Bacon v. Ford
1988 La. App. LEXIS 788, 1988 WL 20745, 522 So.2d 1232 (1988)
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Rule of Law:
When a contract to purchase real estate is subject to a suspensive condition that the buyer obtain financing by a specific date, the contract becomes null and its obligations unenforceable if the financing is not fully secured before the expiration of that term.
Facts:
- On August 15, 1985, John and Robin Ford entered into an agreement with Charter Management, Ltd. for two related real estate sales.
- The Fords agreed to purchase a residence from Charter for $65,000, and Charter agreed to purchase a lot from the Fords for $16,000.
- The parties intended for the proceeds from the Fords' lot sale to serve as the down payment for their purchase of the residence.
- The agreement was conditioned upon the Fords' ability to obtain financing, and it stipulated that the Act of Sale was to be passed on or before October 31, 1985.
- The Fords applied for state bond money financing and in mid-October received a loan commitment letter.
- This loan commitment was itself conditioned upon the lender's prior receipt of the settlement statement from the Fords' sale of their lot to Charter.
- A lending officer informed Mr. Ford that it would take three weeks for the state to release the loan funds after receiving the settlement statement for the lot, making it impossible to secure the funds by the October 31 deadline.
- On October 22, Mr. Ford wrote to Charter explaining the impossibility of closing by the deadline and suggested voiding the contract.
Procedural Posture:
- The stockholders of Charter Management, Ltd. filed suit against John and Robin Ford in a Louisiana trial court, seeking specific performance or damages for breach of contract.
- The corporation, Charter Management, Ltd., was subsequently added as a party plaintiff.
- The trial court rendered judgment in favor of Charter’s stockholders, finding the Fords breached the contract and awarding damages of $6,927.58.
- The Fords (appellants) appealed the trial court's judgment to the Louisiana Court of Appeal, Fourth Circuit.
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Issue:
Is a real estate purchase agreement, which is subject to a suspensive condition that the buyer obtain financing, enforceable when the financing is not fully secured before the contract's performance deadline passes?
Opinions:
Majority - Ward, Judge.
No. The real estate purchase agreement is not enforceable because the suspensive condition of the contract was not fulfilled before the expiration of the term for performance. The contract to purchase was conditioned upon the Fords' ability to obtain financing, which the court identified as a suspensive condition under Louisiana Civil Code. The court construed the October 31, 1985, act of sale date as the fixed time within which this condition must be fulfilled. Although the Fords obtained a conditional loan approval, the funds were not actually available by the deadline because the prerequisite for their release—the sale of the Fords' lot—could not occur in time. When the October 31 deadline passed without the financing being secured, the condition failed, and the contract became null. The court rejected Charter's argument that the Fords were at fault for the delay, finding no evidence that their actions caused the failure of the condition, as closing by the deadline was impossible regardless.
Analysis:
This case reinforces the principle that suspensive conditions in a contract, especially loan contingency clauses in real estate agreements, must be strictly fulfilled by the specified deadline. The court's decision clarifies that a conditional loan commitment does not satisfy the financing condition; the purchaser must have the actual ability to secure the funds for closing by the contract's term. Furthermore, the ruling sets a high bar for proving a party was at fault for the failure of a condition, requiring evidence of a direct causal link rather than mere delay or a change of heart. This precedent protects buyers who, through no fault of their own, are unable to meet financing deadlines due to external factors.
