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Selective Builders Inc. v. Hudson City Savings Bank

Decided: December 2, 1975.


Kentz, J.s.c.


This is a breach of contract action. By way of remedy plaintiff Selective Builders, Inc. (Selective) seeks specific performance and incidental damages or, in the alternative, general compensatory damages. Defendant Hudson City Savings Bank (Hudson) denies that it breached the contract and contends that the contract was broken by Selective.

Selective, a New Jersey corporation, operates a general construction business. It is the owner of premises located in Bensalem Township, Pennsylvania and has undertaken to construct thereon a garden apartment complex commonly known as Park Terrace.

Hudson is a banking institution of the State of New Jersey and as such is engaged in the mortgage lending business. Selective applied to Hudson and obtained a permanent mortgage loan commitment on said property on March 11, 1974 in the base amount of $1,200,000. The commitment agreement was in writing and signed by the parties. It provided, among other things, that it would "automatically expire" unless the loan was closed by January 1, 1975 and that the proceeds of the loan would be disbursed only upon "final inspection."

The mortgage loan did not close prior to January 1, 1975 and Hudson contends that the failure to close by that date was the fault of Selective. Selective maintains that Hudson

breached the agreement and that therefore Selective is entitled to the relief sought in this action.

It is not disputed that Selective had not fully completed the construction of the garden apartment project by January 1, 1975. Certain minor work in various apartment units, such as carpeting, tiling and other touchup work was not finished. Most of this work had not been completed in those apartment units that had not been rented. In the nonrented apartments the heat had not yet been turned on due to the fact that each apartment was on a separate electrical heating unit and Selective did not want to incur additional heating costs until an apartment was rented. Without heat it would not have been practicable to complete these items of unfinished work. Admittedly, there was also some general "mop up" work to be done in or about the premises. A satisfactory explanation was given why this work had not been completed. The approximate dollar amount of all of the unfinished work at the premises was $20,000

In November 1974 Selective proposed to Hudson that the mortgage loan closing take place with a "holdback" or an escrow in the amount of $20,000, which sum would be retained by Hudson until there was 100% completion and thereupon the amount withheld would be paid over to Selective. This type of closing is not uncommon in mortgage loan transactions where new construction is involved. Upon receipt of this request Hudson did take the proposal under consideration and by its conduct did lead Selective to believe that such a closing might be possible. Toward this end Hudson caused the property to be reinspected on two occasions in order to determine if this type of closing would be feasible. Notwithstanding, Hudson, by letter dated December 24, 1974, notified Selective for the first time that the project would have to be fully completed, ready for occupancy, and the loan closed by January 1, 1975 or the commitment would be null and void. Because of the shortness of time allowed by this notice and particularly because of the intervening holidays, it was virtually impossible for

Selective to comply with the notice and as a result the closing did not take place.

The first question to be decided is whether Hudson had the right under the commitment agreement to require 100% completion of the project by January 1, 1975. To answer this question it is necessary to determine the intention of the parties. Intention may be gleaned from the relations of the parties, the surrounding circumstances and the objects of the parties. Applying these guides, it would seem from the language used in the commitment agreement that such completion was not intended by Hudson. There was no such requirement expressly stated in the commitment nor can such condition be implied from the expressed provisions contained therein. See Schultz v. Kneidl , 56 N.J. Super. 575, 584-585 (Law Div. 1959), aff'd 59 N.J. Super. 382 (App. Div. 1960). There was nothing in the nature of the contract or the surrounding circumstances which could be the basis for this condition. See Tessmar v. Grosner , 23 N.J. 193, 201 (1957); Casriel v. King , 2 N.J. 45, 50-51 (1949). Certainly, the conduct of the parties did not in any way give rise to such a condition.

Nevertheless, the project was at least 95% finished at the time in question and thus substantially completed. Substantial completion is compliance with this type of contract in the absence of any expressed agreement to the contrary.*fn1 In St. Paul & Chase Corp. v. Manufacturers Life Ins. Co. , 262 Md. 192, 278 A.2d 12 (Ct. App. 1971), the court was confronted with substantially the same issue in a ...

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