JAY DAD ASSOCIATES, L.L.C. v. C &G MANAGEMENT CORP.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-6190-06T26190-06T2

JAY DAD ASSOCIATES, L.L.C.,

Plaintiff-Appellant/

Cross-Respondent,

v.

C&G MANAGEMENT CORP.

Defendant-Respondent/

Cross-Appellant.

 

 

Argued November 19, 2008 - Decided

Before Judges Parrillo, Lihotz and Messano.

On appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County, Docket No.

C-122-05.

Samuel N. Reiken argued the cause for appellant/cross-respondent.

Chad N. Cagan argued the case for respondent/cross-appellant (Sonnenblick, Parker & Selvers, P.C., attorneys; Mr. Cagan, on the briefs).

PER CURIAM

Plaintiff, Jay Dad Associates, LLC (Jay Dad or plaintiff), appeals from the Chancery Division's summary judgment dismissal of its complaint for specific performance of a contract for the purchase of real estate and from the denial of its motion for reconsideration. Defendant, C&G Management Corp. (C&G or defendant), cross-appeals from the trial court's order denying its request to compel the depositions of plaintiff's counsel and a third-party. We affirm the order dismissing plaintiff's complaint with prejudice and therefore dismiss the cross-appeal as moot.

C&G owns two contiguous lots in Woodbridge housing commercial buildings that are leased to tenants. C&G purchased the property on June 21, 1995. Eight years later, on June 13, 2003, Angelo Valetutto (Valetutto), managing member of Jay Dad, sent a letter to Anthony Toto (Toto), manager of C&G, offering to purchase the property for $1,500,000, with the contingency that defendant lease the front office and warehouse to plaintiff for immediate occupancy, with a right of assignment, for $7,500 per month. Rent was to be applied against the purchase price at closing.

Having received no response to the offer, on June 24, 2003, plaintiff's counsel, Samuel Reiken, Esq. (Reiken), followed up with a telephone call and letter addressed to defendant's counsel, Gerard DelTufo, Esq. (DelTufo). The letter reiterated the initial proposal and named Cardell, Inc. (Cardell) as the tenant who would occupy the premises prior to closing.

One month later, on July 25, 2003, Reiken sent a letter to Shalchi referencing a telephone conversation the day before and again repeating the offer, conditioned upon immediate tenancy. Reiken informed Shalchi that, through a judgment search, he had learned of certain encumbrances on the property, and, therefore, urged Shalchi once again to consider the offer:

Needless to say, since our offer is all cash, it will undoubtedly clean up all these encumbrances.

A key to this offer is the tenancy of the proposed user. The user is in need of premises immediately. Since we have had no success in effectuating a contract of sale for C&G's premises, the user is accordingly about to look elsewhere and has a line on another building. However, C&G's building is preferred.

Consequently, on September 10, 2003, C&G and Jay Dad entered into a contract for the sale of the property, and a lease to Cardell (both hereinafter Agreement). The Agreement was handwritten on the hood of a car by Reiken, counsel to both Jay Dad and Cardell, in two parts. One was entitled "lease," the other "sale." C&G's attorney was not present at the preparation and execution of this document. The lease portion of the Agreement read:

1. Lease. 95 New Brunswick Avenue

a. C&G Management Corp. will lease the front premises and the 8500 warehouse to Cardell, Inc. for a term of two years commencing 15 September 2003 at a rent of $10,000 per month.

b. Cardell shall be responsible for all repairs to obtain a Certificate of Approval from the Woodbridge Zoning Authority.

c. Cardell shall be responsible for all maintenance and repairs and shall present a Certificate of Liability Insurance which also names Landlord.

d. Cardell shall pay 1st month rent along with one month security deposit.

The lease was signed by Haque, president of C&G, and Carmine Dellapietro, president of Cardell, and witnessed by Shalchi and Reiken.

The "sale" portion read:

2. Sale

a. C&G will sell 95 New Brunswick Ave., Hopelawn, N.J. to JAY DAD ASSOCIATE LLC for $1,900,000, subject to usual contingencies concerning due diligence, environmental, financing and tenant certificates.

b. Closing will occur within 120 days.

c. Price shall be reduced by $2,000 for each month's rent paid by Cardell.

The sale portion was signed by Haque and Valetutto, and witnessed by Shalchi and Reiken.

On September 12, 2003, Reiken drafted and forwarded to DelTufo a typed "Contract for Sale of Real Estate" (Contract) and "Lease." The same day, DelTufo, on behalf of Eugene McEnroe, Esq. (McEnroe), counsel for C&G, forwarded executed copies of the Contract and Lease to Reiken.

The Contract provided for essentially the same terms as the Agreement. The purchase price was $1,900,000, with $80,000 to be paid by Jay Dad and held in escrow by Reiken upon the signing of the Contract. The balance to be paid at closing by cash, certified or bank cashier's check, or attorney trustee check, subject to adjustments, was $1,820,000. The amount to be paid at closing was also to be reduced by $2,000 per month for each month Cardell paid rent to C&G. Significant for present purposes, the Contract contained the following provisions:

6. Environmental Contingency. Buyer shall not be obligated to take title to the Premises unless and until Seller shall have delivered to Buyer such documentation as shall be satisfactory to all governmental authorities including the New Jersey [Department of Environmental Protection] [DEP] pertaining to the Premises and its compliance with all environmental laws and regulations and specifically but without limitation ISRA and the underground storage tank laws and regulation in such form satisfactory to Buyer's counsel that Buyer shall not have taken on any liability or responsibility for environmental conditions at the Premises which preexist Buyer's obtaining title thereto. Seller warrants that it knows of no environmental contamination or spills at the premises.

. . . .

11. Physical Condition of the Property. This property is being sold "as is." The Seller does not make any claims or promises about the condition or value of any of the property included in this sale. The Buyer has inspected the property and relies on this inspection and any rights which may be provided for elsewhere in this contract. The Seller agrees to maintain the grounds, buildings and improvements in their present condition subject to ordinary wear and tear.

. . . .

18. Risk of Loss. The Seller is responsible for any damage to the property, except for the normal wear and tear, until the closing. If there is damage, the Buyer can proceed with the normal wear and tear, until the closing. If there is damage, the Buyer can proceed with the closing and either:

(a) require that the Seller repair the damage before the closing; or

(b) deduct from the purchase price a fair and reasonable estimate of the cost to repair the property. In addition, either party may cancel this contract if the cost of repair is more than 10% of the purchase price.

. . . .

23. Complete Agreement. This contract is the entire and only agreement between the Buyer and 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. The Seller states that the Seller has not made any other contract to sell the property to anyone else.

The estimated fixed date for closing was set for January 12, 2004.

The Lease with Cardell was essentially the same as the Agreement. It provided for a term of two years, beginning on September 15, 2003, with a rent of $10,000 per month. Though DelTufo returned a signed copy of the Lease to Reiken, it was never signed by Dellapietro.

On December 22, 2003, Reiken sent a letter to McEnroe confirming that Jay Dad complied with the Contract and deposited the sum of $80,000 into his attorney trust account. In the meantime, Cardell took possession of the property around December 2003, however, its first month's rent and security deposit were returned due to insufficient funds.

Relative to the Contract, Jay Dad retained the services of an environmental contractor and ordered a Phase I site assessment, which, when completed, revealed potential environmental concerns. Thus, on January 8, 2004, plaintiff informed defendant that underground storage tanks were potentially still on the property and that a transformer pad needed to be removed and noted that closing would have to be deferred until resolution of these issues.

At Reiken's request, Environmental Liability Management, Inc. (ELM) prepared a Phase I, II and III cost estimate for environmental remediation of the property on January 13, 2004. In its February 2, 2004 response, C&G agreed to move forward with ELM's proposal but indicated its preference that plaintiff advance the costs of remediation, with credit to be subtracted at closing. On June 2, 2004, C&G served a "time-of-the-essence" notice on Jay Dad, scheduling the closing for June 23, 2004. Although the full costs had not, as yet, been ascertained, the notice offered to hold, in escrow, the funds necessary for the environmental remediation and pay the clean-up fees out of those funds, with any remaining money going to C&G.

In its June 4, 2004 reply, plaintiff advised that C&G had failed to comply with the Developer's Agreement with Woodbridge Township. Apparently, C&G tendered certain cash performance guaranties with the Township which were less than the projected current cost of the completion of the improvements. Jay Dad, therefore, advised that it was having a contractor prepare an estimate of completion costs. On June 17, Jay Dad also notified C&G that ELM's environmental report would be available shortly and suggested that two underground storage tanks had been found on the property and would need to be removed. In a follow-up letter of June 21, 2004, once again citing the presence of two underground storage tanks, Jay Dad advised it would not be possible to close on June 23, 2004, despite C&G's "time-of-the- essence" notification, because it was uncertain whether an escrow would be a satisfactory alternative, or, for that matter, how much would need to be placed in escrow.

C&G, through counsel, McEnroe, countered on June 22, 2004, that Jay Dad's refusal to close title the next day was really due to lack of funds. In this regard, McEnroe noted that ELM's April 2004 report still had not verified the presence of underground storage tanks on the property, and that it was only after C&G sent its "time-of-the-essence" notification that ELM returned to the property to reinvestigate. McEnroe concluded the correspondence by stating it would hold Jay Dad in default under the contract if closing did not occur the next day.

Plaintiff responded on June 23, 2004, insisting that it had the $1.8 million to close, rejecting defendant's declaration of default, and assuring that once the environmental problems were remediated, Jay Dad would close title. That same day, Jay Dad received ELM's Phase II site investigation summary. As to the old transformer site, very low levels of PCBs were detected and required no further clean up. There were no buried drums on the property, however, two underground storage tanks were found and required removal.

The very next day, C&G sent plaintiff a letter of default, indicating that Jay Dad could cure the default by placing the $80,000 in escrow funds with counsel for C&G, and requesting confirmation that plaintiff's financing had been secured. Jay Dad responded by forwarding ELM's June 23, 2004 Phase II report and insisting it was not in breach of contract because defendant was not yet ready to deliver title. Specifically, environmental remediation remained; fire violations needed correction; property was to be removed from the premises; a permanent certificate of occupancy was needed from the Township, as was a No Further Action (NFA) letter from the New Jersey DEP. Jay Dad also had three estimates for the environmental remediation drawn-up.

Prior to receiving ELM's June 2004 report, neither Hague nor Shalchi had any knowledge of the existence of underground storage tanks on the property since, at the time of purchase, C&G's financing did not require an environmental due diligence. Interestingly enough, plaintiff's managing director, Valetutto, was quite familiar with the property. He served as Woodbridge Township municipal engineer from 1981 to 1986 and actually represented C&G as professional engineer at time of purchase before the Woodbridge Township Land Use Board from 1994-95. Through his other company, AJV Engineering, Inc., Valetutto secured a site plan and use variance approval for C&G's intended use of the premises.

In any event, on June 30, 2004, C&G informed Jay Dad that the Contract was terminated because of plaintiff's default. Less than two months later, however, McEnroe sent an August 20, 2004 letter to Reiken summarizing the status of interim negotiations between the parties: C&G was willing to rescind the default and close if plaintiff would stipulate to a closing date of no later than thirty days after receipt of a NFA letter from the DEP; C&G had engaged a contractor to remove the underground tanks, which would be completed in forty-five days; most of the Township zoning code violations were corrected, and, as for the remainder, Valetutta, C&G's engineer at the time the application was filed, would estimate a reasonable cost for their repair, to be credited to plaintiff at closing; and the fire violations were all corrected except for striping in the parking lot which could not be done before removal of the tanks. McEnroe also asked that ELM's final invoice be forwarded for review. By letter of August 24, 2004, Jay Dad agreed to these conditions. Specifically, Jay Dad agreed to take the property subject to the Woodbridge zoning violations, remediate them, and receive a credit of $71,377.50 at closing.

As represented, the underground storage tanks were removed, and the tainted soil was excavated. Consequently, on January 18, 2005, C&G filed its request with the DEP for a NFA letter. When Jay Dad learned of this fact, it sent its own "time-of-the-essence" notice to defendant on January 27, 2005, noting that its financing (a $1.8 million commercial mortgage), which it had finally secured on November 19, 2004, and made contingent on procurement of a NFA letter, would not last forever. Thus, Jay Dad declared March 25, 2005 to be the closing date.

Thereafter, on February 18, 2005, C&G notified Reiken that Cardell, again, missed rent payments. As a result of Cardell's default, C&G filed another eviction complaint for non-payment of rent on June 27, 2005. However, the complaint was promptly withdrawn when C&G learned, for the first time from Reiken, on July 12, 2005, that Cardell was in bankruptcy, and, therefore, the tenancy action violated the bankruptcy code's automatic stay provision. Actually, Cardell had filed for bankruptcy on August 26, 2002, a fact of which both Valetutto and Dellapietro were aware, as was Reiken, at the time the Agreement was executed. In any event, the automatic stay was eventually vacated, the tenancy action reinstated and Cardell ultimately evicted. By then, however, Cardell had defaulted on $170,000 in rent, which was uncollectible due to its bankruptcy.

In the meantime, on March 22, 2005, the DEP advised C&G that there were still environmental compliance requirements that needed to be completed on the property. As the result, plaintiff's time-of-the-essence closing date of March 24, 2005 was not met. Although C&G was still anxious to close, Reiken indicated that closing could not occur until the NFA letter was obtained because the Jay Dad's financing hinged on this contingency.

On May 5, 2005, plaintiff filed a complaint against defendant in the General Equity Part seeking specific performance of the Contract and damages. Defendant answered and counterclaimed for rescission, constructive fraud in contract, equitable fraud, legal fraud and negligent misrepresentation. Mediation followed wherein the parties initially agreed to further environmental testing and monitoring of the property's groundwater by a contractor of plaintiff's choice, with plaintiff to advance the cost to be credited later at time of closing. By then, C&G represented that it had already spent $186,098.64 on environmental remediation and Jay Dad's contractor estimated another $55,000 was needed to complete the clean-up process. In fact, Valetutto estimated that the total cost of environmental remediation at the property would approximate $400,000. While supposedly Jay Dad waived the NFA letter requirement and bore the risk of clean-up costs in excess of $55,000, the mediation nevertheless proved unsuccessful since C&G's environmental remediation cost now exceeded $190,000, which was ten percent of the purchase price.

Upon notification of C&G's contract cancellation on December 21, 2006, the parties cross-moved for summary judgment. In her decision denying plaintiff specific performance and granting defendant contract rescission, the General Equity judge found the matter ripe for summary judgment because there was no genuine dispute of material facts, "rather the dispute arises about the legal impact of these facts, that is what legal rights and duties arise from these facts and what remedies should the [c]ourt impose." The judge then addressed whether defendant cancelled the contract of sale pursuant to the risk of loss provision, Paragraph 18, which allowed for cancellation where the cost of repair exceeded 10% of the purchase price. Having determined that the remediation costs indisputably exceeded ten percent of the purchase price, the only remaining issue was whether environmental remediation constitutes damage within the meaning of Paragraph 18. The court, reading the contract in its entirety, answered in the affirmative:

[p]utting all this together I find that while the plaintiff was purchasing the property as is pursuant to paragraph 11, if the property had -- has environmental . . . problems the plaintiff could not be required to go through with the transaction as set forth in paragraph six. In that event the plaintiff had the option of getting out of the deal.

To the extent that the environmental issues constituted damage to the property and were repairable as opposed to wetlands or other types of environmental issues, the defendant was obligated to make those repairs. However, if those repairs exceeded ten percent of the purchase price either party could cancel.

This [c]ourt finds that that contingency has occurred, the cost of correcting the problem exceeds ten percent of the contract and defendant did cancel the contract which it was entitled to do.

The court also found that the equitable remedy of specific performance was not available to plaintiff because of its unclean hands in not timely disclosing Cardell's bankruptcy to defendant:

[E]ven if plaintiff had no legal duty to make the . . . disclosure, it was equitable to do so. It's long been recognized that if a person is induced to enter into a contract based on a misrepresentation it's . . . no defense that with due diligence the party could've discovered the truth. Baron vs. B[ue]rman[n] at 10[3] New Jersey Equity 47 Chancery, 1928.

Specific performance is a discretionary, equitable remedy. The [c]ourt must not only determine the legal rights of the parties but also apprise the respective conduct and -- and situation of the parties. Mari[o]ni vs. 94 Broadway [3]74 New Jersey Super. at 599 to 600.

Because specific performance is an equitable . . . remedy ["]the party seeking specific performance must stand in conscientious relation to its adversary. His conduct in the matter must have been fair, just and equitable, not sharp or aiming at unfair advantage[.]["] Mari[o]ni at 600.

Under the circumstances here it was not fair for plaintiff to withhold information on Cardel[l]'s bankruptcy and as a result of that circumstance defendant lost a significant amount of money in that.

Under these circumstances plaintiff is not entitled to equitable relief.

In sum, the [c]ourt denies the request for specific performance for two reasons, because the cost of remediation exceeded ten percent of the purchase price . . . and as a result the contract . . . was effectively cancelled pursuant to paragraph 18 of the agreement. And secondly, plaintiff is not entitled to equitable relief of specific performance due to unclean hands for failure to disclose Cardel[l]'s bankruptcy.

Accordingly, the contract will not be enforced, it's regarded as terminated.

On motion for reconsideration, plaintiff maintained that its alternative claim for damages was not subject to summary judgment. The judge rejected this argument because the contract was rescinded, and, therefore, no basis existed for a damages award. The court also rejected plaintiff's claim of a factual dispute over C&G's cost of environmental remediation, reasoning

"the plaintiff's [opposition] did not refute any of those facts in the motion papers, and the plaintiff still had not come forward with any facts contradicting these numbers. [S]o there's no reason for [the judge] to change [her] decision on that score." And, finally, as to plaintiff's unclean hands, the judge reiterated her earlier ruling:

. . . . And the record indicates that the plaintiff had suggested Cardel[l] as a tenant to defendant, and did so without disclosing the fact that Cardel[l] was in bankruptcy. That fact was known to the plaintiff, but was unknown to the defendant. I think this was an important and material piece of information that the plaintiff knowingly omitted. I did not reach the question of whether or not it actually was fraudulent, but it certainly was unfair and unconscionable, and I think it . . . offended me under the circumstances. I

. . . don't think there was fair dealing involved on that score. And . . . for that reason I found that the plaintiff was not entitled to equitable relief.

On appeal, plaintiff argues that defendant was not entitled to cancel the contract under Paragraph 18, and, therefore, rescission was not an appropriate remedy. Plaintiff also asserts error in the court's application of the law of unclean hands to defeat its claim for specific performance. We disagree with these contentions and affirm substantially for the reasons stated by the General Equity judge in her oral opinion of April 23, 2007. We add, however, the following comments.

(I)

It is well settled law that "a contract for the sale of lands operates as an equitable conversion." Coolidge & Sickler, Inc. v. Regn, 7 N.J. 93, 98 (1951). The doctrine of equitable conversion is a legal fiction that allows a court to render justice between the parties to a real estate contract. Jock v. Zoning Bd. of Adj., Twp. of Wall, 184 N.J. 562, 587 (2005). In Coolidge, it was used as "a loss allocation device as between the parties to a real estate contract where property is damaged or destroyed after a contract is executed but before title has passed." Jock, supra, 184 N.J. at 587 (citing Coolidge, supra, 7 N.J. at 99).

A corollary to the doctrine is that equitable conversion cannot be invoked where the contract specifies otherwise. If a risk of loss provision "allocates [property damages] between execution and closing, the doctrine of equitable ownership will not place the loss elsewhere." Id. at 588; see also Coolidge, supra, 7 N.J. at 99 (equitable conversion "is subject to a provision in the contract of sale[,] obligating the vendor to deliver the property in the same condition it was in at the time of the making of the contract, reasonable wear and tear excepted").

Contract construction also requires a court to give effect to the mutual intent of the parties. Coolidge, supra, 7 N.J. at 99. The instrument should be construed in a reasonable manner and in its entirety. Ibid. (citing Mantell v. Int'l Plastic Harmonica Corp., 141 N.J. Eq. 379, 386 (E. & A. 1947)). "Disproportionate emphasis upon a single provision does not serve the purpose of interpretation. Words, phrases and clauses are not to be isolated but related to the context and the contractual scheme as a whole, and given the meaning that comports with the probable intention." Ibid. (quoting Mantell, supra, 141 N.J. Eq. at 386).

In this regard, Paragraph 6, "Environmental Contingency," relieved the buyer from closing if the seller could not deliver title free of environmental encumbrances. It also warranted that seller, C&G, did not know of any environmental contamination at the property, and, read in full context, impliedly relieved defendant of any obligation to sell should environmental concerns thereafter surface, which remain unremedied. Paragraph 11, "Physical Condition of the Property," further stated the property was being sold "as is." Paragraph 18, the "risk of loss" provision, stated that seller was responsible for any "damage," except for normal wear and tear, until closing. Where such "damage" occurred in the gap period, the caveat was that "either party may cancel this contract if the cost of "repair" is more than 10% of the purchase price."

Reading these provisions together and in context, we agree with the General Equity judge that environmental remediation discovered for the first time during the gap period constitutes "damage" within the meaning of Paragraph 18. That was evidently defendant's understanding since C&G presumably would not have contracted to sell with unlimited exposure for unknown and unforeseen environmental clean up costs, rendering the transaction potentially not only unprofitable but grossly disproportionate in consequence. On the contrary, the risk of loss provision was designed to address this very event and to protect both parties, but especially the seller who bore the financial risk, by capping the cost of "repair" for damages occurring in the interim period between contract execution and closing. And, in this regard, it is undisputed that defendant was unaware of any environmental issues until after contract execution, when ELM issued its report in June 2004. It is, therefore, entirely reasonable to consider environmental "damage" discovered after contract execution as coming within the meaning of "damage" in Paragraph 18 and the cost of its remediation as covered by the agreement's "risk of loss" provision. This is especially so where, as here, the remediation involves the removal of tanks and soil, not the reparation of wetlands.

Plaintiff points to nothing in the agreement precluding such a construction and refers only to the definition of "remediate" in the Industrial Site Recovery Act (ISRA), N.J.S.A. 13:1K-6 to -18, and to the simple fact that "[n]othing broke and has to be fixed." We fail to see how either argument advances its position.

ISRA defines "remediation" or "remediate" as:

all necessary actions to investigate and clean up or respond to any known, suspected, or threatened discharge of hazardous substances or hazardous wastes, including, as necessary, the preliminary assessment[.]

[N.J.S.A. 13:1K-8.]

Nothing in this definition, however, suggests that environmental harm should be excluded from the ambit of "damage" or that its remediation falls outside the scope of "repair" within the intendment of the Agreement's "risk of loss" provision. Quite the contrary, the ordinary and plain meaning accorded these terms is far broader than the restrictive, antiseptic definitions posited by plaintiff. Moreover, plaintiff offers no sound reason for its constricted view, which we believe is clearly at odds with the contract's text, considered as a whole. Although we think the meaning quite obvious, any ambiguity in any event must necessarily be construed against the drafting party, here Jay Dad. Kotkin v. Aronson, 175 N.J. 453, 455 (2003). Viewed either way, we find defendant's cancellation of the contract to be in accordance with its express terms and thus the motion judge's grant of summary judgment on defendant's claim for rescission to be entirely proper.

(II)

Correspondingly, the court properly denied plaintiff the equitable relief of specific performance due to its unclean hands. It is settled that, for a party to prove it is entitled to specific performance, it must show three things:

the contract in question is valid and enforceable at law, that the terms of the contract are "expressed in such fashion that the court can determine, with reasonable certainty, the duties of each party and the conditions under which performance is due, and that an order compelling performance of the contract will not be "'harsh or oppressive'[.]"

[Marioni, supra, 374 N.J. Super. at 598-99 (App. Div.), certif. denied, 183 N.J. 591 (2005) (citations and footnote omitted).]

A party claiming the right to specific performance must demonstrate a right to legal relief and show that performance of the contract is an equitable result. Id. at 600. This determination is a highly discretionary one and comprises, among others, these considerations: "how clearly have the parties expressed their contractual undertaking, whether the impact of compelling performance will be unduly oppressive or whether the withholding of the remedy will leave the plaintiff with an inadequate remedy, and whether the parties have acted equitably toward each other[.]" Id. at 599, 601.

The equitable nature of specific performance requires that "the party seeking [relief] 'must stand in conscientious relation to his adversary; his conduct in the matter must have been fair, just and equitable, not sharp or aiming at unfair advantage.'" Id. at 600 (quoting Stehr v. Sawyer, 40 N.J. 352, 357 (1963)). A court of equity should attempt to "render complete justice to both parties regarding their contractual relationship." Ibid.

It is axiomatic under the doctrine of unclean hands that "[h]e who comes into equity must come with clean hands." A. Hollander & Son, Inc. v. Imperial Fur Blending Corp., 2 N.J. 235, 245 (1949). "[A] court should not grant equitable relief to a party who is a wrongdoer with respect to the subject matter of the suit." Pellitteri v. Pellitteri, 266 N.J. Super. 56, 65 (App. Div. 1993) (citing Faustin v. Lewis, 85 N.J. 507, 511 (1981)). However, the doctrine

does not repel all sinners from courts of equity, nor does it apply to every unconscientious act or inequitable conduct on the part of the complainants. The inequity which deprives a suitor of a right to justice in a court of equity is not general iniquitous conduct unconnected with the act of the defendant which the complaining party states as his ground or cause of action; but it must be evil practice or wrong conduct in the particular matter or transaction in respect to which judicial protection or redress is sought.

[Heuer v. Heuer, 152 N.J. 226, 238 (1998) (emphasis added) (quoting Neubeck v. Neubeck, 94 N.J. Eq. 167, 170 (E. & A. 1922).]

The "maxim means that a court of equity will refuse relief to [any] party who has acted in a manner contrary to the principles of equity." Rolnick v. Rolnick, 290 N.J. Super. 35, 45 (App. Div. 1996) (citation omitted, alteration in original).

Here, the judge denied plaintiff specific performance, not only because she found the contract was validly terminated, but also on account of plaintiff's unclean hands in proposing a tenant in bankruptcy to the ultimate financial detriment of defendant. We agree with the court's reasoning and find no abuse of discretion in her withholding the equitable remedy from an unworthy recipient.

From the very outset of negotiations between Jay Dad and C&G, plaintiff proposed Cardell as a tenant, knowing full well its status in bankruptcy and having no reason to believe defendant had similar knowledge. As early as July 25, 2003, plaintiff prevailed upon C&G to take Cardell as a tenant:

A key to this offer is the tenancy of the proposed user. The user is in need of premises immediately. Since we have had no success in effectuating a contract of sale for C&G's premises, the user is accordingly about to look elsewhere and has a line on another building. However, C&G's building is preferred.

To compound the matter, since Cardell was in bankruptcy at the time, it does not appear to have had the authority to enter into the lease, which presumably explains why Dellapietro never formally signed the document. Regardless, it was only after Cardell twice defaulted on rent and C&G had filed its second tenancy complaint, that Reiken, also Jay Dad's counsel, informed C&G that the filing violated the bankruptcy court's automatic stay. Ultimately, C&G was unable to recover $170,000 in past due rent from Cardell.

To argue, as does plaintiff, that it had no legal obligation to inform C&G of Cardell's bankruptcy sorely misses the point. This may be true, but the remedy plaintiff seeks is equitable in nature and requires that its supplicant do equity in return. See Marioni, supra, 374 N.J. Super. at 600. Under the circumstances, it was not unreasonable for the motion judge to find that plaintiff did not come to court with clean hands. See Faustin, supra, 85 N.J. at 511; Rolnick, supra, 290 N.J. Super. at 45; Pellitteri, supra, 266 N.J. Super. at 65. Plaintiff's withholding of Cardell's bankruptcy status while proposing it as tenant was "wrongful conduct" in the transaction with C&G and, therefore, the redress of specific performance was appropriately denied. Heuer, supra, 152 N.J. at 238.

Affirmed.

 

Hadi Shalchi (Shalchi) and Imdad Haque (Haque) formed C&G to purchase the property together, with Shalchi being a 25% shareholder and Haque a 75% shareholder. Originally, Shalchi was president of C&G and arranged C&G's purchase of the property but was relieved of his position and replaced by Haque at the time of the proposed sale to plaintiff. Shalchi is now a creditor of C&G.

Actually, the monies had been deposited by a third-party, Portland Industrial Development, Corp., on behalf of Jay Dad.

C&G filed a tenancy complaint for the non-payment of rent against Cardell on April 2, 2004, commencing as of the December 2003 rent. Reiken represented Cardell in the matter, and a multi-day trial was held.

Hague testified that he would not have gone forward with the Agreement (Contract and Lease) had he been aware of Cardell's bankruptcy.

(continued)

(continued)

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A-6190-06T2

January 2, 2009