Facts
- Prospective buyers (Pire and wife) sought to purchase two commercial properties in Beloit, Wisconsin: one owned by Gerruth Realty Co. and one owned by a third party.
- The buyers executed an instrument essentially constituting an offer to purchase Gerruth’s property for $30,000, expressly void unless the two property closings occurred simultaneously.
- The offer provided for a $5,000 down payment by promissory note payable at closing, with the remaining balance due in cash at closing.
- At the buyers’ request, the offer included a financing contingency stating only that it was contingent “upon the purchaser obtaining the proper amount of financing,” without specifying amount, interest rate, term, lender type, or other financing terms.
- The buyers attempted to borrow $75,000 from their bank but were refused due to the bank’s lending limit in light of the buyers’ existing debt.
- Gerruth and the other property owner offered to provide $45,000 in seller financing for the combined transactions; the buyers declined.
- Gerruth asserted the buyers could have satisfied the contingency by accepting the offered seller financing; the buyers asserted they could not obtain the “proper amount of financing” and thus had no duty to close.
Issues
- Whether an offer to purchase real estate contingent “upon the purchaser obtaining the proper amount of financing,” without defining amount or terms, is too indefinite to form an enforceable contract.
- Whether surrounding circumstances and customary financing practices can supply sufficient certainty to enforce such a financing contingency.
Decision
- The Wisconsin Supreme Court affirmed the trial court’s dismissal of Gerruth’s action.
- The court held the financing contingency was too vague and indefinite to be given a definite, objective meaning.
- The court concluded the parties’ mutual intent regarding “proper amount of financing” could not be made certain from the record or surrounding circumstances.
- Because the alleged agreement lacked an enforceable meeting of the minds on a material term, specific performance was unavailable.
Legal Principles
- A real estate agreement must be sufficiently definite as to material terms to be enforceable; if a material term is vague and cannot be made certain, the agreement fails for indefiniteness.
- Courts may preserve a contract by supplying reasonable meaning where surrounding circumstances make an indefinite term capable of being made certain, but they will not do so when the evidence does not reveal a mutual, objective standard.
- A “subject to financing” clause may operate as a condition precedent to the buyer’s duty to perform, but it must provide enough content (or be objectively ascertainable) to avoid leaving performance to one party’s unlimited, subjective discretion.
- When a financing contingency can reasonably be read either as giving the buyer unilateral option to define adequacy of financing or as imposing an objective obligation to accept available financing, and the record does not resolve which meaning was mutually intended, the term is unenforceably uncertain.
Conclusion
The court held that a financing contingency requiring the buyer to obtain the “proper amount of financing,” without defined terms and without objective clarification from the surrounding circumstances, is too indefinite to enforce, defeating the seller’s claim for specific performance.