On appeal from the Superior Court, Chancery Division, General Equity, Monmouth County.
Long, R.s. Cohen and Stern. The opinion of the court was delivered by R.s. Cohen, J.A.D.
[245 NJSuper Page 380] Plaintiffs John and Marlene Kuhn contracted to buy a home from defendant Spatial Design, Inc. The sale was contingent on the Kuhns' obtaining a mortgage to finance the purchase. They applied to Prudential Home Mortgage Company through a mortgage broker, defendant Sterling National Mortgage Company, Inc., with the help of Sterling employees, defendants Ellberger and Wolf. Prudential issued a mortgage commitment but later withdrew it. The Kuhns then sought to void their purchase contract with Spatial Design for failure of the mortgage contingency. When they did not get their deposit back, they started suit. Spatial Design counterclaimed for damages for breach of contract.*fn1 Judge Patrick J. McGann, Jr., heard the matter and found that the Kuhns had breached. He therefore denied their claim and awarded Spatial Design damages on the counterclaim. We affirm substantially for the reasons expressed in Judge McGann's oral opinion of March 22, 1990, in which he meticulously and thoroughly expressed his findings of fact and conclusions of law. There are two matters, however, on which we feel it would be useful to express our own views.
Judge McGann concluded on compelling evidence that the Kuhns and Sterling's people purposely submitted a mortgage application that presented a materially false picture of the Kuhns' income and assets, because they knew that revealing their true financial situation would not produce the loan they sought. The judge further found that the Kuhns and Sterling were encouraged to submit such an application by Prudential's dependably credulous way of dealing with income and asset information submitted to it.
The Kuhns knew that their application showed that Kuhn was an Air Force colonel, but did not reveal that he had already been approved for retirement; that Mrs. Kuhn had a substantial income from "Plants-R-You," a florist business which existed only in the minds of the Kuhns and Sterling's people; that the fictitious business had assets of $50,000, which did not exist at all; that the $50,000 deposit on the purchase came from savings, when in fact it was borrowed on a second mortgage on the Kuhns' present home, and that the Kuhns had jewelry, antiques, stamps and the like worth $123,000, which Kuhn actually thought would fetch some $47,000.
Kuhn knew that his true current income and assets would not support the mortgage application. He and his wife also knew that Wolf had left some figures blank in the application they signed. Wolf had said they were not going to be "boy scouts" in the matter. Predictably, Sterling's president, Ellberger, who knew what numbers it took to make the application viable, supplied some impressive ones. They showed bank balances of some $240,000 instead of the real $10,000, and total family income of some $218,000 instead of the real $65,000 or even the fictitious $95,000 that earlier appeared. Not surprisingly, Prudential issued a commitment for a $300,000 mortgage for the $515,000 purchase.
All of this was possible because the Kuhns were making a "no documentation" loan application. That meant that Prudential would probably not check to see if the represented facts
showing the career Air Force officer's improbably comfortable financial situation were true.*fn2
Colonel Kuhn expected the whole business to be ultimately supported by a high-salaried but not-yet-identified private sector job he hoped to find before he retired. The $30,000 in income he thought was going to be attributed to "Plants-R-You" (Ellberger eventually settled on $9400 per month.) was really his Air Force pension. The $65,000 he thought he showed as service income (Ellberger made it $8800 per month.) would be covered by the private sector job he had not yet sought.
When Kuhn put the present home up for sale and looked for a private sector job, he found both the real estate market and the job market unwelcoming. He heard that Spatial Design might have sold the house across the street from their new one for much less than they were paying. He therefore decided to climb down from the shaky limb he was on.*fn3 He telephoned Prudential and wrote to Sterling, stating that he had decided to retire from the Air Force, and would thus lose some $40,000 in annual income. He inquired innocently if that would affect the mortgage commitment.
Almost simultaneously, Kuhn wrote to the Air Force to withdraw his approved retirement, thus falsifying the sole expressed basis of his communications with Prudential and Sterling.*fn4 Prudential withdrew its commitment on the basis of
the new information. It had retained the right to withdraw "if any material facts appear that have not previously been revealed by [the applicant]." Kuhn then unsuccessfully tried to cancel the purchase contract on ...