . for the purposes of determining the Fixed Rent which shall be paid during the coming relevant renewal term. If Landlord and Tenant have not reached an agreement as to the renewal period Fixed Rent, each party shall present to the other a written appraisal and opinion of a MAI Real Estate Appraiser setting forth the aforementioned fair market rental value of the leased premises for the renewal term.. . .
2) Such appraisals shall be the basis of negotiations and the efforts of the parties to reach agreement on the amount of Fixed Rent to be paid during the renewal period.
If the parties fail to reach agreement not less than 13 months prior to the expiration of the then valid term, the aforementioned appraisers shall be appointed arbitrators and attempt to resolve the matter in accordance with the rules of the American Arbitration Association. In the event they are unable to resolve the matter within a reasonable time, the said appraisers-arbitrators shall choose a third arbitrator and the matter shall then be resolved in accordance with the rules of the American Arbitration Association . . . .
The parties sharply disputed whether or not a letter sent by Landlord's manager, Richard Blanchard, on June 11, 1998, and signed by Monacelli fifteen days later, was a renewal of the Hanover Building lease. Monacelli testified that Blanchard advised him in July 2006 that his company planned to construct a new building adjacent to the Hanover Building at 91 Horse Hill Road (Hill Building). Monacelli was interested in the Hill Building because ADP was in need of a larger space. In early June 2008, he directed Peter Vardakis, ADP's director of operations, to contact Blanchard in order to "start the process of discussing the renewal" of the Hanover Building lease and a lease for "new space" in the Hill Building.
Vardakis testified that he did not tell Blanchard that ADP wished to renew the existing lease and that he had no authority to renew the lease on behalf of ADP. He also did not discuss any terms of a new lease with Blanchard. Instead, Vardakis's conversation with Blanchard concluded with Blanchard promising to call later to begin negotiations about the new space and the lease renewal.
Blanchard testified that Vardakis asked to renew the lease and that a June 11, 2008 letter from Blanchard to Monacelli memorialized the conversation. In that letter, Blanchard wrote to: acknowledge the renewal of your Lease at 170 East Hanover Avenue for a five (5) year term to commence immediately upon the expiration of your current lease term on January 18, 2010. In accordance with the terms and conditions of the Lease, sometime after November 18, 2008, we need to sit down and determine the fixed rent for the renewal term.
As you requested, we agree to allow you to terminate your existing lease agreement for 170 East Hanover Avenue, without penalty, if we execute a new lease agreement with you for space in the [Hill Building.]
Please sign and acknowledge your agreement with this letter and return the original executed copy for our files.
Blanchard introduced the returned letter at trial. It bore Monacelli's signature after the words, "AGREED," and was dated June 26, 2008.
Monacelli considered the letter: an acknowledgement of the conversation that [Vardakis] had had, that we wanted to begin discussions and that we would have been allowed to terminate the existing lease, which at that time could have been in the current term without penalty if we exercise a new lease agreement for the building [they] are planning to construct.
Monacelli did not believe that the letter renewed his lease of the Hanover Building because he and Blanchard had not discussed any specific terms for the renewed lease.
On December 5, 2008, Blanchard wrote to Monacelli, stating:
As you know, you have elected to renew your lease at 170 East Hanover Avenue for an additional five-year term commencing January 18, 2010 (see attached acknowledgement letter). According to the terms of the lease agreement, the next step is for us to determine the fair market rental value for the renewal term. . . .
We propose the following:
* Renewal fixed rent of $14.75 for the five (5) year renewal term commencing January 18, 2010; and
* The right to terminate this lease agreement, without penalty, if we execute a new lease agreement with you for space in the building we are planning on constructing directly behind 170 East Hanover Avenue.
All other provisions of the Lease shall remain unchanged.
Our intention is that this letter and the attached June 11, 2008 renewal acknowledgement letter shall constitute the entire documentation for the renewal of your lease.
Monacelli did not sign nor return this letter.
Blanchard believed that Monacelli had not contacted him because Monacelli was waiting for a time closer to the expiration of the Hanover Building lease to set the rental price, given the declining commercial real estate market. However, Blanchard learned that ADP had retained third-party defendant Cushman & Wakefield (Cushman) to look for new space. Cushman contacted Blanchard with a Request for Proposal about leasing the Hill premises and sent an email saying ADP had not exercised its option to renew.
Blanchard wrote to Monacelli, indicating that he was "puzzled" because ADP had already renewed its lease of the Hanover Building via the June 11, 2008 signed letter. Shortly thereafter, ADP, Monacelli and Cunningham filed this action seeking a declaratory judgment that: (1) the Hanover Building lease had not been renewed; (2) Monacelli and Cunningham were not liable for ADP's lease obligations; (3) Landlord committed equitable fraud; and (4) Landlord breached the covenant of good faith and fair dealing. Landlord counterclaimed asserting that the Hanover Building original lease had been renewed, and ADP, Monacelli and Cunningham had breached the renewed lease.
Following the trial, the judge determined that the Hanover Building lease had not been renewed because Monacelli and Cunningham had not individually signed the June 11, 2008 letter. The judge also determined that paragraph two of that letter amounted to an "illusory contract." The judge credited Vardakis's testimony that he "never committed ADP to renew the lease on any specific terms in the conversation he had with Blanchard." Moreover, the judge rejected Blanchard's testimony that paragraph two of the June 11, 2008 letter was a "word for word" request of what Vardakas wanted.
The judge found that Landlord had breached the implied covenant of good faith and fair dealing, despite Blanchard's lack of "malevolent intent." The judge also determined that Monacelli and Cunningham were not liable for ADP's obligation; Blanchard did not commit an equitable fraud; and any claim against ADP for holdover rent was premature. Lastly, the judge rejected all of Landlord's counterclaims.
On appeal, Landlord contends that the judge "erred in holding that the lease between the parties was not renewed by the June 11, 2008 letter." We disagree. However, we reject the judge's legal conclusion that, according to the language of the lease, Monacelli and Cunningham were tenants along with ADP and, therefore, their signatures were necessary to renew the lease.
This matter presents mixed questions of law and facts. "Findings by the trial judge are considered binding on appeal when supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974). Deference is "especially appropriate" where "the evidence is largely testimonial and involves questions of credibility." In re J.W.D., 149 N.J. 108, 117 (1997).
Our review of the judge's legal construction of the terms of the lease, however, is de novo because contract interpretation is an issue of law. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). It is well-settled that the "'polestar of construction of a contract is to discover the intention of the parties.'" Jacobs v. Great Pac. Century Corp., 104 N.J. 580, 582 (1986) (quoting Kearny PBA Local No. 21 v. Kearny, 81 N.J. 208, 221 (1979)). When the terms of a contract are clear, "it is the function of a court to enforce it as written and not to make a better contract for either of the parties." Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960). We must ascertain the intention of the parties by reference to the language of the contract. CSFB 2001-CP-4 Princeton Park Corporate Ctr., LLC v. SB Rental I, LLC, 410 N.J. Super. 114, 119 (App. Div. 2009).
Here, we accept the judge's factual findings, particularly on credibility, because they are supported by the evidence. As to his legal conclusions, we affirm the holding that the Hanover Building lease was never renewed, although for different reasons. The June 11, 2008 letter did not comply with the renewal provisions in the original lease. ADP did not deliver a letter to Landlord fourteen months prior to the expiration of the lease. The parties did not meet to discuss the rental price, nor were appraisers involved. Rather, Blanchard sent Monacelli a one-page letter with no specific terms.
Although Landlord argues that the June 11, 2008 letter modified the lease by "pushing back the time for determining the renewal rent," the letter itself does not state that it serves to modify the lease. Rather, it states that negotiations would occur after November 19, 2008, "in accordance with the terms and conditions of the Lease." Moreover, according to the lease, modifications could not occur "unless reduced to writing and signed by the Landlord and Tenant."
Although our holding that the lease was never renewed renders moot the issue of whether Monacelli and Cunningham were tenants pursuant to the lease, we address this issue for the sake of completeness.
The cover of the lease lists ADP, Monacelli, and Cunningham as "Tenant." The third page of the Lease indicates that ADP, Monacelli, and Cunningham are "hereinafter referred to as 'Tenant.'" On the signature page, Monacelli signed the lease on behalf of ADP and then the lease called for the signatures of "Paul R. Monacelli, as an individual" and "Donna M. Cunningham, as an individual." They signed the lease in that capacity.
Article V of the lease also indicates that Monacelli and Cunningham were guarantors of the lease:
4. As additional security for this lease, the stockholders of Tenant shall be personally liable to [Landlord] for performance of Tenant's obligation under this Lease, and shall join ADP Statewide Insurance Agencies, Inc. as parties to this lease by executing this lease as individuals.
5. Notwithstanding the foregoing, the personal liability of Paul R. Monacelli and Donna M. Cunningham as herein defined shall be limited to TWO HUNDRED THOUSAND DOLLARS . . . . Together Paul R. Monacelli and Donna M. Cunningham, as individuals and parties to this lease, are liable to [Landlord] for performance of Tenant's obligations under this lease in the total amount of FOUR HUNDRED THOUSAND ($400,000) DOLLARS.
Therefore, Monacelli and Cunningham were either tenants or guarantors or both. Regardless of the status of Monacelli and Cunningham, their signatures were required to renew the lease. Only Monacelli signed. For this and the failure to comply with the renewal provisions, we affirm the determination that the lease was not renewed.
Landlord also argues that the judge erred in finding that it breached the covenant of good faith and fair dealing because Blanchard had no "malevolent intent." We agree.
Every party to a contract is "bound by a duty of good faith and fair dealing in both the performance and enforcement of the contract." Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assoc., 182 N.J. 210, 224 (2005). This covenant "mandates that 'neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.'" Seidenberg v. Summit Bank, 348 N.J. Super. 243, 253 (App. Div. 2002) (quoting Sons of Thunder v. Borden, Inc., 148 N.J. 396, 420 (1997)). To prove that a party has breached the covenant, one must prove the other party's "'bad motive or intention.'" Brunswick Hills, supra, 182 N.J. at 225 (quoting Wilson v. Amerada Hess Corp., 168 N.J. 236, 251 (2001)).
The judge found that Blanchard did not have an improper motive; this precludes finding a breach of the implied covenant of good faith and fair dealing. Therefore, we reverse that determination.
Lastly, Landlord challenges the judge's finding that the second paragraph of the June 11, 2008 letter amounted to an illusory promise with respect to an offer to lease space in the Hill Building. Because neither party to this appeal alleges the existence of a lease with respect to the Hill Building, we do not address this issue.
In sum, that portion of the December 15, 2009 judgment finding that Landlord had breached the covenant of good faith and fair dealing is reversed. The balance of the judgment is affirmed.
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