BRYAN PERRY v. BONNIE PASSARELLA

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

 

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

BRYAN PERRY and JENNIFER PERRY,

Plaintiffs-Respondents,

v.

BONNIE PASSARELLA,

Defendant-Appellant.

__________________________________________________

October 30, 2013

 

Argued October 1, 2013 Decided

 

Before Judges Fisher, Espinosa and O'Connor.

 

On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-3960-12.

 

Douglas J. Kinz argued the cause for appellant.

 

Kevin F. Sheehy argued the cause for respondents (King, Kitrick, Jackson & McWeeney, attorneys; Michael A. Malia, on the brief).

 

PER CURIAM

In this appeal, we consider whether the trial judge correctly interpreted a residential real estate contract's provisions regarding the remediation of later-discovered defects. Finding no error in the judge's determination that the buyers were permitted to cancel the contract and entitled to a return of their deposit, we affirm.

On July 3, 2012, the parties entered into a contract by which plaintiffs Bryan and Jennifer Perry (buyers) agreed to purchase the Brielle home of defendant Bonnie Passarella (seller) for $685,000. During the attorney-review period, the contract was amended to include a provision entitled "Responsibilities To Cure," which declared that, within five days of the receipt of all written inspection reports,

[b]uyer[s] shall:

 

(a) notify the [s]eller in writing that the reports are acceptable;

 

(b) notify the [s]eller in writing that the reports are unacceptable and that the [b]uyer[s] ha[ve] elected to void this agreement;

 

(c) furnish the [s]eller with a written list of all unacceptable conditions and request the [s]eller to correct or repair those conditions prior to closing. If the [b]uyer[s] elect[] opinion (c), the [s]eller shall, within 7 days of receipt of the list of unacceptable conditions, agree in writing to correct and repair all unacceptable conditions, or in the alternative, declare this agreement null and void subject to the right of the [b]uyer[s] to waive this paragraph and accept the house in "As Is" condition.

 

Buyers timely requested that seller agree to make certain repairs referred to in an inspection report.1 The report referred to foundation cracks, as to which buyers further demanded from seller that a structural inspector "certify [the] integrity of the foundation." Seller timely responded but agreed only to repair or replace some of the items referred to in buyers' notice.

The next day, buyers wrote to advise they were "making arrangements to have a structural engineer inspect[] the foundation" so they could "make an informed decision as to same"; buyers also wrote to seller that same day that they "reserve[d] their decision" pending receipt and consideration of the engineer's report. Seller expressed "no objection" to the structural inspection.

A timely structural inspection revealed "excessive and uncommon" sloping in the foundation walls. The engineer advised that the problem should be addressed by installation of helical piers along the foundation walls. Buyers immediately obtained a contractor's estimate, which recommended installation of twelve helical piers at a cost of $26,000, and then canceled the contract. Seller immediately disputed buyers' right to cancel and refused to return the buyers' $35,000 deposit.

A few weeks later, seller asserted that she "believe[d] that the foundation repairs can be undertaken at a considerably less cost than $26,000[,]" and that she was "in the process of having her own estimate prepared." Seller later forwarded an estimate from another structural engineer that opined that half the helical piers suggested by buyers' inspector were necessary; consequently, seller offered a repair credit of $13,000. In response, buyers reminded seller the contract had already been canceled based upon the rights outlined in the "Responsibilities to Cure" provision, specifically claiming the right to cancel pursuant to subsection (b) and, also, based on seller's failure to fully agree to make all the demanded repairs as required by subsection (c).

Seller still refused to return the deposit. As a result, buyers filed a verified complaint in the Law Division and obtained an order requiring seller to show cause why judgment should not be entered directing turnover of the deposit funds. Although it has been said the order-to-show-cause process is not appropriate in these circumstances, see Solondz v. Kornmehl, 317 N.J. Super. 16, 20-21 (App. Div. 1998), the process has the commendable benefit of expeditiously reaching the heart of a case without depriving any party of the fundamentals of due process: notice and an opportunity to be heard. In this case, the order to show cause gave seller notice of the relief sought by buyers and a full and fair opportunity to respond. In essence, the process adopted here differed little from the summary judgment process, and the judge's disposition of the matter was governed by the same principles. Accordingly, we view the judge's ruling in light of the Brill standard,2 which applied not only to the trial judge's determination but also to our review of that determination. W.J.A. v. D.A., 210 N.J. 229, 237 (2012); Greenberg v. Prysziak, 426 N.J. Super. 591, 603 n.7 (App. Div. 2012).

As demonstrated by the parties' various communications, briefly outlined above, there is no factual dispute about what occurred. The judge was merely required to determine whether buyers possessed the right to cancel the contract in light of the "Responsibilities to Cure" provision and the undisputed circumstances. We agree that the contract was unambiguous in this regard and that buyers possessed the right to cancel.

The determination of whether a contract provision is ambiguous presents a question of law. Grow Co. v. Chokshi, 403 N.J. Super. 443, 476 (App. Div. 2008); Nester v. O'Donnell, 301 N.J. Super. 198, 210 (App. Div. 1997). Ambiguity is determined by whether the relevant contract provision is "susceptible to at least two reasonable alternative interpretations." Chubb Custom Ins. Co. v. Prudential Ins. Co. of Am., 195 N.J. 231, 238 (2008); see also Grow Co., supra, 403 N.J. Super. at 476; Nester, supra, 301 N.J. Super. at 210. Only buyers have presented a reasonably plausible interpretation of the provision in question; that interpretation militates in their favor.

The "Responsibilities to Cure" provision quoted in full above makes three avenues available to the buyers upon receipt of all permitted inspection reports: (a) buyers could advise the seller that the conditions noted by the inspector were acceptable; (b) buyers could declare the contract void; and (c) buyers could demand that seller remediate all objected-to conditions. Here, buyers initially pursued subsection (c) and wrote to seller listing eleven items to be repaired or remediated.

Seller agreed to many but not all of buyers' demands. That is, buyers requested, among other things, that seller have:

a structural inspector certify the integrity of the foundation; seller stated only that a certificate of occupancy would be provided.

 

the mold problem in the crawl space remediated by a licensed mold remediation company; seller responded only that the problem would be remedied by "a bleach power-washing of the area."

 

a vibration in the heat exchanger remedied; seller responded only that the system would be "working properly" without addressing the vibration.

 

the skylight in the master bedroom replaced; seller responded that it did not leak and refused to repair.

 

the chimney flue and firebox cleaned by a chimney company, the damper "checked/repaired," and the flue cap replaced; seller only offered "a closing credit" of $300.

 

Subsection (c) of the "Responsibilities To Cure" provision, when invoked, allowed seller two options: (i) "agree in writing to correct and repair all unacceptable conditions" or (ii) "declare" the contract "null and void."3

Here, seller neither agreed to "correct and repair" all the unacceptable conditions noted nor did the seller declare the contract null and void. Although buyers were certainly entitled to entertain and discuss seller's counteroffer, they also retained as seller conceded at oral argument the implicit right to cancel upon a seller's unsatisfactory response to the demand for repairs.4

Seller argues that, upon receipt of a less than mirror image of a demand for repairs, buyers are required to attempt to resolve their disputes. We disagree. When a buyer pursuant to such a provision demands repairs to address problems observed in an inspection report, the buyer has a right to expect an unambiguous acceptance of the demands and, upon receiving something less than acceptable, the buyer maintains the right to cancel, just as the seller maintained the right to cancel upon receipt of a repair-demand viewed as too burdensome. Parties although always free to attempt to agree on disputed items do not enter into such contracts with the expectation they will be obligated to debate and haggle or litigate over repairs both great and small. In any event, we observe that buyers did not immediately cancel the contract for that reason but, instead, continued the process envisioned by subsection (c) by demanding a further inspection to ascertain the scope of the foundation problems. Accordingly, although buyers could have canceled the contract in light of seller's inadequate response to the initial repair-demand, the contract was not then canceled for that reason; instead, buyers had the structure examined further.

Upon receipt of the engineering report regarding the foundation, however, buyers did decide to cancel the contract. Seller argues that buyers no longer had the option to cancel at that point. Again, we disagree.

Seller's position is that the "Responsibilities To Cure" provision contained three "mutually exclusive" options and that by pursuing subsection (c), buyers forever abandoned the right to cancel the contract provided by subsection (b). This interpretation is unreasonable because it logically leads to an undesirable and unintended consequence. That is, pursuant to the interpretation urged by seller, once buyers pursued their subsection (c) rights, received a less than satisfactory response from seller, and then attempted to negotiate, they forfeited their right to cancel and found themselves either at seller's mercy or the uncertainties of further negotiation or litigation. If that was a conclusion upon which the parties had agreed, it is unlikely any buyer would ever opt to proceed with subsection (c).

Home buyers do not always know what they are purchasing at the time a contract is formed. Generally, they only know what they can see. Thus, parties to such contracts routinely include provisions to deal with the unknown. Those provisions normally spell out with great precision the parties' rights but those provisions must always be interpreted in light of their undertaking. Here, seller argues for an interpretation of the contract that calls for the forfeiture of buyers' ultimate right to cancel solely because buyers sought in good faith to resolve the problems generated when unknown but significant structural issues were discovered. We reject seller's proposed interpretation because it ignores the basic understanding of the parties that buyers were seeking to buy a sound home, not a lawsuit.

Clearly, the parties understood, and it was implicit in subsection (c), that buyers would remain entitled to declare the contract void if the seller declared she would not make all the repairs or replacements sought, or if further pursuit of the remaining issues could not be resolved to their satisfaction. But buyers also retained the option to declare the contract void because there is nothing about the "Responsibilities To Cure" provision that would suggest as seller argues that the rights contained in the three subsections are "mutually exclusive." That phrase does not appear anywhere in the provision. And the word "or" does not appear between subsections (b) and (c), as suggested in seller's restatement of the provision in her brief.5 A buyer's pursuit of subsection (c) does not preclude that buyer from invoking the rights contained in the other subsections.

The parties' conduct also demonstrates that seller did not believe buyers were limited once they stated their intention to pursue their subsection (c) rights. The parties undoubtedly understood that those rights were not as limited as might be suggested upon a superficial reading of subsection (c). If we are to give that subsection the crabbed interpretation suggested by seller, then seller was entitled to either entirely agree with buyers' demand for repair or replacement or declare the contract void, as we discussed earlier. Seller, however, did neither and continued to act as if further discussion and inspection was required that is, seller agreed to some things, rejected others, and acceded to buyers' request that the foundation be further inspected. Through words and conduct, seller belied her present argument that buyers had abandoned their right to cancel once information was received through a further inspection. See Michaels v. Brookchester, Inc., 26 N.J. 379, 388 (1958) (holding that "[w]here ambiguity exists, the subsequent conduct of the parties in the performance of the agreement may serve to reveal their original understanding").6

In short, the provision in question obviously embodies the parties' mutual desire to keep the transaction active upon the revelation of unforeseen conditions. If the problems with the structure were more than buyers anticipated, however, buyers were entitled to unilaterally cancel the agreement pursuant to subsection (a); if trivial circumstances were revealed by the inspection, then the buyers were entitled to ignore them pursuant to subsection (b) and proceed to closing. And, if neither of those extremes occurred, buyers possessed the right pursuant to subsection (c) to explore an adjustment by demanding seller's repair or replacement and, in this case, to further inspect and determine the nature of one of the discovered problems. It is inconsistent with this undertaking to suggest that, by initially opting for the process described in subsection (c), buyers forever lost their right to cancel if and when that further exploration proved unsatisfactory or problematic. Although our restatement of the parties' rights and obligations may be more elaborate than the literal language, we are satisfied that, as a matter of law, the parties implicitly intended to retain their mutual rights to cancel the contract even while pursuing a satisfactory result through the process described in subsection (c). In construing a contract, courts "examine [its] plain language," and are guided by "the parties' intent, as evidenced by the contract's purpose and surrounding circumstances." State Troopers Fraternal Ass'n v. New Jersey, 149 N.J. 38, 47 (1997); see also Highland Lakes Country Club v. Franzino, 186 N.J. 99, 115 (2006). The trial judge properly granted summary judgment by rejecting seller's narrow and unreasonable interpretation.

Affirmed.

1All the communications referred to were between the parties' attorneys.

2Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

3Upon seller's invocation of the second option, the contract permitted buyers to waive their rights and "accept the house in 'As Is' condition."

4While conceding buyers' implicit right within subsection (c) to cancel upon an unsatisfactory response, seller claims her response was satisfactory. We disagree. As we outlined in the bullet-pointed section above, seller did not fully agree to all buyers' demands.

5In her brief, seller argues that the contract was

clear and unambiguous as to the three (3), mutually exclusive alternatives available to the [b]uyers regarding conditions disclosed by their inspection report:

 

(a) Accept the reports as to the condition of the home;

 

(b) Void the Agreement; or,

 

(c) Furnish a list of unacceptable conditions and request that [s]eller correct or repair prior to closing.

 

The [b]uyers here, who were entitled to select only one of these three (3) options, unequivocally selected the third opinion and requested that the [s]eller correct or repair.

 

[Emphasis added.]

The contract does not state the three subsections are "mutually exclusive" or that buyers possessed a one-time opportunity to choose one of the three courses of action.

6We would observe that buyers' position also solidly rests on a literal interpretation of the "Responsibilities to Cure" provision. That is, even if we view the three subsections as "mutually exclusive," the provision clearly recognizes buyers' right to choose one of the three options after receipt of "all" written inspection reports. Here, by acceding to an additional structural inspection, seller reopened the three avenues assuming we were to agree with seller that they had earlier closed and buyers expressly invoked subsection (b) in canceling the contract.