March 2, 2012
476 GRAND, LLC, PLAINTIFF-RESPONDENT,
DODGE OF ENGLEWOOD, INC., DEFENDANT-APPELLANT.
On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-7734-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted November 7, 2011
Before Judges Parrillo and Grall.
This appeal is from a grant of summary judgment awarding plaintiff landlord $252,752.17 for base rent, interest, late charges, attorney fees and costs owed by defendant tenant under the terms of their commercial lease. Defendant does not challenge that amount of the damage award. Defendant contends that principles of impracticability of performance and frustration of purpose and, in the alternative, the contract's force majeure clause require discharge of its obligation under the lease agreement. We conclude that defendant failed to establish a basis for the relief under the terms of the lease and principles of impracticability and frustration.
The facts are not disputed. Plaintiff, 476 Grand, LLC, and defendant, Dodge of Englewood, Inc., executed a five-year lease agreement on December 12, 2006. The lease provides that the premises, which is located at 476 Grand Avenue in Englewood, is to be used for "a new automobile showroom and office incidental to that purpose and for no other use or purpose."
The lease requires defendant to pay "minimum rent" at a fixed rate throughout the term of the lease, "additional rent" through assumption of responsibility for property taxes, maintenance, and insurance and utilities. It entitles plaintiff to interest on late payments and, in the event of defendant's failure to cure a default in payment of minimum or additional rent, damages in "an amount equal to the difference between the Minimum Rent and Additional Rent reserved in this Lease from the date of such default to the Expiration Date, and the then fair and reasonable rental value (inclusive of Minimum Rent and Additional Rent) of the property for the same period." In addition, the lease provides for an award of fees and costs to the prevailing party in any action commenced by plaintiff to collect rent.
When the lease was executed, defendant was in the business of selling cars through a dealership agreement with Chrysler, LLC. The lease is not conditioned on defendant's arrangement with Chrysler, and the lease's permitted use clause, quoted above, does not refer to Dodge or Chrysler vehicles or to defendant's dealership agreement with Chrysler.
Defendant's agreement with Chrysler was terminated on June 9, 2009, by order of the United States Bankruptcy Court for the Southern District of New York entered in Chrysler's bankruptcy proceeding. Defendant has provided no information about that proceeding other than the order itself. Based on the Court's findings set forth in the order, one can discern that the "Debtors" reached an agreement with "New Chrysler" concerning purchase of assignments of some, but not all, of Chrysler's agreements with its dealers. "New Chrysler" identified the assignments it would not accept, which were designated as "Rejected Dealer Agreements" and "'Excluded Contracts'" under the "Purchase Agreement." The Court found that the rejections were an "exercise of sound business judgment . . . made in good faith and for legitimate commercial reasons," "appropriate and necessary" and "warranted and permissible."
Defendant's agreement with Chrysler was among the designated "Rejected Agreements." As a dealer with a "Rejected Agreement," under the terms of the order, defendant may not hold itself out as an authorized dealer of Chrysler for any purpose, or use Chrysler's "trademarks, tradenames and servicemarks, except that it may use [Chrysler's] descriptive brand and vehicle model names solely for the purpose of identifying and advertising its inventory for sale," as would be lawful for a "party that is not an Authorized Dealer of [Chrysler]." Nothing in the order prohibits defendant from selling vehicles independently or by agreement with one or more manufacturers of other vehicles.
The lease includes a broad "force majeure" provision applicable to a series of designated calamites and "other causes beyond [the defaulting] party's control." The final sentence of that provision states, "Nothing herein shall be deemed to relieve Tenant of its obligation to pay Rent when due."
Prior to entry of the Bankruptcy Court's order, defendant missed three payments of rent in 2008. In June 2009, defendant notified plaintiff it was terminating the lease because of the loss of its agreement with Chrysler and vacated the premises.
On June 23, plaintiff declared defendant in default, demanded rent due and stated its intention to take legal action. Receiving no payment, plaintiff filed a complaint alleging breach of contract, unjust enrichment and entitlement to recovery on an account. The trial court granted plaintiff summary judgment on the contract claim.
Defendant raises two issues on appeal:
I. THE TRIAL COURT ERRED IN GRANTING THE PLAINTIFF'S SUMMARY JUDGMENT MOTION AND DENYING THE DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT. THE DOCTRINE OF FRUSTRATION OF PURPOSE/IMPOSSIBILITY OF PERFORMANCE REQUIRES A DISMISSAL OF THE COMPLAINT.
II. THE TRIAL COURT EERED IN GRANTING THE PLAINTIFF'S SUMMARY JUDGMENT MOTION AS THE AGREEMENT ITSELF PROVIDES "NO LIABILITY" FOR ANY CAUSES BEYOND SUCH PARTY'S CONTROL. (NOT RAISED BELOW).
In reviewing a grant of summary judgment to plaintiff, this court must consider the record in the light most favorable to defendant and determine whether plaintiff is entitled to judgment as a matter of law. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); Kramer v. Ciba-Geigy Corp., 371 N.J. Super. 580, 602 (App. Div. 2004).
Our courts recognize that performance under a contract may be excused by supervening events that make performance impractical after the contract is made. M.J. Paquet, Inc. v. N.J. Dep't of Transp., 171 N.J. 378, 389-90 (2002); Facto v. Pantagis, 390 N.J. Super. 227, 231 (App. Div. 2007); Directions, Inc. v. New Prince Concrete Constr. Co., 200 N.J. Super. 639, 644 (App. Div. 1985). In each of these cases, the courts relied on one or more of the principles of impracticability and frustration of purpose set forth in Chapter 11 of the Restatement (Second) of Contracts §§ 261-72 (1981).
As the Restatement explains, "[c]ontract liability is strict liability. It is an accepted maxim that . . . contracts are to be kept. The obligor is therefore liable in damages for breach of contract even if he is without fault and even if circumstances have made the contract more burdensome or less desirable than he had anticipated." Restatement (Second), supra, ch. 11, introductory note. This general rule recognizes that an obligor may contract for a lesser obligation through clauses limiting it, such as a clause reserving a right to cancel or a force majeure clause. Ibid.
There are exceptions. Chapter 11 recognizes that when "[a]n extraordinary circumstance [makes] performance so vitally different from what was reasonably to be expected as to alter the essential nature of that performance," justice may require "departure from the general rule that the obligor bear the risk that the contract may become more burdensome or less desirable."
Ibid. Chapter 11 addresses "the principles that guide that determination." Ibid.
Section 261 of the Restatement, "Discharge by Supervening Impracticability," states:
Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary. [(Emphasis added).]
Section 265, "Discharge by Supervening Frustration," provides:
Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary. [(Emphasis added).]
The phrases of Sections 261 and 265 emphasized above provide two independent reasons for our conclusion that plaintiff is entitled to judgment as a matter of law. We discuss them in turn.
Defendant presents no argument or evidence that would support a finding that its agreement with Chrysler was terminated "without [defendant's] fault." The order of the Bankruptcy Court, the only evidence on which defendant relies, indicates that "New Chrysler" accepted some assignments of dealer agreements, but declined assignment of defendant's agreement with Chrysler and classified defendant's agreement as a "rejected agreement." The Bankruptcy Court found that the decision to exclude the "rejected agreement" was based on a reasonable exercise of business judgment. While the order limits its significance involving defendant, the order does not establish that defendant was without fault or had no control over the circumstances that led to the rejection of its contract with Chrysler. Since the termination of its contract with Chrysler is the supervening circumstance upon which defendant relies, its claims under Sections 261 and 265 fail.
In addition to and independent of the question of fault, defendant's claims are barred by the exclusionary phrase - which appears in both sections - "unless the language or the circumstances indicate the contrary." Restatement (Second), supra, §§ 261, 265. As the Restatement explains this phrase, "[a] party may, by appropriate language, agree to perform in spite of impracticability. . . ." Restatement (Second), supra, § 261 cmt. c ("Contrary indication"); see id. at § 265 cmt. a (cross-referencing comment c to § 261).
Through the force majeure clause of this agreement defendant agreed to perform its obligation regardless of any supervening circumstance, occurrence or non-occurrence beyond its control. As noted above, the concluding sentence of the force majeure provision states: "Nothing herein shall be deemed to relieve Tenant of its obligation to pay rent when due."
In accepting an exclusion of rent from the force majeure clause, defendant agreed to pay rent regardless of circumstances beyond its control. Courts give effect to defendants' acceptance of this absolute obligation to pay rent in accordance with the contract terms. Marini v. Ireland, 56 N.J. 130, 143 (1970) ("It is of course not the province of the court to make a new contract or to supply any material stipulations or conditions which contravene the agreements of the parties."). This is a risk defendant assumed under the terms of the contract. For that reason, plaintiff was entitled to judgment as a matter of law. Contrary to defendant's claim the force majeure clause does not support its request to discharge its obligation to pay rent, it defeats that request.
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