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Perla v. Jung

A-3699-08T1 (N.J. Super. App. Div. 2010) (Unpublished)

CONTRACTS; INTERPRETATION — Where a court finds that a contract provision is ambiguous, it will look at the context of the parties’ discussions, including prior drafts, to ascertain the intended meaning of the agreement.

A one-half acre lot containing a two-store retail and residential building was located within a C-3 Limited Business District. This zone did not permit the construction of high-rise apartment buildings. Its owner entered into an agreement to sell to a buyer who intended to put up an eighty-unit apartment building, a use which was not permitted under the current zoning code.

The parties signed an initial term sheet that specified a purchase price and had a payment and closing schedule. It provided that the seller would introduce the buyer to the municipal land use authority to confirm the ability to construct the apartment building. A formal contract was then drafted. It contained certain preconditions to closing, one of which was that the buyers obtain all required approvals to build eighty apartments on the site. The seller rejected the proposed draft and the parties revised the contract and then executed it. The revised contract required the seller to introduce the buyer to the municipal land use authority and to assist the buyer with obtaining the necessary approvals to construct eighty apartments. Another section of the contract contained preconditions to closing, one of which that the seller introduce the buyer to the municipal land use authorities to confirm and verify that the buyer had obtained the necessary permissions to build the apartment units.

The buyer paid a portion of the deposit, but failed to pay the balance. The seller demanded payment of the balance and also demanded to schedule the closing. The buyer argued that since the seller failed to introduce the buyer to the land use authorities or to confirm that the buyer had permission to build the apartments, a precondition to closing had not been met. The buyer then terminated the contract and demanded the return of its deposit. When the seller refused, the buyer sued. After the close of discovery, the buyer moved for summary judgment. The lower court concluded that the contract language was clear and unambiguous and required re-zoning approval for the buyer to go ahead with the deal. Since no approval was forthcoming, the lower court entered judgment in the buyer’s favor. On appeal, the Appellate Division reversed, finding that the contract language was ambiguous and that the agreement, in the context of negotiations and modifications of the earlier draft, could lead to a conclusion that approval of re-zoning was not a precondition to closing, and that only an introduction to the land use authority was required. The matter was remanded for trial.

At the trial that followed the remand, the lower court found that the contract was ambiguous and therefore considered it in the context of the parties’ discussions. It found that it was always understood by the parties that eighty apartment units could not be built on the property under the existing zoning code and that the only way to do so was to have the property re-zoned. The lower court also found that the seller, experienced in land use applications in the municipality, knew that the buyer would not be obligated to close unless the buyer received permission to build the units. Specifically, the term sheet referred to the parties confirming the ability to construct the apartment units. Further, the draft agreement referred to “unequivocal, absolute, and unappealable permission and right” to build the apartment units. In addition, the lower court found that it was understood by the parties that only the seller would deal with the municipality to secure the re-zoning and the deal was contingent on the seller delivering approvals. Therefore, the lower court concluded that since the precondition to closing was not met, the buyer was entitled to cancel the agreement and receive the deposit back. The Appellate Division affirmed.


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