Your Reason for Signing a Contract Can’t Be Used Against You

HNW Business and Corporate Legal Services, Contract Law, Real Estate, Landlord/Tenant, and Zoning

business contract“Every contract in New Jersey contains an implied covenant of good faith and fair dealing.” “The party claiming a breach of the covenant of good faith and fair dealing must provide evidence sufficient to support a conclusion that the party alleged to have acted in bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the parties.” 

  • However, “the implied covenant of good faith and fair dealing cannot override an express clause and/or contract provision that allows a party to exercise or refrain from exercising a right and where the contractual right to terminate is express and unambiguous, the motive of the terminating party is irrelevant.”

This is an interesting breach of contract case derived from reading a recent contract dispute case.  The plaintiff moved to New Jersey because his employer relocated to the state.  He executed a contract for the purchase of a single family home being constructed by a sophisticated real estate developer, in Morris County.  The contract contained an unequivocal clause making the buyer’s purchase of the home contingent on the sale of their residence in New York.  As consideration for the home sale contingency clause, the buyer agreed to pay for all modifications and upgrades to the home at their request and to forfeit those payments in the event they terminated the contract.

The contract also specified a closing date of June 1st.  The buyer negotiated that date based on his need to be in New Jersey at that time for his job.   In addition, the couple wanted sufficient time to settle into their new home before the start of the new school year.

The record contained undisputed evidence that the buyers listed their New York home for sale.  They hired a real estate broker to market the property.  The broker arranged for several open houses.  Having not sold the home, the buyers reduced the listing price twice.  As of May 19th, the New York property had not sold.  As a result, the buyers exercised their right to terminate the contract under the home sale contingency clause and demanded a return of their deposit.  They acknowledged they forfeited the $16,000.00 they paid for customizations to the home at their request.  Builders refused to refund the balance of the deposit.  Buyer sued.  Buyer won.  Why?  Because while every contract in New Jersey contains an implied covenant of good faith and fair dealing, a party claiming a breach of the covenant of good faith and fair dealing “must provide evidence sufficient to support a conclusion that the party alleged to have acted in bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the parties.  However, the implied covenant of good faith and fair dealing cannot override an express clause and/or contract provision that allows a party to exercise or refrain from exercising a right “where the contractual right to terminate is express and unambiguous; the motive of the terminating party is irrelevant.”

To discuss your NJ contract matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Contract Law Attorney

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