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Sunrise Holding, LLC v. Tuttle

A-4731-03T3 (N.J. Super. App. Div. 2005) (Unpublished)

CONTRACTS; FRUSTRATION OF PURPOSE—The defense of frustration of purpose requires that the common or shared object of the agreement has been frustrated not just that one party’s intent can not be satisfied.

A mother had three sons and a daughter. She owned an apartment building. Her daughter alleged that while her mother owned the building, she and her mother “entered into a written lease for one dollar permitting [the daughter] to remain in one of the four apartments for thirty years.” While the daughter lived in the apartment with her “significant other,” her mother transferred ownership of the property to her own husband who later transferred ownership to the three sons. The sons took title in the name of a limited liability company.

After taking title to the property, the three brothers advised their sister that she had to pay $650 monthly rent and alleged that they knew nothing about the thirty-year lease. By this time, both parents had died. The sister refused to pay the rent and the brothers’ company filed an eviction action. This led to a mediation and settlement agreement in which the brothers’ company agreed to sell the entire building to [the sister] at a reduced price.”

The sister died before the completion of the settlement negotiations and thereafter the brothers’ company notified their sister’s “significant other” that “settlement discussions were terminated, and asked him to leave the property. The “significant other” then “moved to enforce the settlement that he contended had already been reached. The Law Division granted the motion and the brothers appealed, contending that their sister’s death eliminated its “primary reason for entering into settlement discussions.”

The Appellate Division held that the sister’s death created no frustration of purpose since the brothers were the only party with the intention of benefitting only the sister. Frustration of purpose requires that the common or shared object of the agreement has been frustrated. The Court further held that the brothers were bound by their objectively manifested intentions when agreement was “reached on essential terms.” Since there was evidence that the parties agreed to essential settlement terms before the sister’s death, the Court upheld the lower court’s decision to enforce the settlement agreement to sell “the entire building to the tenant” at the reduced price.

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