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Mazza v. Scoleri

304 N.J. Super. 555, 701 A.2d 723 (App. Div. 1997)

CONTRACTS; ORAL AGREEMENTS—In this case a court upheld the effectiveness of an oral agreement that modified a written purchase option agreement. Its decision was premised on the doctrine of “induced reliance.”

A condominium owner rented his unit for three years and gave the lessee a written option to purchase. The lessee paid $20,000 for the option, to be credited against the purchase price if the option was exercised, and non-refundable if the option was not exercised. When the lessee wanted to move two years later, he orally agreed with lessor to help find another buyer. The dispute is how this oral agreement treated the $20,000 that was paid for the option. Lessee claimed it was agreed that if the unit sold for at least $160,000, the option deposit would be returned. Lessor denied any such agreement. Lessee was unable to find a buyer, but lessor eventually received an offer conditioned on lessee vacating the premises before expiration of his lease. Lessee agreed to vacate early and, following the sale, lessee demanded return of the $20,000 option deposit. Lessor claimed the written option agreement was not subject to oral revision under the statute of frauds and that once the option period expired, he could keep the deposit. The trial judge found that the parties entered into an enforceable oral agreement whereby lessee would receive so much of his deposit back as would leave lessor with the benefit of a gross purchase price of $160,000. Since the purchase price was $155,000, lessor could keep $5,000 of the deposit, but had to return the $15,000 balance. The trial judge held that lessee, in reliance on the oral agreement, had foregone the opportunity to purchase the unit himself and that this forbearance constituted part performance of the oral agreement, thereby estopping lessor from relying on the statute of frauds.

The issue for the Appellate Division was whether the conduct of the parties constituted an exception to the statute of frauds. The Appellate Division agreed with the decision but not the rationale, holding that the oral agreement was binding not based on part performance, but by virtue of the doctrine of “induced reliance.” A party may claim induced reliance when there is a promise reasonably expected to induce action or forbearance, which does induce action or forbearance, and injustice can be avoided only by enforcement of the oral agreement. The Appellate Court found in favor of lessee on the theory that lessee was induced to rely on the oral agreement, not on the trial court’s theory that lessee’s failure to exercise his option to purchase was part performance of the terms of the oral modification.


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