Kovarik v. Vesely
3 Wis. 2d 573, 89 N.W.2d 279, 1958 Wisc. LEXIS 345 (1958)
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Rule of Law:
When a real estate contract is contingent on the buyer arranging financing, and the buyer's application to a specific lender is denied, the contingency is satisfied if the seller offers to provide financing on identical terms before the closing date, unless the contract or extrinsic evidence demonstrates that the specific lender was a material part of the agreement.
Facts:
- The Kovariks (buyers) entered into a contract to purchase real estate from the Veselys (sellers) for $11,000.
- The contract contained a clause stating, 'This offer is contingent upon buyer’s ability to arrange above-described financing,' which referred to a $7,000 mortgage.
- At the suggestion of the seller, Vesely, the Kovariks applied for a $7,000 mortgage from the Fort Atkinson Savings & Loan Association.
- The written loan application signed by the Kovariks specified the precise terms of the mortgage being sought.
- The Fort Atkinson Savings & Loan Association rejected the Kovariks' loan application.
- Upon learning of the rejection, the Kovariks attempted to rescind the contract and demanded the return of their down payment.
- Before the contract's closing date of September 1, 1956, the Veselys offered to personally finance the $7,000 mortgage for the Kovariks on the exact same terms as those in the rejected loan application.
- The Kovariks refused the sellers' offer of financing.
Procedural Posture:
- The Kovariks (plaintiff-buyers) sued the Veselys (defendant-sellers) in a Wisconsin trial court to rescind the contract and recover their down payment.
- The trial court found in favor of the sellers, Veselys, and entered judgment against the buyers.
- The buyers, Kovariks, appealed the trial court's judgment to the Supreme Court of Wisconsin, making them the appellants and the Veselys the appellees.
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Issue:
Does a buyer's inability to obtain a mortgage from a specifically named lending institution, as mentioned in a real estate contract, relieve the buyer of their obligation to perform when the seller offers to provide financing on identical terms before the closing date?
Opinions:
Majority - Currie, J.
No. The buyer's inability to obtain a mortgage from the named institution does not relieve them of their obligation to perform because the seller's timely offer to provide financing on identical terms satisfied the contract's contingency. The court reasoned that the contract's contingency clause referred to the buyer's ability to secure financing on specific terms, not from a specific source. By applying for the loan, the buyers exercised their discretion and fixed the financing terms, which the sellers then matched. The court found no evidence that the identity of the lender was a material component of the agreement for the buyers. Furthermore, the buyers' attempt to rescind was premature, as the sellers' offer was made well before the contract's closing date. The court also held that the contract and the subsequent loan application, read together, constituted a sufficient memorandum to satisfy the statute of frauds.
Dissenting - Fairchild, J.
Yes. The buyers should be relieved of their obligation because the contract was conditional upon the willingness of a specified third party, the Fort Atkinson Savings & Loan Association, to make the loan. The contract language is unambiguous and does not require interpretation through extrinsic evidence of the buyer's subjective intent. A buyer may have valid, material reasons for preferring an institutional lender over an individual seller, such as gaining confidence in the property's valuation or ensuring more predictable handling of a potential default. The majority's decision incorrectly disregards the specific reference to the named lender, treating the agreement as a generic financing contingency, which it was not.
Analysis:
This decision clarifies the interpretation of financing contingency clauses in real estate contracts, establishing a default rule that the terms of the financing are material, but the source is not. It gives sellers a powerful tool to 'save' a transaction by stepping into the role of lender if the buyer's initial financing attempt fails. The case reinforces the principle that separate writings can be combined to satisfy the statute of frauds and shows the court's willingness to use extrinsic evidence to determine the parties' intent regarding ambiguous contract terms. Future contracting parties wishing to make the source of financing a material condition must now do so with explicit and unambiguous language.
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