Kutzin v. Pirnie

Supreme Court of New Jersey · Property

Propertyreal estate sale contractsattorney reviewdepositsrestitutionbreach of contractreal estate contractdeposit

Facts

The parties signed a standard-form contract for the sale of the sellers' house for $365,000, and the buyers paid a $36,000 deposit. During the three-day attorney-review period, the sellers' attorney sought only to have the deposit held in his trust account, and the buyers' attorney sent proposed amendments, but neither attorney sent a formal notice of disapproval in the manner required by the contract. The buyers later decided not to purchase the house and demanded return of the deposit. The sellers eventually sold the house to another buyer for less and sought damages.

Issue

First, whether the contract was rescinded during the attorney-review period when the parties' attorneys exchanged proposed changes but did not send notice of disapproval as specified in the clause. Second, if the contract remained binding and the buyers breached, whether the sellers could retain the entire deposit despite the absence of a forfeiture or liquidated-damages clause.

Rule

Where an attorney-review clause clearly specifies the method and recipients of notice of disapproval, rescission during the review period requires compliance with those terms; absent such disapproval, the contract becomes binding as written, subject only to agreed changes. In a real estate sale contract that contains no liquidated-damages or forfeiture clause, a breaching buyer is entitled to restitution of any deposit amount that exceeds the seller's actual damages caused by the breach, and the buyer bears the burden of proving unjust enrichment.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Newark, Lena Ortiz agreed to buy a townhouse from Samir Vora using a standard residential contract. The contract said either party's attorney could disapprove within three business days only by sending notice to both real estate brokers and the other party, and notice to the brokers had to be sent by certified mail, telegram, or personal delivery. On day two, Lena's attorney faxed proposed revisions to Samir's attorney and emailed both brokers that the deal was "not acceptable unless revised," but sent nothing by certified mail, telegram, or personal delivery.

If Lena later refuses to close, is the contract most likely binding?

Explanation. The majority enforced the attorney-review provision according to its clear terms. If the clause specifies how notice of disapproval must be sent, rescission requires compliance with that procedure. Informal communications or proposed changes are not enough. Because Lena's attorney did not send notice to the brokers by one of the required methods, the contract became binding at the end of the review period. (Derived from Kutzin v. Pirnie (n.d.).)