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Heissler v. South Gate Marina

OCN-C-259-03 (N.J. Super. Ch. Div. 2005) (Unpublished)

CONTRACTS; CONTINGENCIES—Where a seller’s inability to close is based on a unilateral mistake by the seller, a provision allowing that would otherwise permit the seller to terminate the contract by reason of its inability to close that is not an intentional default on its part, is inapplicable.

Six men purchased a property together as tenants in common. The property contained boat slips and a residential structure and was used as a commercial marina. They then conveyed title to the property to a partnership in which they were the partners. The partnership entered into an agreement to sell the property to two friends. After the agreement was executed, a closing date was scheduled for thirty days later. Prior to the closing, the buyers’ attorney ordered a title search and discovered state and federal liens. The buyers’ attorney notified the seller of the liens, seeking to have the liens removed. The seller failed to appear at the first scheduled closing and the buyers’ counsel sent the seller a time of the essence notice setting forth a new closing date. The seller once again did not appear at the closing. As a result, the buyers filed an complaint against the seller for breach of contract, seeking specific performance. Ultimately the complaint was dismissed, without prejudice, and the buyers hired an accountant to settle the liens. While the accountant was settling the liens, the seller entered into a contract to sell the property to a third party. The seller then notified the buyers that it was declaring their contract null and void. As a result, the buyers reinstituted their action for breach of contract. In support of their claim, the buyers asserted that the seller was required to proceed with the contract and that it was a breach to sell the property to a third party. In its defense, the seller contended that it was not required to proceed under the contract because its performance was excused under the risk of loss provision of the contract. That provision provided that either party could cancel the contract if the cost of repairing the property exceeded fifty thousand dollars. It also asserted that its performance was excused under a clause of the contract saying that the buyers were only entitled to a refund of their deposit monies in the event the seller was unable to close for any reason other than an intentional default by the seller.

The Court ruled in favor of the buyers and ordered specific performance. It rejected the seller’s assertion that two provisions of the contract permitted it to deem the contract null and void. It found that the seller’s inability to close in a timely fashion was due to a unilateral mistake on the part of the seller. The mistake was the existence of a federal lien that the seller was unaware of at the time it entered into the contract. It held that a unilateral mistake of fact, such as the one in this case, is not a ground for rescinding a contract unless one of the following conditions are present: 1) the mistake must be of so great a consequence that to enforce the contract would be unconscionable; 2) the matter as to which the mistake was made must relate to the material feature of the contract; 3) the mistake must have occurred notwithstanding the exercise of reasonable care by the party making the mistake; and 4) it must be able to get relief by way of rescission without serious prejudice to the other party, except for loss of the bargain. The Court found that the seller was unable to meet the above conditions because enforcement of the contract would not be unconscionable and rescission of the contract would cause serious prejudice to the buyers. As a result, the Court ordered specific performance.

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