Brief Fact Summary. A contract to sell a home included a provision authorizing an attorney to inspect the contract and voice any objections in a three-day period.
Synopsis of Rule of Law. "[W]here [a real estate] contract permits disapproval thereof by either party's attorney as to its sufficiency or acceptability in general, and not only as to the state of the title, there is even more justification for considering that the right granted by such a provision should not be diluted or denied by requiring that the attorney's judgment be measured by some standard, other than good faith, or another's opinion."
Parties to a real estate transaction are entitled to the benefit of the judgment of a trusted counselor, and an approval contingency is designed to accord this right to those who, for some reason, enter into a purchase and sale agreement before reviewing the matter with their attorney sic.
View Full Point of LawIssue. What is the scope and effect of an attorney approval clause in a contract for the purchase of real estate?
Held. The court found that the proper interpretation of this provision would allow for "unlimited application of the attorney approval provision in the contract." The court observed: "[a]lthough the effect of a general attorney approval clause in a contract for the purchase of real estate has not been judicially passed upon, a somewhat analogous issue has been presented in cases involving contractual provisions requiring that title to the subject property be satisfactory to the purchaser's attorney." The court recognized that with regard to these cases, there are two lines of decisions. The first line holds, "any dissatisfaction with the title is to be tested by objective standards, the test being whether the title meets the standard of marketability, or whether the objections are reasonable." The second line holds "the attorney [is] the sole judge of his dissatisfaction, subject only to the limitation that the decision be arrived at in good faith and not be arbitrary or capricious." From these two lines of cases, the court discerned "it seems that where the contract permits disapproval thereof by either party's attorney as to its sufficiency or acceptability in general, and not only as to the state of the title, there is even more justification for considering that the right granted by such a provision should not be diluted or denied by requiring that the attorney's judgment be measured by some standard, other than good faith, or another's opinion." Furthermore, "[t]he purpose of such an attorney approval clause is to provide the purchaser or seller with the opportunity of obtaining legal advice with respect to the transaction, and its value lies in the fact that the contract may be canceled upon receiving such advice. Parties to a real estate transaction are entitled to the benefit of the judgment of a trusted counselor, and an approval contingency is designed to accord this right to those who, for some reason, enter into a purchase and sale agreement before reviewing the matter with their attorney." As applied here, the attorney's notification of the seller and real estate agent that the contract was not satisfactory, effectively terminated the contract. The court made it a point to recognize that public policy supports an attorney scrutinizing a real estate contract, because of its importance and its complexity.
Discussion. This case offers an interesting look at how the requirement of good faith is intertwined in the analysis of certain conditions precedent.