## Facts

- Highland Inns Corporation agreed to sell a motel property in Columbia, Missouri, to American Landmark Corporation for $950,000 at closing.
- The contract required American Landmark to deposit $10,000 in earnest money, to be applied to the purchase price at closing.
- The contract conditioned the transaction on the buyer obtaining and delivering a long-term mortgage commitment for $1,300,000 by August 19, 1978, stating that if not obtained by then the contract would be “null and void.”
- The contract further provided that if the buyer failed to fulfill its obligations, the earnest-money deposit would become the property of the seller and its agent “not as a penalty, but as liquidated damages.”
- American Landmark deposited the $10,000 but did not obtain the required mortgage commitment by the deadline.
- The sale did not close; Highland Inns later sold the property to another purchaser for a lower price.
- Highland Inns sued to recover the $10,000 deposit held in escrow by Overton Realty, Inc., the seller’s broker; American Landmark asserted it was entitled to the deposit.
- The trial court entered judgment for Highland Inns for $10,000 against American Landmark (and also against Overton). American Landmark appealed.

## Issues

1. Whether the mortgage-commitment clause was a condition to contract formation (so no binding contract existed until financing was obtained) or a condition precedent only to performance.
2. Whether the nonoccurrence of the financing condition voided the entire agreement and discharged the buyer’s liability for the earnest-money forfeiture provision.
3. Whether the $10,000 earnest-money provision was enforceable as liquidated damages rather than an unenforceable penalty.

## Decision

- The appellate court affirmed the judgment awarding Highland Inns $10,000.
- The court held the parties formed a binding bilateral contract upon execution; the financing term was a condition precedent to certain performance duties, not to contract formation.
- The failure to obtain the mortgage commitment excused only performances dependent on that condition (such as conveyance and payment of the balance), not obligations already due under the contract.
- American Landmark’s failure to obtain the commitment constituted a failure to fulfill its contractual obligations triggering the earnest-money clause.
- The earnest-money forfeiture was enforceable as liquidated damages under the contract’s express terms.

## Legal Principles

- A contract may be formed upon offer, acceptance, and consideration even when later performance is subject to conditions; a condition precedent may delay or excuse performance without preventing contract formation.
- Nonoccurrence of a condition precedent excuses only the performances conditioned on that event; it does not retroactively erase the entire contract or discharge independent obligations that matured before the condition failed.
- An earnest-money deposit may be retained as liquidated damages when the parties clearly agree to that remedy and the amount functions as a reasonable pre-estimate of harm from nonperformance, rather than as a penalty.

## Conclusion

The court enforced the earnest-money liquidated-damages clause because the parties had a binding contract upon execution, the financing provision operated only as a condition precedent to later performance, and the failure of that condition terminated future duties without undoing the buyer’s already-triggered risk of forfeiting the deposit.


Highland Inns Corp. v. Am. Landmark Corp., 650 S.W.2d 667 (Mo. Ct. App. 1983)