Daily Development for
By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of
Of Counsel: Blackwell Sanders Peper Martin
Kansas City,
prandolph@cctr.umkc.edu
The Reporter for today's case is Professor George Lefcoe
of the
VENDOR/PURCHASER; CONDITIONS; FINANCING:
A financing contingency may extend a longer lifeline to a laggard buyer
than the seller imagines.
Howard v. Youngman, 81S.W. 3d
101 (
On
The form contract they used came from the St. Louis Association of Realtors.
Closing was set for
As the appointed "drop dead" date went by with no word from
Howard, the sellers and their brokers assumed the deal with Howard was off. On
July 27, the Youngmans' broker told Howard's broker
he was "out of contract".
The day before, sellers' broker had shown the house to a couple named
Goings, and on July 28, the Goings signed a contract with the Youngmans at a
price $15,000 more than Howard was to have paid.
To make sure Howard had no lingering doubts where the Youngmans
stood, on July 30th the Youngsmans' sent Howard a
letter, drafted by their attorney, confirming their belief the deal with him
was history.
That is exactly what the Youngmans did after they
hadn't heard from their buyer by the date his loan contingency period expired.
Meanwhile, Howard had not been idle. Although the sellers didn't know it,
Howard had managed to obtain a loan commitment and was ready to close. When the
Youngmans didn't show up at the closing, he
immediately sued them for specific performance. Predictably, he brought the
sellers' broker into the fray by naming her as a defendant, claiming she had tortiously interfered with his purchase contract.
At trial, the Youngmans carried the day. But on
appeal, the court reversed. Here was Howard's trump card: the form contract
gave the buyer two days after acceptance to apply for a particularly described
loan.
"If Buyer does not apply within that time for the loan, Buyer waives
this financing contingency." Well, luckily for Howard he wasn't
meticulously punctual in making his loan application. Instead of applying for a
loan by July 9th two days after signing the contract he waited until July 10th to make
application. And he never applied for a loan as generous as the one described
in the contract. He applied for less money and obtained the loan commitment he
had sought by
For no reason apparent on the record, Howard never uttered a word about this
loan commitment to anyone. Nor did he provide the written notice the contract
contemplated when he accepted a commitment for a lesser sum than the one
specified in the contract.
Despite leaving the sellers in the dark about his intentions, Howard
prevailed in the appellate court. The trial court judgment in favor of the Youngmans and their broker was reversed and remanded. The
appellate court decided that since Howard hadn't applied for a loan by July
9th, he had waived his loan contingency. Take a look at the language quoted two
paragraphs earlier. That's exactly what it says. If the buyer hasn't applied
for the requisite loan within two days, he waives his loan contingency.
Reporter's Comment 1: Could the court
have reached the opposite result? Easily. For one
thing, the buyer never applied for the loan contemplated in the contract. For
another, the court could have declared that an ambiguity existed in the two
contract provisions concerning the loan contingency waiver. In the one relied
upon by the court, the buyer had no obligation to notify the sellers. In the
provision the sellers had thought pertinent, the buyer was obliged to provide
the sellers with written notice. The court could have read the notice provision
as controlling.
Reporter's Comment 2: We have got to
hope the
Sellers in this giddy market, take heed. If your first deal falters, don't
enter a new contract with another buyer until you've got a signed release from
the buyer you are cutting loose.
Editor's Comment 1: In commercial contracts, where an
ambiguity as to a party's intentions exist, it is commonplace to send a
letter indicating that some clarity is needed and that the party sending the
letter intends to view the situation in a stated way and take action based upon
that interpretation unless a clear response is provided. It is not clear that such a tactic would be
upheld as creating an estoppel in a case like this, involving a consumer
purchaser, but it would have been worth a try.
Instead, Youngmans sent a "drop dead
letter," and not an request for
clarification. They really didn't want
to preserve the Howard contract, and appeared to be fully aware that Howard may
still have had some rights.
Editor's Comment 2: It is true that the contract created a difficult situation, but it did so for a reason - to put pressure on buyer to come up with the dough if buyer didn't invoke the financing contingency. If that's the tactic the sellers (through their brokers) elected to use, the editor sheds no tears for them. The editor believes that they got what they deserved. Perhaps they should take up the problem with their broker.
Readers are urged to respond, comment, and
argue with the daily development or the editor's comments about it.
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 six years, these Reports have been
collated, updated, indexed and bound into an Annual Survey of Developments in
Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual
Survey volumes are available for sale to the public. For the Report or the
Survey, contact Maria Tabor at the
Items reported here and in the
Parties posting messages to DIRT are posting
to a source that is readily accessible by members of the general public, and
should take that fact into account in evaluating confidentiality issues.
ABOUT DIRT:
DIRT is an Internet discussion group for
serious real estate professionals. Message volume varies, but commonly runs 5 ‑
10 messages per workday.
Daily Developments are posted every workday.
To subscribe to Dirt, send an e-mail to:
|
To: |
ListServ@listserv.umkc.edu |
|
Subject: |
[Does not matter] |
|
Text in body of message |
Subscribe Dirt [your name] |
To cancel your subscription to Dirt, send an
e-mail to:
|
To: |
ListServ@listserv.umkc.edu |
|
Subject: |
[Does not matter] |
|
Text in body of message |
Signoff Dirt |
For information on other commands, send the
message Help to the listserv address.
DIRT has an alternate, more extensive
coverage that includes not only commercial and general real estate matters but
also focuses specifically upon residential real estate matters. Because real
estate brokers generally find this service more valuable, it is named "Brokerdirt." But residential specialist attorneys,
title insurers, lenders and others interested in the residential market will
want to subscribe to this alternative list. If you subscribe to Brokerdirt, it is not necessary also to subscribe to DIRT,
as Brokerdirt carries all DIRT traffic in addition to
the residential discussions.
To subscribe to Brokerdirt,
send an e-mail to:
|
To: |
ListServ@listserv.umkc.edu |
|
Subject: |
[Does not matter] |
|
Text in body of message |
Subscribe Brokerdirt [your name] |
To cancel your subscription to Brokerdirt, send an e-mail to:
|
To: |
ListServ@listserv.umkc.edu |
|
Subject: |
[Does not matter] |
|
Text in body of message |
Signoff Brokerdirt |
DIRT is a service of the American Bar
Association Section on Real Property, Probate & Trust Law and the
DIRT has a WebPage at: http://www.umkc.edu/dirt/