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Northeast Custom Homes Inc. v. Howell

Decided: July 14, 1988.

NORTHEAST CUSTOM HOMES, INC., PLAINTIFF,
v.
ALLAN P. HOWELL AND SUSAN HOWELL, DEFENDANT/THIRD PARTY PLAINTIFFS, V. NORTH AMERICAN REISS CORPORATION & WARD HOWELL INTERNATIONAL, INC., THIRD PARTY DEFENDANTS



Bassler, J.s.c.

Bassler

This matter comes before the court on a motion and cross-motion for partial summary judgment.*fn1 The seller claims the purchasers' refusal to close constituted a breach of contract entitling it to the deposit. The purchasers seek to recover the deposit because of their inability to close due to revocation of the mortgage commitment by their lending institution.

The issue presented is a novel one: has a contract purchaser satisfied a mortgage contingency clause therefore requiring performance when a lending institution issues a commitment within the time period required by the contract but subsequently revokes the commitment through no fault of the purchaser? The answer is no. The purchasers are entitled to the return of the down payment.

The undisputed facts are as follows. On January 24, 1987, plaintiff, Northeast Custom Homes, Inc. (Northeast), a custom builder, entered into a contract for sale of a residence in the Borough of Rumson with the defendants, Allan and Susan Howell, husband and wife. (Howell) The purchase price for the house then under construction was $857,486. A deposit of $85,748 was paid to Northeast's counsel to be held in escrow pending the closing. The contract called for a closing date of April 1, 1987.

The critical language is as follows.

This contract is contingent upon buyer obtaining a conventional mortgage for $275,000 at the prevailing rate of interest and for a term readily available within 45 days of the date of this contract. . . . In the event the buyer does not obtain the commitment after applying therefor in accordance with the requirements above set forth on or before the expiration of the aforesaid 45 days, time for which shall be of the essence, either seller or buyer shall have the right to terminate this agreement, in which event the deposit shall be returned to the buyer and this Agreement will have no further force and effect. . . . Buyer represents to seller that he has sufficient money available to pay the purchase price, exclusive of the mortgage proceeds. [Emphasis supplied].

Northeast acknowledges that its attorney prepared the contract for this specific property prior to any negotiations with Howell. The seller's realtor inserted the purchasers' names and the purchase price. After it was signed, the realtor referred Howell to an attorney to assist him with the closing.

The realtor did not suggest the standard attorney review clause. Howell, a Connecticut resident, had recently accepted a new position with a New Jersey corporation. His new employer lent him $85,748.60 for the down payment. A mortgage commitment (unconditional on its face) dated March 9, 1987, was issued by HWD Funding Corp. for the amount of $350,000 within the 45 day time period required by the contract -- March 10, 1987.

On March 25, 1987, within 3 weeks of the date he started with his new employer, Howell was fired. On the same date Howell's employer demanded immediate payment of the $85,748.60 loan.

On March 30, 1987, HWD Funding Corp. terminated its mortgage commitment to Howell. By letter of March 30, 1987, Howell's counsel advised Northeast's counsel of Howell's inability to proceed to closing and that Howell because of his loss of employment was not in a position to obtain other financing. Northeast subsequently sold the property for $835,000.

Northeast argues that since the contingency period expired on March 10, 1987, and the Howells had not terminated their contract on or before that date Howell's failure to close title constituted a default for which Northeast is entitled to retain the deposit.

Howell's position is that through no fault of his own he was wrongfully terminated by his employer; the withdrawal of the mortgage commitment left him without funds to purchase the property.

Whether the seller is entitled to retain the deposit because the purchaser has breached the contract in failing to close, or the purchaser is entitled to ...


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