A Louisiana buyer signs a purchase agreement with a suspensive condition requiring the buyer to obtain mortgage financing within 21 days. On day 20, the buyer deliberately fails to submit the required financial documents to the lender, causing the loan application to be denied. The buyer then claims the financing condition has failed and demands return of the earnest money. Under Louisiana Civil Code, how should this situation be treated?
Correct Answer
B) The condition is deemed fulfilled because the buyer prevented its occurrence through bad faith conduct
Under Louisiana Civil Code Art. 1772, a condition is deemed fulfilled when the party who had an interest in its failure prevented its occurrence. This is the doctrine of prevention of condition. Since the buyer deliberately withheld documents to manufacture a loan denial and invoke the financing contingency in bad faith, the suspensive condition is treated as if it had been fulfilled — meaning the contract remains in force and the buyer cannot use the self-created failure to escape the obligation. The seller may be entitled to retain the earnest money as the buyer is in default.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Equitable title is the buyer's interest in a property after a purchase contract is signed but before closing, giving the buyer the right to acquire legal title in the future. The seller retains legal title until the deed is delivered at closing.
A financing contingency makes the purchase contract conditional upon the buyer obtaining mortgage approval within a specified time period. If the buyer cannot secure financing, they can cancel the contract and receive their earnest money back.
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
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