Question

By contract dated May 1, Rob agreed to sell to Nancy, and Nancy agreed to buy from Rob, a certain house located at 10 Melbourne Road. At the time she signed the contract, Nancy transferred to Rob a deposit equal to 10% of the purchase price. The contract stated that closing and transfer of the property would occur on or before July 15. Nancy’s finances were such that she needed to obtain a loan to pay the full purchase price for the house. Pursuant to the terms of the contract, Nancy was to obtain financing for the house in an amount of $180,000. The contract stated that Nancy was to apply for such financing in good faith within 7 days of the signing of the contract. It further stated that if Nancy could not obtain $180,000 in financing from a bank, savings bank, or savings and loan association, then Nancy could cancel the contract and recover her deposit.

a) On May 5, Nancy applied for the $180,000 loan in good faith, but on July 1, the bank notified her that she would only be allowed a loan of $50,000. Rob demands that Nancy close on the purchase and sale of the house on July 15 and Nancy sues Rob for return of her deposit. Judgment for whom? Explain.

b) Assume instead that Nancy waits until July 1 to apply for a bank loan, and when she applies, she does not give complete or accurate information to the bank about her income or assets. On July 10, the bank denies Nancy’s application for a loan. On July 15, Rob demands that Nancy close on the purchase and sale of the house and she demands return of her deposit. Rob sues Nancy for breach of contract. Judgment for whom?

Answer 1

a) The contract dated at May 1 and Nancy applied for loan on May 5 but due to some reason the bank could not process the loan. Nancy can demand Rob to give the deposit back because the contract mentions that she would apply for a loan within 7 days in good faith and failure to secure one, she would get the deposit back. So Rob has to return the deposit to Nancy.

b) The contract was signed that, in good faith, Nancy will apply for the loan within 7 days. In this case, she files for a loan after a month’s time and does not provide proper details to the bank this can be seen as her intention not being in good faith. Rob can sue Nancy for breach of the contract and not return the deposit.