BRACK et al. v. BROWNLEE et al.
36586
Supreme Court of Georgia
October 29, 1980
Rehearings Denied December 4, 1980 and January 9, 1981
818
NICHOLS, Justice.
Bennett, Pedrick & Bennett, E. Kontz Bennett, Jr., E. Kontz Bennett, Sr., for appellant. Leon A. Wilson, II, for appellee.
Appellants are purchasers of real property who brought this action for specific performance of a real estate sales contract. The trial court found that the contract was unenforceable and entered judgment for appellees, the vendors of the property. This court reverses.
Appellants made an offer to purchase appellees’ land for $48,900.00. Appellees counter-offered to sell for $51,900.00. Appellants accepted this offer and paid $1,000.00 earnest money to the real estate broker who listed appellees’ property. Appellees were notified of appellants’ acceptance. Shortly after reaching this agreement, the appellees were offered a second contract on the property for $57,000.00. The appellees also agreed to this second contract which required them to defend any action arising from the first contract. The day after making the first agreement appellees “rejected” their contract with appellants “on the basis that the terms of such purported contract were too vague and indefinite to be enforceable, there thereby being no mutuality of obligation thereunder.” Nevertheless, the appellants proceeded to comply with the contract, obtained a loan, and were prepared to close at the time specified in the contract. Appellees did not close and the appellants brought this action.
The sole issue on appeal is whether the contract could legally be rescinded by the vendors. Appellees claim the contract provision providing that “this contract is contingent upon purchaser being able to secure [adequate] financing” allows the seller to rescind or reject the contract because it lacks mutuality. This court disagrees.
It is undisputed that appellants paid $1,000.00 earnest money to the real estate agent who listed appellees’ property for sale. Apparently, the appellee did not refund this earnest money when he attempted to rescind the contract. This money was paid to secure appellees’ promise to convey the property at closing. Appellants, of course, agreed to purchase the property. This exchange of promises by the parties and appellants’ payment of earnest money provided
Appellees argue that the financing condition creates a contingency which allows the appellants “to escape from the contract at any time without liability.” Because of this, appellees contend, the contract is void. Under Georgia law the purchasers may not “escape” from the obligations of their agreement. It has frequently been held that the purchaser has an implied duty “to diligently seek to have [the financing] contingency take place.” Warren v. Camp, 232 Ga. 681, 682 (208 SE2d 489) (1974). This implied duty must be exercised in good faith. Fourteen West Realty v. Screws, 147 Ga. App. 362 (248 SE2d 722) (1978). See generally 78 ALR3d 880. Therefore, the appellants could not avoid their obligations under the contract. Because of this implied duty a contract for the sale of real property which is conditioned upon the purchaser‘s ability to obtain a loan is not unenforceable for lack of mutuality of obligation. See Restatement, Second, of Contracts, §§ 250-252, especially comment a, illustration 4 to § 252. Accord, Solberg v. Kane, 536 SW2d 885 (1976).
Similarly, a vendor has an implied duty under a sales contract to allow the purchaser a reasonable time within which to obtain financing. If no time limit were specified, this reasonable time would be inferred and would be a question for the factfinder. Whitley v. Patrick, 226 Ga. 87 (172 SE2d 692) (1970). See 28 EGL 304, Vendor and Purchaser, § 20. In this case, however, the parties agreed that the sale would be closed on or before January 15, 1979. Thus, the contract
It should also be noted that the financing condition was for the purchasers’ protection, Whitley, 226 Ga. at 89, and they could have waived the provision. Obviously the purchasers must obtain financing or otherwise comply with the contract terms requiring them to pay the vendors the purchase price at closing. But the precise manner in which the funds are obtained is irrelevant to the vendors. See Edwards v. McTyre, 246 Ga. 302 (1980). In fact, a contract from a vendor‘s viewpoint would be complete without any provision to protect a purchaser who cannot obtain financing. G. Pindar, Ga. Real Est. Law, § 18-14 (1979). However, many real estate contracts contain such financing conditions. If a vendor could successfully utilize this contract term (which is unquestionably for the buyer‘s protection) to rescind the contract at any time prior to the occurrence of the condition (presumably whenever the vendor received a better offer), a purchaser would never be able to rely on the contract while he sought financing. Any vendor could rescind such a contract with impunity. This result would be intolerable and would destroy the good faith reliance among individuals which permits them to act in accordance with their agreements.
As a final argument appellees assert that the financing condition is too vague and not binding on the purchasers rendering the entire contract illusory for lack of mutuality. In view of our determination above that mutuality is not required where there is consideration for a contract other than merely mutual promises, appellee‘s argument is without merit.
The record here shows that appellants did obtain financing and were ready to perform on the day set for closing. Tender was rejected by the appellees, although tender is not required where the vendor has indicated he will not accept it. McLoon v. McLoon, 220 Ga. 18 (136 SE2d 740) (1964). Based on the foregoing discussion, this court holds that the appellees’ attempt to rescind the contract was invalid. The appellants are entitled to specific performance of the contract.
Judgment reversed. All the Justices concur, except Undercofler, C. J., who concurs in the judgment only.
SUBMITTED SEPTEMBER 9, 1980 — DECIDED OCTOBER 29, 1980 —
Tennant, Andersen & Davidson, T. Michael Tennant, for appellants.
Kilpatrick & Cody, Thomas C. Harney, for appellees.
ON MOTION FOR REHEARING.
Appellees cite several cases1 which have held that a contract lacks mutuality, is unenforceable, and void where the financing provision is too indefinite. These cases for the most part are factually different from this case in that they involved efforts by the purchasers to obtain a refund of their earnest money. Nevertheless the basis for the decisions in these cases (i.e., that a contract containing a vague, ancillary financing clause lacks mutuality and is not a valid contract) is implicitly overruled by our decision in this case.2 We have held here that this financing clause does not vitiate the entire contract for sale3 and that the seller cannot rightfully rescind his bargained-for agreement under these facts. This is especially true in view of the fact that the financing condition is inserted for the purchasers’ protection, and that so long as the purchasers’ comply with their primary obligation to pay the purchase price at closing, the precise manner in which the funds are obtained is irrelevant to the vendors. Whitley, supra, and Edwards, supra.
Appellees also argue that this opinion‘s change in the application of the mutuality concept in Georgia will result in purchasers losing their earnest money whenever they are unable to obtain financing and to fulfill their contract obligations. It must be stressed that this opinion does not hold that a purchaser who makes a good faith effort to obtain financing, yet is unable to obtain a loan, will lose his earnest money. Although the mutuality concept may no longer be used by a court to say that a contract never existed, it is still true that the purchaser may be entitled to a refund of his earnest money because the condition precedent of obtaining the loan was not fulfilled after the purchaser‘s good faith efforts to do so. See 3A Corbin on Contracts, § 629A. Of course, the terms of the contract and the intentions of the parties in a particular case will be determinative of the disposition of the earnest money. As a general rule, however, if a purchaser fails to make a good faith effort to obtain financing after agreeing to the contract, he would forfeit his earnest money. See 78 ALR3d 880.
Nor does the opinion decide precisely how to categorize this financing contingency. The general view appears to be that a financing contingency clause creates “a condition precedent to the performance of the primary contractual obligations to buy and sell the property.” 77 AmJur2d 251, Vendor and Purchaser, § 66. See generally 6 EGL 117, Contracts, § 82. See Smith v. Vernon, 286 NE2d 99 (1972). Corbin categorizes it as a condition precedent and states: “To this treatise, it appears that there was a valid contract of purchase and sale, one term of which provided for the obtaining of the loan... [I]t is reasonable to hold that the obtaining of the loan was a condition precedent to the duty of both parties to render their promised performances (and not a condition precedent to the existence of a valid contract.)” 3A Corbin on Contracts, § 629A, fn. 22.15, p. 13 (1971 Supp.).
Motion for rehearing denied.