Mezzanotte v. Freeland
200 S.E.2d 410, 20 N.C.App. 11, 1973 N.C. App. LEXIS 1458 (1973)
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Rule of Law:
A contractual promise conditioned on an event within the promisor's control, such as obtaining 'satisfactory' financing, is not illusory and constitutes valid consideration if the promisor impliedly promises to make a reasonable, good-faith effort to bring about that event.
Facts:
- On May 2, 1972, the Mezzanottes (plaintiffs) and the Freelands (defendants) signed an agreement for the sale of a property known as the Daniel Boone Complex.
- The agreement was contingent upon the Mezzanottes obtaining financing from North Carolina National Bank (NCNB) that was 'satisfactory' to them.
- After signing, the Mezzanottes made numerous requests for an inventory of personal property and a list of outstanding leases, which were essential for their financing and planning.
- The original performance deadline of August 1, 1972, passed without either party tendering performance or declaring a breach.
- The Freelands did not provide the personalty inventory until August 15, 1972, and the list of leases until September 5, 1972.
- The parties mutually agreed to extend the closing date to September 5, 1972.
- The Mezzanottes were unable to secure a loan from NCNB but arranged for alternative financing to meet their contractual obligations.
Procedural Posture:
- The Mezzanottes (plaintiffs) sued the Freelands (defendants) in the trial court, seeking specific performance of the real estate sales contract.
- The trial court entered a judgment in favor of the Mezzanottes, ordering specific performance and damages.
- The Freelands (appellants) appealed the trial court's judgment to the North Carolina Court of Appeals (this court).
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Issue:
Does a real estate contract lack consideration when the buyer's obligation to purchase is contingent upon their ability to obtain 'satisfactory' financing?
Opinions:
Majority - Baley, Judge
No. A real estate contract does not lack consideration when the buyer's obligation is contingent on obtaining 'satisfactory' financing, because such a provision includes an implied promise to seek financing in good faith. The court reasoned that the 'satisfactory' financing clause was not an unrestricted option for the Mezzanottes to cancel the contract at their whim. Instead, it imposed upon them an implied duty to make a reasonable and good-faith effort to secure a loan. This implied promise constitutes a legal detriment to the Mezzanottes and is sufficient consideration to support the Freelands' promise to sell. The court also rejected the Freelands' other arguments, finding that the property description satisfied the statute of frauds and that the Freelands could not complain about the closing date because they had caused delays and had mutually agreed to an extension.
Analysis:
This decision solidifies the principle that courts will imply a duty of good faith and fair dealing to prevent a contract from being deemed illusory. It clarifies that a 'satisfaction clause' related to financing does not grant the buyer absolute discretion but instead requires them to act honestly and reasonably. This ruling protects the expectations of both parties in a transaction and prevents buyers from using subjective financing contingencies as a pretext to escape a binding agreement, thereby promoting stability in real estate contracts.
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