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Whitesell v. Brandywine Realty Trust

A-4237-02T2 (N.J. Super. App. Div. 2004) (Unpublished)

CONTRACTS; REPRESENTATIONS—Despite pre-contract negotiations to the contrary, if a purchase contract does not state that the property is being sold subject to an existing mortgage, the seller must deliver the property free and clear of the mortgage.

A buyer negotiated with a seller to purchase commercial office buildings. The office buildings were subject to several mortgages, at higher than the then prevailing interest rates, and which were assumable by the buyer. They could not be prepaid. The parties executed a letter of intent in which the buyer agreed to consider assuming certain of the mortgages on the property. The seller prepared a contract of sale containing a schedule of the mortgage obligations to be assumed. The schedule listed one, but not all, of the mortgages that the seller needed its buyer to assume. The buyer refused to close because the seller could not prepay the second mortgage and buyer would not assume it. As a result, seller could not convey good and marketable title to the buyer. The seller sued to have the contract reformed to require the buyer to assume both of the mortgages or, in the alternative, to be awarded the buyer’s deposit for breach of contract. The lower court granted the buyer’s motion for summary judgment and the seller appealed.
The Appellate Division affirmed. It rejected the seller’s argument that the relevant contract provision was ambiguous. The seller had claimed that even though the schedule of debts listed only one mortgage, the intent was to list both mortgages since the contract referred to “mortgage loans” and not a “mortgage loan.” The Court did not find the term “mortgage loans” ambiguous, but rather a “shorthand, parenthetical description of the ‘mortgage debt’ to be assumed which [had been] listed on Schedule… .” It noted that the buyer had agreed in the letter of intent to consider assuming both mortgages, but there was no evidence it agreed to (or even examined) the other mortgage. The Court agreed that a contract may be reformed only if there was a mutual mistake or a unilateral mistake by one party combined with fraudulent or unconscionable conduct by the other, but in this case, the omission of the second mortgage to the schedule was the seller’s unilateral mistake. There was no evidence that the buyer intended to assume the mortgage or expected to see its inclusion in the schedule of obligations. Therefore, there was no mutual mistake. The seller also failed to show unconscionable or fraudulent conduct by the buyer to warrant reformation of the contract. The Court noted that the letter of intent provided that the buyer would consider assuming both mortgages, but did not require it. The buyer’s execution of the contract without the second mortgage being listed in the schedule of obligations was not fraudulent because the buyer never agreed to assume the other mortgage.

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