NET2 FUNDS, LLC v. HARTZ MOUNTAIN INDUSTRIES INC
Annotate this CaseNOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0223-15T
1 NET 2 FUNDS, LLC,
Plaintiff-Appellant,
v.
HARTZ MOUNTAIN INDUSTRIES,
INC.,
Defendant-Respondent.
HARTZ MOUNTAIN INDUSTRIES,
INC.,
Plaintiff-Respondent,
v.
NET 2 FUNDS, LLC, a Delaware
limited liability company,
Defendant-Appellant.
Argued June 6, 2017 – Decided May 9, 2018
Before Judges Ostrer, Leone, and Vernoia.
On appeal from Superior Court of New Jersey,
Law Division, Bergen County, Docket Nos. L-
6280-13 and L-6301-13.
Daniel R. Guadalupe argued the cause for
appellant (Norris, McLaughlin & Marcus, PA,
attorneys; Daniel R. Guadalupe, of counsel and
on the briefs; Deanna L. Koestel and Bradford
W. Muller, on the briefs).
Joseph M. Aronds argued the cause for
respondent (Horowitz, Rubino & Patton,
attorneys; Joseph M. Aronds, of counsel and
on the brief).
The opinion of the court was delivered by
LEONE, J.A.D.
Appellant Net 2 Funds LLC ("N2F") entered into a contract to
purchase a long-term ground lease owned by respondent Hartz
Mountain Industries, Inc. ("Hartz"). After the parties failed to
close, N2F and Hartz each brought suit to recover deposit funds
being held in escrow by defendant Royal Abstract Corp. of New
Jersey. In a bench trial, the court awarded the $950,000 deposit,
plus interest, to Hartz. We affirm.
I.
Judge Robert C. Wilson's July 9, 2015 oral opinion found the
following facts. In spring 2012, N2F, a subsidiary of IDT
Corporation ("IDT"), began exploring new locations for its
offices. One property N2F considered was located at 65 Challenger
Road, Ridgefield Park ("Property"). The Village of Ridgefield
Park ("Village") owned the land, and Hartz had a long-term ground
lease to the Property, where it maintained an office building with
a parking garage. After touring the Property several times and
speaking with representatives of Hartz, IDT submitted a $9.5
2 A-0223-15T1
million offer to purchase the long-term ground lease in December
2012.
Shmuel Jonas was the CEO of IDT and Executive Vice President
of N2F. He testified to the following. When IDT became interested
in acquiring the long-term ground lease, KABR Group ("KABR") was
also a potential buyer for the ground lease, and Hartz communicated
to both N2F and KABR that the first purchaser to "go hard" would
get the Property. In the context of commercial real estate, to
"go hard" means a buyer makes a deposit and waives some or all of
the contingencies which would normally allow a buyer to retrieve
its deposit. N2F agreed to "go hard," and a final contract between
the parties was signed on February 28, 2013.
In the contract, N2F agreed to purchase the ground lease for
$9,750,000, and to pay a $950,000 deposit into escrow. The parties
agreed to close on July 28, 2013. The contract provided that if
the closing did not occur due to the default of the buyer, the
seller could terminate the contract and would receive the deposit,
which would also serve as liquidated damages.
The contract also contained a provision stating that "time
is of the essence." Under that provision, if a party failed to
close on the July 28, 2013, the non-delaying party gave written
notice scheduling a new closing date at least ten days thereafter,
3 A-0223-15T1
and the delaying party failed to perform, then the non-delaying
party would be entitled to terminate the contract.
N2F conducted physical inspections of the Property. N2F
hired several engineers to inspect the Property, inquired into the
specific provisions of the ground lease, interviewed tenants, and
retained a consultant to review Hartz's due diligence documents.
In early July, Jonas called Hartz's Managing Director
Constantino Milano in an attempt to delay the closing beyond July
28, 2013. The trial court believed Milano's "highly credible"
testimony and his account of their conversation. Milano testified
Jonas contacted him asking to delay the closing many months so N2F
could collect relocation tax credits through the Grow New Jersey
initiative.1 The tax credits would not be available to N2F if it
purchased the building before the Grow New Jersey incentives were
available.
Milano rejected Jonas's request, and informed him closing
would occur on July 28 pursuant to the signed contract. Milano
1
"The Grow New Jersey Assistance Program,"
N.J.S.A. 34:1B-242 to
-250, is "a program under the jurisdiction of the New Jersey
Economic Development Authority" ("EDA") "to encourage economic
development and job creation and" job preservation by providing
"tax credits to eligible businesses for an eligibility period not
to exceed 10 years."
N.J.S.A. 34:1B-244(a).
4 A-0223-15T1
explained that Hartz did not have the time to delay the closing
because it already had a property lined up for a "1031 exchange."2
Jonas attempted to get Milano to structure their deal to
convince the EDA the deal was not yet binding. Milano told Jonas
he was not willing to "participate in [a] scheme" to maneuver
around the EDA's requirements by concealing the already-existing
contract. Milano suggested to Jonas that N2F forfeit its deposit
and walk away from the deal.
Milano testified Jonas replied: "I'm not going to forfeit my
deposit; I just won't come to closing and I'll fabricate some
issues that you lied to me, you misrepresented to me; we'll have
litigation for years. Maybe we'll settle; maybe we won't, but
you're not going to get your money so quickly." Jonas said he
"just won't close." Jonas also told Milano that if Hartz were to
sell the property to another party, "I'll tie you up in court, and
you won't get your money for years[.]" Milano told Jonas "that's
terrific, very good; I'll see you in court."
2
Hartz planned to use the proceeds from the sale of the Property
to buy a building in Seattle, Washington in a "1031 exchange."
Under 26 U.S.C. § 1031 of the tax code, no gains or losses from
the sale of property will be recognized "if such property is
exchanged solely for property of like kind which is to be held
either for productive use in a trade or business or for
investment." Ibid.
5 A-0223-15T1
Milano told his lawyer to proceed with closing pursuant to
the contract. On July 23, Hartz sent a letter advising N2F that
Hartz was invoking the "time of the essence" provision of the
contract, and set a new closing date for August 12. The letter
warned that if N2F failed to purchase the Property on the
rescheduled closing date, it would be in default and would "lose
its rights under the Contract to the return of the Deposit."
On July 31, the Property was evacuated after an incident in
which the building unexpectedly shook. Hartz officials summoned
professional engineers from Petry Engineering ("Petry"), and they
interviewed the tenants and inspected the building. The Village's
construction official, fire marshal, and firefighters also
inspected the building. Petry found the building was structurally
sound and safe for occupancy, and the construction official found
nothing wrong. On July 31, Petry sent Hartz a two-page report
("Petry Report"), which was shared with the tenants, but was not
sent to N2F.
On August 1, N2F learned of the shaking incident through its
lender and news reports. On August 5, Jonas wrote Milano raising
the shaking incident and other matters. Jonas requested "[a]
detailed explanation of this recent incident," "copies of all
reports generated by structural engineers," and financial
information. Jonas stated N2F needed at least sixty days to
6 A-0223-15T1
evaluate the Property further to decide whether to void the
contract, negotiate a reduction in price, or require Hartz to make
repairs before closing. Jonas stated that N2F rejected Hartz's
"time of the essence" letter and "will not close by the date set
forth in your letter."
On August 7, 2013, Hartz denied N2F's request, stated Hartz
would proceed with closing on August 12 pursuant to the "time of
the essence" letter, and warned that if N2F did not appear at
closing, it would breach the contract and lose its deposit.
N2F did not attend the August 12 closing. Hartz wrote N2F
that its failure to close constituted a default, that Hartz was
terminating the contract, and that Hartz would make a demand on
the escrow agent to release the deposit to Hartz. On August 13,
2013, both Hartz and N2F made demands on the escrow agent, each
claiming entitlement to the deposit funds.
On August 19, 2013, N2F and Hartz filed competing lawsuits
seeking the deposit funds. N2F's complaint alleged breach of
contract, breach of the implied covenant of good faith and fair
dealing, and violations of section 2 of the Consumer Fraud Act
("CFA"),
N.J.S.A. 56:8-1 to -20. N2F sought damages and a
declaratory judgment stating Hartz's actions were improper and N2F
was not in default. Hartz's complaint alleged N2F was in breach
7 A-0223-15T1
when it failed to close. Hartz sought a declaratory judgment that
it was entitled to N2F's deposit funds plus interest.3
Hartz filed a motion for summary judgment. On May 29, 2015,
the Law Division granted the motion in part and dismissed N2F's
CFA claim. Judge Wilson held a bench trial on the other claims
from June 29 to July 7, 2015.
On July 9, 2015, the trial court issued an oral opinion
finding as follows. N2F "did not want the transaction to go
forward" because "it would have lost millions of dollars of
potential tax credits, if it had timely closed." Jonas threatened
Milano that if Hartz insisted on moving forward "N2F would tie it
up" in court and N2F did exactly that. Much of "the N2F case was
in furtherance of that threat." "[T]he claims by [N2F] were simply
a contrived pretext made up in a flagrant attempt to thwart the
seller from [its] rightful claim to the deposit as the seller was
ready, willing and able to close this sale." The court concluded
"that Hartz substantially performed all of its obligations under
the contract and that [N2F] breached by not attending the closing
3 On September 3, 2013, Hartz entered an agreement to sell its
ground lease for $8,525,000 to an LLC connected to KABR. KABR's
structural engineers concluded the shaking incident was caused by
"large trucks hitting the bumps in the road," and that "the
structure as a whole appears to be sound." The sale was
consummated on about October 17, 2013.
8 A-0223-15T1
and purchasing the building it had contractually obligated itself
to buy, as is."
The trial court held Hartz was entitled to the deposit funds
plus interest. The court entered a final judgment on July 31.
N2F appeals.
II.
"When a trial court's decision turns on its construction of
a contract, appellate review of that determination is de novo."
Manahawkin Convalescent v. O'Neill,
217 N.J. 99, 115 (2014).
"Appellate courts give 'no special deference to the trial court's
interpretation and look at the contract with fresh eyes.'" Ibid.
(citation omitted).
By contrast, whether a party breached the agreement is "a
question for the factfinder, not the court." Murphy v. Implicito,
392 N.J. Super. 245, 265 (App. Div. 2007). "Whether conduct
constitutes a breach of contract and, if it does, whether the
breach is material are ordinarily jury questions." Mango v.
Pierce-Coombs,
370 N.J. Super. 239, 257 (App. Div. 2004) (citing
Magnet Res., Inc. v. Summit MRI, Inc.,
318 N.J. Super. 275, 286,
9 A-0223-15T1
(App. Div. 1998)); accord Chance v. McCann,
405 N.J. Super. 547,
566 (App. Div. 2009).4
Here, in a bench trial, the trial court determined that N2F
breached the contract and that Hartz did not breach the contract.
"'Final determinations made by the trial court sitting in a non-
jury case are subject to a limited and well-established scope of
review.'" D'Agostino v. Maldonado,
216 N.J. 168, 182 (2013)
(citation omitted). Appellate courts "'give deference to the
trial court that heard the witnesses, sifted the competing
evidence, and made reasoned conclusions.'" Allstate Ins. Co. v.
Northfield Med. Ctr., PC,
228 N.J. 596, 619 (2017) (citation
omitted).
"Deference is especially appropriate 'when the evidence is
largely testimonial and involves questions of credibility.'"
Sipko v. Koger, Inc.,
214 N.J. 364, 376 (2013) (citations omitted).
The trial court "'has a better perspective than a reviewing court
in evaluating the veracity of witnesses,'" and has "a 'feel' for
the case that the reviewing court can not enjoy." Twp. of W.
4
Another panel stated "that the determination of whether a party's
conduct constituted a breach thereof[] is usually a question of
law," Capital Health Sys. v. Horizon Healthcare Servs.,
446 N.J.
Super. 96, 115 (App. Div. 2016), but was reversed by the Supreme
Court for "exceed[ing] the limits imposed by the standard of
appellate review," Capital Health Sys. v. Horizon Healthcare
Servs.,
230 N.J. 73, 81 (2017).
10 A-0223-15T1
Windsor v. Nierenberg,
150 N.J. 111, 132-33 (1997) (citation
omitted).
"[A]ppellate courts should 'not disturb the factual findings
and legal conclusions of the trial judge' unless convinced that
those findings and conclusions were 'so manifestly unsupported by
or inconsistent with the competent, relevant and reasonably
credible evidence as to offend the interests of justice.'"
Allstate Ins.,
228 N.J. at 619 (quoting Rova Farms Resort, Inc.
v. Investors Ins. Co. of Am.,
65 N.J. 474, 484 (1974)). We must
hew to this "deferential standard" of review. D'Agostino,
216 N.J. at 182.
N2F urges us instead to exercise our original jurisdiction
under Rule 2:10-5. However, original jurisdiction should be
exercised "'only with great frugality'" and "not to 'weigh[]
evidence anew' or 'mak[e] independent factual findings[.]'" State
v. Micelli,
215 N.J. 284, 293 (2013) (alterations in original)
(citations omitted). Moreover, "[t]he exercise of [original]
jurisdiction is generally reserved for emergent matters
implicating the public interest." Exec. Comm'n on Ethical
Standards v. Salmon,
295 N.J. Super. 86, 112 (App. Div. 1996);
see, e.g., Price v. Himeji, LLC,
214 N.J. 263, 294 (2013). By
contrast, this is a private contract dispute. N2F cannot invoke
11 A-0223-15T1
our original jurisdiction to avoid the trial court's findings or
our deferential standard of review.
III.
Under the contract, the failure of N2F to appear at closing
and purchase the ground lease was a material breach entitling
Hartz to the deposited funds. Section 3.2 of the contract provides
that if the closing does not occur and "[i]f [N2F] defaults in its
obligation to purchase the Property . . . , the Deposit (including
the interest thereon), shall be held and delivered as hereinafter
provided in this Agreement in Article 13 hereof." Section 13.2
provides: "In the event the Closing and the transactions
contemplated hereby do not occur as provided herein by reason of
the default of [N2F], [Hartz] may terminate this Agreement," "the
Deposit shall be the full, agreed and liquidated damages for
[N2F's] default and failure to complete the purchase of the
Property," and "[Hartz] shall have the right . . . to receive the
Deposit (including the interest thereon) from the Escrow Agent."
The parties signed the contract on February 28, 2013
("Effective Date"). Section 4.1 requires the closing to occur
"not later than five (5) months after the Effective Date," namely
July 28, 2013. Section 17.13 provides "[t]ime is of the essence
in the performance of each of the parties' respective obligations
contained herein." It also provides that
12 A-0223-15T1
neither [N2F] nor [Hartz] shall be entitled
to terminate this Agreement for failure to
close on the scheduled Closing Date unless and
until the party failing to close shall have
been given written notice fixing a new date
for the proposed Closing, not less than ten
(10) days thereafter, and such party to whom
notice is given shall fail to perform on or
before such rescheduled Closing Date.
Hartz invoked this "time of the essence" provision in its
July 23 letter by which gave N2F written notice fixing August 12
as the rescheduled closing date. "[I]f the contract itself
provides a clear understanding that time is of the essence, then
it is well-settled that 'prompt performance is essential,' and the
date contained in the contract for closing will be strictly
enforced." Marioni v. 94 Broadway, Inc.,
374 N.J. Super. 588, 603
(App. Div. 2005) (quoting Paradiso v. Mazejy,
3 N.J. 110, 115
(1949)).
The trial court found N2F chose "to voluntarily breach the
contract as Jonas had promised." "It was Net 2F that materially
breached the contract" by not appearing to close the sale.
N2F does not dispute that it failed to attend either the
original closing or the rescheduled closing under the "time of the
essence" provision. Nor does it contest that such failure normally
would constitute a material breach of the contract entitling Hartz
to terminate the contract and receive the deposit.
13 A-0223-15T1
Instead, N2F argues that it was relieved of its obligation
to attend and consummate the purchase of the ground lease because
Hartz materially breached the contract first. N2F contends such
default by Hartz entitled it to terminate the agreement and receive
its deposit.
If a party commits "a 'breach of a material term of an
agreement, the non-breaching party is relieved of its obligations
under the agreement.'" Roach v. BM Motoring, LLC,
228 N.J. 163,
174 (2017) (citation omitted). "[A] breach is material if it
'goes to the essence of the contract.'" Ibid. (quoting Ross Sys.
v. Linden Dari-Delite, Inc.,
35 N.J. 329, 341 (1961)). After a
material breach occurs, "the non-breaching party may treat the
contract as terminated and refuse to render continued
performance." Goldman S. Brunswick Partners v. Stern,
265 N.J.
Super. 489, 494 (App. Div. 1993) (quoting Ross,
35 N.J. at 341).
N2F claims several breaches by Hartz. Importantly, all of
the alleged breaches occurred after Jonas told Milano in early
July that N2F would not "come to closing." Many of the alleged
breaches came after Jonas reaffirmed on August 5 that N2F "will
not close by the date set forth in [Hartz's "time of the essence"]
letter," a position Jonas reiterated on the day of the closing.
Based on Jonas's statements, the trial court could easily
have found an anticipatory breach of the contract. Traditionally,
14 A-0223-15T1
"[a]n anticipatory breach is a definite and unconditional
declaration by a party to an executory contract -- through word
or conduct -- that he will not or cannot render the agreed upon
performance." Ross Sys.,
35 N.J. at 340-41; see also Spring Creek
Holding Co. v. Shinnihon U.S.A. Co.,
399 N.J. Super. 158, 179
(App. Div. 2008). Milano testified that in their early July
conversation "Jonas told me he was unequivocally not closing."
Hartz sent several letters seeking N2F's assurance it would appear
at closing, but N2F repeatedly said it would not. Thus, Hartz had
reasonable grounds to believe N2F would breach the contract by not
appearing.
Moreover, the trial court found N2F's claims of breach by
Hartz were merely a "contrived pretext made up on a flagrant
attempt to thwart the seller from their rightful claim to the
deposit as seller was ready, willing and able to close the sale,"
and not material breaches. We agree.
Nevertheless, we review NSF's claims that Hartz committed a
material breach, and conclude there was more than sufficient
credible evidence to support the trial court's finding to the
contrary.
A.
First, N2F argues Hartz committed a material breach when it
failed to provide N2F with a copy of the Petry Report after the
15 A-0223-15T1
shaking incident. N2F highlights that Jonas's August 5 letter
requested "[a] detailed explanation of this recent incident" and
"copies of all reports generated by structural engineers who have
inspected the Property in connection with" that incident.
Ignoring any anticipatory breach by N2F, Hartz should have
provided N2F with a copy of the Petry Report once N2F requested
it. Section 5.1.5 of the contract provides that Hartz "shall make
available to [N2F] . . . access to its books, records and files
relating to the Property." Section 5.3 provides that Hartz agrees
to "use reasonable efforts to cooperate with any reasonable written
requests of [N2F] for additional information, if available."
Nonetheless, Hartz's breach of those sections was not
material for three reasons. First, the Petry Report found the
building was "structurally sound and safe for occupancy." As the
trial court noted, it was not material that N2F did not receive
"a report by Hartz['s] engineer that nothing was wrong, broken or
damaged."
Second, on August 9, Hartz conveyed the report's conclusion
in a letter and email to IDT enclosing a letter received that day
from, and Hartz's response that day to, one of the building's
tenants, Hyundai Merchant Marine (America), Inc. ("Hyundai").
Hyundai had expressed concern about the shaking incident. Hartz's
enclosed response stated "our engineer has inspected the subject
16 A-0223-15T1
Premises and determined that same are safe for occupancy." The
letter added "[t]his conclusion has been confirmed by the local
governmental construction officials."
Third, in "going hard," N2F bargained away any materiality
such a report could have had. In section 8.2 of the contract, N2F
"acknowledges and agrees that, except as expressly provided in
this Agreement . . . having been given the opportunity to inspect
the Property, [N2F] is relying solely on its own investigation of
the Property and not on any information provided or to be provided
by [Hartz]."5 N2F "further acknowledges and agrees that, except
as expressly provided in this Agreement, and as a material
inducement to the execution and delivery of this Agreement by
[Hartz], the sale of the Property as provided for herein is made
on an 'AS IS, WHERE IS' CONDITION AND BASIS 'WITH ALL FAULTS.'"6
Section 10.2.1 provides that "any changes to the
representations or warranties of [Hartz] caused by damage,
destruction or condemnation of the Property shall be governed by
Article XII of this Agreement." Section 10.2.4 provides that
5 Section 5.4 similarly provides that N2F "is relying upon its own
independent examination of the Property . . . and not on any
statements of [Hartz]."
6 In section 8.2, N2F also acknowledges that Hartz was not making
any representations concerning the "condition of the Property."
In section 8.3, N2F "waives its right to recover from" Hartz on
account of "the physical condition of the Property."
17 A-0223-15T1
"[t]he physical condition of the Property shall be substantially
the same on the day of Closing as on the Effective Date, reasonable
wear and tear and loss by casualty excepted (subject to the
provisions of Article XII below)[.]" Thus, N2F's right to
terminate the contract based on damage after the contract was
signed is governed by Article XII.
Article XII, entitled "Risk of Loss," provides in Section
12.1 that "[i]f, prior to the Closing Date, all or any portion of
the Property . . . is destroyed or damaged by fire or other
casualty, [Hartz] shall notify [N2F] promptly." Section 12.1 then
provides: "If such . . . casualty is 'Material' (as hereinafter
defined), [N2F] shall have the option to terminate this Agreement"
and receive its deposit back. Section 12.4 provides that "[f]or
purposes of this Article XII, with respect to a casualty, the term
'Material' shall mean any casualty such that the cost of repair,
as reasonably estimated by [Hartz]'s or [N2F]'s third-party
engineers, is in excess of . . . $975,000."
There was no evidence the shaking incident caused or revealed
damage costing more than $975,000 to repair. Hartz's third-party
engineer found no damage. Neither N2F nor its engineers ever
inspected the Property after the shaking incident. Under section
12.3, "[i]f the Casualty is not Material, then the Closing shall
occur," and N2F has no right to terminate or refuse to appear.
18 A-0223-15T1
Accordingly, the non-disclosure of the Petry Report was not
material under the contract and provided no basis for N2F to refuse
to appear for closing.
N2F also argues that by not disclosing the Petry Report,
Hartz deprived it of its right to inspect the Property. Section
5.1.1 gives N2F the right to "perform inspections and tests of the
Property and to perform such other analyses, inquiries and
investigations as [N2F] shall deem necessary and appropriate."
7 Section 5.1 gives N2F the "reasonable right to review all aspects
of the Property," section 5.1.2 gives N2F the right to interview
the building's tenants, and section 5.1.4 gives N2F the right to
interview the Village as ground lessor. However, in section 5.1.6,
N2F "acknowledges and agrees that, notwithstanding [N2F]'s rights
to evaluate and perform inspections . . . , THIS AGREEMENT IS NOT
SUBJECT TO ANY PHYSICAL INSPECTION CONTINGENCIES and is limited
to endeavoring a smooth and uninterrupted transition of management
and control of the Property on the Closing Date."
Further, the trial court properly found no credible evidence
that N2F wanted its own engineers to inspect the Property after
the shaking incident. N2F was aware of the July 31 shaking
incident by August 1. N2F knew by August 9 that Hyundai believed
7 Section 5.4 served as N2F's acknowledgement it has been given
those rights. It gave N2F no additional rights.
19 A-0223-15T1
that another shaking incident occurred on August 2, that the Petry
Report was "unsatisfactory to convince our employees," and that a
thorough investigation was required. Moreover, nothing in Hartz's
responses precluded N2F from conducting an inspection under the
contract. Nonetheless, N2F made no attempt to investigate or
inspect the Property before the August 12 closing.
In any event, because the contract was negotiated to give N2F
no right to escape its obligations even if it had conducted an
inspection, Hartz's failure to send the Petry Report was not
material because it did not "'go[] to the essence of the
contract.'" Roach,
228 N.J. at 174 (citation omitted). It was
also immaterial under "the flexible criteria set forth in Section
241 of the Restatement (Second) of Contracts (1981)"
("Restatement"), which Roach adopted. Id. at 174-75. Those
factors are:
(a) the extent to which the injured party will
be deprived of the benefit which he reasonably
expected; (b) the extent to which the injured
party can be adequately compensated for the
part of that benefit of which he will be
deprived; (c) the extent to which the party
failing to perform or to offer to perform will
suffer forfeiture; (d) the likelihood that the
party failing to perform or to offer to
perform will cure his failure, taking account
of all the circumstances including any
reasonable assurances; [and] (e) the extent
to which the behavior of the party failing to
perform or to offer to perform comports with
standards of good faith and fair dealing.
20 A-0223-15T1
[Id. at 175 (quoting Restatement, § 241).]
In applying the factors, we must consider the breach in light
of the entire contract, not just the particular section violated.
See Restatement, § 241, cmt. b; Magnet Res.,
318 N.J. Super. at
286; Neptune Research & Dev., Inc. v. Teknics Indus. Sys., Inc.,
235 N.J. Super. 522, 533 (App. Div. 1989). Importantly, factors
"(a) and (e) heavily favor the result here." Roach,
228 N.J. at
180 n.6.
Under factor (a), N2F was not deprived of a benefit it
reasonably expected for two reasons. First, N2F could still close
and receive the benefit of the contract, as the ground lease and
the building were intact. As the trial court noted, the building
was immediately determined safe for occupation. No tenant ever
cancelled a lease, no damage to the building or its contents was
ever reported, and N2F's lender "never even cared enough about the
incident as to pull the loan or request more information[.]"
Second, N2F had bargained away the right to evade closing
based on the Petry Report and the shaking incident. Jonas admitted
that he agreed to negotiate away the right to cancel the contract
in return for the right to purchase the building, and that he knew
"if I didn't close Hartz would keep the deposit." N2F's expert
admitted there was nothing "in the contract that would allow [N2F]
21 A-0223-15T1
to void the contract if it was not satisfied with the various
items listed in [N2F's] August 5th letter."
Factor (b) does not apply because it "is a corollary of
[(a)]." Restatement, § 241, cmt. c. Under factor (c), Hartz
would suffer forfeiture by losing the "time of the essence" sale
if N2F was allowed to escape closing or substantially delay it.
Regarding factor (d), Hartz provided N2F with the conclusion of
the Petry Report, and there was no evidence of damages Hartz had
to cure. Applying factor (e), as discussed below, Hartz's behavior
generally comported with standards of good faith and fair dealing.
Accordingly, the trial court properly rejected N2F's claims
that Hartz's failure to provide the Petry Report on request
prevented it from investigating or otherwise constituted a
material breach.
B.
Second, N2F claims Hartz breached the contract by not bringing
certain documents to the rescheduled August 12 closing. However,
as previously discussed, N2F had already proclaimed in early July,
in its August 5 letter, and in its August 12 letter, that it was
refusing to attend closing or to consummate the deal without
substantial delay. Even ignoring any anticipatory breach by N2F,
the trial court properly rejected N2F's claim.
22 A-0223-15T1
Section 11.2 of the contract requires Hartz to "deliver or
cause to be delivered" certain documents to the escrow agent at
closing. N2F notes Hartz failed to bring a notice to a tenant
(Hyundai) about the assignment of the ground lease to N2F, as
required by section 11.2.12; and a seller's affidavit of
consideration and a seller's residence certification/exemption,
as required by section 11.2.11. In addition, N2F asserts Hartz
was required to provide proof at closing that, as required by
sections 4.2.3, 5.1.3, and 9.6, notice was given to the utilities,
property managers, and service providers of the change of
ownership.
However, the testimony showed the notices to tenants,
utilities, property managers, and service providers normally were
not sent out until after the closing. Hartz's counsel testified,
and N2F's expert agreed, that the missing notices could easily
have been produced at closing had it gone forward. They also
agreed that because the transaction did not involve a deed but
instead transferred a ground lease with less than ninety-nine
years remaining, it was not legally necessary to have a seller's
affidavit of consideration or a seller's residency
certification/exemption. Moreover, as the trial court noted,
Hartz had an estoppel letter from the Village attesting to the
23 A-0223-15T1
validity of the ground lease. The court properly found "none of
these reported deficiencies were material."
N2F argues the failure to bring the documents was material
because Hartz had rescheduled the closing using the "time of the
essence" provision. N2F cites cases where parties, "by their
conduct, waived the right to insist upon strict enforcement of the
provision making time of the essence." Salvatore v. Trace,
109 N.J. Super. 83, 95 (App. Div. 1969), aff'd o.b.,
55 N.J. 362
(1970). However, in those cases, the parties either were unable
to consummate the transaction on the closing date, or acquiesced
in the delay. See, e.g., id. at 88-90 (finding waiver where the
seller was unable to provide clear title on the closing date);
Dep't of Cmty. Affairs v. Atrium Palace Syndicate,
247 N.J. Super.
511, 516 (App. Div. 1991) (finding waiver where seller was unable
to provide a temporary certificate of occupancy on the closing
date).
Here, the trial court found Hartz was "ready, willing, and
able" to transfer the ground lease on the closing date. The
curable absence of minor documents did not justify "relief of a
purchaser of property who has failed to [appear and] pay at the
time specified in the agreement, when the agreement distinctly and
clearly provides that that time is essential." Gorrie v. Winters,
214 N.J. Super. 103, 105-08 (App. Div. 1986) (distinguishing
24 A-0223-15T1
Salvatore and quoting Doctorman v. Schroeder,
92 N.J. Eq. 676,
676-77 (E. & A. 1921)). The trial court properly rejected N2F's
"contrived closing deficiency."
C.
Finally, N2F argues Hartz breached the implied covenant of
good faith and fair dealing when Hartz: failed to provide the
Petry Report and other requested information about the shaking
incident; sent its correspondence with Hyundai at 6:30 p.m. on the
Friday before the Monday closing; and imposed a "time of the
essence" closing date which it refused to postpone. However, as
set forth above, Hartz conveyed the conclusion of the Petry Report
to N2F; Hartz sent N2F Hyundai's letter and Hartz's response on
the same day as they were received and sent, respectively; and the
parties agreed to a "time of the essence" provision allowing either
party to reschedule the closing date with as little as ten-days
notice. Hartz's July 23 notice gave N2F twenty days to be ready
for the rescheduled August 12 closing.
As the trial court properly recognized, "[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). "A defendant may be liable for
a breach of the covenant of good faith and fair dealing even if
25 A-0223-15T1
it does not 'violat[e] an express term of a contract.'" Id. at
226 (quoting Sons of Thunder v. Borden, Inc.,
148 N.J. 396, 423
(1997)). Indeed, "a party to a contract may breach the implied
covenant of good faith and fair dealing in performing its
obligations even when it exercises an express and unconditional
right to terminate." Wilson v. Amerada Hess Corp.,
168 N.J. 236,
244 (2001) (quoting Sons of Thunder,
148 N.J. at 422).
"Proof of 'bad motive or intention' is vital to an action for
breach of the covenant." Brunswick Hills,
182 N.J. at 225 (quoting
Wilson,
168 N.J. at 251). "The party claiming a breach of the
covenant of good faith and fair dealing 'must provide evidence
sufficient to support a conclusion that the party alleged to have
acted in bad faith has engaged in some conduct that denied the
benefit of the bargain originally intended by the parties.'" Ibid.
(quoting 23 Williston on Contracts § 63:22 at 513-14 (Lord ed.,
2002)). "[W]hether particular conduct violates or is consistent
with the duty of good faith and fair dealing necessarily depends
upon the facts of the particular case, and is ordinarily a question
of fact to be determined by the jury or other finder of fact." 23
Williston, § 63:22 at 507.
The trial court found N2F made "no showing that Hartz acted
with any bad motive or intention," and that there was no "violation
of the covenant of good faith and fair dealing." The court found
26 A-0223-15T1
"that Hartz substantially performed all of its obligations under
the contract," and that Hartz "made a good faith effort that would
have actually achieved the essential purpose of the contract for
sale of the building." The court's factual findings were grounded
in relevant, competent, and credible evidence and may not be
disturbed.
N2F argues Hartz was retaliating against it because of Jonas's
early July threat to sue Hartz if it did not delay closing.
However, the trial court found that "Hartz could not accommodate
N2F's request to forestall the closing" because "Hartz needed the
proceeds from the sale to roll over and purchase another building
in Seattle, Washington for a 1031 Exchange." It was not bad faith
for Hartz to invoke its contractual right to a "time of the
essence" closing to give N2F a final opportunity to carry out its
contractual obligation to close. N2F cannot impugn Hartz's
invocation by citing Jonas's vituperative and unjustified threats.
N2F argues Hartz engaged in "'[s]ubterfuges and evasions' in
the performance of a contract [that] violate the covenant of good
faith and fair dealing." Brunswick Hills,
182 N.J. at 225
(citation omitted). N2F cites Hartz's failure to disclose the
Petry Report, its production of the Hyundai correspondence at 6:30
p.m., and a July 31 internal email saying Hartz would not call
reporters about the shaking incident because "[w]e are supposed
27 A-0223-15T1
to close on the building[']s sale in a week and the buyer is
already very squeamish." However, the trial court did not find
any of Hartz's actions were in bad faith. Moreover, Hartz
disclosed the Hyundai correspondence about the shaking incident
and the conclusion of the Petry Report. Hartz did not deny N2F
the benefit of the bargain, namely to purchase the ground lease,
and in fact repeatedly requested that N2F consummate the
transaction.
The facts here bear no resemblance to the facts in Brunswick
Hills. The plaintiff tenant tried to exercise its contractual
option to extend its lease to a ninety-nine-year lease. Id. at
229. However, the defendant landlord secretly "preferred to watch
the option die," and engaged in "a series of evasions and delays,
that lulled plaintiff into believing it had exercised the lease
option properly." Id. at 229, 231. "During a nineteen-month
period, defendant, through its agents, engaged in a pattern of
evasion, sidestepping every request by plaintiff to discuss the
option and ignoring plaintiff's repeated written and verbal
entreaties to move forward on closing the ninety-nine-year lease."
Id. at 229.
Finally, the trial court found: "Frankly if any party had
been deemed to have failed to act in good faith it would be N2F
who contrived claims for breach for a right that it clearly
28 A-0223-15T1
contracted away." N2F disputes that finding, but it was not
necessary to deny N2F's claim. Even if N2F did not act in bad
faith, N2F still failed to show that Hartz acted in bad faith or
violated the covenant of good faith and fair dealing.
In any event, there was ample evidence that N2F acted in bad
faith, as set forth above. The trial court found because Jonas
wanted "to stall so that N2F could get future State of New Jersey
economic tax credits," N2F used "the contrived excuse that the
building occupants felt concerned one day because the building
shook" and used "other legally dubious issues . . . to claim that
Hartz could not close." Based on these "disingenuous contrived
claims," the court could find N2F acted in bad faith.
Plaintiff's remaining arguments lack sufficient merit to
warrant discussion. R. 2:11-3(e)(1)(E).
Affirmed.
29 A-0223-15T1
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