Sandra and her buyer client, James, entered into a Minnesota purchase agreement for a $275,000 home. The agreement contained a contingency allowing James to cancel if he could not obtain financing within 21 days. James applied for a loan but was denied because his credit score was lower than he had disclosed to Sandra. The 21-day financing contingency period expired without James formally canceling. James now claims he is not in breach because he had a financing contingency. Which statement best describes James's legal position under Minnesota law?
Correct Answer
B) James is in breach because he failed to formally cancel within the contingency period, and the contingency protection expired when the deadline passed without notice
Under Minnesota purchase agreement practice, a financing contingency is a condition that must be properly exercised within the stated time period. If the buyer fails to formally notify the seller of cancellation before the contingency deadline expires, the contingency is waived and the contract becomes binding without the contingency protection. James's failure to cancel within 21 days means the contingency expired, leaving him obligated to perform. His subsequent failure to close constitutes a breach, and the seller may retain the earnest money as liquidated damages.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Liquidated damages are a predetermined amount of money specified in the contract that the non-breaching party is entitled to receive if the other party breaches. In real estate, the earnest money deposit typically serves as liquidated damages.
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
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