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Spring Creek Holding Company, Inc. v. Shinnihon U.S.A. Co., Ltd.

399 N.J. Super. 158, 943 A.2d 881 (App. Div. 2008)

CONTRACTS; ANTICIPATORY BREACH — The traditional law of anticipatory breach requiring an express, unequivocal repudiation of a contract by one party before the other party can terminate has been replaced with the modern view that allows a party to terminate a contract where there are reasonable grounds to support that party’s belief that the other will breach the contract.

A property owner owned a 600-acre tract of land on which it operated a golf course and hotel. A 280-acre portion of the property was undeveloped. The owner agreed to sell the golf course, but zoning restrictions did not permit the separation of the golf course and non-golf course properties. Therefore, the owner agreed to sell both the golf course and the undeveloped property, with the owner retaining equitable title to the non-golf course property. The agreement provided that the buyer would purchase the entire property, but would return the undeveloped parcels to the seller for nominal consideration after an amendment to the master deed. The owner was required to pay taxes for the undeveloped parcel and was required to pursue the necessary subdivision approvals to subdivide the properties.

Then, the owner filed for bankruptcy and a new owner acquired both the hotel and the owner’s right to reacquire the undeveloped parcels. The buyer then sued to be absolved of its obligations to reconvey the undeveloped parcel. It argued that the original owner had breached its contractual obligations by failing to pay the taxes as required. The hotel and rights to the undeveloped parcel were sold again, and the newest owner and the buyer entered into a settlement agreement whereby the newest owner agreed to seek approvals to develop 678 residential units on the undeveloped parcel, agreed to permit the buyer to review the plans prior to their submission, and agreed that the development of the undeveloped parcel would not adversely affect operation of the golf course. The buyer and newest owner continued their efforts to procure zoning approvals, but a dispute arose among the shareholders of the newest owner as to who had the authority to bind the newest owner. The buyer demanded assurances from the newest owner that the persons with whom it was dealing had the authority to bind the corporation. It also required copies of the newest owner’s organizational documentation to prove who had the authority to bind the newest owner.

The buyer received oral assurances, but reiterated its request for copies of the corporate documents. It reiterated the importance of verifying who had the authority to bind the newest owner in the zoning application process. Two of the shareholders of the corporation filed a law suit in federal court against the third, seeking to enjoin him from taking unauthorized actions on the corporation’s behalf. The two factions disagreed over the development of the undeveloped area as either condominium units or time share units. The buyer then sued to have the settlement agreement terminated based on the newest owner’s breach. It argued that the internal feud among the shareholders caused considerable doubt as to whether the newest owner would be able to fulfill its obligations to seek the zoning approvals. Both parties moved for summary judgment. The lower court found that the buyer was justified in terminating the contract. It found that the newest owner failed to provide the buyer with assurances as to who controlled the corporation and that the buyer had reason to believe that the buyer would be unable to pursue the required zoning approvals.

The newest owner appealed, but unsuccessfully. The Appellate Division noted that the traditional law of anticipatory breach required an express, unequivocal repudiation of a contract by one party before the other party could terminate, but the modern view of anticipatory breach allows a party to terminate a contract where there are reasonable grounds to support one party’s belief that the other will breach the contract. Here, it found that the buyer had the right to terminate the settlement agreement since the newest owner did not provide adequate assurance of its ability to perform its obligations within a reasonable time.


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