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Ritschel v. Spencer Savings Bank, SLA

A-1354-09T3 (N.J. Super. App. Div. 2011) (Unpublished)

CONTRACTS; DAMAGES — A party does not waive its right to challenge a lower court’s calculation of damages as a matter of law simply because it chose to elect a remedy in response to a lower court’s query.

A buyer a contracted to buy a parcel to construct a building for his business and to lease some space to other tenants. As part of his due diligence investigation, he had the land examined and learned that it was significantly contaminated. After negotiation, the parties amended their contract and the seller undertook responsibility for environmental cleanup in return for the buyer’s agreement not to terminate the contract for any reason other than a default by the seller.

After the seller started the remediation process, it realized the cleanup costs would be greater than anticipated. Based upon this discovery, it told the buyer that it was terminating the contract. The buyer filed suit, alleging breach of contract and breach of the covenant of good faith and fair dealing. The buyer’s expert testified at trial that the buyer would have suffered a total economic loss of over $2 million. The seller’s expert testified that the buyer would only have suffered lost profits of $98,000. At the conclusion of trial, the lower court found for the buyer and awarded damages of $484,671. This included damages for both lost profits and for out-of pocket damages. The seller argued the buyer was not entitled to both forms of damages, and the lower court agreed. The lower court offered the buyer the option of either, and the buyer elected to receive the higher amount which, under the lower court’s methodology, was its out-of-pocket expenses. The buyer appealed, arguing the lower court incorrectly rejected its expert’s theory of damages.

The Appellate Division affirmed, finding that the buyer did not waive his right to challenge the lower court’s calculation of damages as a matter of law simply because it chose to elect a remedy in response to the lower court’s query. However, the Court then reviewed the disparate expert testimony. It found that the buyer’s expert had calculated damages over a twenty-nine year period, discounting that figure to the time of trial, while the seller’s expert calculated damages over a ten year period, discounting that figure to the time of the breach. The Court also found that the lower court findings were reasonable as to the buyer’s expert in that he had failed to account for the possibility of cost overruns associated with the construction of the proposed building. It also noted the lack of proof that the buyer had the financial wherewithal to complete the project, the uncertainty attendant to the environmental contamination and the prospective leases, and that the development project was an entirely new business for the buyer. The Court also found the lower court reasonably relied on the seller’s expert’s discount valuation as of the time of breach, rather than at the time of trial, because the contract at issue was for the sale of a parcel of real estate which did not envision any continuing relationship between the parties past closing.

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