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Ian Nixon and Tamara Nixon v. Carl Hettling

June 27, 2011


On appeal from the Superior Court of New Jersey, Law Division, Sussex County, Docket No. L-000424-09.

Per curiam.


Submitted May 18, 2011

Before Judges Sapp-Peterson, Simonelli and Fasciale.

This case involves cross-appeals by the parties to a residential real estate contract. Defendant-seller appeals from an order granting summary judgment to plaintiffs-buyers, compelling the return of plaintiffs' deposit, and dismissing defendant's counterclaim alleging the breach of the implied covenant of good faith and fair dealing. We reverse that part of the order dismissing defendant's counter-claim because genuine issues of material fact exist concerning plaintiffs' motives for waiting to cancel the contract. We otherwise affirm the order granting summary judgment to plaintiffs because defendant breached the contract of sale.*fn1

Plaintiffs executed a contract to buy defendant's house for $247,000. They agreed to pay a $15,000 deposit and apply for a thirty-year conventional mortgage to pay the balance. Plaintiffs applied to American Mortgage Company (AMC) for a mortgage and obtained an appraisal of the property. Plaintiffs requested that Septic, LLC (Septic), Better Home Inspections, Inc. (BHI), and RAdata, Inc. (RAdata), inspect the septic system, home, and radon levels respectively. Septic reported that the septic system was functional, but expressed concern that there were no permits for the newer portion of the system. BHI issued a report outlining ten items that needed repairs and remediation.*fn2 RAdata stated that a radon remediation system was required and that re-testing was necessary before closing.

The appraiser valued the house at $240,000; therefore, AMC denied plaintiff's mortgage application. Plaintiffs notified defendant they had not yet obtained a mortgage commitment and considered the mortgage contingency deadline to be extended unless defendant objected in writing. Defendant never objected and plaintiffs thereafter took no action to obtain a mortgage. Rather, plaintiffs demanded that defendant make the needed repairs, and extended the closing date because plaintiffs continued to negotiate the home inspection issues.

Defendant complied with some but not all of plaintiffs' demands. Defendant paid RAdata to install a radon reduction and monitoring system and agreed to another radon test before the closing, which resulted in an acceptable reading. Defendant hired E2 Project Management, LLC (E2PM) to evaluate the septic system and make it compliant with all regulations. Defendant incurred approximately $20,000 in expenses to address the septic and radon issues. He also retained a plumber to make repairs.

After defendant undertook repair and remediation efforts, plaintiffs canceled the contract and demanded the return of their deposit. Plaintiffs contended that the contract was null and void because they were unable to obtain a mortgage commitment and defendant refused to make all of the repairs. Plaintiffs also argued that defendant failed to (1) obtain permits and approvals for his past work to the septic system, and was unable to provide as-built plans and permits for the newer part of that system; (2) provide a working septic system; (3) convey clear and marketable title; and (4) show that the water supply met applicable standards.

Defendant rejected plaintiffs' bases for canceling the contract, notified plaintiffs that they should continue to obtain financing, indicated that he was ready, willing, and able to close, and identified September 18, 2009 as the time of the essence closing date. Plaintiffs remained unwilling to purchase the house and contended additionally that defendant misrepresented that he (1) obtained all necessary permits for the septic system; (2) could convey clear title; and (3) that the septic system was located within the property boundaries.

Plaintiffs filed a verified complaint against defendant alleging breach of contract and seeking damages. Defendant filed a counter-claim alleging, among other things, breach of the covenant of good faith and fair dealing. The parties then cross-moved for summary judgment. The judge conducted oral argument and issued an oral and written opinion the same day.

In his oral opinion, the judge stated that although defendant expended substantial resources for radon remediation and modifications to the septic system, defendant refused to make all the repairs. Even though the remaining items were "minor physical defects," the judge stated that under the language of the contract plaintiffs had the right to rescind the contract.

In his written opinion, the judge stated that plaintiffs were entitled to summary judgment and a return of their deposit because defendant: (1) materially misrepresented - - in violation of the "Necessary Licenses Clause" - - that he possessed licenses, permits and final approvals for all work done on the septic system; (2) refused to comply with the "Home Inspection Clause" and remedy all physical defects identified in BHI's inspection report; and (3) failed to meet the applicable statutory water standards required by the "Water Testing Clause." The judge found that there existed a genuine issue of material fact concerning whether plaintiffs attempted to secure a conventional mortgage, and whether plaintiffs' efforts to obtain a mortgage were in good faith. After the judge refused to stay his rulings pending appeal, the parties filed cross-appeals.

On appeal, defendant contends that the motion judge erred by (1) raising facts not in the record; (2) shifting the burden of proof to defendant to disprove the reasons for plaintiffs' cancellation; (3) relying on a net opinion of the home inspector; (4) denying defendant the right to have a jury determine whether he breached the ...

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