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Some v. Shaaban

A-3381-04T5 (N.J. Super. App. Div. 2006) (Unpublished)

CONTRACTS; SPECIFIC PERFORMANCE—Before ordering that an owner-seller specifically perform under a sales contract, a court, applying equitable principles, should consider the effect on equitable owners of the property.

A buyer and seller entered into a contract for the sale of real estate. The seller’s wife had an equitable interest, but no legal interest, in the property. After the seller failed to appear at the closing, the buyer served a time of the essence letter establishing another closing date. The seller failed to appear at the second closing, whereupon the buyer sued for specific performance.

The seller, asserting that both the buyer and the seller had the right to terminate the contract without cause, moved to dismiss for failure to state a claim upon which relief may be granted. The buyer cross-moved for partial summary judgment, claiming the seller did not have a valid reason to terminate the contract and that the seller was thereby compelled to perform. The lower court denied the seller’s motion, granted the buyer’s motion, and ordered the seller to perform the contract. The seller appealed.

On appeal, the seller argued that, in light of unresolved issues of material fact, summary judgment was premature and that the lower court mistakenly interpreted the contract. The seller also claimed that because the lower court failed to consider the seller’s wife’s equitable interest in the property, the remedy of specific performance was harsh and oppressive. The Appellate Division found that there were outstanding issues of material fact that, if unresolved, would render the contract terms ambiguous. As a result, the Appellate Division ruled that the lower court: (1) prematurely resolved the dispute without first resolving the ambiguity in the contract; (2) mistakenly granted summary judgment; and (3) failed to consider the seller’s wife’s equitable interest in the property before granting the remedy of specific performance.

In considering whether either party had the right to terminate the contract without cause, the Appellate Division focused on the contract’s language. A specific clause in the contract provided that “[i]n the event either party shall declare this [c]ontract null and void, all deposit monies shall be returned to the [b]uyer.” The seller claimed this provision provided both parties with the right to declare the contract null and void. The buyer argued that this clause did not expressly permit the termination of the contract without cause, but rather when read together with other provisions, only permitted termination with cause. The Appellate Division rejected the buyer’s interpretation of the contract. Examining its plain language, the Court found that the text quoted by both the buyer and seller, in support of their separate positions, was ambiguous and did not clearly define the grounds for termination. Since it found that the contract provisions did not, by themselves, demonstrate that the parties intended to preclude a termination without cause, the Court ruled that the lower court prematurely ruled that termination could only occur for cause. Instead, the parties should have had an opportunity to demonstrate their intent and understanding of the contract provisions through the introduction of parol evidence.

Assuming, arguendo, that the contract precluded termination without cause, the Court ruled that the seller raised an issue of material fact by claiming that the buyer orally consented to the contract’s termination. The seller’s claim was that the buyer had agreed to accept payment of $5,000.00 in consideration for the termination of the contract. According to the Court, if the seller’s contention was correct, then the parties may have consented to rescind the contract notwithstanding the contract’s provisions that only permitted a termination for cause. If there was such an agreement to rescind the contract, then it could potentially form an equitable defense to the buyer’s claim for specific performance.

Although the Court rejected the seller’s claim that the contract was unenforceable because the seller’s wife did not execute the contract, it ruled that prior to granting the remedy of specific performance, the lower court must consider the impact, if any, that the remedy of specific performance would have on the wife, as a holder of an equitable interest. Accordingly, the remedy of specific performance should not be allowed if it would be unduly harsh or oppressive to the seller’s wife. Because the lower court was a court of equity, the Appellate Division ruled that if it found a valid contract existed (through the application of legal principles), the lower court must then consider equitable principles before awarding specific performance.

The judgment of the lower court granting the remedy of specific performance to the buyer was reversed and the matter was remanded for further proceedings.

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