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Wachovia Bank v. The Gadbey Organisation

2005 WL 2559780 (N.J. Super. Law Div. 2005) (Unpublished)

CONTRACTS; CONTINGENCIES—Where a purchase contract’s land use contingency states that it will be satisfied upon receipt of approvals from a particular municipality’s planning board, the buyer cannot terminate the contract just because highway access approvals can’t be obtained from the Department of Transportation or because the buyer believes that all land use approvals cannot be obtained.

A bank entered into a contract to purchase an unimproved tract of land to “construct a new banking facility pursuant to its plans, with satisfactory access and signage.” The agreement contained an “Inspection Contingency” clause and a “Land Use Approval” clause. The “Inspection Contingency” clause gave the bank sixty days within which to conduct all investigations and inquiries needed for the bank to determine whether the property was suitable for its intended development. If the bank decided it was not suited for development, it had the right to terminate the contract and obtain a refund of its deposit. If it did not terminate the contract, then it would proceed to obtain land use approvals within a given period of time. The land use approval contingency was to be considered satisfied when the municipal planning board’s approval became final and non-appealable without any appeal having been filed.

Originally, the bank intended to build a “new” prototype 4,000 square foot facility. For a period of time, it felt confident that such a facility could be built and that it could obtain necessary municipal and Department of Transportation approvals. It made application for a municipal approval. Two to three months after the sales contract was signed, the bank re-evaluated its prototype facility and decided to change to another prototype. This required a revision to the plans and a change in the application. About six months after the sales contract was signed, the bank learned of anticipated problems with highway access permit approvals. Subsequently, its traffic engineer prepared a report evidencing greater concern. By this time, the municipality was undergoing a shift in its concept as to how properties should be developed and the bank was faced with the necessity of further revising its plans. Further, the access permit problem seemed to imply that the bank would need to reduce the size of its proposed branch. With all of that in front of it, the bank decided to terminate the agreement based upon its perceived inability to obtain land use approvals. The bank requested return of its deposit, but the landowner refused to do so. The bank sued.

The Court was faced with a number of issues. One of them was whether the “due diligence” clause (i.e., the Inspection Contingency) was the means by which the parties had decided to use for the bank to determine whether its plans were feasible in the first place. If that were the case, then the bank’s concern about getting land use approvals should have been dealt with during the Inspection Contingency period. The Court was also asked to determine whether the doctrine of impossibility excused the bank from its contractual obligations either because the bank couldn’t obtain access permits or because the municipality was going to require the bank to substantially change its site plan to conform with the new land use concepts within the municipality. Further, the Court needed to decide whether the Land Use Approval contingency entitled the bank to void the agreement because of the bank’s perceived inability to obtain highway access permits prior to approval by the municipal planning board.

Unfortunately for the bank, the Court decided that the question as to whether a highway access permit could be received was a matter of purview within the Inspection Contingency provision of the contract and not within the Land Use Approval contingency provision. The Court viewed the Inspection Contingency text as “a broadly permissive bargained for provision permitting [the bank] an opportunity to perform its ‘due diligence’ investigation into whatever matter(s) it deemed appropriate in its sole discretion, in order to assure itself that ‘it can accomplish its objective of ... construction of a banking facility on terms and conditions acceptable to it, subject to obtaining the required Land Use Approvals as set forth’” elsewhere in the contract. The Court believed that the Land Use Approval contingency was limited by specific reference to planning board approval. Consequently, the Court held that the bank “was then required to close title, even though it may not have had the DOT access permit that [the bank] claim[ed] to be the subject of the land use contingency.” Further, the Court held that securing the access permit “was not a condition objectively impossible for [the bank] to meet.” It rejected the bank’s right to terminate the contract based upon the doctrine of impossibility solely based on the bank’s subjective perception of its ability to obtain access permits. The bank had an obligation “to file and diligently prosecute the development application before the Board, something it commenced, but just never completed. It was not ‘impossible’ for [the bank] to prosecute the application before the Board at a public hearing permitting the Board to decide the matter.” The bank chose not to proceed “because of its belief that denial of its application was predictable. Predictable as it may or may not have been, [the bank] had to comply with the contractual obligations it agreed to, and it just did not make that effort.” The bank’s speculation as to how the board would have ruled could not be equated with “impossibility to satisfy the land use contingency.”

The Court also rejected the bank’s argument that the access permit was a land use approval contingency within the ambit of the contract’s contingency provision. It argued that it had the right to apply for permits for a bank “pursuant to its plans with satisfactory access and signage.” If it couldn’t obtain approval for what the bank considered to be “satisfactory,” the bank felt it could terminate the agreement. The Court disagreed, holding that the bank was “bound by the language of the Agreement and [could] not adopt the position that once it subjectively determine[d]” that it would not get its approvals, “it had the right to void the agreement, it could do so no matter that the Board never had the opportunity act on its application.” According to the Court, when the bank decided “it could not accomplish its goal” and withdraw its application, it frustrated the purpose of the Land Use Approval contingency provision of the contract. The Court refused to rewrite the contract and substitute a new and different provision from what was clearly included within the contract. This was an important conclusion by the Court because the bank argued that the Inspection Contingency specifically exempted “required Land Use Approvals” from its coverage, thinking it left open the possibility for the bank “to terminate the Agreement if it could not obtain the necessary Land Use Approvals to build a bank pursuant to its plans.” The Court rejected this interpretation, opining that because the Inspection Contingency provision specifically referred to site planning, etc., the bank could have made all of its approval inquires during the initial sixty day period. Further, the Land Use Approval provision made reference solely to planning board approval where such approval was “final and non-appealable without any appeal having been filed.” Further, the Court rejected the bank’s contention that planning board approval “encompassed other permit approvals and therefore [the bank] was not overly concerned” with the contract’s reference to a specifically named municipality’s planning board within the land use contingency clause. In short, the Court believed that if the bank wanted the Land Use Contingency Clause to include access approvals, it could have expressly negotiated such words into the contract.

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