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Dowd v. Christie

A-743-99T1 (N.J. Super. App. Div. 2000) (Unpublished)

CONTRACTS; MORTGAGE CONTINGENCIES—A time of the essence provision should not be implied in a residential mortgage contingency clause and a court should distinguish between the date by which a mortgage commitment must be obtained and that by which notice of its receipt must be given.

A residential contract of sale contained a mortgage contingency provision which permitted either buyer or seller to void the agreement by written notice to the other if the written mortgage loan and commitment had not been received by a given date. Despite prompt application for a mortgage, no commitment had been received by the given date. About a week later, the lender formally rejected the mortgage application, and three days later the buyer gave notice of its rejection. The seller then sued the buyer to recover a non-refundable rental deposit to a third party that the seller claimed was lost when the contract was canceled. Its contention was that the deposit was tendered in the belief that the seller would be required to move from the home on the closing date. The lower court concluded that, under the contract, time was of the essence both with respect to the obtaining of the mortgage commitment and the provision of notice. The Appellate Division disagreed, holding that “[a]n intention to make time of the essence as to the communication of notice would have to be specifically set forth or, at the very least, clearly implied from an examination of the surrounding circumstances.” To imply a requirement of notice within the mortgage contingency period “would not only add an element to the parties’ bargain but would add an element that does not advance one of the provisions’s basic purposes - the protection of the buyers from the consequences of financial incapacity.” The Court read the provision literally and held that it did not say that notice must be given within the contingency period. Had the parties intended that to be the case, they could have said so. Accordingly, the judgment of the lower court was reversed, and the buyer was not liable to the seller for damages resulting from cancellation of the contract.

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