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Farrell v. Janik

Decided: March 28, 1988.


Imbriani, J.s.c.


This case involves a contract for the sale of a residence in which there arose claims of breach of contract against the buyers and negligence against the realtor. The contract was for $415,000 and was:

contingent upon obtaining, by or for the purchaser, a firm written commitment for a conventional mortgage in the amount of $185,000 . . . If the mortgage commitment is not obtained by October 2, 1986, this contract shall be null and void.

The mortgage contingency date was later postponed to October 20, 1986. At the suggestion of the realtor, the buyers submitted a mortgage-loan application to an unfamiliar, out-of-county bank whose representative visited the buyers at their home on August 16, 1986 to complete an application. At that time the buyers were informed that they did not qualify for a $185,000 loan, but could probably qualify for a $162,000 loan, which they submitted. But, no one ever informed the sellers or realtor that the application was for less than that required by the contract.

Prior to September 30, 1986 there was little contract activity and no one suspected any problems. As a result, when the loan-commitment letter was received on September 30, 1986, the sellers and realtors were stunned, not only because the loan approval was for only $162,000, but because a condition of the loan was that:

prior to or simultaneously with the acquisition of the subject property [the buyers must obtain] a fully executed sales contract [for their home] . . . in the minimum amount of $275,000.

Why the bank required a $275,000 contract is unclear. But it is clear that the buyers had to sell their own home to obtain sufficient funds to purchase the seller's home. The realtor had appraised the buyers home for $260,000 to $265,000, but accepted a listing for $279,500 as demanded by the buyers. (Although there is some question of whether the same realtor should accept listings from both seller and buyer the court will not address that problem at this time.) When the bank's representative reviewed the listing agreement on August 16, 1986, she concluded from the listing agreement that the buyers home was actually worth $279,500 and inserted that value in the application. It is reasonable to assume that when the bank's loan committee reviewed the application they concluded that the buyers could complete the purchase without secondary financing only if they sold their home for at least $275,000, which presumably appeared to the loan committee to be reasonably attainable. No one from the bank appeared at the trial to offer an explanation.

When the realtor saw the $275,000 home-sale condition, it immediately realized this was unattainable and concluded that it effectively nullified the contract. The sellers obviously came to the same conclusion because they promptly relisted their home for sale. The buyers never submitted a loan application to another bank, but all parties agreed that given the existing market conditions it was unrealistic to expect a response from another bank prior to October 20, 1986.

The buyers sought the refund of their $25,000 deposit on the ground that they did not receive a "firm written commitment," and the sellers charged the buyers with breach of contract for refusing to close title. The sellers argue that the contract simply required the buyers to obtain a mortgage loan and since they "got one" they could not rescind the contract. The sellers

apparently believe that the loan condition for the sale of the buyers' home for $275,000 is irrelevant.

A mortgage contingency clause informs the sellers in clear and unmistakable language that the buyers do not possess sufficient funds to consummate the purchase without a loan. This contract required a "firm written commitment" and the buyers emphasize the word "firm"; however, the court believes it is redundant. It was or should have been clear to the sellers that what the buyers wanted and needed was a loan that was subject to no conditions or only conditions that were within their sole control. The touchstone in construing a contract is to ascertain the intention of the parties and "if the four corners of the deed or contract provide a coherent expression of the parties intent, we need search no further." Oldfield v. Stoece Homes, Inc., 26 N.J. 246, ...

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