SACKMAN ENTERPRISES, INC. v. 309 ASBURY CORP.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2723-04T22723-04T2

SACKMAN ENTERPRISES, INC.,

Plaintiff-Respondent,

v.

309 ASBURY CORP.,

Defendant-Appellant.

____________________________________

 

Argued February 16, 2006 - Decided June 2, 2006

Before Judges Wefing, Wecker and Fuentes.

On appeal from the Superior Court of New

Jersey, Chancery Division, Monmouth County,

C-212-02.

Patrick D. Tobia argued the cause for

appellant (Clemente, Mueller & Tobia,

attorneys; Mr. Tobia, on the brief).

Andrew J. Karas argued the cause for

respondent (Feitlin, Youngman, Karas, &

Youngman, attorneys; Mr. Karas, on the

brief).

PER CURIAM

Defendant, 309 Asbury Corp. ("Seller"), appeals from a judgment declaring it bound by a contract to sell certain real property to plaintiff, Sackman Enterprises, Inc. ("Buyer"), and ordering specific performance under that contract. After a four-day trial, the trial judge issued a written opinion in which he concluded that the parties were bound by the contract.

The trial judge summarized his ruling:

Because buyer's January 10, 2002 termination was rescinded through the mutual assent of both parties and because the due diligence period was extended and then replaced by an agreement which negated the need for the due diligence period, and in the absence of a disclaimer by seller of there being a continuing, viable contract within a reasonable period of time, the court concludes that the parties should remain bound by the contract, as modified by the first amendment.

Because we conclude that the original contract had been lawfully terminated by the Buyer, and because a written "First Amendment" was never executed by the Seller despite months of negotiations, we reverse.

I.

The evidence adduced at trial established these undisputed facts. On November 30, 2001, the parties executed a Contract of Sale for property in Asbury Park located at 309 Asbury Avenue. The property included a structure that was more than 100 years old and had once been the Metropolitan Hotel. The building had been vacant for approximately fifteen to twenty years.

The immediately relevant provision of the Contract for purposes of this appeal is Paragraph 13(a), which sets forth the period of time within which Buyer was permitted to conduct any investigation or study it wished, as part of its "due diligence."

Paragraph 13a, titled "Inspection of Property by Buyers," stated the following:

Due Diligence. The Buyers shall have thirty (30) days from the full execution and delivery of the contract to conduct its due diligence relative to the premises which are the subject of this Contract, which shall include investigation of the zoning of the property, the conduct of tests, inspections, studies and/or economic investigations concerning the property and the intended use for same and such other investigations, studies or surveys as Buyer in their [sic] sole discretion deems necessary. If at the expiration of the thirty (30) days Buyer has not concluded its due diligence or an extension thereof has not been agreed upon between Buyer and Seller, Buyer shall have fifteen (15) days from the expiration of the due diligence period within which to notify the Seller of its intention to proceed or not proceed under the terms and conditions of the contract. If Buyer intends to proceed then the due diligence period shall be considered to have been satisfied. If Buyer decides not to proceed, then this Contact [sic] shall be declared null and void and the liabilities of the parties each to the other shall cease. Nothing herein shall prevent the parties from agreeing amongst themselves to any extension of the due diligence period. Any notices regarding the due diligence period must be in writing and must be served in accordance with the notice provision contained in this contract.

[Emphasis added.]

Correspondence from Buyer's attorney, David M. Weiner, to Seller's attorney, Paul Tannenbaum, confirmed that the contractual due diligence period would expire on or about December 31, 2001.

As December 31 approached, Buyer had concerns regarding asbestos, lead-based paint, and fuel storage tanks on the property. Buyer had retained an engineering and environmental firm to conduct inspections on the property, but by late December, Buyer had not received any reports from the firm. Accordingly, on December 21, 2001, Buyer made a formal request for a ninety-day extension of the due diligence period, up to and including March 31, 2002. Weiner instructed Tannenbaum to "[p]lease advise your client that it is my client's present intention to terminate the contract unless a significant extension is agreed upon on or before 15 days after December 31, 2001." Three days after Weiner requested the extension, in a letter dated December 24, 2001, Tannenbaum responded by stating that he had discussed the request for an extension of the period with his client, and that Seller was "unable to agree to an extension of the due diligence period."

As a result, in a letter to Tannenbaum dated January 10, 2002, Weiner terminated the Contract pursuant to Paragraph 13a and demanded the immediate return of Buyer's deposit. Specifically, Weiner's letter stated:

On December 24, 2001, your client refused to extend the due diligence period beyond December 30, 2001.

It is my understanding that yesterday the parties were unable to agree amongst themselves to an extension of the due diligence period. In fact, I understand that your client was unwilling to grant any extension whatsoever.

Therefore, I have been directed by my client to send this letter advising you of my client's intention not to proceed and the immediate termination of the Contract in accordance with Section 13(a) of the Contract. Accordingly, demand is hereby made for the immediate return of all deposit monies totaling $120,000.00, with accrued interest thereon if any, and without set off or deduction, being held by your firm as Escrow Agent in accordance with Section 5 of the Contract.

I also understand that upon the breakdown of discussions regarding an extension of the due diligence period, your client threatened not to return my client's deposit monies. It is respectfully submitted to you that the Contract does not provide for a Seller's right to object to Buyer's termination of the contract due to the failure of the parties to agree upon an extension of the due diligence period. While Section 5(a) refers to the Escrow Agent's authority in the event of a "dispute" between Seller and Purchaser, the fact that Buyer has the unqualified right to terminate the Contract in the event of a failure to agree amongst the parties upon an extension of the due diligence period makes perfectly clear that a "dispute" under the Contract could never include a failure of the parties to agree upon such an extension. . . .

. . . Any action taken by your firm other than the immediate return of all deposit monies to Buyer shall result in suit being immediately commenced against your firm as well as against Seller for all damages resulting therefrom, including attorney's fees and costs of suit as permitted by the terms of the Contract.

[Emphasis added.]

Less than a week later, Tannenbaum indicated to Weiner by letter dated January 15, 2002, that Seller might be willing to revisit the issue of an extension of the due diligence period. Tannenbaum wrote:

As we discussed earlier today, my client is requesting complete copies of any and all reports and studies obtained by Buyer in the course of its due diligence, as set forth in paragraph 16 of the Contract of Sale, as a condition for the return of Buyer's deposit.[]

Also, please be advised that my client is amenable to extending the due diligence period, provided that the parties can agree to reasonable and adequate safeguards concerning the parameters of any additional due diligence.

[Emphasis added.]

A subsequent exchange of letters between Weiner and Tannenbaum reflected a relaxation of each party's position regarding a possible extension of the period. In a letter dated January 22, 2002, Weiner responded to Tannenbaum's January 15 letter, stating that Buyer "was encouraged to read the second paragraph of your letter, wherein you seem to express a change in your client's position and a willingness to extend the contract's due diligence period." Weiner advised Tannenbaum that his client was "prepared to discuss an extension with a reinstatement of the contract of sale," but if the parties were "again unable to agree in writing to an extension before January 31, 2002," Weiner stressed that the deposit monies must be returned to Buyer "on or about February 1, 2002." Tannenbaum responded by letter dated January 24, 2002: "[P]lease be advised that my client is prepared to extend the due diligence period pursuant to the parties' Contract of Sale until February 28, 2002." In the same letter, Tannenbaum emphasized that he had not yet received copies of the reports that Buyer had obtained as part of its due diligence. Following this exchange, the parties did not engage in any further discussions concerning an extension to the due diligence period.

Nonetheless, after Tannenbaum's January 24, 2002 letter was delivered, the parties negotiated various environmental concerns that Buyer had raised. Seller undertook to handle the necessary demolition work, and the parties seemingly reached an understanding on the scope of work that was to be done, as well as the price for the work and the time frame for its completion. In a letter to Weiner dated February 11, 2002, Tannenbaum revised the price Seller would charge for the work and the estimated time it would take, and anticipated that Buyer's attorney would draft the necessary agreements, including an amendment to the original Contract. Tannenbaum wrote:

[P]ursuant to the parties' agreement[,] the price of the work shall be $385,000.00 and not the $465,000.00 indicated on the enclosed description. It is expected that the project will take three months to complete. Pursuant to our conversation, it is my understanding that you will prepare the draft agreements (a) amending the contract of sale; and (b) setting forth the terms and conditions of the demolition agreement.

A proposal for the work to be done on the property was attached to Tannenbaum's letter. The proposal was signed by Donald Cresitello, the president of 309 Asbury Corp. In a follow-up letter to Weiner dated February 12, 2002, Tannenbaum stated that he had sent an incorrect description of the work to be done and that he was attaching a correct description. The February 12, 2002 letter also referred to "the parties' agreement for the price of the work."

Subsequently, Seller hired Vaccaro Enterprises to perform demolition work at the property. The scope of the work that Vaccaro was hired to perform mirrored the scope of work that the parties had discussed, with the exception of the removal of certain storage tanks which Cresitello said that he would handle on his own. In furtherance of this work, Vaccaro applied for three permits, one for demolition, one for asbestos removal, and one for removal of fuel tanks.

The parties dispute the purpose of Seller's undertaking the demolition work. Cresitello testified that his decision to hire Vaccaro had nothing to do with the proposal that was sent to Weiner, and that one of the reasons for having the demolition work done was to avoid a fire inspection. The judge, however, found that Vaccaro obtained the necessary construction permits to further the agreement referenced in the February 12, 2002 letter from Tannenbaum to Weiner. We consider this dispute and its resolution by the judge immaterial to the issue before us.

The parties continued to negotiate over the next four months. As early as the middle of February, Weiner began drafting an "amendment" to the original Contract. By June 2002, the parties seemed close to agreeing upon a written amendment to the Contract. On June 14, 2002, Seller's new attorney, Louis I. Karp, sent Weiner a revised version of a proposed "First Amendment to the Contract of Sale." In a letter to Karp dated June 27, 2002, Weiner returned a copy of the First Amendment, signed by Buyer, along with a copy of a check in the amount provided for in the First Amendment. Weiner requested that Karp obtain his client's signature on the First Amendment.

On July 9, 2002, when Weiner had not received Seller's signature on the First Amendment and learned that the property was being marketed to other potential buyers, Weiner wrote to Karp, claiming that Seller had rejected Buyer's earlier termination of the Contract, "that the Property in question is still under contract [to Buyer] and there has been a meeting of the minds with respect to the amendments to the original contract." Weiner accused Seller of a "fraud upon our client [that] will not be tolerated." Also on July 9, Tannenbaum returned Buyer's deposit along with a cover letter instructing Weiner that all future communications should be with Karp.

In a subsequent letter dated July 10, 2002 and faxed to Karp, Weiner stated that Buyer would be willing to close on the property on August 13, 2002, "based upon the original contract and without the First Amendment to Contract . . . ." Weiner received a response, by facsimile from Karp also dated July 10, 2002, stating that the parties were not bound by the terms of the original Contract because Weiner's January 10 letter terminated that contract on behalf of Buyer. Karp maintained that "[a]ny delay in returning the deposit was a result of the parties['] efforts to come to a new agreement."

II.

We defer to a judge's findings as the trier of fact unless they are unsupported by sufficient credible evidence. See Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974); Avalon Manor Improvement Ass'n, Inc. v. Twp. of Middle, 370 N.J. Super. 73, 100-01 (App. Div.), certif. denied, 182 N.J. 143 (2004). No such deference applies to a trial judge's legal conclusions or application of law to the facts. Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995); Avalon Manor Improvement, supra, 370 N.J. Super. at 100-01. The material facts here, evidenced largely by the written documents described above, are not significantly disputed. Rather it is the legal significance of those facts that is in dispute. Accordingly, the judge's conclusions in this case are subject to plenary review. See LoBiondo v. O'Callaghan, 357 N.J. Super. 488, 495 (App. Div.), certif. denied, 177 N.J. 224 (2003).

The judge gave these reasons for his decision: First, he concluded that the parties' conduct amounted to "a waiver or rescission of the declaration of termination." The judge held that although Buyer had acted to terminate the Contract of Sale, the parties' subsequent actions resulted in a rescission of Buyer's termination. The judge stated that Seller's active participation in the negotiating process and its refusal to sign the First Amendment resulted in the forfeiture of its "right to terminate the contract either for no reason or for the desire to make some other better deal with another person or entity."

In support of that decision, the judge relied upon the concept of "abandonment" of contract to require mutuality that is, that both parties had to agree to terminate the contract. That concept, see County of Morris v. Fauver, 153 N.J. 80, 96 (1988), is inapplicable where the contract itself grants one party the unilateral right to terminate, and the condition for termination has been met. Seller's refusal to extend the due diligence period past December 31, 2002 triggered Buyer's right to terminate, and Buyer exercised that right. Seller's post-termination offer to grant Buyer the previously refused extension of the due diligence period cannot unilaterally reinstate the terminated contract. The termination of the Contract of Sale was the result of Buyer's own decision to exercise its contractual right to terminate.

The judge next relied upon the doctrine of equitable estoppel to support his ruling. Buyer relies principally upon our decision in Ridge Chevrolet-Oldsmobile, Inc. v. Scarano, 238 N.J. Super. 149 (App. Div. 1990), to support the judge's application of equitable estoppel to Buyer's claim. Ridge stands for the proposition that a party to a contract that takes steps to mislead another party may be estopped from exercising its rights under the contract. Id. at 153-54. In Ridge, the parties executed a contract of sale for property on which the Buyer intended to build an automobile dealership. Id. at 152. The contract obligated the buyer to make a deposit of $25,000 within ten days of the execution of the Contract and to obtain a series of governmental approvals within approximately six months after the execution of the contract. The buyer's default would give the seller the option of extending the time period or terminating the contract. Ibid. Although the buyer did not pay the deposit, the seller did not exercise its right to terminate for well over a year, while the buyer expended considerable resources to obtain the necessary approvals, and kept the seller apprised of its efforts. Id. at 153. During that period, the seller even signed an authorization allowing the buyer to appear before the local Board of Adjustment to obtain the necessary approvals and variances. Ibid. Almost a full year after the seller's contractual right to terminate the contract accrued, the seller gave the first written notice of its intention to exercise its right to terminate. Ibid. Under those circumstances, we held that the seller was estopped from terminating, having waived its right to do so. Id. at 153-54.

Ridge is inapposite to the instant matter. In contrast to Ridge, here the party that seeks to enforce the Contract is the same party that possessed and exercised its right to terminate the Contract. Moreover, in Ridge it was the buyer that invested substantial resources in reliance on the seller's representations, whereas here, Buyer's only detriment was that it engaged in further voluntary negotiations. There is no evidence that Seller's conduct here caused Buyer to rely to its detriment. See Miller v. Miller, 97 N.J. 154, 172 (1984) ("Equitable estoppel is a doctrine that . . . . requires of one party a representation, and of the other party expected, consequential, and detrimental reliance."); Town of Phillipsburg v. Block 1508, Lot 12, 380 N.J. Super. 159, 174 (App. Div. 2005) ("[A]n essential element of estoppel . . . [is] reasonable, detrimental reliance upon the conduct of the party to be estopped."). Indeed, it was Seller who undertook the effort and expense of engaging contractors to begin demolition and cleanup of the property without having a firm commitment from Buyer in a new, fully executed contract.

Finally, in support of his decision, the judge emphasized "the growing effect of the [implied] covenant of good faith and fair dealing in New Jersey . . . . [which is] contained in all contracts." In New Jersey, "[e]very party to a contract . . . is bound by a duty of good faith and fair dealing in both the performance and enforcement of the contract." Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 224 (2005); see also Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 421-22 (1997). The basic premise of that implied covenant, however, is missing: there was no existing contract after January 10. Seller's obligations to Buyer ceased when Buyer exercised its right to terminate the Contract of Sale under the due diligence clause. Accordingly, Seller had no obligations to perform under the Contract of Sale, and no covenant of good faith and fair dealing applied.

In a footnote to his opinion, the trial judge referred to N.J.S.A. 25:1-13 and stated that Buyer's claim was "not barred by the Statute of Frauds." In adopting Buyer's position that the original Contract remained in force, as modified by the First Amendment signed only by Buyer, the judge did not accord any legal effect to those provisions of the Contract that required changes to be written and signed by both parties. Paragraph 37 provided that the agreement could not be orally modified, and Paragraph 44 provided that the contract could only be "changed by an agreement in writing signed by both the Buyer and Seller."

As we consider the role of the Statute of Frauds here, we recognize that in a significant change from prior law, the Legislature has provided that a contract for the sale of real estate is enforceable either when it is reflected in a writing signed by the parties, N.J.S.A. 25:1-13a, or if "the existence of the agreement and the identity of the transferor and the transferee are proved by clear and convincing evidence." N.J.S.A. 25:1-13b; LoBiondo, supra, 357 N.J. Super. at 495. Where the original Contract of Sale was terminated in January 2002, the parties expressed an intention to reduce any renegotiated agreement to writing, and the Buyer's signed draft of a proposed First Amendment was never signed by Seller, we hold that Buyer cannot, as a matter of law, satisfy either section of the statute. There is neither a writing signed by both parties nor the required clear and convincing evidence to establish a contract for the sale of the property.

In sum, it is plain to us that Buyer terminated the Contract, as it was unquestionably entitled to do, after Seller refused to extend the time for Buyer to complete its due diligence. Thereafter, the parties renewed negotiations involving an extension of the due diligence provision, as well as work defendant would undertake on the property and the cost to plaintiff. Plaintiff's attorney prepared a written "First Amendment" to the original contract, and sent a copy with plaintiff's signature to defendant's attorney to obtain its signature. Defendant never signed the First Amendment, but instead began marketing the property to others.

The Contract between the parties was null and void and of no legal significance after Buyer's termination letter. All subsequent communications between counsel for the parties represent their efforts to renegotiate an agreement, but no binding contract was executed.

Reversed and remanded for entry of judgment dismissing plaintiff's complaint.

 

Defendant's counterclaim (seemingly alleging a frivolous complaint) was dismissed by the same order. Defendant has not pursued an appeal of that portion of the order.

Paragraph 16 provides: "Seller shall be entitled to copies of any reports or studies obtained by the Buyer in the course of its due diligence."

In late March or early April, Karp commenced representation of Seller with regards to this transaction.

(continued)

(continued)

17

A-2723-04T2

June 2, 2006