Opinion ID: 2325919
Heading Depth: 1
Heading Rank: 2

Heading: Loss of the Bargain

Text: The trial court found that the plaintiff, Salvatorians, had breached its agreement with the DiSalvios due to its inability to convey marketable title. However, the trial court limited damages to the installments paid under the contract plus expenses incurred in examining the title and making the survey. The DiSalvios claim that they are entitled to benefit of the bargain damages, that is, the difference between the contract price and the market value of the land at the time the deed was to be delivered. The traditional measure of damages when a vendor of chattels breached his executory contract is the difference between the contract price and the market value at the stipulated time of delivery. An exception to this rule with respect to contracts for the purchase of real estate developed in England beginning with a decision of the King's Bench in Flureau v. Thornhill, 2 Wm.Bl. 1078, 96 Eng.Rep. 635 (1776). The plaintiff had purchased a leasehold at auction. When the defendant seller discovered he did not have good title, he offered plaintiff an election to take title with its defects or to receive his deposit with interest and costs. The plaintiff insisted on also being paid the loss of the bargain. The court, noting the innocence of the vendor, held that a vendee's exclusive remedy against a vendor who could not convey because of a defective title was restitution. Id. Development of New Jersey law with respect to a vendee's claim for benefit of the bargain has been uneven. When the matter first arose in Drake v. Baker, 34 N.J.L. 358 (Sup.Ct. 1871), Chief Justice Beasley, relying upon Flureau, analyzed the issue in terms of the vendor's fault. He wrote: [T]he immunity of the vendor [from loss of the bargain damages] does not extend beyond his inability to perform his contract, by reason of a defection in his title which was unknown to him at the time he entered into the contract to sell. This rule will exclude all defaults which are willful, or which arise from contingencies known to the vendor, and of which he consciously assumed the risk. [ Id. at 361] In Drake the defendant had contracted to sell certain lands to the plaintiff. Defendant's wife refused to sign the deed and he was unable to fulfill his contract. The defendant was at fault for he knew when he made the contract that his wife would have to join in the deed. There was no secret flaw in the title and the defendant was responsible for loss of the bargain damages. [2] The Court of Errors and Appeals rejected Drake in Gerbert v. Trustees, 59 N.J.L. 160 (1896). The tenant held a lease to certain premises with an option to purchase. The tenant attempted to exercise the option but the landlord had died and his executor could not convey title which was in the name of the deceased's wife. The Court was influenced by an 1874 decision of the House of Lords in Bain v. Fothergill, L.R., 7 E. & I.App. 158, in which it denied loss of the bargain damages for breach of a contract to sell a mining royalty where the vendor could not obtain a necessary consent. Divers opinions were expressed. Some members stressed the vendor's ignorance of the defect in title and inability to cure it. The majority extended the Flureau remedy of restitution only to situations where the vendor breached the executory contract of sale of realty, but pointed out that an action against the vendor might still lie for deceit. The Court of Errors and Appeals followed this rationale in Gerbert. It denied loss of the bargain damages, but held that the plaintiff still had an action for fraud and deceit. 59 N.J.L. at 182-83. It analogized the vendee's contract claim to an action for breach of covenant of a warranty. Shortly after, the Court limited the effect of Gerbert to situations beyond the vendor's control. In Brown v. Honniss, 70 N.J.L. 260 (E. & A. 1904), the plaintiff had an option to buy a tract of land owned by the defendant. The plaintiff exercised the option, but the defendant had sold the land to the City of Newark. The plaintiff was entitled to loss of the bargain damages for the refusal to convey was attributable to a totally inadequate reason. The Court of Errors and Appeals further limited Gerbert in Rabinowitz v. Debow, 104 N.J.L. 62 (1927). The seller could not convey because one defect disclosed by the title company's search could not be removed. Loss of bargain damages was not recoverable, the Court noting in dictum that the vendor would have been responsible if he had willfully refused to convey good title. This Court in Ganger v. Moffett, 8 N.J. 73 (1951), stated in dictum that when vendors willfully refuse to convey or do not convey for reasons within their control, loss of the bargain damages is appropriate. [3] Thus, if a vendor unjustifiably refuses to convey the property, does not convey for reasons within his control, or otherwise creates a situation that disables him from conveying the property, the vendee's damages may properly include loss of the bargain. This is distinguishable from those situations where unknown to the seller at the time he enters into the contract there is a flaw in the title. In that event, according to our case law, rescission is the proper remedy. Most states, unlike New Jersey, do not follow the English rule first enunciated in Flureau v. Thornhill either in its original or some modified form. [4] The American rule permits benefit of the bargain damages to the buyer irrespective of the seller's motives or reasons for its breach of the contract. See generally 3 American Law of Property, § 11.67 (1952); McCormick, Handbook on the Law of Damages, §§ 177-78 (1935). Arguably, there should not be a difference between a seller's breach of an executory contract to sell chattels or realty. The English rule may impose on an innocent buyer a serious loss to the benefit of the seller who is at fault. This may be peculiarly true when the contract extends over a period of years while a buyer is making substantial payments upon the principal as well as improvements to the property. See generally 5 Corbin on Contracts, § 1098 at 531-35 (2 ed. 1964). None of the parties, however, has requested that we consider the soundness of the English rule in the form in which it apparently exists in New Jersey. We need not decide that issue and, accordingly, we have chosen not to discuss it.
The Salvatorians contend that the DiSalvios are not entitled to seek loss of the bargain damages because of N.J.S.A. 2A:29-1, which reads as follows: When any person shall contract to sell real estate and shall not be able to perform such contract because of a defect in the title to the real estate, the person with whom such contract was made, or his legal representatives or assigns, may, in a civil action, recover from the vendor, not only the deposit money, with interest and costs, but also the reasonable expenses of examining the title and making a survey of the property, unless the contract shall provide otherwise. This section shall not preclude the recovery by the purchaser from the vendor of any other damages to which he may be entitled by law. The Legislature originally enacted this statute in 1915 in response to Gibbs v. Cooper, 86 N.J.L. 226 (E. & A. 1914), which implied that damages for the seller's breach of an executory contract to sell real estate were limited to the return of the buyer's deposit. See Statement to Bill S. 66, adopted as L. 1915, c. 159. The act enabled the buyer to recover search and survey expenses in addition to the deposit funds. The legislative intent was not to inhibit or restrict the buyer's recovery. The operative effect of the statute depends upon the existence of a defect in the title to the real estate. Such defect refers to flaws affecting marketability that are unknown at the time the contract is made and that cannot feasibly be removed. Cf. Herman v. Handler, 125 N.J.L. 324, 326 (Sup.Ct. 1940) (holding that the statute does not apply where the defect consisted of inability to obtain consent of a third party). The last sentence in the original act had read: This section shall not limit the recovery where the purchaser seeks to recover for the deceit or fraud of the vendor. [ R.S. 2:45-1] This sentence was modified as a part of the general revision of Title 2 in 1951 following the adoption of the Constitution of 1947. The purpose of the revision was to reconcile provisions in the statutes with the Supreme Court's Rules of Practice, to correct errors, to omit redundant provisions more properly included in the Rule and to aid the Legislature in making Title 2 into a more compact and consistent body of the law. L. 1950, c. 171. The Advisory Committee on Revision of Statutes recommended no change in R.S. 2:45-1 in its Tentative Draft dated March 30, 1951. When enacted, the last sentence had been revised to read: This section shall not preclude the recovery by the purchaser from the vendor of any other damages to which he may be entitled by law. We can find no legislative history explaining this change. Since the primary thrust of the revision was procedural, it is unlikely that the Legislature intended any modification in the substantive common law. Rather, it is probable that its intent was to permit recovery under Court Rules for fraud and deceit in the same action in which the return of deposit, interest and title and survey expenses were sought. See Gerbert v. Trustees, supra , which required a separate action for fraud and deceit. [5] We therefore conclude that N.J.S.A. 2A:29-1 has no bearing on the availability of benefit of the bargain damages.
We turn now to the facts of this case. When the Salvatorians entered into the contract with the DiSalvios in 1966, it had marketable title. There was no unknown flaw or defect in the title. The inability to convey was due to its subsequent conveyance of the same property to another. Incapability of compliance with its contractual commitment was due to its mistaken act. Under such circumstances a vendor cannot shield itself from responsibility for damages suffered by the innocent buyer. As between the two, the fault rests on the vendor. [6] We are satisfied that the trial court erred in granting the partial summary judgment denying the DiSalvios loss of the bargain damages.