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Kern v. Huettl

A-1217-07T2 (N.J. Super. App. Div. 2009) (Unpublished)

CONSUMER FRAUD ACT; LOANS — A lender’s recommendation to its borrower that the borrower use a particular builder constitutes an opinion and does not implicate the Consumer Fraud Act because not just any mistaken statement will constitute a misrepresentation barred under the Act, especially because opinions are not statements of facts.

A home construction agreement was executed for a builder to construct a modular home. A lender approved a construction loan. The construction loan agreement contained express language that the lender would not be obligated to make any inspections, and if made, such inspections would be for the lender’s purposes only. Moreover, the agreement stated that in no way should an inspection be deemed “a warranty or representation as to the quality … of the construction … or any portion thereof.” Two module sections were delivered to the property owners’ lot. They were not set up until several weeks later. While the modules were sitting on the lot, prior to set up, water entered one of the shrink-wrapped modules. The roof was then installed in the dark with only the use of flashlights. The homeowner complained of extensive water damage and mold issues. The builder made repairs. The homeowners’ inspector found the framing to be structurally unstable. The homeowners sued, seeking injunctive relief and specific performance against the construction manager and the builder. They also alleged that the lender violated the New Jersey Consumer Fraud Act (CFA) by misrepresenting that it would inspect the home to ensure that it was being built in a workerlike manner. They based their CFA claims on the lender’s recommendation to use the builder and for making loan disbursements to the builder over the owner’s objections. Several of the parties settled with the homeowner, including the builder.

The lower court ruled that the settling parties were the sole cause of the damage and that there was no breach of contract or negligence on the part of the construction manager (who did not settle). The Court also dismissed the claims against the lender finding that its recommendation to use the builder constituted an “opinion” and did not violate the CFA. It also refused to allow testimony relating to alleged oral misrepresentations by the lender because it determined that the loan documents constituted an integration of the parties’ agreement, i.e. parol or other evidence could not be used to interpret an unambiguous contract. The homeowners appealed.

The Appellate Division affirmed. First, it agreed with the lower court and refused to apply the “fraud” exception to the parol evidence rule. It held that the fraud exception was applicable only to matters wholly extraneous to the writing and not to matters covered by the integrated writing. Here, the Court found that the construction loan agreement expressly dealt with the issue of inspections. It also concluded that since the homeowners were precluded from introducing extrinsic evidence to contradict the express terms of the contract, they were also precluded from using the same evidence to prove an unconscionable commercial practice under the CFA. In addition, it agreed with the lower court that a loan officer’s “opinion” could not violate the CFA. It ruled that not just any mistaken statement will constitute a misrepresentation barred under the CFA. It stated that the lower court correctly found that a cause of action did not lie under the CFA because the alleged statement was not a statement of fact (a required element in the cause of action), but simply an opinion. Finally, the Court rejected the homeowners’ claim against the construction manager. It agreed with the lower court that while the homeowners may have had third-party beneficiary status with respect to any contracts with the builder and the construction manager, no damages accrued because the construction manager was not in breach of his duties under its contract. It also determined that the construction manager’s involvement in the project was minimal and that it was the lower court’s conclusion that other parties were solely responsible for the damages that were sustained. The Court refused to disturb the lower court’s findings since it found there was substantial evidence to support those conclusions.


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