BUNKY, INC., EILEEN KARON, et al. v. and WILLIAM CAHILL

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4246-04T24246-04T2

BUNKY, INC., EILEEN KARON,

and WILLIAM CAHILL,

Plaintiffs-Appellants,

v.

EDWARD HAMMEL and JOAN HAMMEL,

Defendants-Respondents.

___________________________________

 

Submitted December 5, 2005 - Decided February 17, 2006

Before Judges Lintner and Gilroy.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. MID-L-167-04.

Otto J. Kostbar, attorney for appellants.

Rubin, Kaplan & Associates, attorneys for respondents (Evelyn A. Donegan, of counsel and on the brief).

PER CURIAM

This is a breach of contract action for the purchase and sale of real estate. Plaintiffs, Bunky, Inc., William Cahill (Cahill), and Eileen Karon (Karon) appeal from an order of the Chancery Division of October 20, 2003, declaring a contract dated June 11, 2002, for the purchase and sale of real property located at 55 Raritan Avenue, Highland Park (the "Property"), void ab initio. The effect of the order freed defendant owners, Edward Hammel (Edward) and Joan Hammel, his wife, to sell the Property to a third-party purchaser, and rendered plaintiffs' claim for consequential damages moot. For reasons expressed, we reverse and remand to the Law Division.

We combine the relevant facts and procedural history. Defendants operated a hardware store on the Property for over fifty years. Prior to March 14, 2002, defendants made a decision to retire from the hardware business and sell the Property under terms that would provide a stream of income for their retirement. On March 14, 2002, Edward engaged Century 21 J.J. Laufer, a licensed real estate broker, through Karon, its real estate agent, to offer the Property for sale at a listing price of $1,250.000. The agreement provided that the broker would be entitled to a 5% commission upon the broker obtaining a buyer and closing title.

In late March 2002, Karon showed the Property, in the presence of Edward, to Cahill. Cahill and Edward agreed that Cahill would purchase the Property at a price of $1,100,000, with an $800,000 purchase money mortgage to be held by defendants; a $100,000 deposit due on signing of contract; and $200,000 payable at closing. At the conclusion of the meeting, Cahill and Edward shook hands. Neither Cahill, nor Karon, advised Edward that the two of them had married in February 2002. Subsequent to the meeting, but still in March 2002, Karon went to visit Edward at his office and said to him: "Well, if you're going to do business with Mr. Cahill, you should know that he is my husband." She advised Edward that they were married a couple of weeks prior, and had not told anyone because Cahill had not yet informed his children.

On April 1, 2002, Cahill prepared a letter of intent for the purchase of the Property, that designated the buyer as "William C. Cahill, or to be assigned to an entity that he has at least a 50% principal." Edward was designated as the seller. The letter provided that the initial $100,000 deposit would be released to the seller upon the buyer obtaining a survey and clear title search, and the seller executing a first mortgage securing the deposit. On April 2, 2002, Karon prepared and signed a disclosure letter addressed to Edward that stated: "This letter is to inform you that I Eileen Karon broker/salesperson is going to be part of the buying of the above said property."

On April 2, 2002, Karon presented both the letter of intent and the disclosure letter to Edward. On the same day, defendants prepared a one-page handwritten addendum to the letter of intent and noted on the front page of the letter - "added items on attached [addendum]." The addendum provided that additional provisions were to be "added to letter of intent between the Seller (Edward Hammel)/buyer (William C. Cahill and Eileen Karon)." One provision of the addendum provided: "Please add: William C. Cahill and his wife, jointly and severally shall guarantee the Mortgage Note." Defendants signed and returned the addendum to Karon, along with the letter of intent and disclosure statement signed by Edward.

On June 11, 2002, the parties met at defendants' accountant's office and executed a written contract, and defendants executed the mortgage and mortgage note securing the release of the $100,000 deposit. Upon execution of the documents, Cahill and Karon paid over the $100,000 deposit to defendants as required by the contract. Relevant provisions of the contract provided that: "[t]his transfer of ownership will be free of all claims and rights of others except as provided in other parts of this contract," (Paragraph No. 7); "[t]here shall be no tenants or other occupants of the building at time of closing," (Paragraph No. 10); "[t]he Seller agrees to transfer . . . ownership of the Property free of all claims and rights of others," (Paragraph No. 15); and, "[a]t the closing the Buyer will be given possession of the [P]roperty. No tenant will have any right to the [P]roperty, unless otherwise agreed in this contract," (Paragraph No. 22). The contract further provided in Paragraph No. 16 that "if the transfer of [P]roperty does [sic] not comply with paragraph[] . . . 15 of this contract, the Seller will be . . . given thirty days to make it comply. If the Property still does not comply after that date, the Buyer may cancel this contract or give the Seller more time to comply." Lastly, Paragraph 29 provided in part: "[t]he Buyer and seller have been represented by an attorney in the drafting of this contract. Accordingly, each party waives further attorney review and deems this contract review period complete." The contract did not contain a date certain for closing of title, but only provided that closing would occur in August 2002.

Plaintiffs' due diligence disclosed, contrary to defendants' contract representations, that two third-party leases existed for use of the Property's parking lot. One lease, dated November 4, 2000, was with the owner and operator of the Dunkin Donuts store located at 65 Raritan Avenue. This lease was for an unspecified portion of the Property's parking area, and remained in effect through the time of the court's order voiding the contract. The other lease dated January 22, 1998, was with BGF, LLC (BGF), the owner of premises at 47 Raritan Avenue, and was for lease of six designated parking spaces. The lease was for a term of one year with an option granted to the tenant to renew year to year for a period of ten years. BGF had entered into the lease to satisfy a condition of approval of the Highland Park Board of Adjustment (Board) when BGF obtained variances to construct a professional office building upon BGF's property at 47 Raritan Avenue. Plaintiffs brought the two leases to the attention of defendants. Defendants did not recall the lease with BGF because BGF had never paid rent nor used the Property.

Defendants attempted to terminate the lease with BGF by negotiation; but because the resolution of approval from the Board was conditioned upon BGF leasing the six parking spaces, BGF was required to apply to the Board for modification of the resolution. In order to free the Property from the lease, defendants engaged an attorney at a cost of $3,000 to represent BGF before the Board. In addition, defendants agreed to pay $20,000 to BGF to terminate the lease. On February 24, 2003, the Board voted to rescind the prior condition of approval that required the lease. A confirmatory resolution was adopted by the Board on March 24, 2003. Notice of the Board's action was published on March 25, 2003.

In the interim, plaintiffs had negotiated an agreement to lease the Property after closing title to Commerce Bank. Because plaintiffs were unable to close title due to the tenants' rights to use the parking lot, plaintiffs requested defendants to sign the lease with Commerce Bank, subject to plaintiffs assuming the rights of defendants after closing title. Defendants declined. On January 16, 2003, plaintiffs served notice making time of the essence for the closing of title for February 3, 2003, at 10:00 a.m. Because defendants failed to appear for the closing on that date, plaintiffs lost Commerce Bank as a prospective tenant for the Property. Notwithstanding, plaintiffs did not void the contract.

Defendants desired to close title immediately after BGF's receipt of approval from the Board. Plaintiffs refused to consent to a closing date until the forty-five day appeal period from the date of publication of notice of the Board's approval expired. R. 4:69-6(b)(3). Plaintiffs calculated the forty-five day time period would expire on May 9, 2003, and requested that closing occur on a date after May 12, 2003, to be sure that no complaints were filed in the Law Division prior to closing. Defendants served notice on April 15, 2003, making time of the essence for closing of title for Monday, May 12, 2003, at 10:00 a.m. Plaintiffs failed to appear; and defendants served notice on May 15, 2003, canceling the contract, notwithstanding that as of May 12, 2003, defendants still operated under the terms of the parking lease with Dunkin Donuts. Defendants never returned the $100,000 deposit paid by plaintiffs at the time of signing of the contract.

On June 6, 2003, plaintiffs filed their verified complaint in the Chancery Division, seeking specific performance of the contract, damages for loss of the potential lease with Commerce Bank and also for the loss of a prospective sale of the Property to a third party for a purchase price of $1,475,000. On June 26, 2003, defendants contracted to sell the Property to a third party at the same purchase price of $1,100,000. On or about July 31, 2003, defendants filed an answer and counterclaimed for a judgment declaring: 1) that plaintiffs were in breach of contract; 2) that the contract be cancelled allowing defendants to sell the Property to another purchaser; and 3) for the award of consequential damages. Defendants obtained an order directing plaintiffs to show cause why the relief concerning rescission of the contract should not be granted. On August 21, 2003, plaintiffs filed a motion for partial summary judgment for dismissal of defendants' counterclaim.

On October 8 and 9, 2003, the Chancery judge conducted a plenary hearing, after which he determined that the contract was void ab initio because Karon failed to advise Edward that she and Cahill were married at the time Cahill made an offer to purchase the Property and before Cahill and Edward shook hands.

The notice that was provided to Mr. Hammel by Ms. Karon with respect to the purchase of the property by her husband and her is really the crux of the issue here. The question is whether or not Ms. Karon provided notice to Mr. Hammel with regard to her relationship to the buyer and her relationship to the transaction in a manner that was consistent with full disclosure and in a manner that, based on the timing, would have provided Mr. Hammel with the opportunity to withdraw from the process, based on the relationship between Ms. Karon and Mr. Cahill.

. . . .

The questions that were posed by the Court were questions designed to determine when Mr. Hammel found out about Ms. Karon and Mr. Cahill's husband and wife relationship and the actions that he would have taken or that he did take upon finding out. Mr. Hammel has testified that based on his sense of what an agreement is, when he shakes hands that [is] a deal. And therefore, he felt bound by the fact that he shook hands with Mr. Cahill and agreed to this - - to the purchase of this property.

Now this handshake, which I find in Mr. Hammel's mind was the solidifying of this agreement, took place before Mr. Hammel knew of the relationship between Mr. Cahill and Ms. Karon. And the meeting that took place between the three of them at the property, as testified to by both Ms. Karon and Mr. Hammel, was the meeting where Mr. Cahill made the offer and Mr. Hammel accepted the offer. Now Mr. Hammel has testified in very clear terms that if he had known of the relationship between Mr. Cahill and Ms. Karon at the time that that negotiation took place, he would not have entered into the agreement. And it seems to this Court that all three parties were present.

. . . .

It [is] at that point where the notice should have been given, I find. The subsequent notices were fine, but it [is] at that point where Mr. Hammel should have been given the option to say, "Hold it. I want to get another agent. I want to confirm that this is a good deal. And I want I to" -- based on his testimony that he initially wanted one-and-a-half million -- "I want to determine if there is a higher price."

So for those reasons, I [am] going to allow the plaintiff -- or rather the defendants to proceed with the contract that they currently have. I find that the fact that Mr. Hammel was not advised, at the time that this agreement was entered, as to the relationship between the parties, that is[,] the plaintiffs, is sufficient reason to void, ab initio, that contract.

On appeal, plaintiffs argue that: 1) the trial judge erred in voiding the contract ab initio because defendants had waived any objection to Karon's involvement in the transaction; and 2) plaintiffs were entitled to partial summary judgment dismissing defendants' counterclaim as a matter of law. We concur with plaintiff's first argument, and reverse the order of October 20, 2003, declaring the contract void ab initio; and remand to the Law Division to resolve issues of consequential damages.

I.

Plaintiffs concede that Karon should have disclosed that she and Cahill were married at the time that Cahill first made an offer to purchase the Property. Plaintiffs argue, however, that defendants' actions, post-Karon's advice of her marital relationship with Cahill, constitutes a waiver of her breach of duty of disclosure and an election to proceed with the contract, barring defendants from seeking rescission of the contract a year after it was executed. Defendants counter that Karon breached her fiduciary duty of undivided loyalty, N.J.A.C. 11:5-6.9, when Karon failed to advise of her marriage to Cahill at the time the parties reached a verbal understanding for the purchase and sale of the Property. Defendants assert that Edward believed he was morally bound to proceed with the transaction even though the agreement had not been reduced to writing. Defendants argue that the motion judge properly exercised his discretion in voiding the contract ab initio because Karon's breach of fiduciary duty wrongfully deprived defendants from obtaining advice from a second broker concerning the reasonableness of the offer to purchase.

A trial court will grant summary judgment to the moving party "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c); see also Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995). "An issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." R. 4:46-2(c).

On appeal, "the propriety of the trial court's order is a legal, not a factual, question." Pressler, Current N.J. Court Rules, comment 3.2.1 on R. 2:10-2 (2006). "We employ the same standard that governs trial courts in reviewing summary judgment orders." Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).

Reviewing courts "'do not disturb the factual findings and legal conclusions of the [motion] judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.'" Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974) (quoting Fagliarone v. Tp. of N. Bergen, 78 N.J. Super. 154, 155 (App. Div. 1963)). However, "[a] [motion judge's] interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty L.P. v. Tp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

Effective January 5, 1996, the Statute of Frauds was amended to provide that oral agreements to transfer an interest in real property could be enforceable if proven by clear and convincing evidence. N.J.S.A. 25:1-13b. "A contract is an agreement resulting in [an] obligation enforceable at law." W. Caldwell v. Caldwell, 26 N.J. 9, 24 (1958). An enforceable bilateral agreement requires an offer, an acceptance, consideration, and a meeting of the minds upon all the essential terms of the agreement. Weichert Co. Realtors v. Ryan, 128 N.J. 427, 435 (1992); Friedman v. Tappan Dev. Corp., 22 N.J. 523, 533 (1956). "[I]f [the] parties agree on essential terms and manifest an intention to be bound by those terms, they have created an enforceable contract." Weichert, supra, 128 N.J. at 435. "Where the parties do not agree to one or more essential terms, however, courts generally hold that the agreement is unenforceable." Ibid.

"Parties may or may not be bound by their preliminary agreement when they contemplate that its terms will later be reduced to a formal written contract." Morales v. Santiago, 217 N.J. Super. 496, 501 (App. Div. 1987). "If the parties intend to be bound by their preliminary agreement and view the later written contract as merely a memorialization of their agreement, they are bound by the preliminary agreement." Id. at 501-502. "On the other hand, if the parties intend that their preliminary agreement be subject to the terms of the later contract, they are not bound by their preliminary agreement." Id. at 502. "Absence of essential terms from a preliminary agreement is persuasive evidence that the parties did not intend to be bound by it." Ibid.

"Either a qualified acceptance or one containing additional terms operates as a counteroffer. Carlin v. City of Newark, 36 N.J. Super. 74, 89 (Law Div. 1955). "A counter-offer is an offer made by an offeree to [the] offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer." Restatement (Second) of Contracts) 39(1) (1981). "A counteroffer operates as a rejection because it implies that the offeree will not consent to the terms of the original offer and will only enter into the transaction on the terms stated in the counteroffer." Berberian v. Lynn, 355 N.J. Super. 210, 217 (App. Div. 2002), aff'd in part, modified in part, 179 N.J. 290 (2004). Therefore, there is no binding contract at the time of a counteroffer. Morton v. 4 Orchard Land Trust, 180 N.J. 118, 130 (2004). If the offeror then accedes by explicit assent or by action, a contract is then formed according to the terms of the counteroffer. Whiteman Food Prods. Co. v. Prodotti Alimentari, 31 N.J. Super. 277, 279 (App. Div. 1954). It is against these principles that we consider the issues raised.

We are satisfied that although Edward may have believed that he was "morally" obligated to proceed with the transaction at the time that he accepted Cahill's verbal offer because he and Cahill "shook hands," that Edward was not "legally" obligated to proceed with the matter. An enforceable agreement was not reached until the parties agreed to all essential terms of the proposed contract, including the additional terms requested by defendants in their addendum to the letter of intent. Defendants' requirement that Cahill and Karon, jointly and severally, guarantee the $800,000 mortgage note is an essential term of the contract, and therefore, constituted a counteroffer. The counteroffer was later accepted by plaintiffs, as evidenced by the inclusion of the requested provision in Paragraph No. 23 of the written contract of June 11, 2002. Prior to reaching a meeting of the minds on all essential terms of the contract for the purchase and sale of the Property, defendants were legally free to reject Cahill's verbal offer. Our conclusion that a binding agreement was not entered into at the time of Cahill's verbal offer to purchase is supported by Edward's testimony that as of April 2, 2002, the day he prepared the addendum-counteroffer to Cahill's letter of intent, he did not believe that the parties had entered into a binding contract:

Q: So as of April 2nd, you certainly knew that they were husband and wife. Is that correct?

A: Correct.

Q: And, at that point, you had not entered into any written agreement in this matter. Is that correct?

A: I'm sorry?

Q: You had not entered into any binding contract at this time period.

A: Correct.

Q: In fact, you had given some terms for the pending contract.

A: That's correct.

Because an enforceable agreement had not been reached between the parties until after Karon advised Edward that she and Cahill were married, the defendants were free prior to that time to either reject Cahill's verbal offer to purchase and seek the advice and service of another real estate broker, or waive their right to reject the offer and proceed with the agreement. Defendants chose to proceed with the negotiations, and entered into the written contract of June 11, 2002. That defendants believed that they were bound by the agreement of June 11, 2002, is evidenced by defendants' actions in: 1) negotiating the termination of the BGF lease, including the engagement of counsel to represent BGF before the Board, and agreeing to the payment of a termination fee; and 2) defendants' serving of a notice making time of the essence to sell the Property to plaintiffs for closing of title on May 12, 2003. We conclude that defendants' counterclaim for cancellation of the contract was without merit because they waived their right to void the agreement, and elected to proceed with the transaction. Dover Shopping Ctr., Inc. v. Cushman's Sons, Inc., 63 N.J. Super. 384, 392 (App. Div. 1960).

Even assuming that Edward's belief that he was "obligated" to continue with the agreement because he "shook hands" rose to the level of an agreement based in law, and that was the reason defendants proceeded to enter into a later written agreement, at best the oral agreement might be said to be voidable, not void ab initio. The term "void ab initio" means "[a] contract is null from the beginning if it seriously offends law or public policy, in contrast to a contract which is merely voidable at the election of one of the parties to the contract," Black's Law Dictionary 1411 (Special Deluxe 5th Ed. 1981), while "voidable" means "[t]hat which may be voided, or declared void; not absolutely void, or void in itself." Ibid.; see also Restatement (Second) of Contracts 7 (1981) ("A voidable contract is one where one or more parties have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract, or by ratification of the contract to extinguish the power of avoidance.").

"[U]nder ordinary contract princip[le]s, transactions entered into in reliance upon material misrepresentations are voidable." Massey v. Trump's Castle Hotel & Casino, 828 F. Supp. 314, 325 (D.N.J. 1993). "Intentional misrepresentation and concealment of material facts renders a transaction voidable at the option of the defrauded party." Konsuvo v. Netzke, 91 N.J. Super. 353, 367 (Ch. Div. 1966). "If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient." Restatement (Second) of Contracts 164 (1) (1981). "The victim of a misrepresentation has a choice of either rescinding or affirming the contract. If he rescinds, the monies received under the contract must be returned[,] but restitution is available. Rescission is only available, however, in cases where the parties can be returned to their original positions." County of Morris v. Fauver, 296 N.J. Super. 26, 38 (App. Div. 1996) (internal citations omitted), aff'd in part, rev'd in part, 153 N.J. 80 (1998).

Even after Edward and Cahill shook hands at the meeting in March 2002, defendants would, at best, have had the right to void the contract, but chose not to do so. Defendants having elected not to void the contract, and then proceeding to perform under the contract for over a year, the judge should not have declared the contract void ab initio. It is unjust and inequitable to permit defendants to retain the deposit funds and not require them to perform their obligations.

Because more than two and one-half years has lapsed since the entry of the order voiding the contract, and the Property has been transferred to a third-party purchaser, we conclude that the remedy of specific performance should be withheld from plaintiffs because it would be unduly oppressive in this matter. Plaintiffs would have to amend their action to bring in what may be an innocent third-party purchaser, and seek to disgorge that party from the Property. We determine that the parties' remedies should be limited to consequential damages for any breach of contract that either party may be able to establish.

 
The order of October 20, 2003, is hereby reversed and vacated; the matter is remanded to the Law Division to resolve the issue of consequential damages.

Bunky, Inc., is a corporation formed and owned by plaintiffs, contract purchasers, William Cahill and Eileen Karon. The contract that forms the subject matter of the lawsuit permitted the contract purchasers to assign the contract to a third-party entity, provided that the individuals remained liable on the contract. Cahill and Karon assigned their interests under the contract to Bunky, Inc., prior to the institution of litigation in this matter.

The order of October 20, 2003, was interlocutory because it did not dismiss the entire action as to all parties. After the entry of the order, the action was transferred to the Law Division. On March 15, 2005, an order was entered dismissing the action "without prejudice" and providing that "the matter may be reinstated if the [Appellate Division] reverses the prior ruling of the [Chancery judge]." Notwithstanding that the later order dismisses the action "without prejudice." we have interpreted the terms of the order as only permitting reinstatement of the case if this court reverses the order of October 20, 2003, thereby rendering the order final for purpose of appeal. R. 2:2-3. Otherwise, orders that dismiss an action in the trial court without prejudice to reinstate are not final for purposes of appeal, and only serve as "an improper maneuver to evade the rule against interlocutory appeals in the absence of leave granted." Rusky v. City of Bayonne, 356 N.J. Super. 166, 168 (App. Div. 2002).

Defendants represent in their brief that the Property was sold to a third-party buyer in January 2004.

Defendants argue in the alternative that even if this court determines that the trial judge erred in declaring the contract void ab initio, that this court should exercise original jurisdiction and sustain the decision below because plaintiffs breached the contract by not closing title on May 12, 2003, pursuant to defendants' notice making time of the essence for that date. This issue was not addressed by the trial judge below, and we decline to exercise original jurisdiction. This is an issue which may be addressed on remand in Law Division on the trial of each party's claim to consequential damages.

(continued)

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A-4246-04T2

February 17, 2006