EMERSON REDEVELOPERS URBAN RENEWAL, LLC v. LAUREL CHINESE RESTAURANT II, LLC
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SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0596-19T3
EMERSON REDEVELOPERS
URBAN RENEWAL, LLC,
Plaintiff-Appellant,
v.
LAUREL CHINESE
RESTAURANT II, LLC and
CAIQUI ZHENG,
Defendants-Respondents.
___________________________
Argued October 27, 2020 — Decided November 9, 2020
Before Judges Mawla and Natali.
On appeal from the Superior Court of New Jersey, Law
Division, Special Civil Part, Bergen County, Docket
No. LT-004022-19.
Michael W. O'Hara argued the cause for appellant
(Bisgaier Hoff, LLC, attorneys; Michael W. O'Hara, on
the briefs).
Keith S. Barnett, attorney for respondents.
PER CURIAM
Plaintiff Emerson Redevelopers Urban Renewal, LLC appeals from an
October 17, 2019 order dismissing its complaint for summary dispossession and
termination of a commercial tenancy. We vacate the order and remand for a
hearing.
Plaintiff acquired a commercial property in Emerson in April 2019 and
contracted with the Borough of Emerson to redevelop the property. Prior to
plaintiff's acquisition, the property was owned by 182 Emerson LLC (landlord)
who, in 2007, leased a portion of it to Laurel Chinese Restaurant, LLC (Laurel
I). The landlord and Laurel I entered into a First Amendment to Lease in January
2012, which extended the lease to 2022. In 2015, Laurel I changed its name to
Laurel Chinese Restaurant II, LLC (Laurel II), and assigned its interest to Laurel
Chinese Restaurant Inc. (Laurel Inc.) and its proprietor Min Cao. In November
2016, Laurel Inc. and Cao assigned their interest as tenants to Caiqui Zheng by
way of an Assignment and Modification of Lease (AML).
The AML is the subject of this appeal. It was a three-party agreement
signed by landlord, Laurel Inc. and Cao, and Zheng. In it, the landlord expressly
agreed Laurel Inc. and Cao could assign their rights to Zheng, contrary to the
lease's prohibition on subletting. The landlord agreed to extend the term of the
lease to 2026. The parties also amended the lease to state:
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In the event of any taking of the [p]remises or the
building designated as retail shopping center,
[l]andlord shall be entitled to receive the entire award
and [t]enant hereby assigns to [l]andlord any and all
right, title and interest of [t]enant in or to any such
award or any part thereof and hereby waives all rights
against [l]andlord. Landlord ha[s] the right to terminate
the lease at any time by giving [t]enant a notice of 90
to 120 days to cancel the lease and getting back the
store location[.]
Zheng began occupying the premises and operating his restaurant in
December 2016. In February 2019, the landlord served a notice to quit/notice
terminating tenancy on Zheng and Laurel II, which terminated the lease effective
May 31, 2019. Plaintiff acquired the property in April 2019. When Zheng
refused to surrender the property, plaintiff filed its complaint in June 2019.
The parties' initial court appearance was rescheduled because Zheng had
not retained counsel. When the parties returned to court, the trial judge
instructed plaintiff to file a brief addressing whether the AML was an illusory
contract. Although neither party filed a motion, plaintiff's counsel compli ed
with the judge's instructions and filed its brief followed by Zheng's counsel.
The parties also filed certifications in which they disputed the facts
surrounding the negotiation and execution of the AML. Plaintiff presented a
certification from the landlord who indicated he personally negotiated the lease.
A-0596-19T3
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He stated Cao contacted him regarding assigning the lease to Zheng, who was
Cao's relative. The landlord certified he
never met . . . Zheng and had no knowledge of his
educational or professional background, or his work
experience . . . [or] his financial status or
creditworthiness, or his ability to manage or operate a
restaurant.
. . . Because I was unfamiliar with . . . Zheng . . . I was
hesitant to agree to permit him further assignment of
the [l]ease.
The landlord further certified he was personally engaged in the
negotiations with Cao and Zheng regarding the proposed assignment and "Zheng
was represented by counsel, who I understood to be Tina Tang, Esq." The
landlord certified that due to Zheng's lack of prior experience owning or
managing a restaurant, he
was not satisfied that the financial information
provided . . . demonstrated . . . Zheng would be able to
satisfy the rent obligation for the proposed extended
term of the [l]ease.
. . . However, given my relationship with Min Cao and
Joanne Shi 1, and based on their representations to me, I
decided to provide consent to the [AML] to . . . Zheng.
However, . . . I advised . . . Cao and . . . Zheng that any
[a]ssignment [a]greement must include a termination
provision that would provide the landlord with the right
1
The landlord's certification asserted he "understood [Cao] to be . . . Shi's
husband".
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to terminate the [l]ease with . . . Zheng for any reason
if proper notice is provided.
. . . Cao and . . . Zheng advised me that . . . Zheng would
agree to the proposed termination provision if the
[AML] was granted, and on that basis I agreed to accept
the [AML].
....
. . . It was my understanding that . . . Zheng's attorney
. . . approved the [AML] and completed the transaction
for . . . Zheng and . . . Cao.
Zheng also filed a certification in which he disputed the salient facts. He
certified "I do not converse in the English language and . . . Chinese/Mandarin
is my native dialect[.]" His certification disputed the termination language was
included in the AML because of the landlord's concerns about his credit and lack
of experience. He attached a credit report showing his credit rating was good as
of June 19, 2019 and certified "at the time I was interested in leasing the subject
property my credit score was even higher[.]" He certified he was never the
subject of a debt collections suit and had never filed for bankruptcy. He also
stated he "had considerable experience in the restaurant business before [he]
leased [pursuant to the AML]."
Zheng disputed other basic facts. Contrary to the landlord's certification ,
Zheng certified "I am not related in any way to . . . Cao." He stated "I did not
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engage in any negotiations regarding the [AML]. . . . Initially, it was . . . Cao
and his wife . . . [who] approached [the landlord] about assigning their lease to
me." Zheng denied having an attorney, certifying "[a]s far as any claims about
my being represented by a Tina Tang, Esq., I do not know such [a] person." He
claimed he never retained an attorney and the landlord's attorney prepared the
AML, gave it to him and Cao, and "requested that we find a [n]otary and sign
the [AML.]"
Importantly, Zheng certified as follows:
Although I was aware of the termination provision
contained in the [AML], I thought I had no choice but
to sign this document if I wanted to have the landlord's
permission to lease the property and operate a
restaurant.
. . . Because the lease was for [a] period of ten years
and provided for an option of an additional five years,
it seemed very unlikely that my lease would be
terminated any time soon.
Zheng also cited the fact he invested $120,000 to purchase the restaurant and
claimed he had been deceived into executing the [AML] and "[h]ad [he] known
of the landlord's real intentions to demolish and develop the subject property,
[he] would not have entered into [the AML]."
Counsel and the parties appeared for oral argument in August 2019. When
the judge asked counsel whether the AML's language could be stipulated into
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evidence, both agreed and advised the judge there was no need for testimony
regarding the terms of the AML. Although the judge announced he was ready
to rule, he proceeded to debate facts regarding the formation of the AML with
counsel, namely, Zheng's experience in interpreting or drafting leases and the
parties' respective bargaining power, whether Zheng was represented by
counsel, whether there was consideration for the AML's termination provision,
the length and complexity of the AML, the fairness to Zheng in terms of the
money invested in the restaurant, and plaintiff's motives for terminating the
lease. The judge concluded as follows: "The question is . . . whether or not this
is an illusory provision and it may or may not be. But the scales tilt . . . in . . .
favor of the tenant here because there is no counsel on site. It's not a level
playing field." The judge dismissed the complaint without prejudice and ordered
the parties to submit an order.
The parties could not settle the form of the order and returned to court
four weeks later. Although the judge expressed his order was "simple" and could
not understand why the parties could not resolve it, he took the opportunity to
amplify his findings. He questioned the enforceability of the AML stating:
"[H]ow could have there been a meeting of the minds when there's a law firm
on one side and [Zheng] doesn't even speak English[?]" The judge again
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questioned whether Zheng had counsel and concluded this was the only factual
dispute. The judge stated he would sign an order citing the findings he placed
on the record and transmit it to the parties at a later date.
Plaintiff filed its notice of appeal on October 9, 2019. Eight days later,
the judge amplified his findings again. Citing Bryant v. City of Atlantic City 2,
the judge concluded the AML was unenforceable because it imposed "no
obligation on the part of the landlord to perform." The judge said he "depended
entirely" on the parties' certifications and found Zheng's persuasive. He
concluded Zheng "was not represented by counsel at the time of the execution
of the [AML]" and accepted Zheng's representations he did not understand
English. He rejected plaintiff's claims it negotiated the termination provision in
the AML as consideration for Zheng's lack of credit worthiness and business
experience. The judge concluded this did not constitute consideration because
Zheng's financial status and business experience pertained to his ability to pay
the rent, against which the landlord was protected because "the landlord could
just bring a non-payment case." The judge found Zheng's assertion he would
never have signed the lease if he knew the landlord intended to redevelop the
property "rings far more true to the [c]ourt than does the opposing argument of
2
309 N.J. Super 596 (App. Div. 1998).
A-0596-19T3
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the plaintiff." The judge concluded "there was no level playing field here"
because Zheng "did not have a complete understanding of what he was signing,"
and "there was no meeting of the minds and this is what led . . . to this contract
being illusory."
On appeal, plaintiff argues the judge erred in concluding the AML
termination provision is unenforceable because Zheng voluntarily signed the
lease and was aware of the provision, there was no evidence of fraud, and the
judge raised the illusory issue sua sponte. Plaintiff argues the AML is not
illusory because, pursuant to the covenant of good faith and fair dealing,
defendants had an obligation to honor it, a party can reserve termination rights
to itself, the parties partially performed, and the termination provision was in
consideration for plaintiff modifying the lease to permit an assignment. Plaintiff
argues the judge re-wrote the AML, and Bryant is distinguishable because here
there was advance notice of the termination provision and partial performance.
Plaintiff asserts the judge decided the case without either party having formally
filed a motion. Notwithstanding the absence of a formal motion, plaintiff argues
the judge did not apply the Rule 4:6-2(e) standard and instead decided the matter
on conflicting certifications without a hearing.
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We typically defer to the factual findings of a trial judge because they
comprise "credibility determination[s] and the judge's 'feel of the case' based
upon his or her opportunity to see and hear the witnesses." N.J. Div. of Youth
& Fam. Servs. v. R.L., 388 N.J. Super. 81, 88 (App. Div. 2006) (citing Cesare
v. Cesare, 154 N.J. 394, 411-13 (1998)). We review questions of law de novo.
Manalapan Realty v. Twp. Comm. of the Twp. of Manalapan, 140 N.J. 366, 378
(1995).
Our Supreme Court stated:
As a general rule, courts should enforce contracts as the
parties intended. Henchy v. City of Absecon, 148 F. Supp. 2d 435, 439 (D.N.J. 2001); Kampf v. Franklin
Life Ins. Co., 33 N.J. 36, 43 (1960). Similarly, it is a
basic rule of contractual interpretation that a court must
discern and implement the common intention of the
parties. Tessmar v. Grosner, 23 N.J. 193, 201 (1957).
The court's role is to consider what is written in the
context of the circumstances at the time of drafting and
to apply a rational meaning in keeping with the
"expressed general purpose." N. Airlines, Inc. v.
Schwimmer, 12 N.J. 293, 302 (1953); accord Dontzin
v. Myer, 301 N.J. Super. 501, 507 (App. Div.
1997) . . . .
[Pacifico v. Pacifico, 190 N.J. 258, 266 (2007).]
In the quest for the common intention of the parties to
a contract the court must consider the relations of the
parties, the attendant circumstances, and the objects
they were trying to attain. An agreement must be
construed in the context of the circumstances under
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which it was entered into and it must be accorded a
rational meaning in keeping with the express general
purpose. Cameron v. Int'l, etc., Union No. 384, 118
N.J. Eq. 11 (E. & A. 1935); Mantell v. Int'l Plastic
Harmonica Corp., 141 N.J. Eq. 379 (E. & A. 1947);
Heuer v. Rubin, 1 N.J. 251 (1949); Casriel v. King, 2
N.J. 45 (1949); Owens v. Press Publ'g Co., 20 N.J. 537,
543 (1956).
Even where the intention is doubtful or obscure, the
most fair and reasonable construction, imputing the
least hardship on either of the contracting parties,
should be adopted, Int'l Signal Co. v. Marconi Tel. Co.
of Am., 89 N.J. Eq. 319 (Ch. 1918), aff'd, 90 N.J. Eq.
271 (E. & A. 1919), so that neither will have an unfair
or unreasonable advantage over the other. Wash.
Constr. Co., Inc. v. Spinella, 8 N.J. 212, 217 (1951).
These rules apply in all circumstances, whether the
agreement be integrated or unintegrated. Cameron v.
Int'l, etc., Union No. 384, 119 N.J. Eq. 577, p. 581.
[Tessmar v. Grosner, 23 N.J. 193, 201 (1957).]
The Court stated:
Any number of interpretative devices have been used to
discover the parties' intent. These include
consideration of the particular contractual provision, an
overview of all the terms, the circumstances leading up
to the formation of the contract, custom, usage, and the
interpretation placed on the disputed provision by the
parties' conduct. Several of these tools may be
available in any given situation — some leading to
conflicting results. But the weighing and consideration
in the last analysis should lead to what is considered to
be the parties' understanding.
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[Kearny PBA Local # 21 v. Kearny, 81 N.J. 208, 221
(1979).]
In Bryant, the plaintiffs, a group of Atlantic City "residents, taxpayers,
and interested associations" filed a complaint in lieu of prerogative writs, which
challenged the city's plans to give land in its marina district to a developer to
rehabilitate. 309 N.J. Super. at 602-03. The city and the developer entered into
a memorandum of understanding, which permitted the developer to cancel the
agreement if the costs to remediate the site became excessive, the developer
could not obtain a certain type insurance, or if a bypass was not built. Id. at
608-09. Plaintiffs argued the numerous contingencies in the agreement rendered
it illusory. Id. at 620. The trial judge disagreed, and we affirmed, concluding
the agreement was not illusory because the developer did not have unfettered
discretion to terminate it due to the contingencies. Id. at 621.
We stated:
[A]n illusory promise is one in which the "promisor has
committed himself not at all." J.D. Calamari and
Joseph M. Perillo, Contracts, § 4-17 at 159 (2d ed.
1977). Thus, if performance of an apparent promise is
entirely optional with a promisor, the promise is
deemed illusory. Id. at 160.
A promise is not illusory "if the power to
terminate is conditioned upon some factor outside the
promisor's unfettered discretion, such as the promisee's
non-performance, or the happening of some event such
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as a strike, war, decline in business, etc." Id. at 161. In
general, our courts should seek to avoid interpreting a
contract such that it is deemed illusory. Russell v.
Princeton Lab., Inc., 50 N.J. 30, 38 (1967); Nolan v.
Control Data Corp., 243 N.J. Super. 420, 431 (App.
Div. 1990).
[Bryant, 309 N.J. Super. at 620-21 (emphasis added).]
The Supreme Court has emphasized that, even where a contract contains
unilateral language, a court should avoid construing it as illusory. The Court
stated:
[W]here an arrangement gives rise to contractual rights,
as distinguished from a mere hope for a gratuity, the
majority of the courts hold that provisions purporting
to give finality to corporate or committee decisions will
not support arbitrary action. . . .
A contract should not be read to vest a party or
his nominee with the power virtually to make his
promise illusory. Especially must this be so when a
forfeiture will follow. It is appropriate to apply the rule
to which a trustee is subjected, that notwithstanding the
apparent finality with which the instrument clothes his
action, he must stay within the bounds of a reasonable
judgment.
[Russell v. Princeton Labs., Inc., 50 N.J. 30, 38 (1967)
(citations omitted).]
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In Nolan v. Control Data Corp. 3, plaintiff, a computer salesperson, sued
defendant, his employer, arguing his employment contract was illusory because
it permitted defendant to alter the sales quotas and thus plaintiff's compensation
"retroactively, currently or prospectively without notice and presumably without
reason." Id. at 421. The trial judge agreed and concluded "'[t]he law governing
[his] employment contract allows [him] no protection against the employer's
unilateral modifications in compensation.'" Id. at 428. We disagreed and held
"this absolute and unfettered power in the contract must be exercised in good
faith and for legitimate business reasons so as not to deprive an employee of the
fairly agreed benefits of his labors." Id. at 421-22. We reasoned the
basic precepts of contract interpretation militate against
our finding that [defendant's] sales plans conferred
upon it the absolute, unfettered discretion to amend its
compensation scheme retroactively at any time and for
any reason whatever. Rather, a more reasonable and
constrained construction of the contract is indicated.
While [defendant] suggests that the language of its
sales plans bestows upon it virtually limitless powers,
we must seek to determine whether such an
interpretation ever was within the fair contemplation of
the parties.
[Id. at 432.]
3
243 N.J. Super. 420 (App. Div. 1990).
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With these principles in mind, we conclude the trial judge erred when he
found the AML termination provision illusory without a hearing. The parties
disputed several material facts, which impacted upon the discernment of their
common intent. The disputed facts concerned how the contract was formed,
namely, whether Zheng was represented, if he understood English, and was
competent to contract for the termination provision. Moreover, the parties'
understanding regarding consideration was also not settled by the dueling
certifications submitted to the trial judge. Fundamental questions persisted
regarding the termination language, namely, whether Zheng knew of plaintiff's
intentions to redevelop the property and still contracted for the language, or
whether he contracted for it due to poor credit worthiness and lack of restaurant
industry experience. Finally, there was a question of whether by renting to
Zheng for more than two years before terminating the lease, plaintiff had
operated in good faith considering Zheng claimed he invested substantial sums
into the property. A hearing was necessary to resolve these facts before the
judge could invalidate the termination provision. For these reasons, we vacate
the order and remand for a plenary hearing.
Vacated and remanded. We do not retain jurisdiction.
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