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Farese v. McGarry

Superior Court of New Jersey, Appellate Division
237 N.J. Super. 385, 568 A.2d 89 (1989)
ELI5:

Rule of Law:

A party may recover for unjust enrichment under a quasi-contract theory, even when an express contract exists, if the express contract does not address the specific subject matter of the dispute and the recovery is necessary to prevent the other party from being unjustly enriched by the first party's mistake.


Facts:

  • Frank Farese rented a one-family house to James M. McGarry, Jr. pursuant to a written lease.
  • The lease contained a right of first refusal clause, which McGarry mistakenly believed was an absolute option to purchase the property.
  • The lease was drafted by Farese's attorney, who negotiated directly with McGarry.
  • In reliance on his mistaken belief that he could purchase the house, McGarry made substantial improvements to the property.
  • The lease itself referred to a prior oral agreement between the parties regarding renovations, but did not specify its terms.
  • Farese was aware of the improvements being made.
  • After the lease term expired, McGarry remained in the house for over six months, and Farese refused to sell the property to him.

Procedural Posture:

  • Frank Farese sued James M. McGarry, Jr. in a New Jersey trial court, seeking damages for holding over and for alleged injury to the rental property.
  • McGarry filed a counterclaim alleging breach of a purchase option and seeking damages for unjust enrichment based on the value of improvements he made.
  • The case was tried before a jury.
  • The jury rejected Farese's claims and also rejected McGarry's breach of contract claim.
  • The jury found for McGarry on his unjust enrichment claim and awarded him $13,000.
  • Farese, as plaintiff-appellant, appealed the judgment on the counterclaim to the Superior Court of New Jersey, Appellate Division.

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Issue:

Does a tenant's claim for unjust enrichment, based on improvements made under the mistaken belief of having a purchase option, fail as a matter of law when an express lease agreement exists between the parties?


Opinions:

Majority - Brochin, J.A.D.

No. A claim for unjust enrichment is not barred by the existence of an express contract where the contract does not address the specific subject matter for which recovery is sought. A tenant who makes improvements to a property based on a reasonable but mistaken belief that he has an option to purchase may recover the value of those improvements from the landlord to prevent unjust enrichment, particularly where the landlord knew of or contributed to the tenant's misapprehension. The court found that the lease's terms were confusing and that the jury could have reasonably concluded that McGarry honestly believed he had a purchase option. This situation is analogous to cases where a person mistakenly builds on another's land with the owner's knowledge; equity provides a remedy. The general rule precluding quasi-contractual recovery in the face of an express contract only applies when the express contract governs the same subject matter. Here, the lease's provisions about renovations were ambiguous and did not cover the extensive improvements made in reliance on the supposed option, making the rule inapplicable. However, the court reduced the jury's $13,000 award to $3,150, which was the only competent evidence presented for the value of the improvements to the landlord.



Analysis:

This case clarifies the boundaries of the rule that an express contract bars recovery in quasi-contract. It establishes that a quasi-contractual claim for unjust enrichment can proceed alongside an express contract if the subject of the claim falls outside the contract's specific terms. The decision emphasizes the equitable power of courts to prevent one party from benefiting unfairly from another's reasonable mistake, especially when the benefiting party contributed to the confusion. This precedent provides a basis for relief for parties who confer a benefit based on a good faith misunderstanding of an ambiguous contract.

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