October 20, 2010
135 ROUTE 73 SOUTH, LLC, PLAINTIFF-RESPONDENT,
GORDON AND JOY SCHAFER, HUSBAND AND WIFE, DEFENDANTS-APPELLANTS, AND INTEGRITY TITLE AGENCY, INC., DEFENDANT.
On appeal from Superior Court of New Jersey, Law Division, Camden County, Docket No. L-218-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 5, 2010
Before Judges Skillman, Yannotti and Espinosa.
This is an appeal from the dismissal of a complaint for breach of a contract for the sale of real property.
Initially, we note that the appeal is interlocutory because by amended order entered on February 19, 2010, the trial court indicated that the summary judgment in plaintiff's favor was "as to all claims based on breach of contract only," thus preserving the misrepresentation claim asserted in the second count of plaintiff's complaint for future disposition. In addition, there is no order dismissing defendants' counterclaim. However, the parties agreed at oral argument before us that plaintiff's misrepresentation claim does not seek any relief beyond the recovery of the $50,000 deposit awarded to plaintiff based on the judgment in its favor on the breach of contract claim and that the judgment also has the effect of dismissing defendant's counterclaim, which sought recovery of the same $50,000 deposit. Therefore, we grant leave to appeal as within time. R. 2:4-4(b)(2).
The property that is the subject of this appeal is located on Route 73 in Berlin Township. The property is 3.357 acres in size and is zoned partly commercial and partly residential. It is currently occupied by an approximately 29,000-square-foot commercial building.
Defendants, who owned the property, listed it for sale in the summer of 2008. Plaintiff expressed interest in acquiring the property, but had concerns about its viability for plaintiff's planned commercial uses. Plaintiff attempted to negotiate a contract that would include a contingency for any change in zoning required for its planned development. However, defendants refused to enter into a contract of sale containing a zoning contingency.
After negotiations, the parties entered into a contract on August 12, 2008 for plaintiff to acquire the property for $2,250,000. The contract contained a thirty-day "due diligence" provision upon which this appeal turns. That provision stated:
Buyer shall have from the date a fully executed Contract is delivered to the Buyer, until the date which is thirty (30) days from and after the date when this Contract is so delivered to the Buyer (the "Due Diligence Period"), to satisfy itself as to all matters respecting the Property and the lawful uses to which same may be put by Buyer, including, without limitation, the following: conducting such environmental and engineering inspections, reviews and assessments, including but not limited to a Phase I inspection, that Buyer may deem appropriate, conducting a structural and mechanical engineering review of the systems and improvements located on the Property, review the status of all governmental approvals effecting [sic] the Property, examining all uses to which the Property may be put based upon current zoning regulations. In the event the Buyer's inspection discloses any exceptions or conditions unsatisfactory to the Buyer, the Buyer may terminate this Agreement by written notice to the Seller, and the Buyer shall be entitled to a full refund of all deposit money and this Agreement shall be null and void and of no further force and effect. The Buyer's decision as to its dissatisfaction with the Property shall be in the Buyer's sole discretion, and the Buyer's reason for its dissatisfaction may not be challenged by the Seller. [Emphasis added.]
The contract also stated that it "reflects the entire Agreement between the Buyer and the Seller with respect to the matters set forth herein and supersedes all prior written or oral agreements." The contract required plaintiff to make a $50,000 deposit for the purchase, which was placed in escrow.
During the thirty-day due diligence period, plaintiff explored the possibility of obtaining a change in the zoning of the part of the property zoned residential,*fn1 but determined that such a change could not be obtained within that time period. Plaintiff also asked defendants to extend the due diligence period, but they refused.
On September 5, 2008, which was within the thirty-day due diligence period, plaintiff sent defendants a letter terminating the contract. Plaintiff asked for the return of its deposit, but defendants refused to consent to the deposit's release. Plaintiff then brought this action for recovery of its deposit.
After the completion of discovery, the case was brought before the trial court by cross-motions for summary judgment. The trial court concluded in an oral opinion that plaintiff had properly exercised its right to terminate the contract under the terms of the thirty-day due diligence provision and accordingly entered judgment in plaintiff's favor requiring the escrow agent to release to plaintiff the $50,000 deposit for the purchase of the property. In reaching this conclusion, the trial court rejected defendants' argument that plaintiff had breached an implied covenant of good faith and fair dealing in exercising its right to terminate the contract.
It is clear that the due diligence provision authorized plaintiff to terminate the contract for any reason relating to the property and its lawful uses. That provision expressly gave plaintiff thirty days "to satisfy itself as to all matters respecting the Property and the lawful uses to which same may be put by Buyer . . . ." Although this provision listed certain specific matters as to which plaintiff could satisfy itself within the thirty-day period, this list was preceded by the phrase "including without limitation," thus clearly indicating that it was not an exclusive list of "all matters respecting the Property and the lawful uses to which same may be put by Buyer" that defendants agreed plaintiff could satisfy itself about during that period. Furthermore, the final sentence of the due diligence provision states, "The Buyer's decision as to its dissatisfaction with the Property shall be in the Buyer's sole discretion, and the Buyer's reason for its dissatisfaction may not be challenged by the Seller," thus expressing defendants' agreement that plaintiff's reason or reasons for terminating the contract within the thirty-day period would not be subject to challenge in litigation.
The covenant of good faith and fair dealing in performing contractual obligations cannot be invoked to circumvent these express terms of the due diligence provision of the parties' contract. "[T]he implied covenant of good faith and fair dealing cannot override an express term in a contract . . . ." Wilson v. Amerada Hess Corp., 168 N.J. 236, 244 (2001). The due diligence provision expressly gave plaintiff thirty days "to satisfy itself as to all matters respecting the Property and the lawful uses to which same may be put by Buyer . . . ." The reference to "lawful uses" clearly includes zoning. In addition, defendants expressly agreed that plaintiff's "dissatisfaction with the Property shall be in [plaintiff's] sole discretion" and that "[plaintiff's] reason for its dissatisfaction [with the property] may not be challenged by [defendants]." In view of the expansive language of the due diligence provision, the only reasonable expectation defendants could have had was that plaintiff could terminate the contract at the end of the allowed thirty-day period for any reason relating to the property including its zoning. Therefore, plaintiff could not be found to have violated its implied duty of good faith and fair dealing simply by exercising its right to terminate the contract.