McDermott v. Burpo

• Decision Date: 25 October 1983
• Docket Number: No. WD,WD
• Citation: 663 S.W.2d 256
• Parties: Michael R. McDERMOTT and Johanna M. Clay, Plaintiffs/Appellants, v. Carl BURPO, Susan Burpo, John Haskins and Irene Haskins, Defendants/Respondents. 33743.
• Court: Missouri Court of Appeals

Page 256

663 S.W.2d 256

Michael R. McDERMOTT and Johanna M. Clay, Plaintiffs/Appellants, v. Carl BURPO, Susan Burpo, John Haskins and Irene Haskins Defendants/Respondents.

No. WD 33743.

Missouri Court of Appeals Western District.

Oct. 25, 1983.

Motion for Rehearing and/or Transfer to

Supreme Court Overruled and Denied

Dec. 28, 1983.

Application to Transfer Denied

Feb. 15, 1984.

Craig A. Smith, Columbia, for plaintiffs/appellants.

Stephen C. Scott, Columbia, for defendants/respondents.

Before DIXON, P.J., and KENNEDY and LOWENSTEIN, JJ.

LOWENSTEIN, Judge.

In this court tried case, where both sides have appealed, the standard of review is under the oft-stated rule in Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976) and Rule 73.01. Review of the facts in this equitable action is in a light most favorable to the result reached. Schimmer v. H.W. Freeman Construction Co., Inc., 643 S.W.2d 621, 622 (Mo.App.1982). In an attempt to bring some clarity to the matter, the plaintiffs below, McDermott and Clay, will be referred to as the Buyers, and the defendants, the Burpos and Haskins, will be designated as the Sellers.

The Buyers being desirous of building a "Georgetown" style home in Columbia, Missouri contacted a builder, Mr. Creath. Mrs. Creath operated Medallion Realty (Medallion). Medallion employed a Ms. Dorcas Miller. On July 23, 1979 the Buyers executed a contract to purchase lot 11 in Oak Cliff Subdivision, owned by the Sellers, for a price of $10,000, $500 down deposited with Medallion, as agent for the Sellers, containing a provision they would have 45 days to procure 90% financing through an FHA guaranty. The closing was to be September 5, 1979 at Medallion's offices. The Sellers were to provide an abstract or title insurance within 30 days. Time was of the essence. This document will be referred to as the "real estate contract." At the same time the Buyers signed a contract with Mr. Creath to build the desired house on the lot in question for $44,000. This contract had a provision similar to the real estate contract, providing for the contingency for financing. This contract will be referred to as the construction contract.

On July 27, 1979 the real estate contract was presented to one of the Sellers, Mr. Burpo, by Miller and Mr. Creath. He made some changes in the contract, all agreed to by the Buyers, and, also, with the Buyers' later consent added that the sale of the lot was, "Subject to approval of plans by architectural committee." ¹ The Sellers then signed the real estate contract. The plans of the Buyers were presented to Burpo who said he would have to check with the other committee member Haskins. He did request certain changes be made. After preparing final blueprints, the Buyers sent them through Miller and Medallion Realty to Burpo on August 22nd. Burpo, verbally, told Miller the committee had rejected the plans--Miller then relayed this information to the Buyers.

On August 24th the Buyers learned their FHA loan guaranty application was refused. Miller took the Buyers to look at some other lots on which to build.

Prior to the closing date of September 5th the Buyers told Miller they still wanted the lot in question and would pay cash rather than obtaining a loan. (The Buyers according to the terms of the contract had until September 6th, one day after closing to procure the FHA guaranty.) They told Miller they would come to the closing with cash in hand if Miller called and gave them 5 minutes notice that the Sellers were there. At that time no abstract or title commitment had been given to Sellers. The Sellers did not appear and had listed the lot for sale on August 21st, for $11,000 and refused to convey.

Evidence was presented that the construction contract could not be honored at the original price due to inflation in construction costs, and the interest rate for any such loan had gone up.

The Buyers in Count I asked for specific performance of the real estate contract and incidental damages of $20,000 for delay in performance. Count II asked for a declaratory judgment that the final plans had been deemed approved since no written rejection had occurred. Count III asked alternatively for $3,000 in damages and return of the $500 earnest money.

The court's judgment awarded specific performance and ordered the Sellers to, by abstract or title insurance, show title marketable in fact before exchange of the warranty deed and the purchase price that had been ordered paid into court. It is from the granting of specific performance that spawned the Sellers' cross-appeal, which will be first considered in this opinion. The court gave no relief to the Buyers in their prayer for damages for increased construction and interest costs caused by the Sellers' delay, causing the Buyers to file the initial appeal. No appeal was taken from the court's granting judgment for the Sellers on Count III.

CROSS APPEAL

I.

The first point on the cross-appeal of the Sellers is that the real estate contract became null and void a) when Buyers did not obtain an FHA loan, a clause they had inserted into the document, and, b) when Buyers did not effectively waive this condition by not informing Sellers of the waiver. The Sellers start from the false premise that the contract ceased to exist when the Buyers couldn't get an FHA loan. The contract was treated by Sellers as void when they determined the plans were not in compliance with the wishes of the architectural committee, (Burpo and Haskins). When they later found out from Medallion Realty the FHA loan did not go through, this seemed to re-enforce the Sellers' notion that they needed to do nothing further, so they did not procure an abstract nor a title policy and did not attend the closing.

The Sellers say there was no evidence Buyers could get an FHA or other type of loan to buy the land. This is true; however, there was evidence which the trial court could and did believe to establish the fact the Buyers were prepared to pay the $9500 balance in cash. This ability and intention to pay off the amount would obviate the need to obtain a loan, thus waiving the provision in the contract for the Buyers' benefit and certainly showing an intent to purchase the property under the existing contract. Buyers' waiver of this provision did not adversely affect the rights of the Sellers, Campbell v. Richards, 352 Mo. 272, 176 S.W.2d 504 (1944). See also Huntington Mining Holdings v. Cottontail Plaza, Inc., 79 A.D.2d 647, 433 N.Y.S.2d 824, 825 (1980). Had they intended to use the financing clause as a means to exclude any further obligation under the contract, the Buyers would not have gone to the trouble to be ready to pay the balance on closing. The Sellers' contention that the time limitation of 45 days to get the financing could only be waived by Sellers is not well taken. This clause was for the protection of the Buyers. In this case, where the party who has the "out" can pay cash, the Seller may not use the inability to finance as a means of avoiding contractual obligations.

The Sellers' reliance upon Doerflinger Realty Company v. Maserang, 311 S.W.2d 123 (Mo.App.1958) is misplaced. There a loan at the agreed upon interest rate could not be procured, terminating the contract. Doerflinger involved a later attempt to get the loan, where here the Buyers elected to pay cash from personal sources rather than cash from a government loan they would later repay.

The trial court's reliance on De Freitas v. Cote, 342 Mass. 474, 174 N.E.2d 371 (1961) is well taken. There the purchaser of real estate had inserted in the contract a provision that the agreement would be terminated if he could not obtain a G.I. loan. The Buyer was allowed to waive this condition for his benefit by tendering funds from a different source.

The second prong of Sellers' argument on this point is the trial court erred in finding the Buyers had effectively waived the financing contingency. They contend the Buyers did not inform the Sellers of this waiver, and that cash would be paid upon closing. They say, "[T]he only way in which the trial court correctly could have concluded that the plaintiffs effectively communicated their waiver ... would have been also to have found that Dorcas Miller/Medallion Realty was the agent of the defendants." They point out the trial judge found Miller and Medallion were employed by neither the Buyer or the Seller, so the Buyers telling Medallion or Miller of their intent to pay cash was no notice to an agent of Sellers. The Sellers contend Miller and Medallion to be the Buyers' agents.

What is obvious from the facts here is that Sellers considered the contract at an end when the committee did not approve the second set of blueprints. The Sellers during the week of August 21st, some two weeks prior to closing, had listed the property for sale with a service for $11,000. Burpo claimed this action was due to mistake. The listing was made prior to the time the Buyers knew their FHA loan would not come through. (Apparently the FHA policy was not to guarantee loans on unimproved lots. In addition, this subdivision had not been approved.) Burpo did say the following: "..., and to my knowledge, they hadn't ... they hadn't succeeded in ... obtaining a loan ...." The record is unclear how or when he obtained this knowledge, or whether it came from Dorcas Miller, Mr. Creath, or someone at Medallion since the Buyers and Sellers never had direct contact.

The Sellers did not within 10 days notify the Buyers in writing of their disapproval of the plans. The Sellers did unilaterally consider the matter over, and so did not prepare an abstract or provision in title policy and did not show up for the closing. From the evidence it can be inferred that once the plans were vetoed by them they considered the matter through and the item of the inability of the Buyers to obtain an FHA guaranty was only an afterthought.

The Sellers cannot be heard to say the Buyers'...