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Naporano Associates, L.P. v. B&P Builders

309 N.J. Super. 166, 706 A.2d 1123 ( App. Div. 1998)

CONTRACTS; LIQUIDATED DAMAGES—A liquidated damages clause that was reasonable at both the time of contract and at the time of default should be enforced.

A real estate contract contained a liquidated damages clause. The buyer sought to delay closing when he learned that the New Jersey Department of Transportation (DOT) was contemplating condemnation proceedings affecting part of the premises. When the seller’s attorney asserted that the buyer had defaulted by failing to close by a certain date, the buyer’s attorney stated that DOT had given him notice of a hearing to discuss the proposed condemnation. The seller’s attorney wrote back that he never received the hearing notice and would enforce the liquidated damages provision if closing did not occur before a given date. After receiving no response from the buyer’s attorney, the property was re-listed and a replacement contract of sale entered into with a third-party for a lesser amount. The original contract buyer notified the new contract buyer that it objected to the sale and claimed an equitable lien on the property. The seller sought a declaratory judgment that the original contract was terminated and that the original buyer had no further interest in the premises. The trial judge determined that the original contract buyer failed to close or properly extend the closing date, and that the seller was free to enter into a new contract. The Court did not limit the seller’s award to the amount of the liquidated damages clause, but awarded the difference between the original contract price and the replacement contract price, a larger amount. The original contract buyer appealed.

On appeal, the seller argued that the original contract buyer should be judicially estopped from claiming that the liquidated damages clause should be enforced because such a claim was inconsistent with the buyer’s argument at the trial level. The Appellate Division refused to judicially estop the claim, stating that the buyer did not have adequate information with which to conduct an analysis to determine the reasonableness of the liquidated damages clause at the trial. Therefore, the original buyer would be permitted to argue on appeal that the liquidated damages clause was unreasonable. The Court then considered whether the lower court should have enforced the liquidated damages clause instead of making its own determination of damages. Between parties with comparable bargaining power, and absent unconscionability, a liquidated damages clause is enforceable if the amount is reasonable in light of the anticipated or actual loss caused by the breach. The Appellate Division found that, both at the time the contract was entered into and when the breach actually occurred, the liquidated damages clause was reasonable and should have been enforced by the lower court.


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