## Facts

- Sellers agreed in writing to sell their residence to buyers for $54,000, with a $1,000 earnest-money deposit labeled a “liquidated damage deposit.”
- The contract was “subject to financing,” requiring buyers to obtain a conventional mortgage of at least $35,000 within 30 days.
- The day after signing, buyer Joseph Billman met with a bank agent and learned he could not obtain the mortgage unless he could show he had sufficient cash to cover the difference between price and loan; he was about $6,500 short.
- Buyers indicated they were close to financing and arranged for buyers’ parents to view the house; after the visit, buyers told sellers the deal was off because the parents would not loan money needed to complete financing.
- Sellers offered to reduce the purchase price by $5,000; buyers rejected the offer and still withdrew.
- Buyers stopped payment on the $1,000 earnest-money check and never obtained a formal mortgage commitment within the 30-day period.
- Sellers sued for the $1,000 as liquidated damages; after a bench trial, the court entered judgment for sellers, and buyers appealed.

## Issues

1. Whether buyers were excused from performance under a “subject to financing” condition precedent when they failed to obtain the specified mortgage commitment within the contract period.
2. Whether the financing contingency imposed an implied duty on buyers to make reasonable, good-faith efforts to obtain financing, such that inadequate effort prevents reliance on the condition’s nonoccurrence.

## Decision

- The Indiana Court of Appeals affirmed the judgment for sellers.
- The court held the financing clause was a condition precedent, but buyers could not invoke its failure because they did not make reasonable, good-faith efforts to satisfy it.
- Because buyers were not excused from performance, the liquidated-damages provision entitled sellers to the $1,000 earnest money.

## Legal Principles

- A financing contingency can operate as a condition precedent to the buyer’s duty to perform.
- A financing condition carries an implied obligation that the buyer make reasonable, good-faith efforts to obtain the required financing.
- A party may not rely on the failure of a condition precedent to excuse performance when that party’s lack of cooperation, hindrance, or prevention contributed to the condition’s failure.
- Where a buyer’s default is not excused, a contract’s earnest-money liquidated-damages clause may be enforced according to its terms.

## Conclusion

The court enforced the earnest-money liquidated-damages provision because the buyers’ limited pursuit of financing and prompt withdrawal after a family loan fell through supported a finding that they did not use reasonable, good-faith efforts to satisfy the financing condition, barring reliance on the condition’s failure as a defense.


Billman v. Hensel, 391 N.E.2d 671 (Ind. Ct. App. 1979)