Daily Development for
Thursday, August 20, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

VENDOR/PURCHASER; INSTALLMENT LAND CONTRACTS; SPECIFIC PERFORMANCE; CASH SALE: Earnest money agreement that calls for execution of installment contract can be specifically enforced for cash price.

Meyer v. Kesterson, 950 P.2d 896 (Or. App. 1997).

The Oregon Court of Appeals affirmed the trial court's entry of judgment for specific performance of a land sale contract over various objections by the seller. In 1989, buyer and seller had signed a form earnest money agreement. The agreement had blanks that were not filled in regarding the amount of the monthly installment, the dates of the first and last payments, the due date of the balloon payment referenced in the contract and the date on which interest would begin to accrue. It provided that a deed of trust would secure buyers' obligations and that seller would clear obtain clear title to an access road.

Seller was unable to acquire access to the parcel until 1994, at which time seller attempted to renegotiate the sales price on the ground that acquiring the access road had proven more costly than the parties had contemplated when they signed the earnest money contract in 1989.

The buyer sued for specific performance of the earnest money agreement as a cash sale contract. Affirming the trial court's order granting specific performance, the Court of Appeals held that certain language of the earnest money agreement implied, and the seller's deposition testimony confirmed, that the seller would accept full payment of the purchase price in cash. Specifically, the contract provided that the monthly payments would be "no less than" the stipulated amount indicating that the buyer could pay more than the installment alone.

The Court of Appeals also affirmed the trial court's rejection of the seller's argument that the description of the property in the earnest money agreement was insufficiently specific. It held that extrinsic evidence may properly be admitted to demonstrate that contract embodies unequivocally a clear intent. It held that the description of realty in a sales contract is sufficiently specific if there is only one parcel that fits the description in the contract.

Comment 1: The case is noteworthy in part because of the horrible ethical mess into which the involved lawyer involved himself. The Seller had sold the property once before, and had retained attorney to foreclose on it. During the foreclosure, the first purchaser was trying to sell the property to Buyers in this case, and in fact had contracted to do so when a dispute arose between that purchaser and Buyers. Buyers retained the same attorney to help them with that dispute. Because he was aware of the pending foreclosure, attorney suggested that Buyers and Seller get together and that the first purchaser give a deed in lieu of foreclosure. This all was accomplished, and the Seller and Buyers negotiated a new contract, all with only the one attorney doing all the work. The attorney then held the earnest money under the agreement for four years while he represented Seller in attempting to resolve the problem of the road.

The attorney believed subjectively that he represented only the Seller. But it is clear that Buyers thought otherwise, and had some basis for so believing, in that he had been their lawyer on a related matter earlier. Although it is likely that the attorney in fact was helpful in putting together a deal at an affordable cost, and saving everyone time and trouble in the short run, it also is likely that the pronounced conflict of interest was a factor in the parties inability to resolve their problems later.

Comment 2: It often would be the case that an installment debt holder will not want to be paid promptly, so as to take advantage of installment payment treatment under the tax codes or for some other reason. It always is a good idea to be explicit about understandings in this area.

Comment 3: Interestingly, the Buyers actually wound up trying to avoid the contract, becuase other title difficulties arose. They had obtained a modified order from the trial court awarding them damages instead of specific performance, but the court here held that such modified order was rendered at a time when the trial court no longer had jurisdiction and hence was a nullity.

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