On certification to the Superior Court, Appellate Division.
For affirmance in part, reversal in part and remandment in part -- Chief Justice Wilentz and Justices Clifford, Schreiber, Pollock and O'Hern. Dissenting -- Justices Pashman and Handler. The opinion of the Court was delivered by Schreiber, J. Handler, J., dissenting. Justice Pashman joins in this opinion.
We granted certification in this case primarily to consider the proper measure of damages to which a vendee of realty is entitled upon the vendor's breach of an executory contract. Also involved are questions of reformation and an attorney's obligations when engaged to represent the seller.
Plaintiff, St. Pius X House of Retreats, Salvatorian Fathers (Salvatorians), contracted to sell an 8 1/2 acre tract of land (Lot 2H) in the Township of Gloucester to Albert and Mary DiSalvio (DiSalvios) under an installment arrangement with title to pass upon the final payment. Several years later, but during the installment period, plaintiff mistakenly included this parcel with other land in a conveyance to the Diocese of Camden (Diocese).
The error remained undetected until the DiSalvios were about to take title. At that time Fred Gravino, the lawyer representing the Salvatorians, discovered the problem.
Plaintiff Salvatorians instituted this action seeking reformation of the deed to the defendant Diocese, and damages against its lawyer, defendant Gravino, for any losses it might suffer. Plaintiff joined the DiSalvios as defendants asserting the DiSalvios had breached their agreement to acquire the property. Gravino asserted a cross-claim against the Diocese for indemnification. The DiSalvios counter-claimed for specific performance or in the alternative for damages, cross-claimed against Gravino for damages based on his negligence, and cross-claimed against the Diocese asserting a prior right to the property.
The trial court granted defendant Gravino's motion, in which the Salvatorians joined, for partial summary judgment against the DiSalvios, denying them the right to damages based upon the benefit of the bargain. It held that, if the DiSalvios prevailed on their claim for breach of contract, then damages would consist of the monies they had paid under the installment contract. After a plenary trial the trial court in a letter opinion found the plaintiff was not entitled to reformation. It held that plaintiff had breached its contract of sale with the DiSalvios and ordered that all monies paid under the installment contract be returned. The court also concluded that Gravino had not been negligent and dismissed the actions against him. The Salvatorians and the DiSalvios appealed. The Appellate Division affirmed on the opinion below. We granted the DiSalvios' petition for certification. 87 N.J. 314 (1981), and the Salvatorians' cross-petition, 87 N.J. 359 (1981).
The facts are virtually undisputed. The plaintiff Salvatorians originally purchased two tracts of land in Gloucester Township in 1962 from John and Mildred Hopkins. One tract contained a structure which the Salvatorians used as a retreat (Retreat House). The other property, which was not contiguous but was located nearby, is the subject matter of this dispute. It is
designated on the Gloucester Township tax map as Lot 2H. Defendant Gravino, who represented the Hopkinses in the sale, prepared the deed, which contained a metes and bounds description and did not refer to lot and block numbers.
In August 1966, the DiSalvios entered into an agreement with the Salvatorians to purchase Lot 2H. The DiSalvios were not represented by counsel in this transaction. Defendant Gravino, now representing the Salvatorians, prepared an installment purchase agreement. The purchase price was $12,500. A down payment of $2,000 was to be followed by monthly installments of $100, commencing in September 1966 until the balance was paid. Upon payment of the balance, the seller was to deliver a warranty deed free and clear of all encumbrances. The settlement was to occur at Gravino's office. The same metes and bounds description which appeared for this tract in the Hopkins deed to the Salvatorians was incorporated in the contract. The agreement was not to be recorded by the buyers and recordation would constitute a default entitling the seller to immediate possession. It was explained at the trial that the clause was inserted to protect the seller, so that if the buyers defaulted, the title would not be cluttered with the sales contract. The DiSalvios were entitled to immediate possession and were responsible for taxes, which the seller might, at its option, pay. The DiSalvios took possession, but did nothing other than installing two no trespassing and three no hunting signs and cutting some grass.
When the Salvatorians encountered financial difficulties, it decided to sell all its properties. In November 1968, the Salvatorians' provincial director, Father DeBruin, met with Bishop Guilfoyle of the Camden Diocese to discuss a possible sale of its Gloucester Township land. The Bishop indicated an interest which led to negotiations. Each side retained an appraiser. The appraisers examined the local tax maps to identify the property owned by the Salvatorians. They assumed the maps were accurate and included Lot 2H in designating the properties to be sold. Both appraisers evaluated the land value at the rate
of $1,750 per acre for 150 acres or $262,500. It is clear that the Salvatorians did not intend to sell Lot 2H, but believed that only the Retreat House structures and adjacent land were to be included in the sale.
Father Herron was in charge of the matter on behalf of the Diocese. In January 1969, he inspected the area, including the noncontiguous tract of land, Lot 2H. It was his understanding that this land was to be included since the appraisals referred to Lot 2H.
On February 26, 1969, the parties entered into an agreement of sale, which had been prepared by counsel for the Diocese. The property was described as:
[A]ll those certain parcels of land and premises being and situate in the Township of Gloucester, County of Camden and State of New Jersey, designated on the Tax Maps . . ., as plate 31, Block 357, Lots 2H, 2J, 3, 4, 5, and 7, consisting of 150 acres, be the same more or less, and including the lake area in Lot 2J.
The purchase price was fixed at $810,000, a price substantially influenced by offers made by third parties to the Salvatorians. The price exceeded both appraisals, but this did not deter the Diocese. It was motivated by the desire to ease the Salvatorians' financial plight and to continue the Salvatorians' religious works at the Retreat House.
After the contract was executed, Father Herron ordered a survey of the property and a title report. The Salvatorians engaged Gravino. They sent him the contract and instructed him to "draw up the necessary papers to expedite this sale and represent us at the closing on March 14." He received a preliminary title report from Lawyers Title Insurance Corporation that referred to the properties in the same manner as the contract. Subsequently, he was sent a metes and bounds description of the two tracts, which he used in preparing the deed. This description, which also appeared in the final title report, described two tracts, the first containing 8.591 acres (Lot 2H) and the second containing 151.12 acres for a total of 159.711 acres. Gravino prepared a deed containing this description as well as the affidavit of title. At his request these documents
were executed and returned to him. He never requested, received or examined the survey, although the survey was produced at the closing on April 2, 1969. At the closing Gravino delivered the deed he had prepared.
The DiSalvios continued to make their monthly payments to the Salvatorians. In November 1974, approximately six months before the deed was to be delivered to them, Gravino detected that the land had been included in the deed delivered to the Diocese.
The traditional grounds justifying reformation of an instrument are either mutual mistake or unilateral mistake by one party and fraud or unconscionable conduct by the other. Heake v. Atlantic Cas. Ins. Co., 15 N.J. 475, 481 (1954); Downs v. Jersey Central Power & Light Co., 117 N.J. Eq. 138 (E. & A. 1934). The parties agree on these principles, but differ on their application. Plaintiff urges that both parties intended a conveyance of only the lands owned by the Salvatorians when the contract was made and therefore a mutual mistake existed. Alternatively, the plaintiff argues that if the mistake was not mutual, the conduct of the Diocese was such as to warrant reformation. Resolutions of these questions are essentially factual. The trial court found that the Diocese was not mistaken and its conduct was not unconscionable. The Appellate Division agreed and we are satisfied that there is sufficient record support for these conclusions.
When the contract was entered into, the intention of both parties was the same, that is, that Lot 2H was to be included in the sale. The Salvatorians made a mistake by incorporating Lot 2H into the transaction, but that mistake was not shared by the Diocese. A flaw in the dissenting opinion's argument is its incorrect factual assumption that the parties were committed in November 1968 to a purchase and sale of land which did not
include Lot 2H. In the first place, the parties had commenced negotiations only in November 1968. At that time the Salvatorians and the Diocese had agreed that each would have an appraisal made and then discuss the matter further. The Diocese's appraiser eventually evaluated the property at $673,500. When the Salvatorians pointed out that several other prospective buyers had made offers, one of which was for $800,000, the Diocese raised its offer to $810,000 and the agreement was made. This occurred after the appraisals were completed and immediately before the contract of sale was drawn and executed on February 26, 1969.
Moreover, in November 1968, the Diocese did not know exactly what land was involved. Father Giles of the Salvatorians had given the lot numbers, including 2H, to Guy Elvey, the Salvatorians' appraiser. Elvey testified that, although he did not include Lot 2H in his property evaluation, he identified the subject property in his report as "Lots 2-H, 2-J, 3, 4, 5 and 7, Block 357, Plate 31, on the Tax Map of Gloucester Township."
Samuel Gilbert appraised the property for the Diocese. He examined the tax records, found that Lot 2H was in the Salvatorians' name and included it in his appraisal. He also attached as an exhibit to his report a copy of the tax map. The map showed Lot 2H, separated by a small body of water from Lot 2J. He had circled in red the lot numbers of the parcels to be sold including Lot 2H. Gilbert had also been given a survey by the Salvatorians made by T.A.M. Fisher, dated December 1961, of the premises of "St. Pius X House of Retreats Salvatorian Fathers Inc." It did not delineate the tax lots, but did show the entire property, incorporating Lot 2H. The survey also disclosed that the Lot 2H area consisted of 8.591 acres. When Gilbert made his on-site inspection, the ground was heavily laden with snow. However, he did walk along the easterly side of Cheeseman Road, including that section of the road adjacent to Lot 2H. He calculated the property had a frontage on that road of 4,844 feet, of which 717.67 feet was attributable to Lot 2H. As noted
above, the evaluation of the property and buildings was $673,500.
Gilbert's appraisal was certified on January 14, 1969. The deal was structured only after the appraisals were made. At that time the parties had the appraisals and the tax map, both of which referred to Lot 2H. This was followed by Father Herron's inspection of the property in which he personally examined Lot 2H.
After the contract was signed in February, the survey was made at the request of the Diocese. This survey included Lot 2H, and the metes and bounds description utilized for the deed was derived from that survey. It must be remembered that the prime purpose of the survey, as in any real estate transaction, was to graphically depict the precise location of the land to be conveyed and to confirm the quantity of land being acquired.
The extent of the acreage involved, the identity and location of the tracts, and the purchase price were not determined until after the Gilbert report was received in January 1969. The Diocese believed at the time it entered into the contract and when it closed the transaction that the Salvatorians owned Lot 2H and were legally capable of conveying that tract. There was no mistake about that. Though the Salvatorians may have intended to sell only what they lawfully owned, the Diocese had been led to believe, and did believe, that such ownership included Lot 2H. This is a position the Diocese has continued to take throughout this litigation.
Reformation predicated upon mutual mistake requires that both parties are in agreement at the time they attempt to reduce their understanding to writing, and that the writing fails to express that understanding correctly. No case cited by the dissent holds otherwise. A general understanding that A will purchase and B will sell some land -- the identity, location and extent to be subsequently determined -- cannot be the basis for reformation. The reason is because no understanding has been
reached with respect to the essential terms of the contract. Implicit in the general understanding is the recognition that when the parties arrive at the point of preparing an enforceable contract they will specify the precise property to be conveyed.*fn1
Perron v. Lebel, 256 A.2d 663 (Me.Sup.Ct.1969), upon which the dissent relies heavily, does not hold otherwise. There the parties had agreed one particular lot was not to be included in the sale. It mistakenly was, and reformation was held to be in order. That is a classic illustration of a misstatement in the contract of the parties' understanding. See Restatement (Second) of Contracts § 155 (every illustration of mutual mistake involves a specific term or provision on which the parties had agreed and was erroneously expressed in the written contract). Corbin's treatise on Contracts summarizes the principle as follows:
Whatever may be the form of the transaction as analyzed above, and whatever may be the explanatory theory as to when and how the contract became binding, a court will not decree reformation unless it has convincing evidence that the parties expressed agreement and an intention to be bound in accordance with the terms that the court is asked to establish and enforce. If the writing accords with the expressed intentions of one party, the court will not hold him bound by a different contract. If it does not accord with the intentions of the other party, or if his assent was induced by an antecedent unilateral mistake, he may perhaps get rescission and restitution, but he is not entitled to reformation.
New Jersey adheres to this rule. See Central State Bank v. Hudik-Ross Co., 164 N.J. Super. 317, 323 (App.Div.1978) ("For a court to grant reformation there must be 'clear and convincing proof' that the contract in its reformed, and not original, form is the one that the contracting parties understood and meant it to
be."); Lord, Inc. v. Municipal Utilities Authority, Tp. of Lower, Cape May, 133 N.J. Super. 503, 507 (App.Div.1975) ("[Reformation] normally arises when the agreement fails to specify correctly the terms that the parties agreed upon, such as where a deed absolute on its face was actually intended to be a mortgage."); By-Fi Bldg. & Loan Ass'n v. N.Y. Casualty Co., 116 N.J. Eq. 265, 267-68 (Ch.1934) ("Only upon the production of proof clear, convincing and free from doubt that the contract in its reformed and not original form is the one that the contracting parties understood and meant it to be -- and as in fact it was but for the alleged mistake in its drafting -- will this court grant an applicant [reformation].").
Furthermore, the Diocese was not guilty of any unconscionable conduct. At the first conference concerning the possible sale, Father DeBruin of the Salvatorians referred to the amount of land involved as 160 acres. Though the contract referred to 150 acres more or less, the survey determined the exact acreage. Father Herron wrote the Bishop, "The surveyor informed us that the total acreage that we are purchasing is 160.576 including the lake area." All the foregoing information was equally available to the seller. The Diocese had no reason to call to Gravino's attention or that of someone else acting on behalf of the Salvatorians what the precise acreage was. Indeed, the actual amount, 159.711 acres, was nearly the same as stated initially. That two noncontiguous tracts were involved coincided with the tax map and the physical inspection. The Diocese had no inkling that the Salvatorians did not intend to include Lot 2H in the transaction.
Accordingly, the record support for the trial court's factual conclusion is ample. We discern no palpable error or other reasons demonstrating a clear miscarriage of justice in the factual findings made below. Those findings were reasonably reached on sufficient credible evidence in the record. State v. Johnson, 42 N.J. 146, 162-63 (1964).