How to Terminate a Contract for Sale of Residential Real Estate

Conley v. Guerrero, 443 N.J. Super. 62 (App. Div. 2015).  As a result of a settlement in New Jersey State Bar Ass’n v. New Jersey Ass’n of Realtor Bds., 93 N.J. 470 (1983), mod., 94 N.J. 449 (1983), contracts for the sale of residential real estate must contain a “three-day attorney review” provision, which permits either side to disapprove the contract during that window.  The standard attorney review clause provides that notice of disapproval of the contract must be given to the realtor(s) involved in the transaction as well as to the other party.  That provision specifies that “[t]he attorney must send the notice of disapproval to the REALTOR(S) by certified mail, by telegram or by delivering it personally.”  No particular method for transmitting the notice of disapproval to the other party is stated in that clause.

Here, counsel for the defendant seller sent a notice of disapproval by a letter that was faxed and e-mailed to counsel for the plaintiffs, the buyers.  Weichert Realtors, which was a disclosed dual agent for both the buyers and the seller, was copied on the e-mail.  There was no dispute that plaintiffs’ counsel, plaintiffs themselves, and Weichert all received the notice of disapproval.  Nonetheless, plaintiffs contended that the termination was ineffective because the notice to Weichert was not given by certified mail, telegram, or personal delivery as the contract required.

Plaintiffs filed suit in the Chancery Division.  Since the facts were undisputed, both sides moved for summary judgment.  The Chancery Division recognized that the notice to Weichert had not been given by the means stated in the attorney review provision, but ruled that, as a court of equity, “in which we are permitted to apply substance over form,” it could conclude that since the purpose of the disapproval notice was satisfied, in that everyone timely received that notice, the disapproval would be deemed effective.

Plaintiffs appealed, but the Appellate Division,  applying the de novo standard of review, today affirmed the Chancery Division’s decision.  Judge Ostrer wrote the panel’s opinion.

After summarizing the history and purpose of the attorney review clause, Judge Ostrer noted that the method of delivery requirement applied only to the real estate professionals, not to the parties to a contract of sale.  Here, plaintiffs’ argument was not that they had not received timely notice of disapproval (since they indisputably had), but that Weichert had not received the notice by the proper means.  Weichert, however, “does not complain about the deviation from the prescribed method of delivery,” and the method of delivery requirement was imposed to protect real estate professionals, not their clients.

Even if plaintiffs could assert a defect in the notification to Weichert, there was substantial compliance.  A ruling in favor of plaintiffs would cause a “disproportionate forfeiture,” in that defendant would lose the right to disapprove the contract.  Substantial compliance could be more liberally applied here, where the method of delivery provision was not the product of negotiation but instead was “imposed upon buyers and sellers by the consent judgment” in the 1983 New Jersey State Bar Ass’n case.

Finally, Judge Ostrer declined the invitation of the New Jersey State Bar Association, an amicus curiae in the case, to “endorse a revision of the current standard language to recognize the advent of modern communication methods such as email and the asserted obsolescence of telegram.”  The panel expressly stated that they did not intend to establish a general rule that delivery of notice of disapproval to a real estate professional by e-mail satisfies the method of delivery requirement.  Rather, on the facts here, the court held only that defendant had properly disapproved the contract of sale.

 

 

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  1. […] 443 N.J. Super. 62 (App. Div. 2015).  The Appellate Division’s decision was discussed here.  The question presented, as phrased by the Supreme Court Clerk’s Office, is “Did […]

  2. […] ruling of the Appellate Division, reported at 443 N.J. Super. 62 (App. Div. 2015), and discussed here.  The case proceeded from the resolution of New Jersey State Bar Ass’n v. New Jersey […]

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