On certification to the Superior Court, Appellate Division, whose opinion is reported at 181 N.J. Super. 367 (1981).
For affirmance -- Chief Justice Wilentz and Justices Pashman, Clifford, Schreiber, Handler, Pollock. For reversal and reinstatement -- Justice O'Hern. The opinion of the Court was delivered by Schreiber, J. O'Hern, J., dissenting.
[91 NJ Page 436] The central legal issue in this case concerns the damages to which a buyer of realty is entitled upon the breach of the executory agreement by the seller. The procedural circumstances under which the question arose are unique. The buyers, Edward Donovan and Donna Donovan, husband and wife, prevailed in a suit for specific performance in which the venue was laid in the Superior Court, Middlesex County. When the seller, Carl Bachstadt, could not perform because of a defect in title, the Donovans instituted this action for damages in the Superior Court, Monmouth County.*fn1 The Donovans partially succeeded in their action for damages. On their motion for summary judgment they were awarded reimbursement of their expenditures of $145.00 for a survey and $142.85 for title searches.
Having been denied compensatory damages, they appealed to the Appellate Division, which reversed and remanded for a trial on that issue. We granted the seller's petition for certification. 89 N.J. 403 (1982).
The plaintiffs' motion for summary judgment recited that reliance for the motion was predicated only on a memorandum submitted by counsel. However, both parties during the oral argument before the trial court relied on the pleadings, depositions of the seller and exhibits marked on the depositions.*fn2 Though the record is sparse, the following uncontroverted facts appear.
On December 1, 1977, Joan Lowden acquired a deed from Middletown Township to Lots 25 and 26 in Block F as shown on a certain map duly filed in the Monmouth Clerk's Office. The defendant, Bachstadt, advanced the funds for the purchase of land.*fn3 Ms. Lowden gave Bachstadt a deed to the property that he never recorded. Bachstadt constructed a house on the property and on January 19, 1980 entered into a contract to sell the premises to the Donovans.
The contract was on a standard form prepared by an association of realtors. Bachstadt had no attorney. The record does not disclose if the Donovans were represented at the time the contract was executed. Indeed, Bachstadt never met the Donovans until after the contract had been signed, the realtor having been the only link between the parties.
The contract recited that the purchase price was $58,900. A deposit of $5,890 was paid to and held by the broker. At the
closing scheduled for May 1, 1980, the Donovans were to pay an additional $9,010 in cash and the balance was to consist of a purchase money bond or note and mortgage in the principal amount of $44,000, for 30 years, at an interest rate of 13%. The conveyance was to be made subject to easements and restrictions of record and facts disclosed in an accurate survey, provided that these would not render the title unmarketable. The contract also stated that title "shall be marketable and insurable . . . by any reputable title insurance company . . . ." There was no liquidated damage provision.
A title search obtained by the Donovans from Lawyers Title Insurance Corporation disclosed that title was presently in Anthony and Jane Mettrich, and not in Middletown Township or Joan Lowden. This was brought to Bachstadt's attention. Middletown had foreclosed its tax lien on other property owned by the Mettrichs, but it had inadvertently failed to foreclose on Lots 25 and 26 in Block F, the land sold to Joan Lowden.
The Donovans, fully aware of the title problem, filed a complaint for specific performance and for reformation of the contract. The action was instituted by an order to show cause. The reformation issue presented and argued was whether the 13% interest rate prescribed in the contract should be reduced to 10 1/2%. The maximum allowable rate*fn4 at the time the contract was executed was 10 1/2% and that rate had been raised before the date of closing to more than 13%. The trial court entered an order reforming the contract by providing that the purchase money mortgage carry a 10 1/2% rate and decreeing specific performance. No appeal was taken from that judgment.
When defendant could not obtain marketable title, the Donovans commenced this suit for compensatory and punitive damages.
As previously observed the trial court granted plaintiffs' motion for summary judgment. It was indisputable that the defendant had breached the agreement. The only issue was damages. The trial court held that plaintiffs were entitled under N.J.S.A. 2A:29-1 to recovery of their costs for the title search and survey. Plaintiffs had apparently in the interim purchased a home in Middlesex County and obtained a mortgage loan bearing interest at the rate of 13 1/4% per annum. Plaintiffs sought the difference between 10 1/2% and 13 1/4% as compensatory damages, representing their loss of the benefit of the bargain. The trial court denied recovery because the contract was for the sale of the property and the financing "was only incidental to the basic concept."
The Appellate Division reversed. 181 N.J. Super. 367 (1981). It held that N.J.S.A. 2A:29-1 was declarative of the general common law right to recover consequential damages for breach of a contract and that the statute modified the preexisting law, which limited a realty purchaser to recovery of his deposit upon a seller's breach due to a defective title. The court concluded the statute intended that the general law of damages for breach of a contract applies and stated that the difference in interest rates could be the basis for a measure of damages depending on whether the plaintiffs "have entered into a comparable transaction for another home . . . or are likely to do so in the near future . . . ." Id. at 376. The Appellate Division cautioned that any award of future damages should represent the true life of the mortgage and be reduced to present value. Further, the plaintiffs should be held to a duty to mitigate. Lastly, if the proofs should demonstrate that plaintiffs have not purchased and are not likely to purchase a home in the near future, their damages would be remote and speculative. The cause was remanded for a plenary hearing.
The initial inquiry is whether plaintiffs are entitled to compensatory damages. We had occasion recently to discuss the
measure of damages available when a seller breaches an executory contract for the sale of real property. St. Pius X House of Retreats v. Diocese of Camden, 88 N.J. 571, 582-87 (1982). We noted that New Jersey follows the English rule, which generally limits a buyer's recovery to the return of his deposit unless the seller wilfully refuses to convey or is guilty of fraud or deceit. The traditional formulation of the English rule has been expressed by T. Cyprian Williams, an English barrister, as follows:
Where the breach of contract is occasioned by the vendor's inability, without his own fault, to show a good title, the purchaser is entitled to recover as damages his deposit, if any, with interest, and his expenses incurred in connection with the agreement, but not more than nominal damages for the loss of his bargain. [ T. C. Williams, The Contract of Sale of Land 128 (1930)]
In St. Pius we found no need to reexamine the English rule, though we raised the question whether the American rule that permits a buyer to obtain benefit of the bargain damages irrespective of the nature of the reasons for the seller's default might not be more desirable.
We also referred in St. Pius to N.J.S.A. 2A:29-1, which provides:
When any person shall contract to sell real estate and shall not be able to perform such contract because of a defect in the title to the real estate, the person with whom such contract was made, or his legal representatives or assigns, may, in a civil action, recover from the vendor, not only the deposit money, with interest and costs, but also the reasonable expenses of examining the title and making a survey of the property, unless the contract shall provide otherwise. This ...