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The Bluffs at Ballyowen, LLC v Toll Bros., Inc.

A-3285-09T3 (N.J. Super. App. Div. 2010) (Unpublished)

CONTRACTS; BREACH; SPECIFIC PERFORMANCE — Where parties have bargained for specific performance as a particular equitable remedy for certain breaches, a court should not order an alternate remedy, but where specific performance is impossible or impracticable, a court can consider reformation of the contract as equitably appropriate based upon changed circumstances.

A seller of real property in two municipalities wished to develop its lots for residential use. It agreed to sell them to a developer in a series of sequenced closings. The developer agreed that it would construct so-called common improvements on the premises, including a clubhouse and a pool. There was a sixty-day due diligence period. Because of the changing economic climate, the parties attempted to renegotiate their agreement over a two year period. Then, the developer withdrew from the agreement before the first closing. Under the agreement, construction of the common improvements was scheduled to start after that first closing. The agreement also obligated the developer to present the seller with a construction schedule for the common improvements at least ten days prior to the expiration of the due diligence period. In another paragraph, the agreement provided that should the developer fail to construct the common improvements, the seller had the right to retain the deposit and bring an action for specific performance against the developer. The seller would also be entitled to receive attorneys’ fees and costs from the developer if it prevailed. Under the agreement, the developer’s obligation to build the common improvements survived closing and survived any breach or termination of the agreement.

The seller expected to close on the first set of units, and when settlement did not take place, it sued for specific performance of the buyer’s obligation to build the common improvements. In the alternative, it sought money damages. The matter was tried, and the lower court awarded $1,775,698 for the “cost of completion.” It rejected the developer’s argument that it was not obligated to build the common improvements until after the first closing, holding that the developer’s duty to build originated under the agreement and the survival clause indicated this duty would survive not only any closing, but also any breach or termination of the agreement. In awarding damages in lieu of specific performance, the court held that just because the contract called for specific performance as a remedy did not foreclose damages in this matter.

On appeal, the Appellate Division affirmed the lower court’s ruling that the developer’s duty to construct common improvements originated at the time of agreement, and was not preconditioned on the first closing taking place. The Court ruled the developer had mistakenly conflated its physical obligation to begin this construction with its contractual promise to build the common improvements at a future point. Its duty inhered on the date the agreement became effective, and the developer did not withdraw from the agreement until after the due diligence period had expired.

The Appellate Division, however, reversed the lower court’s ruling that the developer could pursue a remedy other than specific performance under the governing contract. The Court found the lower court improperly reformed the clear unambiguous language of the contract where the parties bargained for a particular equitable remedy for breach. The developer contractually bound itself to specific performance of the common improvements in the first instance, as called for by contract. There was an open question as to whether the owner still held title to the property at the time the appeal was heard, so the Court remanded for the lower court to schedule a hearing on the legal status of the property and reconsideration of specific performance as a possible remedy. If the lower court found that specific performance was impossible or impracticable, the Court advised it to consider reformation of the contract as equitably appropriate based upon changed circumstances.


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