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Alsentzer v. Bulboff

A-6595-03T2 (N.J. Super. App. Div. 2006) (Unpublished)

CONTRACTS—Perpetual duration contracts are disfavored in New Jersey; therefore if a contract does not contain express terms as to its duration, it is terminable at will after a reasonable time.

Two individuals entered into a series of stock purchase agreements whereby the buyer would exchange a certain amount of his stock he owned in one company for a certain amount of shares owned by seller in another company. The purpose of the agreements was to diversify the parties’ stock portfolios. The agreements provided that the buyer, by notice to the seller, could set the date and place of closing by delivering written notice to the seller at least three days before the designated closing date. The agreements also provided that any provision could be amended or waived, but only with the prior written consent of both parties. The stock purchase agreements did not contain a provision for market value adjustment if one stock to be swapped became more valuable than the other.

At one time, the value of seller’s stock was more than twice the value of the buyer’s stock, making it disadvantageous for the seller to consummate the transaction. The seller also became concerned that the stock transactions would be considered illegal insider trading as a result of the business relationship between the seller and the companies whose stocks were to be swapped. As a result, the seller suggested stock pooling agreements to replace the stock swaps. The buyer claimed to have sent handwritten notice to the seller setting a closing date for the stock swaps, but the lower court discounted the buyer’s testimony, noting that the buyer failed to recall the details of the notice during pre-trial discovery, yet recalled it at trial. It also found that the communications between the buyer and seller indicated a general desire to close, but did not state a definite closing date and therefore did not constitute proper notice. The lower court then found that the requirement for proper notice was not waived, since there was no evidence that the seller voluntarily waived his right to receive proper notice of the closing date. The lower court also found that the buyer’s willingness to discuss a stock pooling proposal to replace the stock purchase agreements demonstrated that the buyer knew the stock purchase agreements had lapsed. The buyer appealed.

The Appellate Division affirmed, rejecting the buyer’s contention that because the seller had actual oral notice of the buyer’s desire to close, the seller breached the terms of the stock purchase agreements by failing to close. The Court agreed with the lower court’s finding that the notice provisions in the agreement “did not permit the expression of a mere desire for action to trigger the obligations that the agreement contained.” It found that the stock purchase agreements required written notice to set a closing date, and that the buyer acknowledged that he never sent the notice. It also noted that the lower court did not determine that either party had a right to rescind the agreements. Rather, the lower court determined that in the absence of a definite closing date, the closing had to take place within a reasonable time. It noted that perpetual contracts are disfavored in the law, and if a contract does not contain express terms as to its duration, it is terminable at will after a reasonable time. Lastly, the Court affirmed the lower court’s holding that the agreements were terminated when the seller and buyer began discussing a stock pooling agreement after they both knew the stock purchase agreements were not financially viable.

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