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Zaken v. Camden Gateway, LLC

A-4913-09T1 (N.J. Super. App. Div. 2011) (Unpublished)

CONTRACTS; “AS IS” — In real estate transactions, all warranties and representations made in connection with the sale that are not specifically reserved to hold over after the passage of title are merged into the deed, but for covenants collateral to a deed for which a court looks to the intention of the parties.

A contract of sale stated that the seller was “under no duty, express, implied, or otherwise, to make any repairs or improvements in advance of or following the [c]losing.” The building was substantially deteriorated, and the buyer “was well aware of the building’s deplorable condition.”

There were several “conditions to closing,” the failure of any one of which would give the buyer several options as to how it wished to proceed. In addition, the seller was required “to keep the property in substantially the same condition as the date of the contract’s execution, ‘reasonable wear and tear, and loss by casualty ... excepted.’” Lastly, the seller was required to maintain the property in good condition and repair, ‘reasonable wear and tear and damage by fire and other casualty excepted.’”

After the contract was signed, but prior to closing, “the building was materially damaged by vandalism.” This damage gave the buyer a choice of the following three options: (a) to terminate the contract; (b) to delay the closing for up to ninety days, during which time the seller would have an opportunity and obligation to repair the damage; and (c) to accept the property in its damaged condition and proceed to a closing. More importantly, if the buyer elected option (c), then “all proceeds of insurance ... payable to [the seller] by reason of such damage, [or] destruction, ... [were to be] paid or assigned to [the buyer], and [seller was to] pay to [buyer] or credit against the Purchase Price the amount as determined by an independent insurance adjuster mutually selected by [the seller] and [buyer].”

The buyer and seller engaged in a battle over their respective responsibilities arising out of the vandalism, the insurance claim filed by the seller, and the conditions precedent to closing. The lower court ordered the closing to take place within thirty days “and ordered the title company to deposit the net proceeds of sale with the clerk of the court.” It also ordered the buyer to make an election and the buyer chose option (c). Closing took place, and the net proceeds from the sale were deposited with the court pending resolution of the respective rights and obligations of the parties under the contract. The insurance company “declared the building a total loss and concluded that the building’s full pre-vandalism fair market value was $150,000.” The buyer did not dispute the insurance company’s decision and provided no evidence that the building was worth more than $150,000. Even though it then received $150,000 and now owned the land and building, the buyer maintained that it was “also entitled to the ‘uninsured loss’ which, along with the deductible [had] to be determined by an independent insurance adjuster.” The lower court disagreed. It held that $150,000 represented the buyer’s full damages, “and the doctrine of merger applied, except as to [the buyer’s] right to the insurance proceeds, which [right] survived the closing.”

The buyer appealed to the Appellate Division, but unsuccessfully. In its appeal, the buyer argued that “the ‘as is’ provision of the contract did not [relieve the seller from] responsibility for damages occurring prior to closing.” It also argued that it was entitled to a credit against the purchase price for all damages even if the insurance coverage did not cover those damages. Further, argued that the seller had an obligation to maintain the property in good condition and repair, and the doctrine of merger did not bar it, the buyer, from seeking damages even though it already received a deed to the property.

The Appellate Division upheld the lower court’s decision, finding the contract to be unambiguous in that the buyer was purchasing the property “as is,” and in that the seller “had no duty to maintain the property or make any repairs to the property related to the vandalism. According to the Court, “the contract limited [the buyer’s] remedy to either terminat[ing] the contract, giv[ing] [the seller] ninety days to repair the damage, or accept[ing] the property in its damaged condition and proceed to closing.” Consequently, when the buyer elected to go to closing, it was purchasing the property “as is.” Further, according to the Court, the loss was fully insured and therefore the buyer’s damages were limited “to the insurance proceeds payable to [the seller] plus the deductible.” There was no deductible and the amount paid was $150,000. This matched the credit given to the buyer following closing. Basically, it held that the doctrine of merger applied. “[I]n real estate transactions, all warranties and representations made in connection with the sale, that are not specifically reserved to hold over after the passage of title, are merged into the deed.” The exception is for “covenants collateral to the deed.” To determine if there are any such covenants, a court looks to the intention of the parties. Here, the Court held that “[e]xcept for [the buyer’s] right to payment or an assignment of [the seller’s] insurance proceeds, [the] contract contain[ed] no collateral provisions, and no conditions that the parties intended to survive the closing. ... [The buyer’s] acceptance of the deed and the $150,000 terminated the parties’ rights and obligations under the contract.”


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