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Trico Equipment, Inc. v. S.D. Walker, Inc.

A-4885-07T1 (N.J. Super. App. Div. 2010) (Unpublished)

CONTRACTS — Where a seller’s ability to deliver a small, independent component of contracted-for goods or services is immaterial to the contract as a whole, and the buyer can easily replace the missing component without extra cost, the buyer cannot rescind the contract on that basis that the insignificant component can’t be delivered by the seller.

A campground operator bought a backhoe from a seller of heavy machinery and equipment. The bill of sale listed a sales price and a deposit. It contained a notation, “rentals and damages paid in full.” In the memo portion on its deposit check, the buyer wrote, “This is full down payment & all sums due to [the seller] for all previous rentals and machine damage except dozer.” Prior to the sale, the buyer had owed money to the seller for previous rentals, and so a portion of the deposit check was for the new backhoe with the rest was credited as payment for past due rental fees.

The bill of sale required the buyer to arrange for financing itself or through the seller’s sources in order to pay the remainder of the purchase price. It also gave the seller the option to cancel the sale if the buyer could not arrange for financing, in which case the buyer would be obligated to return the backhoe and pay a daily rental fee for the time it kept the backhoe.

The parties then entered into a retail installment sales contract for the backhoe, listing the purchase price, sales tax, deposit, interest rate, and additional costs for physical damage insurance as well as liability insurance. The installment sales contract was then assigned to the ultimate lender, which was also expected to be the liability insurer. Even before the buyer and seller entered into the installment sales contract, the lender had advised the seller that it no longer offered liability insurance as part of its financing agreements. The seller told the buyer that liability insurance was no longer available through the lender and offered to revise the installments sales contract to remove the liability insurance premium from the fees and recalculate the monthly payments. The buyer refused to move forward with its purchase.

The buyer made no payments for the backhoe. The seller requested that the buyer agree to amend the contract to eliminate the insurance premium or cancel the contract and rent the backhoe for a monthly rental fee. The buyer rejected both options, but retained the backhoe and made no payments even though using it. The seller then sued for the amount due and for reformation of the contract based on the mutual mistake that the lender would provide liability insurance coverage.

The lower court entered an order prohibiting the buyer from using the backhoe and it authorized the seller to repossess it. The seller repossessed it and resold it. The original buyer filed a counterclaim against the seller for misrepresentations in offering liability insurance while knowing it was unavailable, as well as for breach of the covenant of good faith and fair dealing by not returning the deposit. The lower court found that the seller had breached the contract by failing to provide liability insurance. However, the lower court found that the breach was not material to the performance of the remainder of the contract because the buyer continued to use the backhoe for many months while relying on its general contractor’s insurance and not procuring any additional insurance. The lower court then calculated the seller’s damages, and deducted the portion of the deposit allocable to the new backhoe (as opposed to the past due rental fees for other equipment) as well as the resale price for the backhoe.

The buyer unsuccessfully appealed and the Appellate Division affirmed the lower court’s ruling. In doing so, the Court found that the seller’s failure to obtain liability insurance was not material to the contract as a whole because the buyer had other insurance available, and because the greater part of the purchase price was for the backhoe and not the liability insurance. Further, the Court found that even if the seller’s breach was material and excused the buyer from performing the contract, the buyer was still liable to the seller for rental charges for its continued use of the backhoe.

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