## Facts

- David Fry offered to buy Mack and Mildred Miller’s residence for $42,500 through broker George Elkins Co. and paid a $4,250 deposit.
- The written offer and escrow instructions conditioned completion on Fry obtaining (or refinancing into) a $20,000 loan at 5% for 20 years.
- Fry was informed the existing loan was held by Western Mortgage Co. and that refinancing on the requested terms was likely, though a bank loan on those terms was unlikely.
- Western Mortgage’s representative provided a loan application and communicated that Western would consider the loan; after being told a 20-year term was required, Western indicated it would consider that term.
- Fry never completed or submitted a loan application to Western Mortgage, did not inquire with Western about the 20-year term, and instead applied to two banks that denied his applications.
- Fry later told the Millers he had changed his mind and sought to rescind, claiming inability to obtain the loan; the Millers sold to another buyer at a slightly lower price and incurred additional costs and concessions.
- The trial court found the Millers’ losses and expenses from Fry’s nonperformance totaled $3,312.50 and awarded Fry only the remaining $937.50 of his deposit after offsets.

## Issues

1. Whether a buyer relying on a financing contingency must make a good-faith, reasonable effort to obtain the specified loan.
2. Whether Fry could rescind and recover the full deposit when the specified financing was obtainable but he did not pursue it with the identified lender.
3. Whether the trial court properly offset the sellers’ damages and related expenses against the deposit and awarded only a partial refund.

## Decision

- The Court of Appeal affirmed the judgment.
- The court held Fry did not make a good-faith effort to satisfy the loan condition and therefore breached the purchase agreement.
- Fry could not rely on the financing contingency to justify rescission and a full return of the deposit where the loan was available and his failure resulted from lack of reasonable efforts.
- The court upheld the trial court’s offsets against the deposit for losses and expenses caused by Fry’s breach, leaving Fry entitled only to $937.50.

## Legal Principles

- A contractual financing condition implies a duty by the buyer to pursue the specified financing in good faith and with reasonable diligence.
- A buyer cannot invoke nonoccurrence of a financing condition when the buyer’s own lack of good-faith efforts contributed to the failure to obtain the loan.
- Objections to ancillary loan terms not included in the express contingency (e.g., a prepayment penalty) do not excuse performance under a condition stated only in principal amount, interest rate, and term.
- When a buyer breaches and the seller remains ready to perform, the seller may recover provable damages caused by the breach, and such damages may be credited against the buyer’s deposit to determine any refund.

## Conclusion

The court treated the financing contingency as requiring Fry’s good-faith, diligent pursuit of the specified loan; because he failed to pursue available financing and instead abandoned the deal, he breached and was entitled only to the portion of his deposit remaining after offsetting the sellers’ proven damages and expenses.


Fry v. George Elkins Co., 162 Cal. App. 2d 256 (Cal. Ct. App. 1958)