November 21, 2007
HEATHER LODER AND GERALD LODER, PLAINTIFFS-RESPONDENTS,
CLAUS NEPPL (IMPROPERLY PLED AS CLAUSE), AND GRACE NEPPL, DEFENDANTS-APPELLANTS, AND MICHAEL NEPPL, DEFENDANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. C-131-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: October 31, 2007
Before Judges Axelrad and Messano.
Defendant property owners appeal from the Chancery Division's September 12, 2006 order, following a bench trial, finding an oral contract for sale of the property and directing specific performance conveying the parcel to plaintiffs, who were longstanding tenants. The trial court stayed its order pending appeal and plaintiffs have continued to occupy the premises under an oral lease agreement. On appeal, defendants contend the court erred in: (1) finding plaintiffs met their burden of establishing the requisite elements of oral contract formation by clear and convincing evidence; (2) finding the existence of an enforceable contract that lacked the requisite element of consideration and in failing to specifically address this argument; and (3) ordering specific performance on the alleged contract despite failure of proof by plaintiffs of an ability to perform under its terms. We are not persuaded by any of these arguments and affirm substantially for the reasons articulated by Judge McVeigh in her August l5, 2006 written opinion.
The following facts were adduced during the six-day trial on plaintiffs' specific performance claim.*fn1 Plaintiffs Heather and Gerald ("Jerry") Loder have been tenants of the residential property owned by defendants, Claus and Grace Neppl, located at 361 Lakeshore Drive, West Milford, since December 24, 1998.*fn2
They initially occupied the premises pursuant to written lease agreements that expired on June 30, 2000, and remained pursuant to an oral month-to-month lease arrangement. Defendants relocated to Arizona in late 2002, and the parties agreed that any necessary repairs to the property would be performed by plaintiffs and deducted from the monthly rental. There was an ongoing dialogue between the parties respecting these and other issues, and the parties enjoyed a friendly relationship until the spring of 2005.
All four parties agreed that from the outset there had been ongoing conversations regarding plaintiffs' purchase of the property when they were financially able. The second written lease included an option to purchase the property and right of first refusal, and defendants never listed the property for sale or showed the home to prospective buyers throughout plaintiffs' tenancy. The critical incident occurred around Memorial Day in 2005. The parties met at the house and all four agreed there was a conversation regarding plaintiffs' purchase of the property. Defendants had flown to New Jersey to visit Michael Neppl, during which they arranged with plaintiffs to visit the property and discuss recurrent problems with the septic system, which defendants agreed needed to be repaired. Claus was unhappy with the condition of the house and, according to both Jerry and Grace, Claus made a comment to the effect that plaintiffs "either had to buy the house or move out."*fn3
Plaintiffs offered one price, which everyone agreed was rejected out of hand.
Plaintiffs testified that Claus responded with a sales price of $150,000 and defendants would repair the septic system;*fn4
Heather asked if they would take back a mortgage, which Claus indicated they would not; and plaintiffs asked for six months to close to give them adequate time to obtain financing. Both plaintiffs unequivocally testified that, in their opinions, when the meeting concluded on a friendly note, with their typical handshaking of Claus and kissing of Grace, they had reached an agreement for defendants to sell and plaintiffs to purchase the home for $150,000, within the six months that defendants allowed them to obtain a mortgage. Heather testified they did not discuss a time frame for the completions to the renovations to the septic system. Heather further testified that this discussion regarding the sale of the home was different than prior ones because the parties had never previously come to an agreement on the purchase price and because plaintiffs were now able to obtain a mortgage as Heather's credit had improved.
Claus denied there was an agreement to sell the property. Claus testified he told Heather the building was not for sale, and after Jerry offered to purchase the property for $150,000 and said he needed defendants to take back a second mortgage, Claus was "outraged" and "refused" the offer. According to Claus, negations ceased and he and Grace immediately left the home, informing plaintiffs they would have to move as soon as possible. Claus emphatically denied he had any conversations with plaintiffs "at [that] time as to what would be terms under which [he] would sell the property to them."
On direct examination Grace mimicked the testimony of her husband in minimizing her relationship with plaintiffs and in describing the events of the Memorial Day meeting. On cross-examination, however, it became clear that she and Heather had established a personal relationship over the years, and that there was more to the meeting than testified to by Claus and that Grace was uncomfortable and guarded in her testimony. Grace corroborated plaintiffs' testimony that Claus "came up with the value" of $150,000, which included defendants repairing the septic system, and that "plaintiffs indicated they would buy the house for [that amount]." Grace further testified that after Claus rejected plaintiffs' request that defendants hold a mortgage, plaintiffs told defendants they needed some time to get their finances in order. She also confirmed plaintiffs' testimony as to their amicable parting.
Under the impression they were purchasing the property, Heather contacted two mortgage companies, one private investor, and an exterminating company within a few days after the meeting. Confirmation documents evidencing the contacts were submitted at trial as proof of plaintiffs' efforts to comply with their obligations under the oral agreement. Heather testified that as a result of being informed by the mortgage company that a written contract of sale was required to obtain a mortgage, she prepared and faxed the following document to defendants with a letter advising them she was meeting with a mortgage company, and requested they promptly return a signed copy:
In regard to conversation of the purchase of the residence at [address]. Jerry and Heather Loder agree to buy said property at the agreed price of $150,000 as per the conversation with present owners on June 1st. The purchase to take place within six months from that date as also agreed upon with all parties.
Unbeknownst to plaintiffs, however, defendants had orally agreed to sell the property to Michael during their visit with him after they left plaintiffs. Grace explained that when they told Michael they were going to sell the property to plaintiffs for $150,000, he became very upset and disappointed because, several years prior, Claus had sold an investment property to Grace's son and had discussed with Michael selling him the subject property at a later date. He offered to buy the property for $160,000, and Claus agreed.*fn5
Thus, according to Grace, when defendants received plaintiffs' fax around June 6, 2005, Claus told Grace not to respond. Claus then prepared a letter, which he and Grace signed, that he faxed to plaintiffs on June 9, stating:
We are sorry to inform you that as soon as my son found out about the selling price to you, he jumped all over us that we didn't give him a chance to purchase the House from us. Therefore he will buy the Lake House by July 30th. Therefore, we need you to vacate the House by August 31st of 2005.
When confronted with defendants' refusal to convey title, and their indication they intended to proceed with a conveyance to Michael, plaintiffs filed their complaint in September 2005 to compel specific performance in accordance with the terms of the purported oral agreement. The trial judge also heard testimony regarding subsequent tenancy proceedings between the parties. The judge further considered the parties' trial briefs and written summations, which are not part of the appellate record.
By decision of August l5, 2006, the court found an enforceable contract had been formed between the parties around Memorial Day weekend 2005 for the sale of the property, and ordered specific performance of the contract. The trial judge made credibility assessments and determined that Grace was "[o]ne of the most compelling witnesses in the entire trial." The judge found credible the testimony from Grace and Heather that they had established a personal relationship. Judge McVeigh noted Grace's discomfort in testifying, and commented that Grace "very carefully attempted to testify truthfully without betraying the relationship with her husband and stepson." The judge also found Heather's testimony to be "very clear that they wanted the property, and at the end of that Sunday they believed they were purchasing the property for $150,000." Concluding that three out of four of the people at the meeting testified the $150,000 selling price was agreed upon, that plaintiffs asked for a period to obtain financing, and that it was established at six months, the judge commented that Claus was the only one present at the property that day "who den[ied] there was a clear understanding of the purchase." The court also considered the pattern of behavior and lack of formality in the parties' contractual relationship before and after the June 2005 meeting, and concluded that plaintiffs presented clear and convincing evidence of an enforceable oral agreement for the sale of real estate as required by the amended Statute of Frauds and case law.
Based on defendants' "need for finality and an opportunity to maximize their financial gain on the premises," the court established October 30, 2006 as the closing deadline, and further provided that failure to close by that date would void the contract of sale. The decision was memorialized in an order of September 12, 2006. The trial court granted defendants a stay of the order pending appeal, without bond, on October 23, 2006.
On appeal, defendants argue the trial judge misconstrued the testimony and evidence respecting the Memorial Day meeting and made no effort to apply the clear and convincing standard required by the Statute of Frauds. According to defendants, although plaintiffs made clear their intense desire to purchase the house for $150,000, defendants never clearly communicated their intent to be bound to sell the property to plaintiffs for this price. Defendants claim that in view of the ambiguous documents, inconsistent aspects of testimony by plaintiffs, and consistent testimony by defendants that no agreement of sale was reached, a contract cannot be adjudged to have been formed by clear and convincing evidence. At most, they claim, the testimony showed there was a discussion about a sale for $150,000, with defendants taking back a mortgage, but when that was rejected by defendants there was no meeting of the minds. Defendants explained their use of the term "selling price" in their subsequent fax as a layperson's choice of words, and further contended that was only one term, and did not represent a comprehensive agreement as claimed by plaintiffs. According to defendants, plaintiffs took it upon themselves to obtain alternative financing after the meeting concluded.
Prior to the recent amendments to the Statute of Frauds, L. l995, c. 360, New Jersey law required an agreement for the sale of land to be reduced to writing. Morton v. 4 Orchard Land Trust, 180 N.J. 118, 125 (2004). In l996, the Legislature enacted N.J.S.A. 25:1-13b, which permits enforcement of an oral agreement to sell an interest in real estate if "a description of the real estate sufficient to identify it, the nature of the interest to be transferred, the existence of the agreement and the identity of the transferor and the transferee are proved by clear and convincing evidence." Evidence is clear and convincing when it "produce[s] in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established." In re Purrazzella, 134 N.J. 228, 240 (1993) (internal citation and quotation marks omitted). It does not require absolute certainty or that the evidence be uncontested. See In re Jobes, 108 N.J. 394, 408 (1987).
If the elements of a contract for the sale of property are contained in an oral agreement, the mere anticipation of its written memorialization does not as a matter of law vitiate such oral contract. McBarron v. Kipling Woods L.L.C., 365 N.J. Super. 114, 116 (App. Div. 2004). A trial court must ascertain whether a valid oral contract was made, which is "solely a matter of intent determined in large part by a credibility evaluation of witnesses." Id. at ll7.
In its commentary on the proposed amendment, the New Jersey Law Revision Commission ("Commission") set forth factors to guide courts in determining whether the parties intended to enter into a binding oral agreement, including: (1) the circumstances surrounding a transaction; (2) the nature of the transaction; (3) the relationship between the parties; (4) the parties' contemporaneous statements; and (5) the parties' prior dealings. Morton, supra, 180 N.J. at 126. The Court cited an example given by the Commission as to an informal type arrangement when parties would intend to be bound by an oral agreement, also referred to by Judge McVeigh in her opinion:
[I]f the parties in question have engaged in a series of "handshake" agreements for the purchase and sale of individual building lots in the past, and have honored them in the absence of any writing, their prior conduct could tend to show that they intended to enter into a binding oral agreement. [Id. at 126.]
The focus in this case is on the "existence of the agreement" factor of N.J.S.A. 25:1-13b. Our standard of review of challenges to the factual findings of a judge sitting without a jury is quite limited. A reviewing court should not disturb a trial court's findings of fact and legal conclusions unless they are "'so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.'" Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 484 (1974) (quoting Fagliarone v. Twp. of N. Bergen, 78 N.J. Super. 154, 155 (App. Div. l963)). In a non-jury trial, we give great deference to the judge's findings and conclusions based on the ability to perceive the witnesses and assess their credibility. Id. at 483-84; see also, Pascale v. Pascale, 113 N.J. 20, 33 (1988). We will not "engage in an independent assessment of the evidence as if [we] were the court of first instance." State v. Locurto, 157 N.J. 463, 471 (1999). Because the findings reviewed are based on factual determinations, we are cautioned to exercise our "original fact finding jurisdiction sparingly and in none but a clear case where there is no doubt about the matter." Rova Farms, supra, 65 N.J. at 484.
We are satisfied that Judge McVeigh's factual findings and conclusion that plaintiffs established by clear and convincing evidence the existence of an oral agreement for the sale of the Lakeshore Drive property were amply supported by the evidence presented during the six-day trial. The court appropriately considered the parties' informal relationship and pattern of behavior over the six and one-half years leading up to the Memorial Day 2005 meeting. The parties did not involve attorneys in their business dealings with one another and only utilized written leases for the first eighteen months of their tenancy relationship. Thus, the majority of their dealings were handled by unsophisticated oral agreements, for such significant items as the payment of rent, deductions for repairs, and defendants' repair of the septic system. The parties' relationship also transcended a typical landlord/tenant business relationship in that plaintiffs invited defendants to their wedding and exchanged Christmas gifts and telephone communications; Grace also confided in Heather in matters that were extremely personal. That the parties entered into an oral agreement for the sale of the property following lunch and sealed it with a kiss and a handshake is consistent with the pervasive informality of their relationship.
The oral agreement is also consistent with the prior discussions between the parties. It is undisputed that from the outset plaintiffs had continuously expressed interest in purchasing the property when they were financially able and defendants had been receptive to the sale, including giving them a written option in the second lease agreement and never listing or attempting to sell the property prior to the June 2005 discussion with Michael. Heather explained that they were now financially able to enter into an agreement. The trial judge's findings as to the testimony of the Memorial Day meeting, to which we defer, establish an agreement between the parties as to the essential terms of the sale -- a $150,000 sales price and for plaintiffs to obtain a mortgage within a reasonable time (six months). Moreover, Claus' fax utilizing the phrase "selling price" lends support to a finding that the selling price was agreed upon and he believed he was bound by an oral agreement to sell the property to plaintiffs. Heather's contemporaneous efforts to move forward on the purchase immediately following the meeting also evidenced an intention to enter into a binding oral agreement.
Defendants further argue the alleged agreement is unenforceable for lack of consideration because there was no payment of a deposit or earnest money, and no mutuality of obligation for plaintiffs to close. We are not persuaded by this argument. Parties are free to enter into enforceable contracts without the payment of deposit monies. These parties had an informal, ongoing relationship for over six years during which plaintiffs had been occupying the premises, making repairs, and paying rent. Defendants knew plaintiffs had always wanted to purchase the house and thus there was an implied covenant of good faith as consideration for the oral agreement in that plaintiffs would promptly seek financing and do whatever was necessary to realize their dream in as short a time as possible, with an outside limit of six months. The parties had communicated on a regular basis during the entire tenancy so there was no reason to expect their pattern of behavior would have been different during the six months following the agreement. Furthermore, as a practical matter, if, for whatever reason, plaintiffs were unable to close within the contractual deadline, defendants would be in no worse position than they were six months' prior; they could sell the property to Michael, give plaintiffs notice to quit under their month-to-month oral lease, and if they refused to vacate, commence eviction proceedings.
Nor are we persuaded by defendants' argument that the Chancery judge overreached in ordering specific performance of the contract of sale and that such action resulted in a miscarriage of justice. A party who "seeks performance of a contract for the conveyance of land must show himself ready, desirous, prompt and eager to perform the contract on his part." Ridge Chevrolet-Oldsmobile v. Scarano, 238 N.J. Super. 149, 156 (App. Div. l990) (quoting Stamato v. Agamie, 24 N.J. 309, 316 (1957)). The record is sufficient from which to conclude that as recently as trial in June 2006, plaintiffs were attempting to pursue funding and proceed to closing in furtherance of the oral contract if the court ordered that it be enforced. It was not fatal to plaintiffs' case that they only presented evidence of prequalification as an indication of their continued interest in purchasing the property and did not present the testimony of a mortgage representative to demonstrate they had the present financial ability to purchase the property. The judge appropriately balanced the equities and set a short period of time, about sixty days, for plaintiffs to close on the property or the contract would be void. We are satisfied that was a proper remedy under the totality of the circumstances of the case.
The Chancery Division's September l2, 2006 order is affirmed, and Paragraph 3 is modified to reflect that "Closing of title shall occur on or before January 31, 2008." The October 23, 2006 stay is vacated.