## Facts

- Buyers contracted to purchase sellers’ residence for $140,000 and paid a $7,000 deposit held in the sellers’ attorney trust account.
- The contract included (1) a mortgage-contingency clause requiring a $133,000 mortgage commitment within 45 days after attorney review and providing a 10-day period for either party to void the contract if the commitment was not obtained or the contingency not waived, and (2) a failure-to-close clause allowing the seller, if the buyer failed to close, to retain payments as liquidated damages or pursue other remedies.
- Buyers applied for a mortgage and obtained a mortgage commitment within the 45-day contingency period.
- Closing was scheduled for July 15, 1996.
- Approximately four days before closing, the buyer lost his job, and the lender withdrew the mortgage commitment before closing.
- Buyers did not close and demanded return of the deposit; sellers refused and claimed entitlement to the deposit as liquidated damages.
- The trial court granted summary judgment ordering return of the deposit to buyers; sellers appealed.

## Issues

1. Whether a buyer who timely obtained a mortgage commitment but lost it shortly before closing due to job loss may invoke the mortgage-contingency clause to recover the deposit.
2. Whether, after satisfaction of the mortgage contingency, the buyer’s later inability to obtain financing is governed by the contract’s failure-to-close and liquidated-damages provisions.
3. Whether summary judgment for the buyers was proper in light of the contract language allocating risk and remedies.

## Decision

- The Appellate Division reversed the summary judgment for the buyers and remanded.
- The court held the mortgage contingency was satisfied when the buyers timely obtained a mortgage commitment and neither party voided the contract within the specified period.
- The later withdrawal of the commitment did not revive the contingency; the buyers’ nonperformance implicated the failure-to-close and liquidated-damages clause.
- The sellers’ contractual claim to retain the deposit as liquidated damages could not be resolved by awarding the deposit to buyers on summary judgment.

## Legal Principles

- A mortgage-contingency clause requiring a commitment within a stated period is satisfied when the buyer obtains the commitment within that period; absent timely notice to void, the parties waive the right to terminate on that ground.
- After the contingency is satisfied and termination rights lapse, later financing failure is treated as a failure to close unless the contract expressly reallocates that risk.
- Distinct contract provisions serve distinct functions: contingencies govern whether the contract becomes binding; remedies clauses govern consequences of non-closing once the contract is binding.
- Trial courts should enforce clear contractual risk allocation and not extend nonbinding or factually different precedent to override the parties’ agreed remedies.

## Conclusion

The appellate court concluded that timely receipt of a mortgage commitment fulfilled the mortgage contingency, so the subsequent loss of financing did not excuse performance under that clause; the dispute over the deposit had to be evaluated under the contract’s failure-to-close and liquidated-damages provisions on remand.


Malus v. Hager, 712 A.2d 238 (N.J. Super. Ct. App. Div. 1998)