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Dunne v. Hauck

A-2093-98T5 (N.J. Super. App. Div. 2000) (Unpublished)

CONTRACTS; CONTINGENCIES—Where a contract grants a buyer a due diligence period to satisfy itself as to certain conditions, but the buyer does not make a good faith effort during that period to determine if those conditions exist, it may not terminate the contract because those conditions are unsatisfied.

A buyer made a written offer to purchase property, intending to build a single story retail building on it. The contract provided for a thirty-day “Review Period.” During that time, the buyer was required to provide the seller with a title report and the seller was obliged to remove any objections to title. The sale was contingent upon the property being zoned, or, if necessary, the rezoning of variance being granted in order to permit construction of a single story retail building. The buyer had the right to perform surveys and to undertake sampling of the property to determine soil and subsoil conditions, percolation, wetlands conditions, utility facilities, and the existence of any environmental hazards. If the buyer’s surveying or sampling revealed unsuitable conditions, the buyer had the right to terminate the agreement within the ninety day Due Diligence Period. The buyer retained an engineering and surveying firm and also met with residential neighbors to discuss the proposed development. Then, the buyer contended that because the property was not zoned for its intended use, he was entitled to, and did, terminate the contract. The buyer also asserted that he terminated the contract “as a result of the engineering and survey findings pursuant to the Due Diligent Provisions.” The seller rejected the termination, claiming that the buyer only had thirty days to terminate the contract based upon zoning considerations and not ninety days, as the buyer contended. In opposition to the seller’s motion for summary judgment, the buyer argued that he had a ninety-day period under the contract to review the transaction and to decide to terminate the agreement for any reason. He also argued, in the alternative, that if there was a thirty-day review period and a ninety-day due diligence period, he satisfied the due diligence requirement because he hired an engineer, met with the neighbors, and determined the development was not feasible. The seller argued in essence that the buyer did not perform due diligence and therefore had no basis to terminate the agreement. The lower court agreed with the seller saying that under the terms of the contract, the buyer could have terminated the contract, essentially for no reason, within the thirty day period. But, if it was going to terminate pursuant to the ninety-day due diligence provision, it had an obligation to conduct the required tests. Because the buyer did not conduct the required tests, “[h]e didn’t act in due diligence is the way I see it.” The Appellate Division agreed, holding that the buyer, although fluctuating between an argument to terminate it within the thirty-day period and within the ninety-day period, failed to comply with either provision. “Reading the contract as a whole, we conclude that the ninety-day due diligence applie[d] to both paragraphs in question. It is undisputed that [buyer] did not terminate the contract within the thirty-day period.” As the Court read the contract, the contract language compelled the buyer to file an application to secure the proper zoning or a variance to permit the intended development. Consequently, it was, at a minimum, required to make a good faith effort to secure the zoning or rezoning of the property and it made no such effort. With respect to the due diligence rights, the buyer was required to determine whether the soil conditions, environmental conditions or presents of wetlands, would make the property unsuitable for development. None of that occurred and therefore, the buyer could not use its due diligence rights as a basis for terminating the contract.


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