176 So. 3d 632
La. Ct. App.2015Background
- Leah and Michael Tubbs signed a purchase-sale agreement to buy the Schafers’ house and gave a $53,050 demand promissory note as a good-faith deposit.
- The agreement expressly conditioned the sale on the purchaser obtaining financing of $424,400 at ≤7% within 45 days; it provided that failure to obtain the loan within the time would render the contract null and void and the deposit returned.
- Countrywide issued a loan commitment to the Tubbs but conditioned approval on the Tubbs’ sale of their Broadway home and applying proceeds toward the purchase; that sale depended on a buyer (the Warners) tied to the Schafers.
- The Warner transaction ran into bankruptcy problems and ultimately failed before the financing lock-in expired; Countrywide’s lock-in also expired and the Tubbs lost the financing.
- The Schafers set a closing the Tubbs did not attend; the Schafers declared the promissory note forfeited and sued to collect. The Tubbs counterclaimed for return/cancellation of the note and sought damages and attorneys’ fees for the Schafers’ alleged breach.
- Trial court held the purchase agreement null and void due to failure of the suspensive financing condition (ordered return/cancellation of the note) but nevertheless awarded the Tubbs $5,000 in damages and attorneys’ fees; the appellate court affirmed nullity and return of the note but deleted the damages and fee awards.
Issues
| Issue | Plaintiff's Argument (Schafers) | Defendant's Argument (Tubbs) | Held |
|---|---|---|---|
| 1) Did the suspensive financing condition fail, rendering the contract null and void? | Condition met or should be deemed fulfilled by Tubbs’ assurances; enforce contract/penalty. | Countrywide’s commitment was conditional on sale of Tubbs’ Broadway home, that condition failed before the deadline, so contract is null. | Held: Condition failed (no financing at deadline); contract rendered null and void. |
| 2) Did Tubbs’ alleged misrepresentation or fault cause non-fulfillment so condition should be deemed fulfilled (La. C.C. art. 1772)? | Tubbs misrepresented that loan approval existed (extension warrant said loan approval obtained); their fault should be treated as fulfillment. | Tubbs had a good-faith belief loan condition was satisfied (bankruptcy approval, representations by Schafer); trial court credited Tubbs’ testimony. | Held: Trial court’s credibility findings were not clearly wrong; Tubbs were not at fault and condition was not deemed fulfilled by their fault. |
| 3) Are the Tubbs entitled to damages and attorneys’ fees based on the contract’s penalty/fee clauses when the contract is null? | N/A (Schafers argued clauses unenforceable if contract null). | Clauses entitle Tubbs to stipulated damages ($53,050) or at least actual damages and fees; trial court awarded $5,000 plus fees. | Held: Legal error to award damages or fees under an unenforceable (null) contract; award deleted. |
| 4) Did the trial court improperly rely on parol evidence or alter contract terms? | Parol evidence improperly used to add condition (sale of Broadway home) not in written contract. | Evidence concerned parties’ knowledge of lender condition and credibility; did not alter written terms. | Held: No improper modification; evidence used to resolve factual issues about knowledge and credibility, not to contradict the written contract. |
Key Cases Cited
- Richmond v. Krushevski, 147 So.2d 212 (La. 1962) (nullity of principal obligation vitiates stipulated damages clause)
- Stobart v. State through Dept. of Transp. and Development, 617 So.2d 880 (La. 1993) (standard of manifest error review for factual findings)
- Rosell v. ESCO, 549 So.2d 840 (La. 1989) (credibility determinations of trial court are seldom manifestly erroneous)
- Bacon v. Ford, 522 So.2d 1232 (La. App. 4th Cir. 1988) (when purchaser cannot obtain loan on which agreement is conditioned, agreement is null)
- Canter v. Koehring Co., 283 So.2d 716 (La. 1973) (allocation of trial and appellate functions; deference to trial court factfinding)
- Morvant v. Amoult, 490 So.2d 549 (La. App. 4th Cir. 1986) (attorneys’ fees cannot be awarded on basis of a null contract)