On October 13, 1950, defendant Stanley Walter Jarzla, husband of defendant Rosie Jarzla, entered into an agreement with defendant Morris Rosen for the sale of the Jarzla farm in West Amwell Township, Hunterdon County, for $28,000. The real estate was described as "consisting of one house, outer buildings, barn, wagon house, two chicken coops, six brooder houses, four shelters and 90 acres more or less." The transaction included personal property consisting of livestock and chickens, farm machinery and equipment, harvested crops and miscellaneous farm tools. The agreement contained the usual provisions that it was entered into "upon the knowledge of the parties as to the value of the land and whatever buildings are upon the same, and not on any representations made as to character or quality."
Rosen paid a deposit of $1,000; $21,000 cash was to be paid at closing and the seller was to take back a second purchase money mortgage of $6,000 which was to cover all chattels and stock. Rosen was to have possession the day title passed, but the Jarzlas were to have the right to occupy three rooms on the premises until April 1, 1951, the rent to be agreed upon between the parties. The closing was fixed for November 13, 1950. However, plaintiff Gallicchio, attorney for the Lambertville National Bank which was to be Rosen's first mortgagee, had not completed the title search by that date. The closing was extended at Gallicchio's suggestion and finally took place in his office on November 28, 1950. In the meantime, the hurricane of November 25, 1950, damaged certain buildings and fencing on the property. The agreement of October 13, 1950, contained no provision as to risk of loss.
The Jarzlas were represented at the closing by their own attorney. Rosen refused to go through with the deal, claiming that the damage to the buildings and fencing amounted to a failure of consideration. He insisted upon a reduction in the purchase price. The Jarzlas refused. The parties tried to fix a value for repairing the damage and, after some
discussion and in order not further to delay the closing, finally entered into the following escrow agreement:
The parties hereto agree that the said Stanley Jarzla and Rosie Jarzla, his wife, are to restore all of the damages suffered to the buildings and fences on the property this day sold by the said Stanley Jarzla and Rosie Jarzla, his wife, to Morris Rosen.
All the work is to be done in a reasonable and workmanlike manner.
The parties hereto agree that Nicholas F. Gallicchio, Esq., shall hold in escrow, the sum of Twenty-five Hundred ($2,500.00) Dollars, for a period of thirty (30) days, weather permitting, to insure the faithful performance of this work."
The Jarzlas then executed an appropriate warranty deed and bill of sale to Rosen and he gave them a chattel mortgage and paid the balance of the purchase price, at the same time executing a bond and mortgage to the Lambertville National Bank.
The Jarzlas undertook to repair the storm damage. On January 18, 1951, they notified plaintiff that the repairs had been completed in accordance with the escrow agreement and demanded payment of the $2,500. Rosen disputed the repairs and refused to allow plaintiff to pay over the money. Plaintiff thereupon brought this interpleader action to determine the respective rights of the Jarzlas and Rosen to the $2,500 in his hands.
Rosen's answer and cross-claim sets up failure by the Jarzlas to perform the terms of the escrow agreement and a breach thereof. He demands judgment that the $2,500 belongs to him, and also judgment against the Jarzlas for an additional $1,000, the amount over and above the escrow fund alleged to be necessary to complete the repairs. The Jarzlas, in turn, cross-claimed against Rosen, alleging that the repairs had been properly made and the escrow agreement performed. They further claim that Rosen was obligated to accept the premises in the condition in which they were at the time of closing and hence there was no consideration for the escrow agreement, and it was null and void. They
demand judgment for the $2,500 and costs. Rosen answered this cross-claim, affirming the validity of the escrow agreement and denying that the repairs were properly made. At the same time he counterclaimed against the Jarzlas for $500 for farm tools that were to have been delivered to him, but which he claims were not. The Jarzlas deny the allegations of the counterclaim.
On behalf of the Jarzlas it is argued that (1) the risk of loss under the agreement of October 13, 1950, was upon Rosen, and (2) no consideration passed to them for the escrow agreement of November 28, 1950.
The New Jersey rule as to risk of loss was clearly stated by Chancellor Magie in Marion v. Wolcott , 68 N.J. Eq. 20, at p. 22 (Ch. 1904):
"It is the settled doctrine of our courts of equity that, under a contract for the sale of lands, the purchaser becomes the equitable owner of the lands, and the seller the equitable owner of the purchase money. King v. Ruckman , 21 N.J. Eq. (6 C.E. Gr.) 599; Haughwout v. Murphy , ...