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Smith v. Mininni

A-0565-07T2 (N.J. Super. App. Div. 2008) (Unpublished)

CONTRACTS; CONTINGENCIES — Where a mortgage contingency clearly states that to terminate the contract based on the buyer’s failure to obtain the called-for mortgage commitment, notice to the seller must be given on or before a fixed date, the buyer only has until that given date to exercise that right even though the basic purpose of such provision is to protect buyers from the consequences of financial incapacity.

A purchase agreement for a house contained a mortgage contingency which permitted either the buyer or the seller to void the agreement “by written notice to the other party if the written mortgage loan commitment [had] not been received (or if Buyer has not notified Seller of his decision to complete the purchase transaction without his obtaining a mortgage commitment) on or before April 25, 2006.” The closing date was May 2, 2006 and the buyer did not cancel until May 4, 2006. The buyer sued for return of its deposit, but according to the Appellate Division, the lower court “correctly observed” that the buyer only had until April 25 to “pull the rug on the agreement.” The buyer’s attorney “urge[d] that there was no time limitation ‘after the 25th’ to give notice of the voiding or termination for the contract.” The Appellate Division agreed with the lower court that a “mortgage contingency clause is primarily for the purchaser’s benefit. One of the basic purposes of the clause is to protect buyers from the consequences of financial incapacity.” Here, the buyer qualified for the specified mortgage, but the interest rate was “hefty.” The buyer, on its “own volition concluded this rate was beyond [its] financial capacity and, as a result, sought to invoke the mortgage contingency clause to cancel the contract.” In doing so, it relied on the provision that only required it to “obtain a conventional mortgage at the prevailing rate.” The Court, however, found itself “incapable of defining prevailing interest rate for the parties.” Thus, it felt it had no need to answer that question because of the buyer’s delay in attempting to terminate the agreement.

Although the Appellate Division upheld the lower court’s ruling, it was “concerned about the issue of proper damages. The agreement of sale containe[ed] no reference to the amount of damages in the event of a breach. The [lower court] did not specify an amount of damages to [the seller].” Therefore, it remanded the matter for determination of monetary damages “because the agreement [did] not specify that forfeiture of the deposit [was] automatically the measure of damages, if closing [was] frustrated by a breaching buyer.”


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