## Facts

- Homebuyers Michael and Deborah Holden worked with Charlotte Valliant, an agent of Freeman & Kagan, Inc., to locate a home in Maryland.
- The Holdens agreed to buy a house from sellers John and Deborah Proctor for $210,000 and paid a $20,000 deposit to be held in escrow.
- The sales contract included a financing contingency requiring the buyers to pursue specified financing, but the clause mixed terms associated with different loan types and was ambiguous.
- The Holdens applied to multiple institutional lenders and were repeatedly denied financing; they informed the agent they could not obtain a mortgage and requested return of the deposit.
- The Proctors refused to return the deposit and offered to provide owner financing on terms they claimed satisfied the contingency; the Holdens declined.
- The Holdens sued the Proctors for breach of contract (seeking return of the deposit) and sued Freeman & Kagan for breach of fiduciary duty, alleging non-disclosure, drafting an ambiguous financing clause, and encouraging a higher offer that benefited the broker.
- A jury awarded the Holdens return of the $20,000 deposit against the Proctors and awarded $1 compensatory and $10,000 punitive damages against Freeman & Kagan.

## Issues

1. Whether the buyers breached the contract’s financing contingency (including any timing requirement) and forfeited the deposit by failing to obtain financing or by rejecting the sellers’ owner-financing offer.
2. Whether the ambiguous financing clause permitted consideration of extrinsic evidence and supported a finding that the contingency failed without buyer default.
3. Whether a listing broker owed a fiduciary duty to the buyers based on the agent’s assistance during the home search and transaction, and whether damages could be sustained on that theory.

## Decision

- The appellate court affirmed the judgment against the Proctors requiring return of the $20,000 escrow deposit.
- The court held the financing contingency was ambiguous, permitting extrinsic evidence and supporting the jury’s finding that the buyers made sufficient good-faith efforts to obtain financing.
- The court rejected the argument that the buyers were required to accept the sellers’ owner financing as a matter of law because the ambiguous clause did not clearly treat owner financing as equivalent to the contemplated financing.
- The court reversed the judgment against Freeman & Kagan, holding that, on these facts, the listing broker owed no fiduciary duty to the buyers as a matter of law; the compensatory and punitive awards could not stand.

## Legal Principles

- Ambiguous contract terms may be construed with the aid of extrinsic evidence concerning the parties’ understanding and conduct.
- A financing contingency may excuse performance and require return of a deposit when the buyer, acting in good faith, is unable to obtain the contemplated financing.
- When a financing clause is ambiguous, a seller’s proposed substitute financing does not satisfy the contingency as a matter of law absent clear contractual language requiring acceptance.
- A listing real estate broker’s fiduciary duties run to the broker’s principal (typically the seller); a buyer must show a clear agreement or undertaking establishing an agency relationship before fiduciary duties to the buyer arise.

## Conclusion

The court upheld the buyers’ right to recover their deposit because the ambiguous financing contingency, construed with extrinsic evidence, supported a finding that the buyers acted in good faith yet could not obtain the contemplated financing, and it separately held that the listing broker did not owe fiduciary duties to the buyers absent a proved agency relationship.


Proctor v. Holden, 75 Md. App. 1, 540 A.2d 133 (Ct. Spec. App. 1988)