Robert is purchasing a property in Chattanooga. His contract includes both a financing contingency and an inspection contingency. The inspection reveals significant foundation issues. Robert's affiliate broker advises him that he can use the financing contingency to terminate the contract instead of the inspection contingency. Which of the following statements is most accurate regarding this advice?
Correct Answer
A) The advice is incorrect because contingencies must be invoked in good faith and for the purpose for which they were written; invoking the financing contingency for inspection-related reasons could constitute bad faith
Under Tennessee contract law, contingencies must be invoked in good faith and for the purpose for which they were contractually intended. Using the financing contingency as a pretext to exit a contract for inspection-related reasons—when financing was not actually the problem—could expose Robert and his affiliate broker to claims of bad faith dealing. The appropriate and legally defensible course of action is to invoke the inspection contingency, which was specifically designed to address unsatisfactory property conditions.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
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.
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