Donovan v. Bachstadt
| Decision Date | 05 November 1981 |
| Citation | 181 N.J.Super. 367,437 A.2d 728 |
| Parties | Edward DONOVAN and Donna Donovan, formerly known as Donna Rellinger, Plaintiffs-Appellants, v. Carl BACHSTADT, Defendant-Respondent. |
| Court | New Jersey Superior Court — Appellate Division |
Glenn Berman, South River, for plaintiffs-appellants.
Zolkin & Smith for defendant-respondent (W. Randolph Smith on the brief).
Before Judges BISCHOFF, KING and POLOW.
The opinion of the court was delivered by
KING, J. A. D.
The issue here is whether real estate purchasers may recover increased mortgage interest costs as damages from a seller who breached an agreement of sale. The Law Division judge summarily held that any alleged mortgage interest increment was too speculative to be recoverable as damages. The disappointed buyers appeal.
On January 19, 1980 plaintiffs Edward and Donna Donovan entered into a contract with defendant Carl Bachstadt to purchase real property at 80 Weehawkin Avenue in Middletown Township for $58,900. The standard-form real estate sales contract, completed by a realtor, required that the seller take back a purchase-money mortgage of $44,000 for 30 years at 13% interest.
Defendant did not own the property at the time the contract was executed. He intended to acquire title from his companion Joan Lowden just before the closing scheduled for May 1, 1980 and then convey to plaintiffs. Bachstadt in good faith believed that Lowden owned the property under a deed from the township dated December 1, 1977. A title search conducted in February 1980 disclosed that the record owners were Anthony and Jane Mettrick, and not Lowden. Apparently the township's 1977 tax foreclosure action against the property while owned by the Mettricks was conducted improperly. Therefore, the township never had obtained good title to convey to Lowden. Plaintiffs were told of the title problem before the closing. They have admitted that Bachstadt never affirmatively represented owning the property when the agreement was executed.
On May 5, 1980 plaintiffs filed a complaint in the Chancery Division demanding specific performance and seeking reformation of the interest clause to 101/2%, the maximum legal rate at the time the agreement was executed. On June 4, 1980 the Chancery Division judge granted summary relief ordering that "Carl Bachstadt specifically perform all obligations required of him under the contract, subject, however, to the interest rate stated therein of 13% being reformed to be 101/2...." No claim for damages for breach of contract was asserted in the Chancery Division action. No appeal was ever taken from the judgment. 1
When it became inevitable that defendant could never specifically perform, this proceeding for money damages was brought in July 1980. In January 1981 plaintiffs moved for summary judgment seeking these damages:
3. Compensatory damages and
4. Punitive damages
The Law Division judge awarded the costs of the search and the survey ($287.85) as damages; he rejected the claims for punitive damages and the only other claim for compensatory damages, the benefit of the bargain for the 30-year purchase money mortgage at the 101/2% reformed interest rate. The judge explained that and also concluded that "the damages are speculative." Therefore no plenary hearing was held on the issue of compensatory damages.
On appeal plaintiffs limit their contention to the claim that "the cost of higher financing" is a compensable element of damages. 2 They generally contend, although the record does not so disclose, that a new transaction, with a higher interest rate on the mortgage, has been consummated for a similar property. This differential they claim as damages. An offer of proof on excluded evidence, see R. 1:7-3, would have been helpful to us in understanding the details of plaintiffs' claim.
Initially, we conclude that the allegedly pertinent statute is merely declarative of plaintiffs' general common-law right to recover consequential damages for breach of contract. The statute says:
When any person shall contract to sell real estate and shall not be able to perform such contract because of a defect in the title to the real estate, the person with whom such contract was made, or his legal representatives or assigns, may, in a civil action, recover from the vendor, not only the deposit money, with interest and costs, but also the reasonable expenses of examining the title and making a survey of the property, unless the contract shall provide otherwise. This section shall not preclude the recovery by the purchaser from the vendor of any other damages to which he may be entitled by law. (N.J.S.A. 2A:29-1; emphasis supplied)
The statute, and its antecedent (L. 1915, c. 159, § 1), was apparently designed to overcome the original common-law rule that limited a disappointed purchaser of real estate to recovery of the deposit only plus interest from the breaching seller where title was defective. Ganger v. Moffett, 8 N.J. 73, 78, 83 A.2d 769 (1951); Rabinowitz v. Debow, 104 N.J.L. 62, 138 A. 891 (E. & A.1927).
In the original version, L. 1915, c. 159, § 1, the final sentence of the statute had stated that: "(t)his act shall not limit the recovery where the purchaser may seek to recover for the deceit or fraud of the vendor." The above italicized final sentence in the present version of N.J.S.A. 2A:29-1 was substituted for the original final sentence by amendment during the overall process of amendment, supplementation and compilation consequent upon the repeal of N.J.S.A. Title 2 and the adoption of Title 2A in 1951. See L. 1951, c. 344. There is no extant legislative history to shed light on this 1951 amendment. To us the amendment to N.J.S.A. 2A:29-1 demonstrates a design to apply the general law of damages to these aborted transactions, i.e., "(i)n fixing damages, the general problem of the law is, and should be, to put a plaintiff in as good a position as he would have been had the defendant kept his contract." Giumarra v. Harrington Heights, 33 N.J.Super. 178, 196, 109 A.2d 695 (App.Div. 1954), aff'd o. b. 18 N.J. 548, 114 A.2d 720 (1955); see, also, Paris of Wayne v. Richard A. Hajjar Agency, 174 N.J.Super. 310, 318-320, 416 A.2d 436 (App.Div.), certif. den. 85 N.J. 454, 427 A.2d 555 (1980).
Favorable financing terms in any contractual agreement may be of great significance to a promisee, especially in times of fluctuating or rising interest rates. See Daly v. Daly, 179 N.J.Super. 344, 432 A.2d 113 (App.Div. 1981) (); see, also, Editorial, 107 N.J.L.J. 236 (1981). The question of whether a purchaser is entitled to compensation for increased costs of financing caused by breach has arisen when damages are sought in conjunction with a specific performance decree. Three reported cases permit recovery. In Reis v. Sparks, 547 F.2d 236 (4 Cir. 1976) (Maryland law), buyers had a mortgage commitment for 20 years at 71/2%. When they finally obtained specific performance two years later in an equity action, the rate had increased to 91/2%. The trial judge awarded damages for the differential, discounted to present value, although the agreement of sale contained no terms concerning financing. The Circuit Court affirmed because the breaching seller actually knew that the buyer planned to finance and because a damage award reflecting the increase in mortgage interest rates which made the injured party whole was not an abuse of discretion. A similar result was reached in Godwin v. Lindbert, 101 Mich.App. 754, 300 N.W.2d 514 (1980). The Michigan Court of Appeals affirmed the award of damages representing the difference between the 81/2% rate in effect at the time plaintiffs had procured a commitment but defendant had refused to convey and the 111/4% rate in effect when the trial court ordered specific performance. The Appellate Division in New York has also permitted the recovery of increased mortgage costs, saying: "This additional cost is a predictable consequence arising out of delay in conveying title." Regan v. Lanze, 47 App.Div.2d 378, 366 N.Y.S.2d 512, 516 (1975), rev'd on other grounds 40 N.Y.2d 475, 354 N.E.2d 818, 387 N.Y.S.2d 79 (Ct.App.1976).
Two cases arguably take the contrary view. In Dunning v. Alfred H. Mayer, 483 S.W.2d 423 (Mo.App. 1972) 3, defendant contracted to sell a certain lot to plaintiffs and to build a specific house on it in 1967; plaintiffs obtained a 30-year financing commitment at 6% interest. Defendant failed to construct the building and the loan commitment eventually expired. At trial in 1971 plaintiffs sought specific performance and damages. The trial judge found it impossible to order specific performance, apparently because the developer had built a commercial structure on the lot. The testimony established that the prevailing interest rate for home mortgages was 71/2% at the time of trial in 1971. Plaintiffs had made no substitutional purchase or agreement to purchase a home between 1967 and 1971. The trial included an interest differential sum of $6,336 in its general award of damages to plaintiffs. The Missouri Court of Appeals reversed, saying:
The loss of the bargain relating to the property and dwelling was a real loss for which the Dunnings are entitled to damages as discussed supra, but there is no evidence to indicate that the Dunnings suffered any real loss as to the increased interest rates. There is no evidence that they had contracted for or committed themselves for a loan for any particular period of time.
We believe under the evidence presented, this item of alleged damages representing the...
To continue reading
Request your trial