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Sumo Urban Renewal Corp. v. City of Newark

A-1791-97T1 and A-1932-97T5 (N.J. Super. App. Div. 1998) (Unpublished)

CONTRACTS; CONTINGENCIES—A highly contingent contract isn’t necessarily illusory and, absent a requirement for notice to extend a deadline to be in writing, the notice can be oral, express or implied.

A redeveloper entered into a written memorandum of understanding with a municipality to provide affordable housing at a former industrial property. The memorandum was replete with contingencies. Of particular note was the municipality’s obligation to undertake five tasks, the first of which was to adopt a resolution requesting its planning board to undertake a blight investigation. If that process led to a redevelopment plan consistent with affordable housing development, the municipality was obligated to negotiate a redevelopment contract in good faith with the redeveloper. The company, for its part, was obligated to negotiate a redevelopment contract in good faith provided the redevelopment plan permitted two-family affordable housing. In order to prepare itself, the developer had to take a variety costly preliminary planning steps outside the purview of the memorandum. The Court, however, was satisfied that the memorandum, although highly contingent, was not illusory and imposed obligations on both parties. The Court was also satisfied that the covenant of good faith and fair dealing, an implied term of every contract, inhered in this memorandum as well. The key provision of the memorandum was a section that provided, in full, as follows: “[i]f the City fails to complete all the items contained in item 1 of this Agreement within 120 days from the execution of this Agreement, the proposed Redeveloper shall be released from his obligation and the contents of this Agreement nullified unless an extension is agreed to by the Redeveloper.” There was also a counterpart to this provision which released the municipality from any obligation to the Redeveloper.

After several years had passed with little activity, the municipality adopted a resolution rescinding this memorandum and entered into a different memorandum of understanding with another redeveloper. This provoked the initial redeveloper to file an action. The municipality argued that the original memorandum of understanding had expired by its own terms through the expiration of the 120-day period. The lower court agreed, but the Appellate Division found otherwise. To the Appellate Division, the only question was whether the original redeveloper successfully exercised its option to extend the 120-day period for the municipality’s performance. It was clear that it was within the redeveloper’s sole discretion to do so. There was no obligation in the memorandum that an extension be in writing. Consequently, the extension could have have been granted orally and it could have been express or implied. The Court found that there was sufficient evidence to support the parties’ mutual understanding that the time period of the memorandum was extended for as long as necessary for the municipality to accomplish a redevelopment plan. Well after the initial 120-day period had expired, the municipality participated in a meeting, the purpose of which was to advance the still viable project. Further, if the municipality had believed that there had been no extension, there would have been no reason for it to have adopted a rescinding resolution based on the redeveloper’s non-existent failures of compliance. Reference to the memorandum’s expiration clearly would have been sufficient. On the other hand, the Court found the original redeveloper’s apparent failure to take more definitive action after the key meeting to be susceptible of more than one interpretation. Consequently, the finder of fact could conclude that the original redeveloper’s conduct was consistent either with its patiently awaiting the occurrence of the required contingency or an abandonment of the project. On that analysis, the Court reversed the summary judgment in favor of the municipality and remanded the matter for further proceedings.


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