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Perla v. Jung

C-61-06 (N.J. Super. Ch. Div. 2009) (Unpublished)

CONTRACTS — Even though the literal language of a contract may be breached, there is no default if the actual understanding of the parties was not breached.

An individual entered into negotiations to purchase a commercial property. The buyer believed that rezoning of the property was essential to finalizing the deal as his intended use was not otherwise permitted. A contract was signed providing that the seller would introduce its buyer to the zoning authorities and verify that its buyer obtain the necessary permissions. The buyer never paid the deposit, but gave the seller a lesser sum (which the seller accepted). The municipality never rezoned the property and did not grant the seller permission to build the apartment units that the buyer intended to construct at the site. When the seller refused to return the deposit, the buyer sued. In response, the seller filed a counterclaim alleging that the buyer breached the contract when he refused to close, notwithstanding that the rezoning never occurred.

The Chancery Division granted summary judgment in favor of the buyer. It held that the contract clearly and unambiguously established a pre-condition that had never occurred, i.e. the seller did not obtain the necessary permissions to build the apartment units. Thus, the Court ordered the seller to return the deposit money. It rejected the seller’s contention that the municipality’s failure to rezone the property was due to fraud, corruption or bad faith. The Court found no evidence of the record to support such a ruling. The seller appealed.

The Appellate Division reversed and remanded to the Chancery Division. It held that the contract language was not so clear as to warrant summary judgment. The Appellate Division held that the operative provision should be read within the context of the negotiations and modifications of earlier drafts and was not susceptible of being read only as the buyer and the lower court had read it.

Here, upon the case’s return, the Chancery Division again ruled in favor of the buyer. Following the Appellate Division’s direction, the Court considered the language in question in the context of the parties’ discussions and negotiations. It again held that the record failed to reveal that any municipal representative said or did anything that was corrupt, fraudulent or even improper. It found the record further showed that neither the buyer nor any of his representatives had any contact with any municipal representative. As to the meaning of the contract’s “Precondition to Closing” clause, the Court stated that it was always understood by the parties that the buyer’s desired units could not be built on the property under the existing zoning and that the parties understood that the only way the property could accommodate the units was if it was rezoned. The Court also held that the seller knew that the buyer was not bound to close the deal unless permission was granted by the municipality to build the apartment units. The Court found that although there was never an agreement that the buyer need not close until all conceivable approvals were granted, there was an agreement, reflected in the contract, that the buyer need not close unless the municipality changed its zoning to permit the construction of residential apartment units on the site. The Court also noted that the buyer did not read the contract and had relied on his partner’s assurances that the document was needed to give to the municipality in order to obtain the rezoning. In addition, and ambiguous contract language notwithstanding, the Court held that the parties clearly understood that the seller (and only seller) would deal with the municipality to obtain the necessary rezoning. The Court held, contrary to the seller’s assertions, that the buyer knew nothing about developing real estate in New Jersey and had been relying on the seller’s representations that he would be responsible for rezoning the property, or the deal would be terminated.

The Court thus again held that the buyer was entitled to a refund of his deposit. The Court also rejected the seller’s claim that the buyer breached the contract by not tendering the full deposit price. It held that the contract was a “show contract” whose purpose was to show the municipality that the seller had a real deal. Therefore, it held that even though the literal language of the contract was breached, the actual understanding of the parties was not breached. It ruled that this is why the record was devoid of any demand for deposit monies until after the seller was sued. The Court viewed the money paid to the seller as an “advance” to be used by the seller as he saw fit, to be returned, like a deposit, if the deal was not consummated. Even assuming that the parties had actually agreed that the full deposit would actually be made, the Court held that the seller waived the breach by never demanding that the payments be forthcoming.


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