Highland Inns Corp. v. American Landmark Corp.

Brief Fact Summary.

Plaintiff sued for $10,000 in escrow, which Defendant was required to deposit pursuant to their real estate purchase contract. The trial court ruled in favor of Plaintiff. Defendant appealed.

Synopsis of Rule of Law.

The nonoccurrence of a condition precedent does not excuse the entire contract obligation.

Facts.

American Landmark Corp. (Defendant) entered into a contract to purchase real estate from Highland Inns Corp. (Plaintiff). The contract stated that if Defendant had not obtained a mortgage commitment in a certain amount by a set deadline, the contract would be void. The contract also required Defendant to deposit $10,000 in escrow as earnest money, to be applied to the purchase price upon closing or paid to Plaintiff as liquidated damages if Defendant failed to fulfill its obligations under the contract. Defendant was unable to obtain a mortgage commitment by the deadline, and Plaintiff sued for the escrowed $10,000. The lower court awarded the $10,000 to Plaintiff. Defendant appealed.

Issue.

Whether the nonoccurrence of a condition precedent excuses the entire contract obligation.

Held.

No. The trial court’s ruling is affirmed. The nonoccurrence of a condition precedent does not excuse the entire contract obligation.

Discussion.

The nonoccurrence of a condition precedent excuses only the performances required after that nonoccurrence, not the entire contract obligation. Defendant argues that its contract with Plaintiff did not become effective, and the parties were under no obligation, until Defendant had obtained a mortgage commitment. However, once an offer has been made and accepted, rights and duties are created, and the parties are under obligations. If events must occur before actual performance is due, those events are conditions precedent to the duty of immediate performance and any right of action for a breach. In this case, under the contract, Plaintiff promised two deferred performances: (1) taking the real estate off the market and (2) conveying the real estate to Defendant upon receiving a mortgage commitment and the balance of the purchase price. Defendant promised one immediate performance, paying the $10,000 earnest money deposit, and two deferred performances: obtaining a mortgage commitment and paying the balance of the purchase price. The fact that performances under the contract were deferred, rather than immediate, does not change the fact that a contract was created. The requirement that the mortgage commitment be obtained before the real estate was conveyed was simply a condition precedent to Plaintiff’s duty to convey and any right of action by either party for a breach. The payment of the $10,000 earnest money was required at the time Defendant executed the contract. When the mortgage-commitment condition was not fulfilled, only the performances called for after that nonoccurrence were excused. Under the contract, the $10,000 was the agreed-upon amount of damages for a failure to deliver the mortgage commitment. Finally, Defendant was the drafter of the mortgage-commitment term and could have specified that the earnest money deposit would be returned upon failure to provide the mortgage commitment.