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Gaglia v Kirchner

317 N.J. Super. 292, 721 A.2d 1028 (App. Div. 1999)

CONTRACTS; BROKERS; ATTORNEY REVIEW—An attorney’s three-day review disapproval letter, once sent, can not be rescinded by the sending party just because it wasn’t sent strictly in accordance with the contract requirements and the New Jersey Administrative Code.

A buyer and seller entered into a contract for the sale of residential real estate. The contract was prepared by a real estate broker and contained the three business day attorney review provision required by N.J.A.C. 11:5-6.2. The terms of the contract expressly required that “[t]he attorney must send a notice of disapproval to the REALTOR(s) and to the other party by certified mail, by a telegram or by delivering it personally.” Within the three day period, the buyer’s attorney sent a letter to the seller’s attorney by fax and by ordinary mail. No copy was sent by telegram or certified mail nor delivered personally. It was not sent to the real estate broker. The disapproval letter stated “I represent the buyer. . I have reviewed the Contract for Sale of Real Estate prepared by the Realtor. I do not approve the Contract in its present form. It would be acceptable, however, with the following changes and amendments… .” Even though the letter had already been sent, the buyer attended a home inspection and the seller was present at that inspection. During the inspection, the seller told the buyer that there were no problems with the proposed changes to the contract, except that it wanted the closing to take place at its attorney’s office. A few days later, the seller’s attorney faxed a letter to the buyer’s attorney stating that the buyer did not wish to pursue the matter anymore and that the contract was considered void. Apparently, the seller had received a better offer. The buyer sued.

The lower court, on a motion for summary judgment, ruled that the seller’s actions were proper. On appeal, the buyer argued that its attorney’s disapproval letter did not terminate the contract because the manner in which it was sent deviated from the requirements of N.J.A.C. 11:5-6.2, that the seller’s unconscionable conduct precluded the seller from waiving the deviations, and that by permitting the house inspection to proceed, the seller was estopped from treating the contract as having been terminated. Consequently, the buyer argued that the seller’s subsequent repudiation of the contract was a breach.

The Court held that a party who invokes the attorney review provision to annul a contract could not avoid the consequences of doing so by relying on its own deviations from the required procedure. Consequently, the contract was at an end once the buyer’s attorney had sent its initial letter and the seller was entitled to act accordingly. The Appellate Division’s affirmance of the lower court’s grant of summary judgment was not based on that reason alone. According to the Court, when the buyer and seller signed the purchase agreement, “they had a binding contract that would not have been subject to unilateral modification by either party in any matter if it had not included an attorney review provision.” Consequently, the unequivocal declaration on behalf of the buyer that it did “not approve the Contract in its present form” was a declaration that the buyer did not intend to perform the signed contract unless it was changed. Even after the attorney review period, this declaration would have been an anticipatory breach of the contract. A non-breaching party is entitled to treat the other party’s repudiation as terminating the contract and relieving it of any further obligation of performance. Consequently, the seller was free to show and sell the house to another party after the contract had been terminated either by a valid exercise of the attorney review provision or by the seller’s acceptance of the buyer’s anticipatory breach. Furthermore, as to the implication of allowing the inspection to go forward, the Court believed it was perfectly reasonable for all parties to proceed with the inspection because of the likelihood that they would agree on a new contract.


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