Citation. 176 N.J.Super. 594, 424 A.2d 456 (N.J.Super.L.1980)
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Brief Fact Summary.
A contract to sell a home included a provision authorizing an attorney to inspect the contract and voice any objections in a three-day period.
Synopsis of Rule of Law.
"[W]here [a real estate] contract permits disapproval thereof by either party's attorney as to its sufficiency or acceptability in general, and not only as to the state of the title, there is even more justification for considering that the right granted by such a provision should not be diluted or denied by requiring that the attorney's judgment be measured by some standard, other than good faith, or another's opinion."
The Plaintiffs placed their house up for sale in 1977. In February of 1978, the Defendants, Christine Dwyer ("Mrs. Dwyer") and John Dwyer ("Mr. Dwyer") (collectively referred to as the "Defendants") made an oral offer to purchase the Plaintiffs' home. Mr. Dwyer was away on business. Later that day, thinking it was only a "bid", Christine Dwyer signed a "realtor's printed form of contract for the sale and purchase of real estate." Mrs. Dwyer thought that if the Defendants' bid was acceptable to the Plaintiffs, the parties then, with the assistance of counsel, would prepare a purchase contract. The Plaintiffs executed the agreement on the same evening. Mrs. Dwyer learned that despite what she thought, the "wall-to-wall carpeting" in the home was not part of the sale. When she learned this she referred the matter to her attorney and her attorney informed the Plaintiffs and the real estate agent that "as attorney for defendants and in accordance with the provisions of the agreement, he was withholding his approval of the contract, and accordingly defendants would not proceed with the transaction." The withholding of approval also related to certain other problems the Defendants had with the transaction. Those problems did not include the price or financing terms. One provision of the agreement which the Defendants rely upon states: "This contract, except as to price and financing terms (if any), is contingent upon approval by the respective attorneys for purchasers and sellers within three (3) business days of the date hereof. The parties agree that such approval shall be deemed to have been given, and this contingency satisfied or waived, unless an objection or amendment or addition or other express statement witholding (sic) approval is made in writing within said three day period and delivered to the realtor or exchanged between the respective attorneys if they are known to each other."
What is the scope and effect of an attorney approval clause in a contract for the purchase of real estate?
The court found that the proper interpretation of this provision would allow for "unlimited application of the attorney approval provision in the contract." The court observed: "[a]lthough the effect of a general attorney approval clause in a contract for the purchase of real estate has not been judicially passed upon, a somewhat analogous issue has been presented in cases involving contractual provisions requiring that title to the subject property be satisfactory to the purchaser's attorney." The court recognized that with regard to these cases, there are two lines of decisions. The first line holds, "any dissatisfaction with the title is to be tested by objective standards, the test being whether the title meets the standard of marketability, or whether the objections are reasonable." The second line holds "the attorney [is] the sole judge of his dissatisfaction, subject only to the limitation that the decision be arrived at in good faith and not be arbitrary or capricious." From these two lines of cases, the court discerned "it seems that where the contract permits disapproval thereof by either party's attorney as to its sufficiency or acceptability in general, and not only as to the state of the title, there is even more justification for considering that the right granted by such a provision should not be diluted or denied by requiring that the attorney's judgment be measured by some standard, other than good faith, or another's opinion." Furthermore, "[t]he purpose of such an attorney approval clause is to provide the purchaser or seller with the opportunity of obtaining legal advice with respect to the transaction, and its value lies in the fact that the contract may be canceled upon receiving such advice. Parties to a real estate transaction are entitled to the benefit of the judgment of a trusted counselor, and an approval contingency is designed to accord this right to those who, for some reason, enter into a purchase and sale agreement before reviewing the matter with their attorney." As applied here, the attorney's notification of the seller and real estate agent that the contract was not satisfactory, effectively terminated the contract. The court made it a point to recognize that public policy supports an attorney scrutinizing a real estate contract, because of its importance and its complexity.
This case offers an interesting look at how the requirement of good faith is intertwined in the analysis of certain conditions precedent.