WASSERMAN'S, INC. v. TOWNSHIP OF MIDDLETOWN 137 N.J. 238, 645 A.2d l00 (1994). CASE BRIEF

WASSERMAN'S, INC. V. TOWNSHIP OF MIDDLETOWN

137 N.J. 238, 645 A.2d 100 (1994).

NATURE OF THE CASE: Township (D), lessor challenged an order which affirmed the trial court's decision that a commercial lease with Wasserman's (P) lessee for municipally owned property was valid and its cancellation clause with stipulated damages was enforceable.

FACTS: D owned a parcel of approximately 20,500 square feet in a commercial area. From 1948 to 1968, P leased the property from D for a 3,200-square-foot general store. In 1969, D advertised for bids to lease the property, which D evaluated at $47,500. P submitted the sole bid. D rejected that bid and again advertised in May 1970. P submitted the only bid. P and D signed a lease May 21, 1971. A cancellation clause in the lease stated that if D cancelled the lease, it would pay P a pro-rata reimbursement of improvement costs. Payment was to be made on the total value of all improvements made by Pat time of construction x (multiplied by) years remaining in Lease term (divided by) total number of years in Lease term.' The second half of the clause also required D to pay 'twenty-five percent of the lessee[']s average gross receipts for one year (to be computed by + (adding) the lessee[']s total gross receipts for the lessee[']s three full fiscal years immediately preceding the time of cancellation of the lease and (dividing by) 12 (twelve)[)].' The fixed monthly rental was $458.33, with no escalation for the entire thirty-year term. P made improvements spending $142,336.01 and expanded the store to 5,200 square feet. In August 1973, P sold 'the business,' and sublet the premises to Rocco Laurino doing business as Jo-Ro, Inc. (Jo-Ro). Jo-Ro was to pay P a monthly rent of $1,850. In 1977, Samuel Krawet and Arnold Kornblum purchased from Laurino all of the Jo-Ro stock for $95,000. D sent a letter to P stating that D would permit subletting the property to Jo-Ro. On December 7, 1987, D cancelled the lease effective December 31, 1988. Krawet and Kornblum vacated the premises, leaving them without a place for their business. D then sold the property at public auction, for $610,000, nearly thirteen times the value of the property at the time D had leased it to P in 1971. Ps sued for breach of contract, seeking in part damages under the terms of the lease. D filed an answer and counterclaim seeking a declaration of invalidity of that part of the cancellation clause that required D to pay as damages twenty-five percent of the lessee's gross receipts. The trial court upheld the clause and awarded $346,058.45 in damages. The appellate division affirmed, and the state supreme court granted review.

ISSUE:

RULE OF LAW:

HOLDING AND DECISION:

LEGAL ANALYSIS:

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