Daily Development for
Tuesday, September 12, 1995

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

VENDOR/PURCHASER; CONSIDERATION: A purchaser under an executory contract of property subjected to eminent domain proceeding has no "legal interest" in the property by virtue of his purchase contract where purchaser has paid no earnest money and has no obligation to close. Board of Education, Gadsden Independent School District No. 16 v. James Hamilton Construction Co., 891 P.2d 556 (N.M. App. 1994)

This was one of those familiar "development deals" in which a subdivider attempted to tie up the property, promising an apparently high price, but reserved time to evaluate the property before committing actually to put up any money. The contract was controlled by "escrow instructions," and those instructions provided that the escrow agent was to terminate the escrow unless, at certain intervals, buyer put some cash into the escrow.

Buyer did conduct some inspections and expended money in getting a subdivision approved for the property but, apparently with the seller's acquiesence, never put any money into escrow. Consequently, it appeared that there was no right to specific performance if the borrower didn't close and no earnest money to forfeit.

Held: Under the circumstances, even though the parties clearly had the intent to proceed with the contract, the seller had no binding obligation to do so, and therefore the buyer had no compensable interest in the condemnation proceeds. The fact that the contract seller had acquiesced in the failure to make escrow deposits was deemed irrelevant.

Comment: Where a buyer has a strong bargaining position, counsel are often tempted to try to make the contract as "option like" as possible, sometimes relying upon the buyer's good faith agreement to pay for inspections as the sole consideration. In the editor's view, the promise to undertake the cost of expensive inspections in good faith should be good consideration. This is a bargained-for detriment that the buyer would not otherwise incur and redounds to the benefit of the seller in that it induces the buyer to complete the deal. But the argument didn't work here. A little earnest money might have gone a long way.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. Contact Shawn Kaminsky at the ABA. (312) 988 5260.

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