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Manolis v. Shlakman

2006 WL 1519447 (N.J. Super. Ch. Div. 2006) (Unpublished)

CONTRACTS; SPECIFIC PERFORMANCE — Specific performance is a discretionary remedy resting on equitable principles and requires that a court look at the respective conduct and situation of the parties.

Individuals owned several gasoline service stations. They advertised the property of one of these gasoline service stations for sale, and entered into an agreement with a real estate broker designating one of its real estate agents as the listing agent. Upon commencing this relationship, the owners told the listing agent of their requirements, including the listing price and required down payment. Thereafter, the listing agent presented the owners with a written offer by someone interested in purchasing the property for a price well below the owners’ asking price. The owners rejected the offer as insufficient. Months later, the listing agent presented the owners with another offer for a price that was lower than, but closer to, the asking price. This time, the owners accepted. However, the listing agent attempted, without success, to contact the second interested purchaser to communicate the owners’ acceptance. With the owners’ authorization, the listing agent contacted the first interested purchaser to see if he would match the offer presented by the second interested purchaser. The first interested purchaser made an offer on the same terms as the second interested purchaser, and the owners accepted. A contract of sale and addendum were negotiated between the parties; the contract was signed, and the contract became effective.

The contract and addendum contained several provisions relevant to the issue on appeal. Particularly important was a provision in which the owners/sellers incorrectly represented there was no open file for the property at the Department of Environmental Protection (DEP). The DEP records showed, unknown to the purchaser, that the DEP inspected the property shortly after the contract of sale was executed. It issued a notice of violation citing deficiencies under applicable regulations and noted possible contamination.

The DEP’s file described when the owners, several years earlier, had hired a company to remove underground tanks containing waste and heating oil. The owners then received a letter from the DEP requiring further testing and reporting based on the removal company’s post-removal report. According to the owners, they contacted the removal company, telling it to address the DEP’s concerns. They did nothing more and, having received no further communication from the DEP, assumed the matter concluded.

Based on the discovery of the open file, the purchaser demanded that the owners obtain a No Further Action letter from the DEP. The purchaser further insisted that closing take place when originally scheduled. The closing, however, never occurred. All the owners did was to provide the purchaser with estimates for the cost of the proposed remediation work. Again, the purchaser’s requests to set a closing went unanswered and unfulfilled.

Thereafter, the owners filed a complaint seeking a rescission of the sale contract on the grounds of fraud and/or mutual mistake. The purchaser and its assignee filed an answer and counterclaim for specific performance. The broker filed an answer and counterclaim seeking its commission. The purchaser, its assignee, and the broker later filed motions for summary judgment.

As to the owners’ fraud claim, the purchaser and its assignee moved for summary judgment alleging the owners failed to demonstrate a prima facie case for fraud and, therefore, their complaint should have been dismissed. The Chancery Division explained that it is well settled that equitable fraud provides a basis for a party to rescind a contract. An action for fraud may be either legal or equitable in nature. Elements of scienter are not essential if the movant seeks to prove that a misrepresentation constituted only equitable fraud. Nevertheless, fraud must be shown by clear and convincing evidence.

Essentially, the owners argued that the purchaser and the listing agent defrauded them by working together to steer the owners into entering a contract to sell the premises to the purchaser for an amount much lower than its actual value. The owners also argued that the offer by the second interested purchaser was a phantom offer used to depress the sale price of the property. In considering these arguments, the Court initially noted that the owners’ claim of fraud relied heavily on inferences, assumptions, and speculation. The Court found that the owners failed to present any concrete evidence supporting its fraud claims. Thus, the Court held that, viewing the facts in a manner most favorable to the owners and accepting all inferences in their favor, there was no credible, competent evidence from which the Court could conclude fraud had been perpetrated on the owners. Accordingly, the Court granted the motion for summary judgment in favor of the purchaser and its assignee.

Next, the Court addressed the owners’ alternative claim of mutual mistake. It explained that the doctrine of mutual mistake applies when a mistake was mutual in that both parties were laboring under the same misapprehension as to a particular, essential fact. Generally, where parties entering into a transaction affecting their contractual relations are both under a mistake regarding a fact assumed by them as the basis on which they entered into the transaction, the contract is voidable by either party if enforcement of it would be materially more onerous to him than it would have been had the fact been as the parties believed it to be. The owners claimed that the mutual mistake was that neither party was aware of the contamination on the premises at the time the contract was entered. The Court concluded that even when the facts were viewed in the light most favorable to the owners, the claim for mutual mistake could not be supported. First, the Court reasoned that the purchaser never assumed that there no open files with the DEP or that there was no contamination on the property; rather, the owners affirmatively represented such in the contract for sale. Therefore, the Court reasoned that there was no mutual mistake as the purchaser never made a mistake.

The Court then addressed the request for specific performance of the contract. The Court explained that specific performance is a discretionary remedy resting on equitable principles. A court must look at the respective conduct and situation of the parties. For specific performance to be appropriate, three threshold showings must be made: (1) there must be a valid and enforceable contract; (2) the terms of the contract must be known with reasonable certainty; and (3) ordering such specific performance cannot unduly burden the non-moving party. Although it was clear the parties entered a binding contract, the Court was troubled by the purported contamination of the premises and the parties’ respective obligations regarding such contamination. Further, the parties were not completely certain as to what extent the premises was contaminated, if at all, and how much it would cost to remediate the property. Thus, the Court could not determine whether specific performance would be an equitable result. Accordingly, the motion for summary judgment was denied.

Lastly, the Court addressed the broker’s request for an order finding the owners liable for a commission pursuant to their brokerage agreement. The Court reasoned that it would be premature to grant the broker’s request for a commission. The agreement provided for a commission following the transfer of the property. Because title had not been transferred, the Court reasoned that the broker was not entitled to its commission. Accordingly, the broker’s request for commissions was denied.

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