DeFreitas v. Cote
1961 Mass. LEXIS 767, 342 Mass. 474, 174 N.E.2d 371 (1961)
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Rule of Law:
A condition in a real estate purchase agreement making the sale contingent on the buyer obtaining specific financing is for the benefit of the buyer. The buyer may waive this condition if they secure alternative financing and are prepared to tender the full purchase price.
Facts:
- John J. P. de Freitas, a real estate broker, entered into an exclusive agency agreement with Israel and Buphemie Cote to sell their property.
- De Freitas procured a buyer, Antonio Rodrigues, who signed a written agreement with the Cotes to purchase the property for $16,720.
- The purchase agreement contained a clause stating, 'This sale is subject to a G. I. Loan.'
- Rodrigues was unable to secure a G.I. loan because the G.I. appraisal of the property was less than the agreed selling price.
- Rodrigues obtained alternative financing through a conventional mortgage, a loan from a friend, and his own funds, totaling the full purchase price.
- Rodrigues informed the Cotes in writing that he had the necessary funds and was ready to complete the purchase at the agreed price of $16,720.
- The Cotes refused to proceed with the sale.
Procedural Posture:
- John J. P. de Freitas sued Israel and Buphemie Cote in a trial court to recover a real estate commission.
- The case was tried before a jury.
- At the close of evidence, the trial judge refused to give the plaintiff's requested jury instruction regarding the buyer's ability to waive the financing contingency.
- The jury returned a verdict in favor of the defendants, the Cotes.
- The plaintiff, de Freitas, appealed the judgment to this court, arguing the trial judge erred in refusing the jury instruction.
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Issue:
Does a buyer's failure to obtain a G.I. loan, as stipulated in a financing contingency clause, automatically void a purchase agreement and defeat a broker's right to a commission if the buyer waives the contingency and is otherwise ready, willing, and able to purchase the property for the full agreed-upon price?
Opinions:
Majority - Spiegel, J.
No. A buyer's failure to secure financing under a specific contingency clause does not void the agreement if the clause was for the buyer's benefit and the buyer waives it by tendering the full purchase price. The court reasoned that the primary purpose of the contract was the sale of the property for a specified sum. The G.I. loan contingency was a condition inserted for the benefit of the buyer, protecting him from being bound to the contract if he could not secure financing. As the beneficiary of this condition, the buyer had the right to waive it. Since the buyer secured alternative funds and was ready to pay the full price, the sellers had no grounds to void the contract, as it was of no importance to them how the buyer financed the purchase. Therefore, the broker had produced a ready, willing, and able buyer and had earned his commission.
Analysis:
This decision clarifies that financing contingency clauses in real estate contracts are generally construed as waivable conditions for the buyer's protection, not absolute conditions that allow the seller to terminate the agreement at will. It reinforces the principle that a broker's commission is earned upon procuring a buyer who is financially capable of performing, regardless of the specific source of funds contemplated in the agreement. This precedent limits a seller's ability to use a buyer's change in financing strategy as a pretext to back out of a deal, thereby providing greater security for both buyers and real estate brokers.
