# Donovan v. Bachstadt

> Supreme Court of New Jersey · December 9, 1982 · 91 N.J. 434

URL: https://www.frixlaw.com/law-library/cases/9699721

## Case

- **Full name:** Edward Donovan and Donna Donovan, Formerly Known as Donna Rellinger, Plaintiffs-Respondents, v. Carl Bachstadt, Defendant-Appellant
- **Court:** Supreme Court of New Jersey
- **Decided:** December 9, 1982
- **Citations:** 91 N.J. 434; 453 A.2d 160; 28 A.L.R. 4th 1062; 1982 N.J. LEXIS 2641
- **Precedential status:** Published
- **Opinion:** Dissent by O'Hern
- **Judges:** Schreiber, O'Hern
- **Cited by:** 103 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9699721

## How later opinions describe it (automated extraction)

- stating that “the defendant is not chargeable for loss that he did not have reason to foresee as a probable result of the breach when the contract was made”
- holding that a defendant “is not chargeable for loss that he did not have reason to foresee as a probable result of the breach when the contract was made”

## Opinion text

O’HERN, J.,
dissenting.
I must respectfully dissent from the opinion and judgment of the Court. The issue is whether out of pocket costs or benefit of the bargain damages are to be awarded for breach of an executory contract for the sale of real estate when the contract does not close because of a defect in title unknown to the seller at the time of execution of the contract.
*449 Although commentators advocate the adoption of the “American rule” as suggested by the majority, there remains sufficient flexibility in the rule that would except its application to the circumstances of this case. While both Williston and Corbin suggest that the only rule defensible on principle is allowing the purchaser the difference between the contract price and the market value of the land, it is put this way: the rule “is applied in every case where the vendor breaks his contract without legal excuse.” 11 Williston, Contracts (3 ed. Jaeger 1968), § 1399 at 527 (emphasis supplied). Accord, 5 Corbin, Contracts (1964) § 1098 at 525. Most of the recent American cases cited in both treatises do not sustain a conclusion that such a rule would be applied to a case where the seller was wholly without fault with respect to the existence of a defect in title that prevents closing. 1
*450 I believe that tiie rule the Court adopts can unnecessarily penalize the unwary. Although it is true that a skilled commercial conveyancer can draft provisions to protect a seller from the principle of law adopted by the Court, it is also true that many people enter residential real estate transactions without the benefit of counsel. Indeed, pursuant to the settlement agreement of New Jersey State Bar Ass’n v. New Jersey Ass’n of Realtors, 109 N.J.L.J. 473 (June 3, 1982), the Court will soon have to consider the approval of a proposal by the New Jersey State Bar Association and the New Jersey Board of Realtors that would permit brokers to draw real estate sales contracts under certain circumstances. 2 In New Jersey, a contract for sale of real estate of this type is a consumer contract and should be expressed in plain English, without legalisms, that ordinary people can understand. See N.J.S.A. 56:12-1 et seq. In my view, that policy is not furthered by a rule of law that leaves the ordinary homeowner to the consolation that better drafting would have dealt with the unforeseen consequences of an unknown title problem.
I would adhere to the rule that an award of damages should be just under the circumstances. In Zeliff v. Sabatino, 15 N.J. 70 (1954), this Court said:
We rather are of the opinion that this State is not so inexorably wedded to the “out-of-pocket” rule as to the measure of damages that “the benefit-of-the-bargain” rule cannot be applied where justice requires... .
*451 ... The just method of determining damages necessarily varies with the facts of the particular case.... No rule of damages capable of precise application in all cases can be laid down and followed. [Id. at 74].
As originally stated the English rule would not allow recovery of benefit of the bargain under any circumstances, whether with or without fault on the part of the seller, the seller’s liability being limited to recovery in an action at law where fraud or deceit is involved for the loss he may sustain thereby. Gerbert v. Trustees, 59 N.J.L. 160 (E. & A. 1896).
Commentators have observed that New Jersey has never blindly followed this so-called “English rule.” Annotation, “ ‘Out of pocket’ or ‘benefit of bargain’ as proper rule of damages for fraudulent representations inducing contract for the transfer of property,” 13 A.L.R.3d 875 , 927-31 (1967) (classifying New Jersey as a jurisdiction adopting equitable or flexible rule); III American Law of Property § 11.67 at 169 (A. Casner ed. 1952) (English rule followed with qualifications). New Jersey has adopted a modified version of the English rule whereby benefit of bargain is recoverable for willful refusal to convey or other misconduct. 3
*452 A rule of damages in a residential real estate sales contract should reflect the broader policies of law in ordering consumer transactions, and seek “to effectuate the reasonable expectations” of the parties. Cf. Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 488-89 (1961) (construction of accident insurance policy).
If any modifications of existing law were to be made under the circumstances of this case, I would recommend that the Court follow the recommendations of the Commissioners on Uniform State Laws. They suggest the adoption of a rule that better conforms with prevailing American decisional law and reflects a “just method of determining damages.” Zeliff v. Sabatino, 15 N.J. at 74 . That rule is stated as follows:
Section 2-510 [Buyer’s Damages for Seller’s Failure to Convey]
(a) Except as provided in subsection (b), the measure of damages for a seller’s repudiation or wrongful failure to convey is the difference between the fair market value at the time for conveyance and the contract price and any incidental and consequential damages (Section 2-514), less expenses avoided because of the seller’s breach.
(b) Unless the title defect is an encumbrance securing an obligation to pay money which could be discharged by application of all or a portion of the purchase price, if a seller is unable to convey because of a title defect of which the seller had no knowledge at the time of entering into the contract, the buyer is entitled only to restitution of any amounts paid on the contract price and incidental damages (Section 2-514). [Unif. Land Transactions Act § 2-510, 13 U.L.A. 638 (1980)].
If I were to reach the issue of increased financing costs, I would agree with the majority that such are appropriate for consideration. See Note, “Real Estate Purchaser Entitled to Increased Mortgage Interest Costs as Damages from Seller Who *453 Breaches Sales Contract,” 12 Seton Hall L.Rev. 916 (1982). For an analysis of drafting considerations, see Garland, “Purchaser’s Interest Rate Increases: Caveat Venditor,” 21 N.Y.L.Sch.L.Rev. 745 (1983) (forthcoming) (manuscript copy available at Seton Hall Law Review), referred to in Note, supra.
I would, however, reverse and reinstate the trial court’s judgment.
For affirmance — Chief Justice WILENTZ and Justices PASHMAN, CLIFFORD, SCHREIBER, HANDLER, POLLOCK — 6.
For reversal and reinstatement — Justice O’HERN — 1.
ll Williston, supra, § 1399 at 527; 5 Corbin, Contracts (1964) § 1098 at 525; 5 Corbin, Contracts (2 Supp. Kaufman ed. 1982) §§ 1097-98 at 261-62; F. Poss Farms, Inc. v. Miller, 35 Colo.App. 152 , 529 P.2d 1343 (Ct.App.1974) (benefit of bargain rule followed on repossession by seller after buyer defaulted in payments); Horton v. O’Rourke, 321 So.2d 612 (Fla.Dist.Ct.App.1975) (benefit of bargain denied; no bad faith where title unmarketable because of federal tax lien); Sullivan v. Esterle, 268 S.W.2d 919 (Ky.App.1954) (benefit of bargain allowed; vendor repeatedly promised deed for over three years knowing he was not sole owner of property); Ky. Consumers Oil Co. v. General Bonded Warehousing Corp., 299 Ky. 161 , 184 S.W.2d 972 (Ky.Ct.App.1945) (lost profits allowed; seller knew of lease arrangements at time of contract but failed to discharge encumbrances as agreed); Olszewski v. Sardynski, 316 Mass. 715 , 56 N.E.2d 607 (Sup.Ct.1944) (benefit of bargain approved in dictum; specific performance granted to vendor where buyer refused to pay); Dunning v. Alfred H. Mayer Co., 483 S.W.2d 423 (Mo.App. 1972) (benefit of bargain allowed; vendor failed to construct dwelling per specifications of contract); Bobst v. Sons, 252 S.W.2d 303 (Mo.Sup.Ct.1952) (benefit of bargain allowed; vendor’s spouse refused to sign deed for property held as tenants in entirety); Heiman v. Bishop, 272 N.Y. 83 , 4 N.E.2d 944 (Ct.App.1936) (benefit of bargain not in issue; court examined methods of establishing mortgage deficiency in Depression-era case); Missouri Slope Livestock Auction, Inc. v. Wachter, 107 N.W.2d 349 (N.D.Sup.Ct.1961) (benefit of bargain allowed under statute; vendor did not actually have title); Crahane v. Swan, 212 Or. 143 , 318 P.2d 942 (Sup.Ct.1957) (benefit of bargain allowed; vendors delayed seven years in clearing title to timber rights sold to *450 intervening option purchaser); Bunnell v. Bills, 13 Utah 2d 83 , 368 P.2d 597 (Sup.Ct.1962) (benefit of bargain approved; seller refused to convey); Reed v. Wadsworth, 553 P.2d 1024 (Wyo.1976) (benefit of bargain allowed; seller sold to a third party after original purchaser refused to release seller from contract). But see Capaldi v. Burlwood Realty Corp., 350 Mass. 765 , 214 N.E.2d 71 (Sup.Ct.1966) (benefit of bargain allowed but lost profits and out of pocket expenses denied; vendor did not own all the land).
In this case, the contract was the “Standard Form” adopted by the New Jersey Association of Realtor Boards, and although it provided “[tjitle to be conveyed shall be marketable and insurable, at regular rates, by any reputable title insurance company ...,” it called only for a Bargain and Sale Deed with Covenants Against Grantor.
See Ganger v. Moffett, 8 N.J. 73 (1951) (benefit of bargain not in issue; dictum indicates that such damages would be available if a vendor unwarrantably refused to convey); Rabinowitz v. Debow, 104 N.J.L. 62 (E. & A. 1927) (benefit of bargain denied; vendor willing to convey but could not clear title defect; dictum indicates that such damages would be available for willful refusal to convey); Brown v. Honniss, 70 N.J.L. 260 (E. & A. 1904) (benefit of bargain allowed; “no allegation of any disability in the seller to convey but a refusal to convey for a totally inadequate reason”) (at 264); Gerbert v. Trustees, 59 N.J.L. 160 (E. & A. 1896) (benefit of bargain denied; vendor through no fault of his own unable to convey title); Melcer v. Zuck, 95 N.J.Super. 252 (Ch.Div.1967), rev’d on other grounds 101 N.J.Super. 577 (App.Div.1968), certif. den. 52 N.J. 498 (1968) (benefit of bargain allowed; vendors refused to allow withholding of money to discharge liens); King v. Ruckman, 24 N.J.Eq. 298 (Ch.1873), aff'd 24 N.J.Eq. 556 (E. & A. 1873) (benefit of bargain allowed; vendor unwarrantably refused to convey and court adopted Drake rule); Drake v. Baker, 34 N.J.L. 358 (Sup.Ct.1871), disapproved, Gerbert, 59 N.J.L. at 180-82 (benefit of bargain allowed; exceptions to English rule for willful default or known contingencies assumed, but not for unknown title defect).
*452 While in this case the Appellate Division applied loss of the bargain damages to a situation where the vendor did not own or have a contract to acquire the property, it is clear the person possessing a record title (Low-den) stood in a joint relationship with the seller (Bachstadt) and was prepared to make title at the time of closing had there not been a defect. The majority does not assert that there is any exception to the rule of damages on account of the seller’s failure to possess title at the time seller entered the contract. The Court also does not rely upon the fact that the seller was a builder.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9699721. Public record. Not legal advice.