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McGrath v. Poppleton

550 F.Supp.2d 564 (D. N.J. 2008)

CONTRACTS — Where a real estate contract of sale does not specifically exclude oral modifications, an oral modification will be enforced, but only if the modification had been accepted by both parties.

Two buyers and two sellers entered into a contract for the sale of the sellers’ property to the buyers. The contract included a purchase price of roughly 4.2 million dollars and required the buyers to make a deposit of three hundred thousand dollars which was non-refundable in the event that the buyers did not close on the agreement according to the contract’s terms. The sellers requested that the deposit not be refundable under certain conditions because the buyers sought to close eight months following execution of the contract. Less than one month before the closing date, the buyers informed the sellers that they needed to sell their then-current property in order to have the funds to purchase the sellers’ property. The buyers’ real estate agent found a purchaser for the buyers’ property, but the purchaser was not willing to pay the price that the buyers needed to obtain the property from the sellers. In a discussion with the buyers’ real estate agent, the sellers agreed to lower the sale price by three hundred thousand dollars. The real estate agent, who also drafted the contract, drafted an addendum to the contract containing the reduced purchase price but also included a provision which made the sale of the sellers’ property to the buyers contingent on the sale of the buyers’ property. The addendum was received by the sellers but they refused to sign it.

Less than two weeks prior to the closing, the buyers’ attorney informed the sellers’ attorney that the buyers were not going to attend the closing and claimed that the sellers breached the modified contract under the terms of the addendum, and that the contract was null and void as a result. The buyers did not show up at the closing and the sellers sold the property on the following day. The sellers then sued the buyers for breach of the contract and sued their real estate agent’s agency for the turnover of the deposit money. The buyers brought counterclaims for breach of the terms of the addendum and for the breach of the implied covenant of good faith and fair dealing for selling the property to another buyer. The real estate agency sued the seller for breach of contract and sought the commission it was to receive based on the purchase price. In response, the sellers counterclaimed that the agency breached the commission agreement by brining its action and sought damages. The Court consolidated the sellers’ action and the agency’s action.

The sellers sought summary judgment on their claim of breach and on the buyers’ counterclaim for breach of the addendum. The Court noted that the sale contract did not specifically exclude oral modifications but pointed out that modifications to a contract must be accepted by both parties. Based on the testimony by the buyers’ real estate agent, the Court found that the sellers agreed to lower the purchase price of the property, but that there was no evidence that the sellers agreed to change the contract from a non-contingent contract to a contingent contract. The Court granted summary judgment in favor of the sellers on the buyer’s counterclaim for breach of the addendum and found that the addendum was non-binding. The sellers did not seek summary judgment on the buyer’s counterclaim for the breach of the implied covenant of good faith and fair dealing, but the Court chose to rule on the counterclaim without sending the matter to trial so that it could render a summary judgment on the sellers’ claim for breach of the sale contract. It pointed out that a modified agreement between the sellers and the company was entered into on the day after the buyers’ attorney informed the sellers’ attorney that the contract was null and void. The Court also pointed out that the modified agreement was contingent on the buyers not showing up at the closing and that according to the modified agreement, had the buyers shown up for the closing, the property would not have been sold to the next buyer.

The Court found that the sellers did not act in bad faith and that they did not hinder the right of the buyers to purchase the house under the terms of the contract. It granted summary judgment in favor of the sellers on the buyers’ claim of breach of the covenant of good faith and fair dealing. The Court, having determined that the addendum was non-binding and that the sellers did not breach the agreement or the covenant of good faith and fair dealing, found that the buyers breached the contract because they did not attend the closing and did not meet their obligation to pay the balance of the purchase price under the terms of the contract. The Court also found that the real estate agency was not entitled to receive a commission from the sellers because its claim was based on the addendum, but that the sellers were not entitled to damages from the agency because there was no clause in the commission agreement that barred the agency from bringing an action to recover its commission. The agency’s cross-claim for indemnification and contribution against the buyers for the commission was rendered moot by the Court.


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