>Daily Development for Wednesday, August 20, 2008
>by: Patrick A. Randolph, Jr.
>Elmer F. Pierson Professor of Law
>UMKC School of Law
>Of Counsel: Husch Blackwell Sanders
>Kansas City, Missouri
>dirt@umkc.edu
>
>REAL ESTATE CONTRACTS; WAIVER OF FINANCING CONTINGENCY: A buyer under a real estate contract can waive a financing contingency provision that would otherwise automatically terminate the contract by taking actions subsequent to execution of the contract which are inconsistent with such termination.

>
>Crabby's Inc. v. Hamilton, 244 S.W.3d 209 (Mo.App. S.D. 2008.)
>
>Seller operated Crabby's restaurant in Joplin, Missouri. Seller listed the restaurant and accompanying real property for sale in 2003, and accepted an offer for $290,000 from one Hamilton who later assigned his interest in the contract to Buyer.

>
>The contract contained a clause providing that the contract was contingent upon the Buyer's ability to obtain financing at certain specified terms, including a requirement that Buyer furnish Seller a copy of an effective loan commitment within 30 days from the effective date of the contract. Though Buyer never furnished Seller with the loan commitment, financing arrangements were made, and the contract and closing date was extended in order to complete repair work on the property.

>
>Subsequently, Buyer sent a letter to Seller indicating its intention not to close the transaction on the grounds that (1) fixtures were removed by Seller from the property; and (2) tax liens existed on the property (these were satisfied as of the date set for closing).  Buyer failed to appear on the closing date. Seller later sold the property for $235,000, and filed suit against Buyer for breach of contract, seeking (among other costs) damages constituting the difference in the sales price agreed upon by Buyer and the price actually obtained when the property finally sold. The trial court entered a judgment in favor of Seller, and Buyer appealed.

>
>On appeal, Buyer argued that it did not breach the contract by refusing to close because the contract automatically terminated by its terms when Buyer did not furnish a copy of an effective written loan commitment as required by the financing contingency provision noted above. Seller responded that Buyer waived the financing contingency provision by its conduct after entering into the contract.

>
>The court began its analysis by noting that financing contingency provisions protect the buyer, and as such, they are a condition of the buyer's duty. Further, a buyer "can elect to waive the contingency and proceed with the contract under the rule that a party may waive any condition of a contract in that party's favor."

>
>While the contract "automatically terminated" by its explicit terms when Buyer did not furnish Seller with an effective loan commitment within 30 days, Buyer's actions after the 30-day period expired were inconsistent with a termination. Specifically, Buyer executed two amendments to the contract which extended the closing date, as well as a rider to the contract granting the Buyer the right to take possession of the property prior to closing. Buyer accepted a key to the property, changed utilities to its own name, and obtained licensing to operate a restaurant on the property. Buyer also did in fact obtain financing, which was not on the terms specified in the contract but which was nevertheless the only loan Buyer ever applied for, and Buyer did accept it. Therefore, the court concluded that, "the only reasonable explanation possible for and consistent with Buyers' signatures on these documents is their waiver of this contract requirement and the resulting automatic termination

 of the contract."
>
>Comment 1: Although in general financing conditions protect buyers, they can also protect sellers, and certainly the requirement that a written commitment be produced within thirty days is the kind of requirement that protects the seller, giving the seller comfort that the closing indeed will occur.  It is of little advantage to buyer.  But the statement that the contract was void if the commitment was not delivered has an absolute tone to it, and perhaps it should matter who is the beneficiary.  What it says is what it says.   If Buyer had pulled out on the basis of that clause immediately, it might have had a claim, albeit an unintended benefit.

>
>Comment 2: Despite the drafting glitch, the court properly regarded the clause from the buyer’s standpoint as fundamentally nothing more than a “subject to financing clause” that could be waived.  The woods are full of similar cases.  If you intend to exercise a condition - do so. If you continue to move toward a closing, waiver is just around the corner.

>
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