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Freedman v. Clonmel Construction Corp.

Decided: March 8, 1991.


On appeal from Superior Court, Law Division, Middlesex County.

Pressler, Deighan and Arnold M. Stein. The opinion of the court was delivered by Pressler, P.J.A.D.


The settlement approved by New Jersey State Bar Ass'n v. New Jersey Ass'n of Realtor Bds., 186 N.J. Super. 391, 395-398, 452 A.2d 1323 (Ch.Div.1982), affirmed as modified, 93 N.J. 470, 461 A.2d 1112 and 94 N.J. 449, 467 A.2d 577 (1983), establishes rules for the preparation of real estate contracts by brokers. Brokers are permitted to prepare such a contract provided it includes in its body the prescribed attorney review clause and conspicuously bears at its head, in the prescribed language, the notification that it constitutes a legally binding contract which will become final within three business days unless the contracting party's attorney, after review, cancels it during that period. The novel question raised by this appeal is whether these attorney-review requirements apply as well to a broker-prepared document materially modifying the contract. We hold that they do and accordingly reverse the summary judgment dismissing the complaint of plaintiff-buyers, Robert and Deborah Freedman.

Defendant Clonmel Construction Corporation is a builder of houses. In early November 1988, through the offices of its broker, Weichert Realtors, it contracted with plaintiffs, then engaged to be married, for the sale of a new house expected to be completed some time in early summer 1989. Construction was to commence after final subdivision approval and the buyers' obtaining of a mortgage commitment. The purchase price was $381,500. Plaintiffs made an initial deposit of $1,000 which they later increased to $67,000. Following their execution of the contract, it was sent to their attorney for review.*fn1

As a result of that review and ensuing correspondence between the attorneys for both parties, various modifications in the contract were made including an extension of time for meeting the $225,000 mortgage commitment contingency from December 23, 1988, to January 23, 1989. On January 25, 1989, following plaintiffs' marriage, a superseding contract was executed generally reiterating the original contractual provisions but changing the house model and options plaintiffs had selected and increasing the purchase price to something over $400,000. Curiously, the date for meeting the mortgage contingency remained January 23, 1989.

The critical document in this case is a letter on unmarked paper addressed to defendant dated January 27, 1989, and signed by plaintiffs on February 5, 1989. Its operative language is that "This letter will serve as notice that the mortgage contingency stated . . . [in the contract] is hereby waived." The letter was countersigned by a principal of defendant on February 12, 1987, and bears as witness, the signature of Weichert's selling realtor. It contained neither the head legend nor the attorney review clause required for initial broker contracts. On February 14, 1987, it was sent to plaintiffs' lawyer by Weichert's listing realtor with a note reading in full as follows:

Enclosed is a signed copy of the mortgage waiver for Mr. and Mrs. Freedman. If you have any questions, please call me.

The record does not indicate what, if any, further communications among any of the parties ensued respecting the "mortgage waiver." All that does appear is that later in February, plaintiffs were still attempting to obtain a mortgage. Nor is there any indication in the record of what consideration, if any, there was for the waiver or the reasons for its solicitation or execution.

In April 1989 plaintiffs separated and attempted to cancel their contractual obligations. Their attorney wrote to defendant's attorney explaining that the impending termination of the short-lived marriage would prevent plaintiffs from obtaining and qualifying for the required mortgage loan. He therefore

asked that the contract be deemed null and void under the mortgage contingency clause and that the deposit be returned to his clients. He also noted that only the foundation of the house had thus far been constructed and no further work should proceed on plaintiffs' account. The demand for the return of the deposit was refused and this action ensued.

The record on defendant's motion for summary judgment, made and granted prior to discovery and prior to plaintiffs' opportunity to amend the complaint to assert claims against the broker, was meager. With respect to the waiver of the mortgage contingency, plaintiffs' verified complaint asserts that it was based on their expectation that their combined incomes would qualify them for the necessary financing. It then asserts that the marital problem would prevent them from obtaining that ...

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