On certification to the Superior Court, Appellate Division.
The opinion of the Court was delivered by Clifford, J. Chief Justice Wilentz and Justices Handler, Pollock, O'Hern, Garibaldi, and Stein join in this opinion.
This is an action on a contract for the sale of residential property. The sellers' real-estate agent prepared the contract, after which defendants, the prospective buyers, signed it, paid a deposit of nearly ten percent of the purchase price, and then decided not to go through with the purchase. In the trial court the buyers argued that the contract had been rescinded because attorneys for both parties had sought to amend it during the three-day period provided by the contract's attorney-review clause. The court found the contract to be valid and awarded the sellers compensatory damages, albeit in an amount less than the deposit. The Appellate Division agreed that the contract is binding but held that the sellers are entitled to keep the entire deposit as damages. We granted certification, N.J. (1990), to determine whether the contract is enforceable and, if so, whether the sellers should be allowed to keep the deposit. We affirm the Appellate Division holding that the contract is valid but modify that court's judgment on the issue of damages and reinstate the damage award of the trial court.
On September 1, 1987, defendants, Duncan and Gertrude Pirnie, and plaintiffs, Milton and Ruth Kutzin, signed a contract for the sale of the Kutzins' house in Haworth for $365,000. The contract, which is the standard-form real-estate sales contract adopted by the New Jersey Association of Realtors, had been prepared by Weichert Realtors (Weichert), the sellers' real-estate agent. Under its terms, the Pirnies agreed to pay a partial deposit of $1,000 on signing the contract and the remainder of the deposit, $35,000, within seven days. In compliance
therewith, the Pirnies made out a check for $1,000 to the trust account of Russo Real Estate (Russo), their real-estate agent. The contract does not contain a "forfeiture" or "liquidated damages" clause; with reference to the disposition of the deposit should the sale not take place, the contract merely states, "If this contract is voided by either party, the escrow monies shall be disbursed pursuant to the written direction of both parties."
The contract also contains the following attorney-review provision:
The Buyer or the Seller may choose to have an attorney study this contract. If an attorney is consulted, the attorney must complete his or her review of the contract within a three-day period. This contract will be legally binding at the end of this three-day period unless an attorney for the Buyer or the Seller reviews and disapproves of the contract.
You count the three days from the date of delivery of the signed contract to the Buyer and the Seller. You do not count Saturdays, Sundays or legal holidays. The Buyer and the Seller may agree in writing to extend the three-day period for attorney review.
If an attorney for the Buyer or the Seller reviews and disapproves of this contract, the attorney must notify the REALTOR(S) and the other party named in this contract within the three-day period. Otherwise this contract will be legally binding as written. The attorney must send the notice of disapproval to the REALTOR(S) by certified mail, by telegram, or by delivering it personally. The telegram or certified letter will be effective. upon sending. The personal delivery will be effective upon delivery to the REALTOR(S) office. The attorney may also, but need not, inform the REALTOR(S) of any suggested revision(s) in the contract that would make it satisfactory.
The Kutzins' attorney, Marshall Kozinn, telephoned Russo on September 2nd to communicate his approval of the contract with one exception: he wanted to hold the deposit in his trust account pending closing. Kozinn followed up that conversation by mailing a letter to Russo dated September 3, 1987, with a copy to Joseph Maccarone, the Pirnies' attorney, which read:
As per our telephone conversation, the above contract is satisfactory to me as Attorney for the Seller with the exception that my clients have requested that I hold the deposit pending closing.
Would you please forward the One Thousand ($1,000.) Dollars to me, and arrange to have the $35,000. remaining deposit balance made payable to my attorney trust account.
Russo had already complied with Kozinn's request (without discussing the matter with Maccarone) by endorsing the Pirnies' check to Kozinn's trust account and sending it to him on September 2nd.
In a telephone conversation with Kozinn on September 4th, Maccarone agreed to allow Kozinn to hold the deposit but expressed his opinion that the contract prepared by Weichert did not provide adequate protection for the buyers. That same day Maccarone mailed to Kozinn the following letter:
This office shall be representing the Buyers, Duncan and Gertrude Pirnie with reference to [this] transaction.
I have reviewed the contracts prepared by the Realtor and I would like to propose the attached amendments which I have taken the liberty to prepare. If these forms meet with your approval, I would appreciate your having them executed by the Sellers and return them to me for execution by the Buyers.
I shall forward you the balance of the deposit shortly.
Maccarone enclosed with the letter his standard rider for protection of buyers of real estate. Significantly, the rider was silent on the issue of what would happen to the deposit if the sale were not completed.
On September 10th, Maccarone telephoned Kozinn to inquire if the terms of the rider were acceptable. When Kozinn indicated that they were not, the attorneys discussed their differences and eventually agreed on certain changes. During that conversation, Kozinn mentioned that he had not yet received the additional deposit of $35,000 and questioned whether the Pirnies intended to proceed with the purchase. Maccarone assured Kozinn of the Pirnies' intention to buy the house, stating that "if the deposit was to be any demonstration of good faith or what have you [Kozinn] would have the deposit." Kozinn received the Pirnies' check for the balance of the deposit the next day. Thus assured that the sale would occur, the Kutzins left for their Florida home on the 13th of September.
Maccarone revised the rider and on September 21st sent to Kozinn two copies, already signed by the Pirnies, for execution by the Kutzins. Kozinn received the copies of the modified rider on September 22nd and forwarded them to the Kutzins that same day. A letter accompanied the riders requesting, among other things, that the Kutzins sign and return the riders to Kozinn as soon as the couple returned from Florida. The Kutzins apparently received the letter when they returned to New Jersey on September 24th.
Shortly thereafter the Pirnies instructed their new attorney, Harold Goldman, to write Kozinn the following letter, which was mailed on September 28th:
Be advised the Purnies [sic: "Pirnies" or "Pirnie" throughout] have retained my office to represent them in their effort to negotiate the purchase of a home in Haworth owned by your client, Milton Kutzin.
Mrs. Purnie has indicated to me that the Purnies are no longer interested in purchasing the subject property. Therefore, please treat this letter as formal notice to withdraw the offer to purchase by the Purnies. I must add that the desire to withdraw the offer to purchase was communicated to Joan Harrison, the listing broker, yesterday by both Mrs. Purnie and [myself].
It is my understanding that you are presently holding in trust deposit monies remitted by the Purnies in regard to the proposed purchase. Please call [me] to arrange for the return of said monies.
The Kutzins refused to return the deposit and promptly sued for specific performance of the contract. The Pirnies counterclaimed for return of their $36,000 deposit, contending that the contract had been validly rescinded either pursuant to the attorney-review provision or by agreement of the parties. Because the Kutzins sold the house to another buyer for $352,500 while the case was pending, they amended their complaint to seek only damages.
The trial court ruled that the parties had entered into a binding contract that had not been rescinded either by agreement or pursuant to the attorney-review clause. Consequently, the court held that the sellers were entitled to $17,325 in damages. That amount consisted of the $12,500 difference between the $365,000 the Pirnies had contracted to pay and the $352,500 for which the house eventually sold; $3,825 in utilities,
real-estate taxes, and insurance expenses the Kutzins had incurred during the six-month period between the originally-anticipated closing date and the date of actual sale; and $1,000 the Kutzins had paid for a new basement carpet, which their realtor had recommended they buy to enhance the attractiveness of their house to prospective buyers. The court denied recovery of interest the Kutzins contended they would have earned on the purchase price had the sale to the Pirnies gone through. It also refused to award damages for the increased capital-gains ...