October 25, 2011
LYNNE R. KOSILLA, PLAINTIFF-RESPONDENT,
LAWRENCE P. KOSILLA, JR., DEFENDANT-APPELLANT
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Cape May County, Docket No. FM-05-90-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted September 19, 2011
Before Judges Parrillo and Alvarez.
Defendant Lawrence P. Kosilla, Jr., appeals from a post-divorce judgment order requiring him, as part of equitable
distribution, to make an equalizing payment to plaintiff Lynne Kosilla based on real estate values at time of execution of the January 2007 property settlement agreement (PSA), rather than the reduced value at time of distribution almost three years later. For the following reasons, we reverse.
By way of background, the parties were married on September 14, 1974 and divorced by final judgment on March 3, 2008. Incorporated therein was a PSA executed in late January, 2007.
At that time, the parties owned four properties subject to equitable distribution: the marital home in North Wildwood and three condominium units in Fort Myers, Florida - two on Calusa Palms Drive and one in the Village of Ascot. The PSA provided that the marital residence was to be immediately listed for sale, and until sold, the parties would share equally certain out-of-pocket expenses and carrying costs of the property. From the sale proceeds, the parties were to satisfy jointly incurred liens and closings costs, and to divide the balance of the moneys equally.
Defendant was to retain the two properties on Calusa Palms Drive and plaintiff the condominium at the Villages of Ascot. Because of this lopsided distribution scheme, the PSA provided that defendant would make an equalizing payment to plaintiff upon the sale of the marital residence, utilizing his share of the net proceeds at time of settlement on that property. Thus, paragraph 2 of the PSA provides:
Husband will pay to Wife, from his share of the net sales proceeds from the North Wildwood property, a sum equal to 50% of the difference in value between the Ascot Village property . . . and the combined value of the . . . properties being retained by husband. The payment by Husband to Wife ("Equalizing Payment") will be tendered at the time of settlement on the North Wildwood property.
Commencing February 1, 2007 - one week after the PSA was executed - each party paid the expenses of, and received the income from, the realty individually retained although title to these three jointly-owned properties did not pass by quitclaim deed until after the sale of the marital residence in December, 2009. In the interim, defendant leased his two Florida condominiums, chose his own tenants, collected and retained all rent on his units, and reported all income and deducted all expenses for them on his individual tax returns for 2007, 2008 and 2009. Plaintiff acted similarly with respect to the Village of Ascot unit.
In accordance with the PSA, the parties obtained appraisals for each of the three Florida properties using a mutually agreeable appraiser and sharing the cost. The appraisals were completed on April 25, 2007. Plaintiff's condominium was valued at $180,000 and defendant's two units were appraised at $239,000 and $243,000. The equalizing payment, based on the April 2007 appraisal, was $151,000. Although neither party expressed dissatisfaction with the appraisals at the time, the PSA expressly permitted either of them or both to secure new appraisals until such time as the equalizing payment was made. Accordingly, paragraph 1(d) of the PSA provides in pertinent part: if either party is dissatisfied with any or all of the appraisal figures for the Ascot Village, Unit 104 Calusa Palms or 201 Calusa Palms properties, he or she may secure an alternate appraisal, the cost of which will be solely covered by the party contesting the initial appraisal.
According to defendant, sometime in 2008 and 2009 he suggested to plaintiff that the value of the units had decreased and new appraisals should be secured once the marital residence was under contract for sale, which occurred in the Fall, 2009. To that end, the appraisals commissioned by defendant were completed on October 14, 2009, and revealed a 52% decrease in the value of his two units, newly appraised at $115,000 and $117,000 respectively. Although plaintiff's unit was not included in the appraisal, the parties stipulated that had an appraisal been completed her unit would have realized a similar decrease in value of 52%, resulting in a 2009 value of $82,972. The parties further agreed that the diminution in property values was solely the result of market conditions and was not caused by the actions of either party.
The marital residence sold on December 30, 2009 for $625,000, netting the parties $261,264. Based on the 2009 appraisal, defendant's equalizing payment to plaintiff would have been $74,514. However, utilizing the 2007 appraisal values, as plaintiff insisted upon, would yield an equalizing payment of $151,000. Unable to agree, the parties equally divided the proceeds from the sale of the marital residence, with each to receive $130,632. Plaintiff received that sum at closing and defendant paid her, from his one-half share of the proceeds, $67,127 toward the disputed equalization payment. Defendant received a payment of $10,000 and the remainder of his share - $53,505 - was escrowed.
By motion filed on January 25, 2010, plaintiff sought to enforce the parties' PSA and release to her of the escrowed funds together with payment of $41,081 from defendant. Defendant cross-moved requesting release of the escrowed funds to him on the ground that the equalizing payment be based on the most recent, 2009 appraisal. Following a plenary hearing on July 22, 2010, the Family Part judge granted plaintiff's motion, finding that the 2007 valuation controlled because the Florida properties were effectively distributed in 2007 when each party assumed use and control of his/her allotted share. By order of August 13, 2010, the court required the escrowed moneys - $47,639 at that time - be released to plaintiff and that defendant pay to her the sum of $36,504 within thirty days, in default of which judgment in that amount would be entered against defendant.
On appeal,*fn1 defendant argues that the PSA, reasonably construed, contemplates valuation at time of sale of the marital residence and principles of equity compel this result because market forces beyond the parties' control diminished the value of these properties prior to distribution. We agree.
The basic contractual nature of matrimonial agreements has long been recognized, Pacifico v. Pacifico, 190 N.J. 258, 265--66 (2007); Petersen v. Petersen, 85 N.J. 638, 642 (1981), although "'the law grants particular leniency to [these] agreements,' thus allowing 'judges greater discretion when interpreting such agreements.'" Pacifico, supra, 190 N.J. at 266 (quoting Guglielmo v. Guglielmo, 253 N.J. Super. 531, 542 (App. Div. 1992)). It is a basic rule of contractual interpretation that a court must discern and implement the common intention of the parties. Ibid. However, "it is not the real intent but the intent expressed or apparent in the writing that controls." Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124, 135 (2001). "The court's role is to consider what is written in the context of the circumstances at the time of drafting and to apply a rational meaning in keeping with the 'expressed general purpose.'" Pacifico, supra, 190 N.J. at 266 (quoting Alt. N. Airlines, Inc. v. Schwimmer, 12 N.J. 293, 302 (1958)).
Where the parties' PSA omits an essential term, the court may supply "'a term which is reasonable in the circumstances . . . .'" Pacifico, supra, 190 N.J. at 266 (quoting Restatement (Second) of Contracts § 204 (1981)). The Restatement explains the circumstances under which an omission of an essential term typically occurs:
The parties to an agreement may entirely fail to foresee the situation which later arises and gives rise to a dispute; they then have no expectations with respect to that situation . . . . Or they may have expectations but fail to manifest them, either because the expectation rests on an assumption which is unconscious or only partly conscious, or because the situation seems to be unimportant or unlikely, or because discussion of it might be unpleasant or might produce delay or impasse. [Restatement (Second) of Contracts: Supplying an Omitted Essential Term § 204 comment b (1981).]
A court should supply an omitted term whenever the parties "fail to agree regarding an issue, generally because they did not anticipate that it would arise or [they] merely overlooked it." Pacifico, supra, 190 N.J. at 266. Of course, as with a trial court's interpretation of the law and the legal consequences that flow from established facts, Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995), its construction of a PSA is entitled to no special deference on appeal. Zabilowicz v. Kelsey, 200 N.J. 507, 512-13 (2009); Manalapan Realty, supra, 140 N.J. at 378.
Here, the PSA sets no particular time for appraisal. However, the PSA specifically allows for reappraisal up until such time as the equalization payment is made. And, as the motion court itself acknowledged, the PSA expressly provides, in turn, that the equalization payment is to be made upon the sale of the marital home. While presumably it was not anticipated at the time the PSA was executed that it would take two-and-one-half years to sell the home, this temporal delay occurred through no fault of either party, as was the case with the intervening diminution in value of the Florida properties pending distribution, undeniably the sole result of market forces beyond the parties' control. Throughout all this time, while the parties each assumed possession and control of the condominium units allocated to them under the PSA, nevertheless they retained joint ownership of these properties, title to which was not transferred, under the explicit terms of the PSA, until the exchange of quit claim deeds upon sale of the marital residence on December 30, 2010. In the context of all these circumstances, we conclude that application of the appraised valuation at time of sale of the marital residence, rather than at time of execution of the PSA, best comports with the common intent of the parties as expressed in the PSA itself.
This result is also consistent with well-settled legal principles. When the parties' PSA is silent on the valuation date, the date of sale is presumed to be the appropriate date for valuation purposes. Pacifico, supra, 198 N.J. at 269. Specifically, "where the sale of a marital asset is to abide a future event, for example the coming of age of a child, and no alternative is provided, current market value as of the time of the triggering event is presumed." Ibid. Here, under the PSA, the "triggering event" that allows for distribution of the Florida properties is the sale of the marital residence. As noted, the express language of the PSA requires that such equitable distribution not occur until exchange of the quit claim deeds and tendering of the equalizing payment from the proceeds of the sale of the marital home. Granted, Pacifico's presumptive valuation date may be overcome by contrary evidence. However, plaintiff here simply has not come forward with persuasive proof that use of the 2007 appraisals comports with either the express language or general purpose of the PSA.
Use of a more recent valuation date in this matter is further compelled by principles of equity which counsel that in the absence of an express provision in the PSA, a common, consistent evaluation date for all marital assets in a divorce action is preferred. Bednar v. Bednar, 193 N.J. Super. 330, 332 (App. Div. 1984). And even where the valuation date may be otherwise specified, where the value of a marital asset has increased or decreased from the valuation date to the distribution date due solely to market factors, compelling equitable considerations require that both parties share equally in that change of value. Id. at 333. Here, as noted, it is undisputed that the value decretion occurred through no fault of the parties and therefore we deem it fair and equitable that the loss in value of the Florida properties be allocated equally between them. For all these reasons, then, we conclude the motion court erred, both as a matter of law and equity, in fixing the valuation date as the time of execution of the PSA rather than the "triggering event" of sale of the marital home. We therefore reverse the August 13, 2010 order and remand for a hearing, absent consent or stipulation of the parties, to determine valuation of the Florida properties as of the date of the sale of the marital residence.
Reversed and remanded.