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Mandica v. Brown

A-3611-05T2 (N.J. Super. App. Div. 2007) (Unpublished)

LEASES; PROMISSORY ESTOPPEL —A property owner, upon breaching an oral agreement by refusing to ultimately sign a promised lease, may be liable for damages to the prospective tenant if that tenant reasonably spent money in reliance upon the property owner’s promise to enter into that lease.

A restaurant owner and his wife ran a luncheonette for a number of years. An owner of a small airport, who was a frequent customer at the luncheonette, offered the restaurant owner an opportunity to open a restaurant at his airport. The airport owner eventually offered the restaurant owner the use of a building on the airport premises that was previously used as an eatery. He offered to charge the restaurant owner no rent except that the restaurant owner would cover the cost of the building’s real estate taxes and that the airport owner and his wife would receive free meals at the airport restaurant. The offer also included an opportunity to purchase the land that the restaurant stood on for one dollar if the restaurant was operated successfully for five years. In the event that a subdivision of the property could not be obtained, the airport owner alternatively offered the restaurant owner a ninety-nine year lease.

The restaurant owner conditioned the deal on the signing of a written lease. In negotiations over the terms of the lease, the parties disagreed over whether or not the lease would contain a reverter clause in favor of the airport owner, whether or not the liquor license was to be transferred to the restaurant owner, and which party would bear responsibility for structural maintenance. The restaurant owner, against the advice of his attorney, opened the restaurant at the airport before a written lease was signed. He felt that based on his long standing friendship with the airport owner, a written lease would later be signed. According to the restaurant owner, the airport owner was evasive about the subject of a written lease and also stated that such a lease was not necessary. Roughly one year after the restaurant opened, the restaurant owner became concerned over the amount of his investment in the luncheonette. He ultimately refused to continue operating and investing in the restaurant without a written lease or without assurances that the airport owner was going to apply for a subdivision.

As relations became increasingly hostile, the restaurant owner contacted the airport owner and offered to leave the premises on the condition that the airport owner reimburse him for the restaurant equipment. The airport owner ignored the restaurant owner’s offer, and in response the restaurant owner closed the restaurant and refused to reopen the restaurant without a written lease, which the airport owner refused to sign. The restaurant owner brought claims of contract breach and fraud against the airport owner. The lower court awarded seventy-thousand dollars to the restaurant owner for breach of contract, but dismissed his fraud claim. The airport owner’s motion to dismiss the contract claim was rejected on the basis that a jury could have reasonably found that the restaurant owner relied on the airport owner’s initial assurance that a written agreement would be signed and the application for a subdivision would be filed.

On appeal, the Court found that, absent a miscarriage of justice, the lower court’s ruling on the motions for a judgment notwithstanding the verdict was not to be disturbed and that the lower court’s decision could have reasonably been reached. The Court also upheld the lower court’s finding that the damages awarded to the restaurant owner were reasonably reached. Additionally, it found that a jury could have concluded that the property owner relied on the airport owner’s agreement to later sign a lease, that the airport owner breached the oral agreement by refusing to ultimately sign one, and that the restaurant owner acted reasonably when he refused to invest any more money into the restaurant. The Court additionally found that the same evidence would support a finding of promissory estoppel since the restaurant owner relied on the airport owner’s assurances to his detriment when he invested over eighty thousand dollars in the restaurant. As to the airport owner’s argument to have the damages reduced, the Court found that there was no basis to second guess the jury’s damage award.

As to the restaurant owner’s appeal of the lower court’s dismissal of his compensation claims for the land that was promised to him by the airport owner, the Court agreed with the lower court’s finding that disagreements over the reverter clause and the airport owner’s right of first refusal to re-purchase the restaurant property were significant enough differences to indicate that an enforceable agreement for a sale of the land was never reached by the parties. The Court additionally added that, under New Jersey law, an oral agreement for a transfer of land cannot be enforced without clear and convincing evidence of a property transfer’s nature. In addition, the Court upheld the lower court’s dismissal of fraud claims, finding that no reasonable jury could have concluded that the airport owner committed fraud.

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