News & Noteworthy

Authored - NJ Contract Law Update - Facial Ambiguity Gives Way to Common Sense
OCTOBER 09, 2012

In 2000 Clements Bridge, LLC v. OfficeMax North America, Inc., 2012 WL 3600285 (D.N.J. August 21, 2012)--referred to below as "OfficeMax"--the Court overrode an obvious linguistic ambiguity in favor of common sense. The Court's common sense extended to even disregarding a concession the plaintiff had made--made erroneously, based on the Court's reading of an unambiguous contract term.

By way of introduction (for the newer contract practitioner), OfficeMax involved one of at least two types of "restrictive covenant" issue that arise from time to time: covenants affecting employment services, as to which the leading case is probably Community Hospital Group, Inc. v. More, 183 N.J. 36 (2005); and restrictive covenants regarding potentially competitive activities by different stores within (for example) a mall, such as in OfficeMax.

The facial ambiguity in OfficeMax was a product of the fact that in the modern era, many different types of stores (a) sell overlapping products, and (b) may be seen at the same mall. In OfficeMax, the main overlapping products were "computers and computer products". These were sold at the same Mall by both (1) OfficeMax and, consecutively, (2) (a) Circuit City and then (b) Gregg Appliances, Inc. Thus, there was competition as to the same or similar products sold at both OfficeMax and the appliance stores.

But the OfficeMax lease had ostensibly validated the presence of Circuit City at the Mall. This presented the Court with two potentially contradictory clauses:

  1. A clause in the OfficeMax lease prohibiting certain uses at other Mall locations, including both (i) stores whose "purpose" involved "computers and computer products"; and in addition, (ii) "[f]or any purposes which would permit more than...1000...square feet of space to be used for any prohibited uses"--which would entail ancillary sales of "computers and computer products. Prohibited uses were expressly exemplified as other 'name' office-supply stores.
  2. A different provision obviously designed to maintain a level of 'traffic' at the mall; which not only recognized the existence of the Circuit City tenancy (later replaced by Gregg Appliances), but also provided 'penalties' in favor of OfficeMax against the landlord if (inter alia) Circuit City went out of business without being timely replaced.

It should be noted that Gregg Appliances timely replaced Circuit City after the latter went out of business; but in the litigation, the landlord erroneously conceded that the replacement was untimely. The Court elected to disregard this concession.1

The most interesting portion of the Court's Opinion was this: While, on its face, Gregg Appliances' sales of computer and computer supplies was not only a factual issue, but ostensibly an indisputable violation, the Court validated the activity as not breaching the landlord's restrictive covenant. The Court expressly focused on two concepts:

  1. Sub silentio, the Court applied eiusdem generis2: namely, that listing office-supply stores meant that this was the type of use prohibited.
  2. Because Gregg's lease expressly permitted sales of items such as computers, even while reciting in another part of the lease "the prohibited uses", there could not have been any intent by those parties to violate what they understood the OfficeMax prohibitions to be3. However, Court was obviously most heavily influenced by a logically-telling fact that the Court claimed to virtually ignore:
  • Ironically, OfficeMax negotiated for Circuit City to remain in the Shopping Center via the Cotenancy Provision. OfficeMax evidently found Circuit City to benefit its business. When Landlord replaced Circuit City with hhgregg, a substantially similar store, OfficeMax claimed a violation of the Prohibited Uses Provision. OfficeMax's seemingly anomalous position, however, is not dispositive to these Motions.

The Court's further rulings are of some interest:

  1. Because "unjust enrichment is an equitable doctrine"--whereas "if an adequate remedy at law exists, equitable relief will not be granted"--unjust enrichment was not applicable. Although this point is a bit vague in the Opinion, presumably (a) this ties into point #2 immediately below (meaning no unjust enrichment when there is a clear contract), and (b) the Court's impression was that allowing defendant to take advantage of its technical arguments would be inequitable.
  2. "A breach of the covenant of good faith and fair dealing does not apply to express contract terms."
  3. "With respect to the tortious interference claim, an entity cannot interfere with its own contract."

The moral of the story is that technical legal arguments sometimes have to give way to common sense, or 'the Opinion won't write'.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

1 The Court also ignored plaintiff's unusual behavior in both (1) disputing the existence of a violation, and (2) notifying Gregg that the same conduct constituted a violation.

2 Meaning that a specific listing of items gives meaning to how broad the unstated items on the list should be deemed to be.

3 The Opinion does not explain why this interpretation should have been binding on OfficeMax, not a party to the Gregg lease.

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