A buyer enters into a purchase agreement for a home in Elizabethtown, Kentucky. The agreement contains a home inspection contingency allowing the buyer to terminate within 10 days if unsatisfied with the inspection results. On day 8, the buyer receives an inspection report showing minor cosmetic issues only. The buyer's agent sends a written termination notice citing 'unsatisfactory inspection results.' The seller refuses to return the $7,500 earnest money, arguing the buyer terminated in bad faith because the defects were minor. Under Kentucky contract law, which outcome is most likely?
Correct Answer
B) The buyer recovers the earnest money because a properly drafted inspection contingency gives the buyer subjective discretion to terminate for any reason within the contingency period
Under Kentucky contract law, the enforceability of an inspection contingency termination depends on how the contingency is drafted. When a purchase agreement gives the buyer the right to terminate 'if unsatisfied with the inspection results' without specifying an objective standard, courts generally interpret this as granting the buyer subjective discretion — a personal satisfaction clause. As long as the buyer exercises this right in good faith and within the specified period, they are entitled to terminate and recover their earnest money. The seller cannot override the contingency by second-guessing the buyer's judgment about what constitutes 'unsatisfactory' results.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Consideration is something of value exchanged between parties to a contract, making the agreement legally binding. It can be money, a promise to act, a promise to refrain from acting, or anything else of value.
Contingencies are conditions written into a real estate contract that must be met before the transaction can close. If a contingency is not satisfied, the buyer can typically cancel the contract without penalty.
Contract termination occurs when a contract is ended or discharged, releasing both parties from their obligations. A contract can be terminated through performance, mutual agreement, operation of law, or breach.
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