ALDRICH NINE ASSOCIATES v. FOOT LOCKER SPECIALTY, INC

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0412-03T10412-03T1

ALDRICH NINE ASSOCIATES,

Plaintiff-Respondent,

v.

FOOT LOCKER SPECIALTY, INC.,

As Successor in Interest to

F.W. WOOLWORTH CO.,

Defendant-Appellant.

___________________________________

 

Argued: February 15, 2005 - Decided:

Before Judges Kestin, Lefelt and Alley.

On appeal from the Superior Court of New Jersey, Law Division, Civil Part, Bergen County, BER-L-3751-02.

Joseph A. Boyle argued the cause for appellant (Kelley Drye & Warren, attorneys; Mr. Boyle, Geoffrey W. Castello, and Lauri A. Mazzuchetti, on the brief).

Robert L. Ritter argued the cause for respondent (Schiffman, Berger, Abraham, Kaufman & Ritter, attorneys; Mr. Ritter and David J. Wallman, on the brief).

PER CURIAM

Following the entry of a $1,150,632.75 judgment for plaintiff after a trial on damages, defendant appeals, specifically challenging an order granting partial summary judgment to plaintiff as to liability, a pre-trial ruling barring the report and testimony of an expert on behalf of defendant, and some evidentiary rulings during the trial. We affirm.

On May 2, 1990, defendant and plaintiff's predecessor in interest entered into a commercial lease agreement with a termination date of January 31, 2001. A "renewal option" in the lease established the tenant's right to extend the lease for a single five-year period subject to specified terms and conditions. On April 28, 1995, defendant assigned the lease to its wholly-owned subsidiary, Rx Realty, which was subsequently sold to a third party. In January 2000, Rx Realty exercised the renewal option, extending the lease to January 31, 2006. Rx Realty and plaintiff then entered into an amendment to the lease on May 18, 2000, modifying certain provisions and further extending the termination date to January 31, 2011. Among the changes in the lease terms were those replacing the "permitted uses" clause with a new recitation, establishing the new termination date, redefining the parties rights to "movable trade fixtures", addressing tenant's defaults, effecting two changes in the lease's force majeure clause, and increasing the number of renewal options from one five-year term to three.

On September 21, 2001, four months after the amendment to the lease agreement, Rx Realty and its then parent corporation filed for bankruptcy. Rx Realty vacated the premises and ceased paying rent. On May 1, 2002, plaintiff sued defendant for the rent due from September 2001 to January 2006, the period of the renewal option contained in the initial lease.

The trial court granted plaintiff's motion for partial summary judgment, determining that defendant's liability under the terms of the initial lease agreement continued. We denied defendant's motion for leave to appeal that interlocutory order. On appeal from the judgment ultimately entered, defendant argues that the grant of summary judgment on liability was erroneous because plaintiff had failed to establish the non-existence of material questions of fact; that discovery was required of matter within the possession of plaintiff, its representatives, or the entity that had purchased Rx Realty; that questions of material fact existed whether plaintiff had released defendant of its liability under the lease by materially altering its terms, and whether the May 18, 2000 agreement with Rx Realty constituted a novation; that "the ambiguity regarding the new agreement [was] a question for the trier-of-fact to resolve;" and that the trial court erred in "permitt[ing] plaintiff to circumvent the consequence of the new agreement by tailoring the relief that it sought."

Focusing on the damages trial, defendant asserts that "the trial court erred in allowing plaintiff to prove its alleged damages by utilizing charts and testimony that summarized documents . . . deemed inadmissible" by the trial court, and because plaintiff had not provided the "underlying source materials . . . in a timely manner;" that that evidence was inadmissible as hearsay; and that plaintiff should not have been permitted to use inadmissible documents to refresh its sole witness's recollection. Defendant also assigns error to the trial court's pre-trial ruling precluding the testimony of an expert witness proffered by defendant, and to the trial court's award to plaintiff of late fees and default interest.

In granting plaintiff summary judgment on liability, the motion judge stated his reasons in a terse oral disposition:

This is a knotty little problem on which there is not a case that I find on point. Both parties, however, have produced to the satisfaction of the Court all documents that are necessary for me to make a decision in this case. And therefore, I will not take the easy road and say that discovery's not yet complete, because I do not find that any further discovery could possibly alter the facts of this case as they've been submitted by both sides in great detail.

Now, the assignment of the lease doesn't relieve the lessee of their contractual undertakings in the lease even though the lessor has not [sic] consented to the assignment and has accepted rental payments from the assignee. That's what Gerber v. Pecht[, 15 N.J. 29 (1954),] actually says. And it held that to discharge a lessee's liability the claim must rest upon a showing that the second assignment constituted a material and prejudicial variation in terms of the lease.

Moreover, a lessee is not discharged by variations which inure to his benefit. A lessee's obligations are also not discharged by agreements between a lessor and an assignee, which may increase the liability of the lessee, but which are permitted by the terms of the original lease. Accordingly, summary judgment on the issue of liability must be granted to the plaintiff. . . .

As the motion judge quite properly perceived, plaintiff has sought to hold defendant only to the terms of their initial lease agreement, including the first extension of the lease term as provided therein. Plaintiff does not seek to impose liability on the basis of any of the provisions newly established in the May 18, 2000 amendment. Accordingly, we agree with the motion judge that there is no ground for concluding a novation occurred or a material alteration eventuated that, in any significant way, modified defendant's exposure under the initial lease.

An assignment of a lease does not discharge a lessee from its contractual obligations under the lease. Gerber, supra, 15 N.J. at 31. The rule is: "when a lease is assigned by the lessee, the assignee becomes the principal obligor for the payment of the rent thereafter accruing and the future performance of the covenants, and the lessee assumes the position of surety toward the lessor." Id. at 32 (quoting Gholson v. Savin, 31 N.E.2d 858, 862 (Ohio 1941)). Nevertheless, a lessee is discharged from liability that accrues from an assigned lease when the lessor enters into "a direct leasing arrangement with the assignee which effectively establishes a new tenancy relationship while terminating the old," or when the lessor and assignee "materially vary the terms of the original lease," id. at 31 (citing Clark v. Byrne, 117 N.J.L. 301, 306 (E. & A. 1936), and Walker v. Rednalloh Co., 13 N.E.2d 394 (Mass. 1938)), except with regard to material alterations to a lease by the assignee and the lessor that inure to the benefit of the lessee. Id. at 32 (quoting Walker, supra, 13 N.E. 2d at 397).

As respects the general rule that a lessee acts essentially as a guarantor of a lease where an assignment has occurred, "[i]t is fundamental that a guarantor is not bound beyond the strict terms of its promise and its obligation cannot be extended by implication." Center 48 Ltd. P'ship v. May Dept. Stores Co., 355 N.J. Super. 390, 405 (App. Div. 2002)(citing Housatonic Bank & Trust Co. v. Fleming, 234 N.J. Super. 79, 82 (App. Div. 1989)). New Jersey's rule governing modification of obligations between the principal obligor and obligee reflects the Restatement rule that a secondary obligor is not discharged from the original obligations undertaken unless "the modification creates a substituted contract or imposes risks on the secondary obligor fundamentally different from those imposed pursuant to the transaction prior to modification. . . ." Center 48 Ltd., supra, 355 N.J. Super. at 410 (quoting Restatement (Third) of Suretyship and Guaranty 41(b)(i)(1996)).

A material alteration has been defined as "one which alters the legal identity of the principal's contract, substantially increases the risk of loss to the guarantor, or places the guarantor in a different position." Id. at 408-409 (citing S-Mart, Inc. v. Sweetwater Coffee Co., 744 N.E.2d 580, 586 (Ind. Ct. App.), transfer denied, 761 N.E.2d 416 (Ind. 2001)).

Our courts have held a subsequent assignment by the assignee to a third party not to be a material alteration because that change alone does not vary the terms of the original lease in any fundamental way. Gerber, supra, 15 N.J. at 32. In contrast, a "material alteration of a lease . . . occurs where an agreement is made between the lessor and lessee changing the terms of the lease, or the time for the payment or rent, or in some cases the amount of the rent payable." S-Mart, supra, 744 N.E.2d at 586. Furthermore, the insertion of a condition to renewal that was not present in the original lease has been viewed as constituting a material alteration that worked to release the guarantor from liability, "notwithstanding the fact that the change did not increase the guarantor's risk" because "the guarantor had not consented to this material change in the lease[.]" Center 48 Ltd., supra, 355 N.J. Super. at 409 (quoting Mangold v. Keip, 679 N.Y.S.2d 240, 241 (Sup. Ct. App. Term 1998)).

In other jurisdictions, renewal of a lease under terms that add new or additional obligations to the scope of the lease has been found to constitute a new tenancy. See, e.g., Tinaco Plaza, LLC v. Freebob's, Inc., 814 A.2d 403, 409-10 (App. Ct. Conn.)(holding, based on a focus on the "conduct [of the parties] before the controversy arose," that an amendment to a lease that had negotiated rent payments for the renewal period constituted a new tenancy), cert. granted on other grounds, 819 A.2d 840 (2003). J.G.M.C.J. Corp. v. Sears Roebuck & Co., 391 F.3d 364, 367-69 (1st. Cir. 2004)(holding that the landlord's "own actions at the time [the assignee] exercised the extension options would have acted to terminate [the assignor's] obligations under the lease by operation of law because the extension agreement materially altered the terms of the original lease").

None of the alterations in the lease at hand can be taken to have been effective against defendant in the sense of expanding its liability under its lease agreement. Plaintiff makes no such contention. It simply seeks to enforce the obligations to which defendant agreed in the initial lease. No defense to plaintiff's claim previously available with respect to the initial lease was vitiated by the modified lease agreement. The modifications to the force majeure clause negotiated by plaintiff and Rx Realty and reflected in the May 18, 2000 amendment, for example, cannot reasonably be seen to have retrospective effect and, therefore, cannot be viewed as expansions of defendant's obligations under the lease agreement in which it participated.

Although different, particularized, standards exist for determining whether a novation has occurred, see, e.g., Sixteenth Ward Bldg. & Loan Ass'n v. Reliable Loan, Mortgage and Security Co., 125 N.J. Eq. 340 (E. & A. 1939); In re Estate of Carpentiero, 102 N.J. Super. 395 (Cty. Ct. 1968), the same reasoning and result applies. We will not presume a novation. See Tolland v. Lista, 46 N.J. Super. 272, 277 (App. Div. 1957). Where there is no claim that defendant is bound beyond the terms agreed to in the initial lease agreement to which defendant was a party, it cannot claim that a novation occurred. See id. at 276-77. Since defendant undertook a role as guarantor of that lease when it assigned it to another entity, and there was no "material and prejudicial variation in the terms of the lease" as applied to defendant, see Gerber, supra, 15 N.J. at 32, its responsibilities under the terms of its lease agreement alone continue to exist and govern the rights and liabilities of the parties to that lease agreement. See also Walker, supra, 13 N.E.2d at 397 ("Nor is the lessee discharged by agreements between lessor and assignee which may increase the liability of the lessee, but which are permitted by the terms of the original lease, to the benefits of which the assignee is entitled.")(quoted in Gerber, supra, 15 N.J. at 31-33).

The trial court was correct to decide the liability issue on summary judgment. As to the issue of whether defendant could be held liable under the initial lease agreement, there were no genuine issues of fact. The only questions were matters of law, which the motion judge resolved correctly in the circumstances.

The matter was then tried as to the only real factual issues that had been raised: those pertaining to damages. We substantially agree with the trial judge's reasoning and rulings on the questions whether plaintiff could be permitted to prove its case through evidence in summary form, i.e., spreadsheets and charts. The ruling permitting plaintiff to use that summary material to refresh its witness's recollection was unremarkable in any event. It is axiomatic that anything can be used to refresh a witness's recollection, even matter that is not itself admissible. See State v. Carter, 91 N.J. 86, 122 (1982).

 
We see no merit sufficient to warrant further discussion in the remaining issues raised on appeal. R. 2:11-3(e)(1)(A), (E). The trial court's ruling precluding the testimony of a witness on behalf of defendant was well within its discretion to make. Our analysis of the record discloses, as well, that defendant suffered no discernible prejudice as a result of that ruling. Finally, the trial court's awards of late fees and default interest also represent appropriate exercises of the trial court's discretion within the bounds of pertinent legal standards. See MONY Life Ins. Co. v. Paramus Parkway Bldg., Ltd., 364 N.J. Super. 92, 105 (App. Div. 2003); Metlife Capital Fin. Corp. v. Washington Ave. Assocs., 159 N.J. 484, 500-02 (1999); Wasserman's Inc. v. Township of Middletown, 137 N.J. 238, 251-53 (1994).

Affirmed.

(continued)

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11

A-0412-03T1

November 10, 2005