HLP ASSOCIATES, L.P. v. CARPET CITY INC.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

HLP ASSOCIATES, L.P.,

Plaintiff-Respondent,

v.

CARPET CITY INC., CITY

CARPET INC.,

Defendants,

and

ZAFAR IQBAL,

Defendant-Appellant.

_______________________________

March 17, 2015

Before Judges Koblitz and Haas.

On appeal from Superior Court of New Jersey, Law Division, Union County, Docket No. L-0483-13.

Jeff Thakker argued the cause for appellant.

Gary D. Gordon argued the cause for respondent (Feinstein, Raiss, Kelin & Booker, LLC, attorneys; Mr. Gordon, on the brief).

PER CURIAM

Defendant Zafar Iqbal appeals from the Law Division's February 28, 2014 order granting plaintiff HLP Associate's Inc.'s motion for summary judgment, and finding defendant liable for unpaid rent as the guarantor of a commercial lease. Defendant also appeals the court's March 17, 2014 amended order of judgment setting the amount due to plaintiff. We affirm.1

The following material facts are derived from the evidence submitted by the parties in support of, and in opposition to, their respective summary judgment motions, viewed in a light most favorable to defendant, the non-moving party. Polzo v. Cnty. of Essex, 209 N.J. 51, 56 n.1 (2012) (citing Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995)).

On April 8, 1998, plaintiff entered into a commercial lease agreement with City Carpet, Inc. Defendant was the president of this company. The parties were each represented by counsel. Defendant and his company intended to use the leased premises to operate a carpet store. Defendant signed the lease on behalf of his corporation.

The lease was for a "Primary Term" of ten years. The lessee had the "right and option to renew" the lease for two additional five-year "Extended Terms" beyond the expiration of the Primary Term. The monthly rents due during the potential twenty-year term were set forth in the lease.

If City Carpet failed to pay the rent, the lease gave plaintiff the opportunity to declare "a material default and breach" and "cancel and terminate" the lease. In pertinent part, Section 13 of the lease provided

13. DEFAULTS; REMEDIES.

13.1 DEFAULTS.

(A) The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee

. . . .

(b) the failure by Lessee to make any payment of Base Rent or Additional Rent required to be made by Lessee hereunder as and when due, where such failure shall continue for a period of ten (10) days after written notice (except that Lessor shall only be obligated to give one (1) such notice per twelve (12) month period, after which no further notice shall be required) as to Base Rent, or for ten (10) days as to any other payment after mailing of written notice;

(c) the failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than [as] described in Paragraph (b) above, where such failure shall continue for a period of thirty (30) days after mailing of written notice;

. . . .

(O) The failure of Lessor to insist upon a strict performance of any of the agreements, terms, covenants and conditions hereof shall not be deemed a waiver of any rights or remedies that Lessor may have and shall not be deemed a waiver of any subsequent breach or default in any of such agreements, terms, covenants and conditions.

The lease also contained a provision requiring defendant to personally guarantee the rent payments in the event the lessee failed to pay them. This section of the lease stated

16. PERSONAL GUARANTY

In consideration of the letting by Lessor of the Premises, Zafar Iqbal ("Guarantor") agrees with Lessor that if default shall at any time be made by Lessee in payment of rent or in the performance of any other covenants contained in the Lease, Guarantor will pay the Lessor, his personal representatives or assigns the rent due and any arrears and all damages that may arise in consequence of any default by the Lessee under the Lease, on receipt of written notice of such default from Lessor, his personal representatives or assigns. This Guaranty shall be a continuing Guaranty and the liability hereunder shall in no way be affected or diminished by reason of any extension of time which may be granted by the Landlord to the Tenant. On the condition that Lessee is not in default of Base Rent, Additional Rent or any other term or condition of the Lease, this personal guaranty shall expire and become void at the end of the Fifth Lease Year.

[(Emphasis added).]

Approximately two years after the lease was executed, defendant discontinued City Carpet, Inc., and started a new corporation called Carpet City, Inc. Defendant continued to operate his carpet store in the leased premises through this successor corporation. Plaintiff's representative certified that plaintiff was not aware of the lessee's change in corporate structure at the time it occurred.

At the conclusion of the "Fifth Lease Year" in 2003, the lessee was behind in its rent. Plaintiff produced ledgers demonstrating that the lessee failed to pay over $25,000 in rent during the first five years of the lease and that this rent remained unpaid at the conclusion of the fifth lease year. Defendant did not produce any competent evidence to refute this figure, or the lessee's failure to pay rent when due during the relevant period.

In spite of the lessee's failure to meet its rent obligations, plaintiff did not exercise its option to declare "a material default and breach" of the lease under Section 13.1 or seek to terminate the lease and evict defendant and his company from the premises. In 2008, the parties completed the ten-year Primary Term of the lease, and the first, five-year Extended Term began. The lessee's rent continued in arrears.

In late 2010, plaintiff instituted a repossession action seeking to evict the lessee from the premises. On March 19, 2011, however, plaintiff and Carpet City, Inc. entered into a "First Amendment To Lease Agreement" (First Lease Amendment). This agreement stated that "[t]enant has defaulted under its obligations to [l]andlord pursuant to the [l]ease[.]" By that date, the lessee was over $96,000 in arrears on its rent. The parties agreed that the lessee would pay plaintiff $9,000 per month in rent for a one-year "Interim Period" between April 1, 2011 and March 31, 2012, plus $3,000 per month toward its arrears. Although defendant's personal guaranty of the rent payments was not specifically referenced in this document, the First Lease Amendment included a provision stating that, "[e]xcept as modified herein, all of the terms, covenants and provisions of the [original] Lease are hereby confirmed and ratified and shall remain unchanged and in full force and effect." Defendant signed this agreement as the president of Carpet City, Inc.

The lessee remained behind in its rent. On April 28, 2012, the parties executed a "Second Amendment To Lease Agreement" (Second Lease Amendment). This agreement stated that the lessee had defaulted on its rent and, as a result, plaintiff had taken possession of the premises. However, the parties agreed that, in return for paying a higher rent, and subject to other conditions, Carpet City, Inc. could continue as a tenant for the one-year period between May 1, 2012 and April 30, 2013. As was the case with the First Lease Amendment, the Second Lease Amendment clearly stated that "[e]xcept as modified herein, all of the terms, covenants and provisions of the [original] Lease are hereby confirmed and ratified and shall remain unchanged and in full force and effect." Defendant signed this agreement as the president of Carpet City, Inc.

The lessee did not meet its obligation to pay rent under the lease, as amended. On July 16, 2012, plaintiff filed an amended verified complaint against City Carpet, Inc., Carpet City, Inc., and defendant, seeking to recover the rent arrears due under the lease. With regard to defendant, plaintiff alleged that he had guaranteed to pay the rent in the event of his corporations' failure to do so, but was now refusing to honor his commitment.

In May 2013, defendant filed a motion for summary judgment. He asserted that, under Section 16 of the lease, he was only required to personally guarantee his company's rent payments for the first five years of the lease. Defendant stated that Section 16 further provided that his obligation would only continue past this five-year period if the lessee was "in default of Base Rent, Additional Rent or any other term or condition of the Lease" prior to 2003.

Defendant alleged that, even if the lessee was behind in its rent during the five-year period between 1998 and 2003, plaintiff had never formally declared that the lessee was "in default" under the separate provisions of Section 13.1 of the lease by sending the lessee a written notice that it was in arrears. Thus, because plaintiff had not invoked its rights under Section 13.1 during the first five years of the lease, defendant argued that his promise to guarantee the rent payments under Section 16 expired in 2003 and was no longer in effect.

Plaintiff filed a cross-motion for summary judgment against defendant and his two corporations. Plaintiff argued that Sections 13.1 and 16 of the lease were separate and distinct provisions. Section 13.1 stated that if the lessee failed to make any rent payment, and continued to fail to pay for a period of ten days after receiving written notice of the deficiency, this "event" would "constitute a material default and breach of [the] Lease by" the lessee, and plaintiff would be entitled to revoke the lease and take possession of the premises.

On the other hand, Section 16 did not require plaintiff to give any written notice to the lessee in order to hold defendant to his obligation to personally guarantee his company's rent payments. The term "default" was not defined in Section 16, or in any other provision of the lease, including Section 13.1. Thus, plaintiff argued that the term, as used in Section 16, should be given its ordinary meaning, that is, a failure to meet a financial obligation. Because the lessee was unquestionably in arrears of its rent obligations at the conclusion of the initial five-year period, plaintiff contended that defendant's personal guarantee of the rent payments continued past this period and through the termination of the lease in 2012.

Following oral argument, Judge Lisa Chrystal granted plaintiff's motion for summary judgment against City Carpet, Inc. and Carpet City, Inc. Neither corporate entity had responded to plaintiff's motion and the judge found "[t]here [was] no evidence in the record from which to conclude that the Lease Agreement should not be enforced [against defendant's companies] in accordance with its express written terms." The judge denied plaintiff's and defendant's cross-motions for summary judgment as to defendant's personal liability as the guarantor of the lease, finding that discovery was not yet complete.

Following the completion of discovery, the parties renewed their motions, and the matter was assigned to Judge Camille Kenny. After oral argument, Judge Kenny rendered a detailed written decision granting plaintiff's motion for summary judgment. The judge stated

The clear language of the Lease provides that [defendant] is obligated to 'pay the Lessor . . . the rent due and any arrears and all damages that may arise in consequence of any default by the Lessee under the Lease.' . . . This obligation is qualified by an expiration provision which provides that the 'personal guaranty shall expire and become void at the end of the Fifth Lease Year,' '[o]n condition that Lessee is not in default.'

[Plaintiff] has demonstrated that [the lessee] was in default of its lease obligations at the end of the first five years of the lease agreement. . . . [Plaintiff's] ledger shows that [the lessee] was in default and maintained a balance owed to [plaintiff] for extended periods within the first five years of the lease.

. . . Thus, [plaintiff] has demonstrated that [the lessee] was in default at the end of the five year term, preventing the personal guaranty from expiring. As such, [defendant] is personally liable for [the lessee's] default throughout the entirety of the leasehold.

The judge rejected defendant's argument that, because plaintiff did not seek to declare a "material default" under Section 13.1 of the lease by notifying the lessee of its failure to pay rent, plaintiff was barred from invoking the personal guaranty provisions of Section 16. The judge explained

[Plaintiff] argues that 'no default was ever declared,' but the personal guaranty does not contain a requirement that [plaintiff] notify [the lessee] of its default. Both parties agree that the language of the personal guaranty is unambiguous. Moreover, guaranty agreements should be strictly construed. See Ctr. 48 Ltd P'ship [v. May Dep't Stores Co.], 355 N.J. Super [390, 405 (App. Div. 2002)]. Thus, the court will not read into this unambiguous guaranty, a requirement that [plaintiff] notify [the lessee] of default, when no such language is contained in the Lease.

On March 17, 2014, Judge Kenny issued an amended order, entering judgment in plaintiff's favor against defendant and his two corporations "in the amount of $324,119.20, plus costs of suit." This appeal followed.

On appeal, defendant argues that "the lease agreement required written notice of nonpayment/noncompliance prior to 'default' [and] since there was no 'default,' [his] personal guaranty expired and became void as a matter of law." We disagree.

Our review of a ruling on summary judgment is de novo, applying the same legal standard as the trial court. Nicholas v. Mynster, 213 N.J. 463, 477-78 (2013). Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c).

When determining whether there is a genuine issue of material fact, the court must consider "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill, supra, 142 N.J. at 540. While the trial court's legal conclusions are owed no deference, Nicholas, supra, 213 N.J. at 478, this court should affirm the judgment if it finds that the trial court's conclusions of law were correct. Henry v. New Jersey Dept. of Human Servs., 204 N.J. 320, 330 (2010).

We have considered defendant's contentions in light of the record and applicable legal principles and conclude they are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We are satisfied that Judge Kenny properly granted summary judgment to plaintiff, and affirm substantially for the reasons expressed in her February 28, 2014 written opinion. However, we make the following brief comments.

"When resolving questions as to the interpretation of contracts of guarantee, we look to the rules governing construction of contracts generally." Center 48 Ltd. P'ship v. May Dept. Stores Co., 355 N.J. Super. 390, 405 (App. Div. 2002). In this case, the resolution of the parties' contentions depended on the trial judge's interpretation of the language of the guaranty provision set forth in Section 16 of the lease - - a matter of law, suitable for decision on a motion for summary judgment. Spring Creek Holding Co., Inc. v. Shinnihon U.S.A. Co., Ltd., 399 N.J. Super. 158, 190 (App. Div.), certif. denied, 196 N.J. 85 (2008).

"The polestar of contract construction is to discover the intention of the parties as revealed by the language used by them." Karl's Sales & Serv., Inc. v. Gimbel Bros., Inc., 249 N.J. Super.487, 492 (App. Div.), certif. denied, 127 N.J.548 (1991). In order to do so, the language used must be interpreted "'in accord with justice and common sense.'" Ibid.(citing Krosnowski v. Krosnowski, 22 N.J.376, 387 (1956)). "An agreement must be construed in the context of the circumstances under which it was entered into and it must be accorded a rational meaning in keeping with the express general purpose." Tessmar v. Grosner, 23 N.J.193, 201 (1957).

Unambiguous language controls the rights and obligations of the parties, even if it was unwise in hindsight. The court will not make a "more sensible contract than the one" the parties made for themselves. Kotkin v. Aronson, 175 N.J. 453, 455 (2003). The parties, especially sophisticated ones like the commercial parties involved in this case, are generally in the best position to determine their respective needs and obligations in negotiating a contract. Brundage v. Estate of Carambio, 195 N.J. 575, 601 (2008).

Applying these principles here, we discern no basis for disturbing Judge Kenny's conclusion that the terms of Section 16 of the lease were clear and unambiguous. Under the plain language of this provision, defendant's guaranty of the lessee's rent payments would continue past the initial five-year term of the lease if, during that period, the lessee was "in default of Base Rent, Additional Rent or any other term or condition of the Lease[.]" The term "default" was not defined in Section 16 or in any other provision of the lease. Webster's II New Riverside University Dictionary defines "default" as "a failure to perform a task or fulfill an obligation, [especially] failure to meet a financial obligation." It is undisputed that the lessee was in default of "Base Rent" at the conclusion of the initial five-year lease period in 2003 because it was over $25,000 in arrears at that time. Because the lessee was in default of its rent obligations, defendant's personal guaranty of the rent did not expire and continued throughout the remaining years of the lease.

On appeal, defendant continues to point to the language in Section 13.1 of the lease that required plaintiff to give written notice to the lessee prior to the declaration of "a material default and breach" permitting plaintiff to revoke the lease. Defendant argues that plaintiff was required to give the lessee a similar written notice that it was "in default of Base Rent" during the initial five-year lease period in order to continue to receive the personal guaranty protections afforded in Section 16 in the years after that period. Like Judge Kenny, we conclude that this argument lacks merit.

Section 13.1 of the lease is a separate and distinct provision relating to the steps plaintiff must take if it wishes to terminate the lease and take possession of the premises from the lessee. Section 16, on the other hand, is a provision singularly devoted to defendant's personal guaranty that he would make good on the lessee's obligations for the entire duration of the lease if the lessee failed to do so during the first five years of the tenancy. Section 16 does not reference Section 13.1 and, most importantly, does not impose any requirement on plaintiff to notify the lessee that it is "in default of Base Rent" before holding defendant responsible for his guaranty.

This interpretation of Section 16 is also consistent with Section 15.10 of the lease, which states that the remedies available to plaintiff are "cumulative" rather than "exclusive." This provision provides

15.10 CUMULATIVE REMEDIES

No remedy or election hereunder shall be deemed exclusive but shall wherever possible, be cumulative with all other remedies at law or in equity. The specific remedies given to the Lessor under the terms of this Lease are separate and cumulative and are not intended to be exclusive of any other remedies or means of redress to which the Lessor may lawfully be entitled in case of any breach or threatened breach of this Lease by the Lessee. The failure of the Lessor to seek redress for violation of, or to insist upon strict performance of any covenants or conditions of this Lease, or the exercise of any option of the Lessor herein conferred in any one or more instances, shall not be construed as a waiver or relinquishment for any future breach of such covenant or condition, but the same shall remain in full force and effect.

Thus, plaintiff's decision not to exercise its rights under Section 13.1 to declare the lessee in material default, and to terminate the lease, did not prevent it from invoking the protections afforded it under Section 16.

Finally, defendant argues that the parties failed to specifically reference defendant's continued obligation to guarantee the lessee's rent payments in the First and Second Lease Amendments. Therefore, he asserts he was no longer bound to his guaranty. We disagree. Each of the Amendments expressly stated that, "[e]xcept as modified herein, all of the terms, covenants and provisions of the [original] Lease are hereby confirmed and ratified and shall remain unchanged and in full force and effect." Nothing in the Amendments served to modify or extinguish defendant's promise to personally guarantee the lessee's rent payments as required by Section 16.

Affirmed.

1 Defendant also appealed the court's April 14, 2014 order denying his motion for reconsideration. However, his brief does not address this issue and we therefore deem it to have been abandoned. Grubb v. Borough of Hightstown, 353 N.J. Super. 333, 342 n.1 (App. Div. 2002) (explaining that an issue raised in a notice of appeal but not briefed is abandoned). In any event, we discern no basis for disturbing the trial court's denial of defendant's motion for reconsideration, which merely repeated the same arguments the court previously considered and rejected in granting plaintiff's motion for summary judgment. Cummings v. Bahr, 295 N.J. Super. 374, 384 (App. Div. 1996); D Atria v. D Atria, 242 N.J. Super. 392, 401-02 (Ch. Div. 1990).