A buyer in Dearborn is under contract to purchase a home for $275,000 with a financing contingency requiring a conventional loan commitment by November 1. The buyer receives a loan commitment on October 28 but for only $245,000 — $30,000 less than needed. The buyer does not notify the seller before November 1. On November 3, the buyer informs the seller they cannot proceed and demands the earnest money back. Which of the following best describes the likely legal outcome?
Correct Answer
D) The seller retains the earnest money because the buyer waived the contingency by failing to provide notice before the November 1 deadline
This is a complex scenario involving two issues: (1) whether a partial loan commitment satisfies the financing contingency, and (2) whether the buyer waived the contingency by missing the deadline. While a partial loan commitment for $245,000 when $275,000 is needed arguably does not satisfy the contingency terms, the buyer's failure to notify the seller before the November 1 deadline is the controlling factor. Under Michigan contract principles, a contingency must be affirmatively exercised within the specified period. By not notifying the seller before November 1, the buyer waived the contingency, and the contract became binding. The seller is likely entitled to retain the earnest money as the buyer is now in breach.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A bilateral contract is an agreement in which both parties exchange promises and are both obligated to perform, while a unilateral contract is one in which only one party makes a promise and the other party is not obligated to act.
A breach of contract occurs when one party fails to perform their obligations under the contract without a legal excuse. The non-breaching party is entitled to legal remedies including damages, specific performance, or contract rescission.
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.
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