Crabby's Inc. v. Hamilton
244 S.W.3d 209 (2008)
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Rule of Law:
A party for whose benefit a condition is included in a contract may waive that condition through conduct that is inconsistent with claiming the benefit of the condition, such as continuing to act as if the contract remains in full force after the condition has failed.
Facts:
- On May 17, 2003, Crabby's, Inc. ('Seller') entered into a contract to sell its restaurant property to James Hamilton and Paragon Ventures, L.L.C. ('Buyers') for $290,000.
- The contract contained a financing contingency requiring Buyers to furnish a written loan commitment to Seller within 30 days (by June 16, 2003), and stated that the contract would 'automatically terminate' if they failed to do so.
- Buyers obtained approval for a loan on different terms than specified in the contingency but never provided a written loan commitment to Seller by the June 16 deadline.
- After the June 16 deadline passed, the parties executed two written amendments to extend the closing date, with the final closing scheduled for August 1, 2003.
- In mid-July, after the deadline, Buyers signed an agreement for early possession to clean the property, transferred utilities into their name, and began applying for the necessary licenses to operate a restaurant.
- On July 30, 2003, Buyers sent a letter to Seller announcing their refusal to close, citing missing personal property and tax liens as reasons, but making no mention of an inability to obtain financing.
- Buyers failed to appear for the scheduled closing on August 1, 2003.
- On August 5, 2003, Buyers made an offer to purchase a different property to establish their restaurant.
Procedural Posture:
- Crabby's, Inc. ('Seller') filed a breach of contract lawsuit against James Hamilton and Paragon Ventures, L.L.C. ('Buyers') in a Missouri trial court.
- Following a bench trial, the trial court entered judgment in favor of Seller and awarded damages of $95,547.30.
- Buyers, as appellants, appealed the judgment to the Missouri Court of Appeals, Southern District.
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Issue:
Is a financing contingency clause in a real estate contract waived when the buyer, for whose benefit the clause exists, continues to treat the contract as valid and takes steps toward closing after the contingency's deadline has passed?
Opinions:
Majority - Lynch, C.J.
Yes. A buyer waives a financing contingency when their conduct after the contingency deadline passes is so inconsistent with termination that no other reasonable explanation is possible. The financing contingency was a condition for the Buyers' benefit, and a party may waive a condition in its favor. Although the contract stated it would 'automatically terminate,' the Buyers' actions after the termination date were inconsistent with such a termination. By executing written extensions to the closing date, taking early possession of the property, transferring utilities, and applying for business licenses, all after the contingency deadline, the Buyers demonstrated a 'clear, unequivocal, and decisive act' showing their intent to waive the contingency and proceed with the contract. The fact that their letter refusing to close cited other reasons and made no mention of financing further supports the conclusion that they had relinquished the right to rely on the contingency.
Analysis:
This case demonstrates a crucial application of the doctrine of waiver by conduct in contract law. It clarifies that an 'automatic termination' clause is not necessarily self-executing if the parties' subsequent actions disregard the termination and treat the contract as ongoing. The court's focus on the parties' entire course of conduct, rather than just the strict contractual language, establishes that a party cannot strategically ignore a lapsed condition precedent for weeks only to later resurrect it as a defense for breach. This decision reinforces the principle that rights and conditions in a contract can be relinquished through actions, creating an estoppel-like effect where one party's conduct leads the other to reasonably believe performance is forthcoming.
