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BNET, LLC v. Javin

A-4695-01T3 (N.J. Super. App. Div. 2003) (Unpublished)

CONTRACTS; DAMAGES—Parties to a contract can agree to limit each other’s remedies including eliminating a right to specific performance in a real estate contract.

A buyer and seller of real property entered into a contract of sale. The contract contained an environmental contingency. The buyer’s environmental investigation revealed contamination at the property. The buyer and seller then executed a contract amendment that permitted the seller to perform an environmental audit. Following the audit, the seller had the option to either perform the remediation necessary to obtain a No Further Action Letter from the New Jersey Department of Environmental Protection (NJDEP) or refuse to remediate, in which case the buyer had the option to terminate the contract. The seller entered into a Memorandum of Agreement with the NJDEP regarding the cleanup. The seller then advised the buyer that it needed to discuss a renegotiation of the contract price to account for the escalating remediation costs. It then advised the buyer that it was terminating the contract because of the remediation costs and returned the deposit to the buyer. The contract’s default provision provided that buyer’s exclusive remedy in the event of default was to seek return of its deposit. The buyer claimed that by entering into a Memorandum of Agreement with NJDEP, its seller was agreeing to perform the remediation and had no right to terminate the contract. On that basis, the buyer sued and the lower court concluded that the seller had no right to terminate the contract and awarded specific performance.

It also found that the contract placed the financial burden for remediation solely on the seller, and that the seller had agreed to remediate. Therefore, its attempted termination was a breach of the contract. It awarded the buyer the remedy of specific performance because the failure to do so would allow the seller to benefit from its breach of the contract.

On appeal, the Appellate Division reversed, taking note of the course of conduct of the buyer and seller. The Court believed that, in discussing the proposed remediation with the buyer, the seller did not indicated an unconditional intent to clean up the property and proceed with the contract. Rather, the seller attempted to obtain a Memorandum of Agreement that would not require the buyer to pay a portion of the cleanup costs. In later correspondence, the seller indicated that it could not continue with the contract unless the buyer contributed to the cleanup costs. The Court read the correspondence to indicate that the seller did not agree to remediate the environmental contamination at its sole cost and it therefore reserved its right to terminate the agreement as provided for in the amendment. Therefore, it concluded that because the amendment provided the seller with the right to either remediate or to terminate the contract and the seller elected to terminate the contract rather than shoulder the entire financial burden of remediation, the seller did not breach the contract. The Court also found that even if the seller was in breach, the buyer’s sole remedy was to receive a return of its deposit. While specific performance is generally an available remedy for breach of contract, a buyer and seller have the right to contract away that remedy. In this case, the contract specifically stated that the buyer’s remedy was limited to the return of its deposit.

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