Billman v. Hensel

Brief Fact Summary. Sellers (Plaintiffs) brought this suit against the Hensels (Defendants) to secure $1,000.00 earnest money deposit required by the contract. Defendants appeal from a judgment entered in favor of the Plaintiffs.

Synopsis of Rule of Law. Financing clauses in contracts impose on buyers an implied obligation to make a reasonable and good faith effort to satisfy the conditions.

Facts. Plaintiffs entered into a contract to sell their home to the Defendants for $54,000.00. A condition of the contract was the ability of the Defendants to obtain a mortgage on the property for not less than $35,000.00 within thirty days. The Defendants did not complete the purchase and thus the Plaintiffs brought this action to recover liquidated damages deposit required by the contract. Defendants claimed that they were relieved from performing. According to evidence at trial, Defendants met with a bank and was told he could not obtain a mortgage loan unless he could show that he had the difference between the purchase price and the amount of the mortgage. Defendants were short on the amount needed to obtain the mortgage. Plaintiffs deposited the earnest money into the Defendants’ account. Defendants then informed the Plaintiffs that he was close on the financing and wanted to show the home to his parents. When Defendants’ parents visited the house, the Plaintiffs overheard the
Defendants’ parents tell the Defendants to be careful with buying the house. The next day Defendants’ called the Plaintiffs and told them that they could not obtain $5,000.00 from his parents necessary to secure the financing. The Plaintiffs informed the Defendants that they would reduce the price by $5,000.00 however Defendants said that they still need another $1,500.00. Defendants did not return the earnest money to the Plaintiffs and stopped payment on a check for $4,000.00. The trial court entered judgment for the Plaintiffs and Defendants appealed.

Issue. Whether the court properly determined that the Defendants were not excused from performing?

Held. Yes. Judgment is affirmed.
Financing clauses upon which a contract is contingent imposes an obligation on the buyer to make a reasonable and good faith effort to satisfy the condition. This concept relies on the contract law principle that a promisor cannot rely on the existence of a condition precedent to excuse performance where the promisor prevents performance of the condition.
Here, the condition was that the buyer be able to secure the financing necessary to mortgage the property. The Plaintiffs satisfied their burden of proving that the Defendants did not make a reasonable and good faith effort to secure the necessary financing.

Discussion. A breach of prevention, hindrance or failure to cooperate is bad faith under the general duty of good faith and fair dealing in the performance of a contract. The duty of good faith is intended to protect the interests of the parties. However, a duty to cooperate, in other words to take affirmative action, will not be imposed in every case, whether it is imposed depends on the facts surrounding the case.