Daily Development for
Wednesday, April 29, 1998

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

VENDOR/PURCHASER; CONDITIONS; ESTOPPEL: Failure to assert that Buyer's failure to perform contract condition in a timely manner terminated seller's obligations under contract may amount to an estoppel of seller from contending later that condition was nothing more than a contract contingency.

NGA #2 Limited Liability Company v. Rains, 946 P.2d 163 (Nev. 1997).

Buyer brought a specific performance action against seller under a real estate purchase contract. Buyer had failed to record a final parcel map of the property by the closing date set forth in the agreement.. The contract provided that recording of the parcel map was a condition precedent to closing on the real property. Buyer alleged that the recordation of the parcel map was a contingency of closing and not a condition precedent. As the Buyer now had recorded the map, Buyer contended that closing should proceed, but Seller refused, claiming that Buyer's failure to record on time violated a contract condition and excused Seller's further performance.

The trial court granted summary judgment to Seller. On appeal, held: Reversed. Although the contract itself established a condition that had been breached, there were allegations of facts supporting an estoppel defense that prevented summary judgment from being granted.

The precise language of the agreement was: "[e]xact dimensions and legal description and recordation of a parcel map, at Buyer's expense, to be completed prior to the Close of Escrow."

Later, the parties signed an escrow document that stated: ""Buyer and Seller acknowledge ... the recordation of a parcel map at Buyer's expense is a condition precedent to the close of escrow."

The contract provided that time was of the essence.

Buyer had the right to obtain extensions of the closing date by paying additional deposits, but did not do so. Instead, Buyer sent Seller a letter indicating that the City was processing, but had not yet finally approved, the parcel map, and that it assumed that this delay extended the closing date without the necessity for paying additional money and getting a formal extension. Seller initially made no response to that letter. Buyer continued to expend time and effort thereafter to complete the plat approval process, and in fact Seller cooperated by signing at least one official statement required by the City, but about four months later, when the time for closing actually had passed, and even the time for extensions would have passed, had Buyer asked for them, Seller demanded that the contract be terminated and earnest money paid over to Seller. About a month later, the City finally approved the plat contingent upon an improvement bond and Buyer indicated that it would post the necessary improvement bond and close if Seller would withdraw its demand that the contract be cancelled.

The Supreme Court of Nevada held that the parties previously had characterized the recordation of the map as a condition precedent. Despite the somewhat ambiguous language, they had signed the escrow document stating that the plat map was a condition under circumstances that made clear that they understood that the requirement was a true condition. Therefore, since all conditions had not been satisfied, the Buyer was bound by the terms of the purchase contract could not proceed.

But Buyer further alleged that Seller was estopped from asserting that Buyer breached the real estate purchase contract because Seller continued to act as if the purchase contract had not been breached past the deadline in the agreement. The Supreme Court of Nevada ruled that an issue of fact existed on the estoppel arguments and that summary judgment was inappropriate.

Because Buyer was able to show that it may have had a chance to be successful on its claims for equitable estoppel and waiver against Seller and since there would in all likelihood be a greater hardship on the Buyer than seller if the lis pendens filed on the subject property was expunged, the Supreme Court of Nevada further held that the district court erred when it expunged the lis pendens that was filed against the real estate.

Specifically, the court ruled that there were allegations sufficient to invoke the estoppel based upon Seller's silence in response to the letter setting forth Buyer's understanding of the meaning of the plat condition. Also, as a separate basis for estoppel, the court pointed to allegations that the Seller had failed to cooperate fully in the process for obtaining the plat map, and thus had delayed the process itself.

Comment: We've all been here. There's an apparent ground to cancel the contract, but we'd really prefer the deal to close. We don't want to lose our right to kill the deal, but at the same time we're not ready to kill it right at this moment. If we take a "hard guy" stance, the other side will stop working toward closing and we'll be left with nothing but a lawsuit. What to do? What to do?

Obviously, on the basis of this case, the answer is: "You must do something. Doing nothing is not an adequate response. Even if you have a clear basis for claiming breach, when the other side sends one of those "estoppel letters" that recharacterizes the situation, you are on the hot seat.

In the editor's view, this is as things should be. Contracts may be the only basis upon which we can define the basic understandings of the parties at the outset, but the industry well knows that unforeseen circumstances may force the parties to rework their understandings. The conduct of the Buyer in this case was not unusual, and the delayed closing was not extraordinary. It should have had an opportunity to make its case in court.

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