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An Earnest Dealbreaker
by Ron Davis
A potential buyer of a Texas shopping center unexpectedly backed out of the deal but nevertheless has regained the $75,000 that he paid in earnest money.
The shopping center is located in Arlington, and the potential buyer had agreed, subject to certain conditions, to a purchase price of $2.4 million for the property. Initially, the sales contract called for earnest money of $25,000. Through amendment to the sales contract, that amount increased to $75,000, which the potential buyer deposited with a third party.
The sales contract also granted the potential buyer the return of his earnest money if he properly terminated the deal. Moreover, the contract stated that if the potential buyer’s lender did not provide written consent to finance the sale, he could terminate the deal by providing notice of his intentions to do so.
But the contract amendment also stated that the earnest money is “nonrefundable subject only to loan assumption.” Based on that language in the amendment, any refund of the earnest money was subject to interpretation.
The lender did commit to the loan–but after the deadline for doing so and subject to certain conditions that the potential buyer rejected. He then sent the center’s owners written notice that he wished to terminate the deal. The lender then backed down on the conditions that the potential buyer rejected. But the potential buyer still refused to consummate the purchase and asked for a return of his earnest money.
The shopping center owners sued for breach of contract and for the right to the earnest money. The potential buyer countersued for a refund of his earnest money.
A Texas court, in ruling in favor of the potential buyer, explained, “The evidence demonstrates that the potential buyer was permitted to terminate the contract, that the lender waived the conditional guaranty only after the potential buyer terminated the contract, and that the loan assumption deadline was not extended..... When the sales contract was amended, it provided, ‘It is understood that the earnest money is nonrefundable subject only to loan assumption.’ That means that the assumption of the loan must have been approved in order for the earnest money to be nonrefundable. The potential buyer properly terminated the contract. Therefore, he never assumed the original loan. He is entitled to a refund of the earnest money.” (Huntley v. Enon Limited Partnership, 2006 WL 1791653 [Tex.App.-Fort Worth])
Decision: July 2006
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