If the Seller of a Business Does Not Comply with Legal Requirements for the Sale, May that Seller Use That Fact to its Advantage by Voiding the Sale Altogether?

May a Seller seek to void a contract for sale of his business by taking the position that the sale contract was violated and therefore unenforceable, when the seller itself is the one that did not comply? That issue was raised in Meadowbrook Industries, LLC v. Walker Management Systems, Superior Court of New Jersey, Appellate Division, Docket No. A-3568-11T4 (March 5, 2013).

In that case, the seller violated a contract for sale of a waste disposal business by failing to obtain the approval of the New Jersey Department of Environmental Protection before entering the agreement. NJSA 48:3-7(c).  As it turned out, the seller was the one who wanted to scuttle the deal.  It tried to argue that because the requirement had not been complied with, the contract was unenforceable.

The Appellate Division of the Superior Court of New Jersey rejected that argument.  It held that the seller’s legal theory was barred by the doctrine of unclean hands. What this meant was that the party asserting the breach could not have caused that breach. The law protects those who did not cause their own harm.

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