November 2, 2007
CLIFTON SAVINGS BANK, S.L.A., PLAINTIFF-RESPONDENT,
SOURCE 1 CAPITAL CORP., DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. C-147-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted October 15, 2007
Before Judges Parrillo, Graves and Alvarez.
Seven months after contracting to buy real estate from defendant Source 1 Capital Corp., plaintiff Clifton Savings Bank, S.L.A., canceled the contract and demanded a refund of its $100,000 deposit on the basis that the property was environmentally contaminated. Defendant refused to return the deposit, so plaintiff filed suit. On cross-motions for summary judgment, the general equity judge found in plaintiff's favor, reasoning that it had one year, pursuant to the contract, to cancel the deal due to environmental contamination. Defendant appeals from orders of the Chancery Division requiring return of plaintiff's deposit and awarding plaintiff $5000 in counsel fees pursuant to the contract. We affirm.
The material facts are not in dispute. On January 10, 2005, the parties signed a purchase and sale agreement wherein plaintiff agreed to buy from defendant property on Route 23 South in Little Falls that defendant owned and operated as a mortgage and loan company. Plaintiff intended to operate a bank on the property, and to that end the contract provided that plaintiff could cancel the deal if plaintiff was unable to obtain bank-related approvals from local, state and federal agencies.
Another of plaintiff's primary concerns involved environmental issues. Consequently, the contract allowed plaintiff to cancel the deal if the property contained environmental contamination:
12.24 Environmental Report and/or ISRA Compliance. As a condition precedent to Buyer's obligation to purchase the Property, Buyer may at its expense obtain an environmental report by an engineering firm of the Buyer's choice indicating the Property is free of any industrial or environmental wastes or problems of any kind. Additionally, the Buyer may obtain from the New Jersey Department of Environmental Protection ("NJDEP") either (a) a non-applicability letter or (b) a no further action letter for which Seller shall promptly apply pursuant to the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq. and the regulations promulgated thereunder ("ISRA"), as amended and supplemented. As to this contingency, the Buyer shall make best efforts to satisfy the same within sixty days from the Effective Date [January 10, 2005 -- the date the contract was signed]. If this condition precedent shall not be satisfied, then Buyer may terminate this Agreement by written notice to Seller and Escrow Agent and, upon such termination, the Earnest Money shall be refunded to Buyer and the parties shall be without any further obligation to each other.
In addition to allowing the buyer to conduct an environmental due diligence of the property, provided it used best efforts to do so within sixty days of the agreement's execution, the contract also provided for a one-year contingency period during which plaintiff could void the agreement as a matter of right for environmental contamination. Thus, Section 12.27 provided:
The Buyer shall have the right to waive any contingency set forth above [i.e. the conditions on banking and contamination in paragraphs 12.24, 12.25 and 12.26]. If [sic] the event that the Buyer has not been able to obtain any and all governmental approvals and environmental clearance within ONE YEAR from the effective date, either party shall have the right to void this Agreement and, upon such termination, the Earnest Money shall be refunded to Buyer and the parties shall be without any further obligation to each other.
Four days after signing the contract, on January 14, 2005, plaintiff retained Boswell Engineering to conduct a "Phase I Environmental Site Assessment" on the property to determine whether the property was contaminated. Around that same time, plaintiff applied for the bank-related government approvals.
In April 2005, Boswell completed the Phase I Assessment, which included interviewing defendant, and notified plaintiff of the results. The Phase I Assessment report "indicated two potential environmental concerns (a prior gasoline filing [sic] station . . . and fill material . . .)" and, as a result of its findings, Boswell believed it was necessary to conduct a Phase II Assessment "(1) to determine if the site contain[ed] any UST's [underground storage tanks] or potential subsurface contamination sources; (2) to investigate any potential contamination sources; [and] (3) to determine any potential contaminant impact to soil and groundwater."
In accordance with Boswell's advice, plaintiff ordered a Phase II Assessment. Boswell began that assessment in May 2005 and concluded it in August 2005. During that time plaintiff continued to pursue the bank-related government approvals.
In August 2005, Boswell reported, according to plaintiff, that the property contained: "(1) organic contamination and an estimated 400 cubic yards of contaminated soil; (2) tentatively identified compounds exceeding the State's threshold; and (3) lead concentrations above the Residential Direct Contact." Because the Phase II Assessment uncovered the existence of environmental contamination, plaintiff decided to cancel the contract and so notified defendant in an August 15, 2005 letter, requesting return of its deposit monies. Defendant refused, and in its August 17, 2005 reply asserted that plaintiff could not cancel the contract because plaintiff had not "made best efforts to obtain an Environmental Report within the requisite 60 days," and had not requested an extension of the sixty-day period, referring to paragraph 12.24 of the contract.*fn1
Consequently, plaintiff filed an action in the General Equity Part seeking return of its deposit monies and counsel fees pursuant to the contract. Defendant counterclaimed, alleging plaintiff had breached the contract by canceling it after expiration of the contractual cancellation period. Following cross-motions for summary judgment, the judge found in plaintiff's favor and by order of August 31, 2006, directed the clerk of the court to return the earnest money to plaintiff. The judge reasoned:
Plaintiff points out that Section 12.27 provides no clearly defined levels of contamination. The presence of environmental problems revealed by the Phase II report is a sufficient basis for Plaintiff to terminate the Contract because the Contract states that the presence of "any industrial or environmental wastes of any kind" is grounds for termination of the Contract by the Plaintiff, and this "Environmental Report and/or ISRA Compliance" clause was not qualified to include specified level[s] of contamination necessary to trigger Plaintiff's right to terminate. Kotkin v. Aronson, 175 N.J. 453, 454 (2003).
The undisputed facts established that plaintiff diligently pursued environmental clearance in this matter. The facts show that when the Phase I assessment was completed there were significant issues requiring a Phase II examination. There were concerns of contamination as a result of subsurface contaminants[.] The plaintiff needed to investigate any and all contamination sources and needed to determine any potential contaminate impact to the soil and groundwater. Throughout May and June, various reports and surveys were obtained. In May, there was a geophysical survey completed. In June, Plaintiff received the geoprobe site investigation and well point installation. In August, the Phase II assessment was complete and it showed there was both soil and groundwater contamination that were above N.J.D.E.P. actionable levels. Considering the history of the property, the plaintiff purchaser made a determination to terminate the contract. This letter was sent to the seller's attorney.
The uncontroverted facts in this case support plaintiff's position. Both parties had a one year time frame within which they could terminate the contract if the environmental issues were such as to raise problems for either party. The facts in this matter are not in dispute. There were substantial environmental issues presented with regard to this property and plaintiff/purchaser made a good faith attempt to clear those issues before terminating the agreement.
It is clear that the parties anticipated that any environmental issues involving this property could be a deal breaker. Plaintiff/purchaser moved with the appropriate speed to inspect the property for environmental issues and obviously had an interest in closing this contract. Even after the initial sixty day contingency period, Plaintiff continued to pursue the environmental issues that were presented with an eye towards resolving them and closing on the contract.
The second contingency period, set forth in Section 12.27, gave the parties one year to work out any environmental issues or to terminate the agreement. This provision in the agreement was clearly an acknowledgement that environmental issues are not easily resolved. At all times, plaintiff and plaintiff's counsel complied with the terms of the agreement, the terms of sound practical business practices, and good legal practices.
In addition to the return of plaintiff's deposit monies, the court also awarded plaintiff, by separate order of November 15, 2006, $5000 in counsel fees and costs pursuant to Section 11.1 of the contract.
On appeal, defendant raises the following issues for our consideration:
I. THE PARTIES ARE BOUND BY CONTRACTUAL TERMS OF PURCHASE AND SALE AGREEMENT WHICH PERMITS TERMINATION OF THE AGREEMENT ONLY UPON THE EXPRESS PROVISIONS OF SECTIONS 12.24 AND 12.27 AND PLAINTIFF DOES NOT HAVE THE UNRESTRICTED ABILITY TO TERMINATE THE CONTRACT UPON THE SIMPLE DISCOVERY OF ENVIRONMENTAL CONTAMINATION UNLESS SUCH DISCOVERY AND TERMINATION OCCURS WITHIN THE FIRST SIXTY (60) DAYS.
II. PLAINTIFF CLIFTON SAVINGS IS NOT ENTITLED TO A REFUND OF ITS DEPOSIT MONEY PURSUANT TO SECTION 12.24 OF THE CONTRACT BECAUSE IT SOUGHT TO TERMINATE THE AGREEMENT AFTER THE EXPIRATION OF THE SIXTY (60) DAY CONTINGENCY PERIOD.
III. PLAINTIFF BREACHED ITS OBLIGATION UNDER SECTION 12.24 TO PURSUE ENVIRONMENTAL INVESTIGATION UTILIZING BEST EFFORTS.
IV. PLAINTIFF CLIFTON SAVINGS IS NOT ENTITLED TO RECOVER INITIAL DEPOSIT UNDER THE TERMS OF SECTION 12.27 OF THE AGREEMENT BECAUSE "GOVERNMENTAL APPROVAL AND ENVIRONMENTAL CLEARANCE" WAS NEVER PURSUED, LEAST OF ALL DENIED OR DELAYED FOR ONE YEAR.
V. PLAINTIFF BREACHED DUTY OF GOOD FAITH AND FAIR DEALING AND THEREFORE SHOULD NOT BE ENTITLED TO RECOVER INITIAL DEPOSIT MONEY.
VI. BASED ON THE FOREGOING, SUMMARY JUDGMENT IS IMPROPER AS THERE REMAINS VARIOUS ISSUES OF FACT APPROPRIATE FOR JUDICIAL DETERMINATION REGARDING PLAINTIFF'S ABILITY TO TERMINATE THE AGREEMENT UNDER SECTION 12.24 AFTER THE EXPIRATION OF THE SIXTY (60) DAY DUE DILIGENCE PERIOD, AS WELL AS THE PLAINTIFF'S OBLIGATION TO UTILIZE BEST EFFORTS TO COMPLETE ENVIRONMENTAL DUE DILIGENCE AND PURSUE "GOVERNMENTAL APPROVALS AND ENVIRONMENTAL CLEARANCE" AS INTENDED UNDER SECTION 12.27.
VII. DEFENDANT SOURCE ONE IS ENTITLED TO JUDGMENT AS A MATTER OF LAW WHERE THERE ARE UNDISPUTED FACTS WHICH PROVE SOURCE ONE BREACHED AGREEMENT THEREBY ENTITLING DEFENDANT TO RETAIN PLAINTIFF'S DEPOSIT AS LIQUIDATED DAMAGES PURSUANT TO SECTION 11.2.
VIII. BECAUSE THE TRIAL COURT'S GRANTING OF SUMMARY JUDGMENT WAS IMPROPER, THE NOVEMBER 15, 2006 ORDER AWARDING $5,000.00 IN ATTORNEY'S FEES TO PLAINTIFF MUST ALSO BE VACATED.
We have considered these issues in light of the record and the arguments of counsel and find none of them of sufficient merit to warrant extended discussion in a written opinion. R. 2:11-3(e)(1)(E). Accordingly, we affirm substantially for the reasons stated by Judge McVeigh in her comprehensive written decisions of August 4, 2006 and October 26, 2006. We add only the following comments.
Defendant's principal contention on appeal, as below, is that Section 12.24 allowed plaintiff to cancel the contract for environmental contamination only if plaintiff discovered the contamination and notified defendant that it was voiding the contract within sixty days of its execution. Because plaintiff waited until five months later to cancel, and never requested an extension of the sixty-day deadline, it breached the contract entitling defendant, not plaintiff, to liquidated damages. We disagree.
In interpreting a contract a court's goal is to decipher the party's intention. Highland Lakes Country Club & Cmty. Ass'n v. Franzino, 186 N.J. 99, 115-16 (2006). To that end, a court examines the plain language of the contract, the surrounding circumstances, and the purpose of the contract. Ibid. But "[w]here the terms of a contract are clear and unambiguous there is no room for interpretation or construction and we [the court] must enforce those terms as written." Levison v. Weintraub, 215 N.J. Super. 273, 276 (App. Div.), certif. denied, 107 N.J. 650 (1987) (citing Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960)). On this score, "[t]he interpretation of a written document solely on the basis of its own terms, without reference to extrinsic evidence, is a question of law." Horn v. Mazda Motor of Am., Inc., 265 N.J. Super. 47, 60 n.5 (App. Div.), certif. denied, 134 N.J. 483 (1993).
We are satisfied that, when considered in the context of the entire contract read as a whole, Cumberland County Imp. Auth. v. GSP Recycling Co., Inc., 358 N.J. Super. 484, 497 (App. Div.), certif. denied, 177 N.J. 222 (2003); Krosnowski v. Krosnowski, 22 N.J. 376, 387 (1956), Section 12.24's sixty-day deadline pertains only to plaintiff's obligation to use best efforts to conduct its environmental due diligence investigation, and that the time within which to cancel for environmental contamination is the one-year contingency period allowed in Section 12.27.
Section 12.24 authorized plaintiff to conduct environmental due diligence by retaining an engineering firm to examine the property for "any industrial or environmental waste or problems of any kind." Plaintiff was also given the option "[a]dditionally" of obtaining from the DEP "either (a) a non-applicability letter or (b) a no further action letter," both of which would confirm that the property did not need remediation of contamination. As to either, the only requirement imposed on plaintiff was to use "best efforts" to satisfy these options "within sixty days from the Effective Date." In other words, plaintiff had sixty days to use "best efforts" to obtain confirmation--either by way of an engineer's report or a DEP letter--that the property was not contaminated or did not need to be remediated. However, Section 12.24 did not require, by its express terms, that plaintiff's dual-phased environmental due diligence investigation be actually completed within so short a time period.
If, on the other hand, the results of its investigation suggested otherwise, "then Buyer may terminate this Agreement . . . and, upon such termination, the Earnest Money shall be refunded to Buyer and the parties shall be without any further obligation to each other." Absolutely nothing in Section 12.24 specified a time period in which plaintiff could cancel the contract and thus obtain a refund of its deposit monies. Nor did Section 12.24 state that plaintiff waives its right to cancel the contract if notification to seller did not occur within a specified time period. On the contrary, that very contingency was addressed in Section 12.27, which provided: "I[n] the event that the Buyer has not been able to obtain any and all governmental approvals and environmental clearance within ONE YEAR from the effective date, either party shall have the right to void this Agreement." Thus plaintiff could cancel the contract if the property was contaminated, so long as plaintiff did so within one year of execution, namely by January 10, 2006.
Defendant nevertheless contends that the "governmental approvals and environmental clearance" in Section 12.27 referred to either a DEP-issued non-applicability letter or a no further action letter, and that plaintiff made no effort whatsoever to obtain either. However, nothing in Section 12.27 or any other provision of the contract, for that matter, defines "governmental approvals and environmental clearance" in so limited a manner. Rather, Sections 12.25 and 12.26 discuss bank-related government approvals, and Section 12.24 discusses environmental clearance, and it is obvious that these were the "governmental approvals and environmental clearance" referred to in Section 12.27. And it is just as evident that the "environmental clearance" pertained to assurances received from either source that the "[p]roperty is free of any industrial or environmental wastes or problems of any kind." In other words, the mere fact that the contract gave plaintiff the added option to apply for and obtain a regulatory "green light" in no way negates plaintiff's right to terminate the contract if its own independent investigation reveals that the property was not "waste free." And in this regard, the contract does not require any defined level of contamination to trigger plaintiff's right of termination.
The terms of the contract here in issue are clear and unambiguous, Levinson, supra, 215 N.J. Super. at 276, and defendant's contrary interpretation, seeking to superimpose a sixty-day limitation on cancellation for environmental contamination, amounts to no more than an effort to re-write a better contract for itself than the one originally bargained for. This we cannot do. Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 223 (2005) ("[c]courts generally should not tinker with a finely drawn and precise contract entered into by experienced business people"); E. Brunswick Sewerage Auth. v. E. Mill Assocs., Inc., 365 N.J. Super. 120, 125 (App. Div. 2004) ("the court will not make a different or a better contract than the parties themselves have seen fit to enter into").
As a matter of undisputed fact, we conclude that plaintiff satisfied the "best efforts" requirement of Section 12.24 by retaining Boswell only four days after executing the purchase-sale agreement and thereafter promptly responding to Boswell's April 2005 report by ordering a Phase II Assessment. Indeed, the Phase I report raised questions that needed to be resolved by further investigation and consequently plaintiff went on to conduct a Phase II assessment, while simultaneously pursuing non-related government approvals in a good faith attempt to "close the deal." However, Boswell's further investigation, conducted from May to August 2005, uncovered soil and groundwater contaminants above DEP actionable levels. Immediately after this discovery, plaintiff notified defendant that it was exercising its right under Section 12.24 to terminate the contract because its environmental report did not show that the property "is free of any industrial or environmental wastes or problems of any kind." This notification was provided only seven months after signing the contract, well within Section 12.27's one-year contingency period, therefore entitling plaintiff to return of its deposit monies under Section 12.24.
We also find no error in the court's award to plaintiff of counsel fees and costs. Section 11.1 provided:
If, after written demand, Seller fails to consummate this Agreement in accordance with its terms (other than by reason of a default or breach of Buyer's obligations hereunder), Buyer may, as Buyer's sole and exclusive remedies, terminate this Agreement by written notice to Seller, in which event the Earnest Money shall be refunded to Buyer, and Buyer may recover from Seller, Buyer's actual and direct damages (out-of-pocket amounts actually paid by Buyer to third parties, but specifically excluding any internal or overhead costs or expenses of Buyer) for such failure, up to a maximum of Five Thousand and no/100 U.S. Dollars ($5,000.00). UNDER NO CIRCUMSTANCES MAY BUYER SEEK OR BE ENTITLED TO RECOVER ANY SPECIAL, CONSEQUENTIAL, PUNITIVE, SPECULATIVE OR INDIRECT DAMAGES, ALL OF WHICH BUYER SPECIFICALLY WAIVES, FROM SELLER FOR ANY BREACH BY SELLER OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR OF ANY REPRESENTATION, WARRANTY OR COVENANT OF SELLER HEREUNDER, NOR SHALL BUYER BE ENTITLED TO SEEK OR ENFORCE SPECIFIC PERFORMANCE OF THIS AGREEMENT BY SELLER.
Pursuant to this provision's authorization, the judge found that "the fees established therein, are more than reasonable. Further, in light of the extensive amount of work [that plaintiff did] prior to the termination of the contract, and the litigation to recover the deposit, the attorney fees/damage figure is deminimus [sic]". Defendant has offered nothing to warrant our interference with this decision.