Add this one to the “What Seemed like a Good Idea at the Time” Category. Two parties forming a contract for the development of new housing decide in New Jersey to expressly include a specific performance remedy that enables a court to order one of the parties to perform some aspect of the agreement. Not only does the deal go bad, but the whole housing industry and when one of the parties breaches, the .other side would prefer to cash out and move on.
And why not? Specific performance, like any injunctive remedy, is supposed to be reserved for the extraordinary case in which there is no monetary remedy. I would think the argument for money damages was a winner. Not so. If the parties contracted for specific performance, they have to demonstrate that it is not available, turning the usual process on its head.
In,The Bluffs at Ballyowen, LLC v. Toll Bros., Inc., 2010 N.J. Super. (App. Div. Nov. 4, 2010), the New Jersey Appellate Division reversed an award of money damages because the plaintiff had not demonstrated that the preferred remedy, specific performance of one party’s obligation to build common improvements for a housing development, was no longer available. In fact, it appeared that the land on which the improvements were to be constructed had since been transferred by the plaintiff. Nonetheless, since the trial record failed to establish the transfer, the money judgment was reversed and sent back to the trial court.
The plaintiff had contracted with defendant Toll Brothers to sell residential lots on which an adult community was to be built as those lots were constructed The contract, ironed out presumably by experienced lawyers, contained a provision that in the event of breach, “specific performance” of defendant’s duty could be sought. The contract also provided that if a cause of action for specific performance was successfully made, attorneys’ fees and out-of-pocket litigation costs could also be recovered.
Plaintiff won a judgment at a bench trial for compensatory damages, interest, costs, and attorneys’ fees in the aggregate of $2,505,706.40. After a provisional judgment was entered, plaintiff transferred its interest in the property to a third party and did not disclose this fact during a hearing held regarding damages.
In reversing, the appellate court went back to one of the first principals of contract interpretation: if the terms of a contract are clear and unambiguous, a court cannot add terms that do not exist. It is often said that a court cannot write a better contract for the parties than they did themselves.
The Appellate Division found that the remedy for a breach of contract was carefully laid out in the contract to be an action for specific performance, and the contract further protected this provision by express waiver of the legal defenses of “’enforceability’” and “’reasonability’” of the provision. The Appellate Division is harshly noted they were “unaware of any provenance in the law for [the] . . . proposition” that enabled the trial court to perform “judicial plastic surgery” by granting monetary damages rather than specific performance, even though the contract was clear.
Nonetheless, since specific performance likely was impossible because of the transfer of the property, the appellate court recognized that now a reformation of the contract might be appropriate. The Appellate Division also vacated the decision regarding costs and attorneys’ fees, pre- judgment interest, while allowing the trial court to reinstate them if appropriate.
