Covington v. Robinson
| Decision Date | 18 September 1986 |
| Docket Number | No. 20,20 |
| Citation | 723 S.W.2d 643 |
| Parties | Stephen R. COVINGTON and William B. Hurt, Jr., Plaintiffs-Appellants, v. Cooper Y. ROBINSON, et al., Defendants-Appellees. 723 S.W.2d 643 |
| Court | Tennessee Court of Appeals |
James W. Surprise, Johnson, Grusin, Kee, Posner & May, Memphis, for plaintiffs-appellants.
Michael Richards and Eugene J. Podesta, Jr., Ronald L. Coleman, Memphis, for defendants-appellees.
This case involves a claim by prospective purchasers of realty for the return of earnest money in the amount of $100,000 deposited with defendant, International Farm Management, Inc., pursuant to a written contract for the sale of said realty. The trial court in a bench trial dismissed the claim and we affirm.
Cooper Y. Robinson and William W. Robinson, defendants-sellers, owned approximately 1,567 acres of land in Arkansas. On March 13, 1980, the sellers and plaintiff-purchasers, Stephen R. Covington and William B. Hurt, Jr., contracted for the sale and purchase of the property for $2,010.675. Defendant International Farm Management, Inc. acted as agent in the sale.
The contract provided:
It is understood and agreed that this Contract is contingent upon Buyers obtaining a federal land bank loan on the property for seventy-five percent of the purchase price.
Pursuant to the contract the purchasers posted $100,000 earnest money. Upon default by the purchasers this deposit was to be divided equally between International Farm Management, Inc. and the sellers.
The real estate lies in two counties, Woodruff County and Cross County. Because of this, it was necessary to apply to two different offices for the loan mentioned in the contract. The purchaser, Covington, testified that Mr. Donald E. Brown, Jr., President of the Federal Land Bank of Eastern Arkansas, carried the ball on the loan and that he (Covington) and his associate applied for the "maximum loan" on the property. The testimony of Mr. Covington and Mr. Brown as to the request for the loan is devoid of any statements that 75% of the purchase price was necessary to make the purchase. Mr. Brown testified that the loan application was first made out in pencil and after conferences were had with other officials, typewritten applications were made up. Copies of these typewritten applications were exhibits but neither of these exhibits is signed by the applicants. The applications show that $907,500 or 78.59% of the value of the land in Woodruff County was applied for to the Land Bank of Searcy, Arkansas, and that $580,000 or 67.83% of the value of the land in Cross County was applied for from the Federal Land Bank Association of Eastern Arkansas plus $137,500 for improvements. The gross total money, not counting $137,500 for improvements, was $1,487,500 or 73.98%. If the money for improvements is considered the total percentage would be 80.81863.
The sums set out in these applications were approved and the applicants so notified. No effort was made and no request made by the applicants to the Land Banks to increase the amount of these loans the additional 1.02%.
Purchasers on July 9, 1980, declined to close the deal stating that the amount approved by the Land Bank was slightly less than 75%. Purchasers then made a proposal that amounted to a request that sellers carry as a loan the difference in the 73.98% loan from the Land Bank and the purchase price for five years and pay the interest on the Federal Land Bank loan from date of closing until January 2, 1981.
Sellers maintained that the purchasers had obtained a loan in excess of 75% of the purchase price, however, agreed to reduce the purchase price by the sum of $28,000 which would result in a sale price that would come within the 75% requirement if based upon buyers contention that the loan amounted to only 73.98%.
The purchasers still declined to close and the earnest money was divided pursuant to the contract. Purchasers then instituted this action.
The trial judge after hearing the matter on some written and some oral testimony found that the $137,500 improvement money was not money included in the loan for the purchase of the land and the loan money available to the purchasers was 73.98% of the purchase price, and that this amount constituted substantial compliance with the contingency in the contract regarding 75% financing. He further found that the purchasers failed to make a good faith effort to close the transaction, and found that the sellers' offer to reduce the amount brought the loan within strict compliance with the 75% contingency and that there was a lack of good faith on the part of the purchasers in that the loans approved for the purchasers were in the exact amount that the purchasers requested, that they submitted only one set of applications and made no further attempt to increase this amount and that purchasers refusal to perform constitutes a default of their contractual obligations and that retention of the $100,000 was reasonable.
Purchasers have appealed contending that:
(1) The 75% loan contingency was a condition precedent to purchasers' obligation to perform and obtaining a loan commitment of 73.98% is not substantial performance and that, in any event, substantial performance is not sufficient to excuse the non-occurrence of a condition precedent.
(2) The trial court erred in finding the purchasers guilty of bad faith in their efforts to obtain the loan.
(3) The earnest money provision was an unenforceable penalty.
(4) It was error to admit evidence of subsequent offers by sellers after the transaction failed to close.
We agree that the 75% loan contingency is a condition precedent. Restatement 2nd, Contracts, Sec. 224 defines such a condition as:
An event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.
In the commentary to Restatement, 2d Contracts, Sec. 237, at p. 220 the Reporter says:
If however, the parties have made an event a condition of their agreement, there is no mitigating standard of materiality or substantiality applicable to the non-occurrence of that event.
In Real Estate Management v. Giles, 41 Tenn.App. 347, 293 S.W.2d 596 (1956), the court said:
A conditional contract is a contract whose very existence and performance depends upon the happening of some contingency or condition expressly stated therein ...
No liability under the contract attaches to either party until such condition precedent is fulfilled. Strickland v. City of Lawrenceburg, 611 S.W.2d 832 (Tenn.Ct. of App.1981).
We hold that the trial court was in error in holding that the obtaining of a loan in the amount of 73.98% is substantial performance that will excuse the non-occurrence of the condition precedent.
The issue of good faith is another matter.
Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement. Restatement, 2d Contracts, Sec. 205, 17 Am.Jur.2d Contracts Sec. 256.
Generally, in construing contracts, the courts not only look to the language of the instrument, but must ascertain, if possible, the intention of the parties, and the construction which is reasonable and fair will prevail. Real Estate Management v. Giles, supra.
The purchasers were not neophytes in the purchase of large tracts of farm land. The evidence indicates that they speculated in land. Covington pointed out that the purpose for the 75% financing provision in the contract was,
It was the duty of the purchasers to make a reasonable effort to obtain adequate financing.
Purchasers insist that their request for a "maximum loan" coupled with the subsequent testimony of Mr. Brown that no greater amount would have been loaned if requested is...
To continue reading
Request your trial
-
Dick Broad. Co. v. OAK Ridge FM, Inc.
...938 S.W.2d at 686;Elliott v. Elliott, 149 S.W.3d 77, 84–85 (Tenn.Ct.App.2004); TSC Indus., 743 S.W.2d at 173;Covington v. Robinson, 723 S.W.2d 643, 645 (Tenn.Ct.App.1986).3 Tennessee courts have consistently applied the principle that Tennessee law recognizes an implied covenant of good fai......
-
Hughes v. New Life Dev. Corp.
...and we interpret it accordingly. See Estate of Darnell v. Fenn, 303 S.W.3d 269, 275–77 (Tenn.Ct.App.2009); Covington v. Robinson, 723 S.W.2d 643, 645–46 (Tenn.Ct.App.1986). Our central task in interpreting a contract is to ascertain and to give effect to the intent of the contracting partie......
-
ALLGOOD Ent. INC. v. DILEO Ent.
...a closing deadline.” Davidson & Jones Dev. Co. v. Elmore Dev. Co., Inc., 921 F.2d 1343, 1350 (6th Cir.1991) (citing Covington v. Robinson, 723 S.W.2d 643, 645 (Tenn.App.1986)). Again, there is significant logical force behind Defendants' argument. The Binder Agreement contract language does......
-
Cadence Bank, N.A. v. Alpha Trust
...Instead, the failure to perform a condition precedent is interpreted as a breach of the contract. See generally Covington v. Robinson, 723 S.W.2d 643, 645 (Tenn. Ct. App. 1986) (citing Strickland v. City of Lawrenceburg, 611 S.W.2d 832 (Tenn. Ct. App. 1980) ). When properly read in the ligh......