Billman v. Hensel

Indiana Court of Appeals · 1979 · Contracts

391 N.E.2d 671 (1979)

Updated July 26, 2026

Contractsconditions precedentreal estate financing contingenciessubject to financingcondition precedentgood faith effortreasonable effortmortgage contingency

Facts

The parties contracted for the sale of the sellers' home for $54,000 cash, subject to the buyers' ability to secure a conventional mortgage of not less than $35,000 within 30 days. The buyers did not obtain a loan commitment within that period and contacted only one bank, made no formal loan application, and discussed only a $35,000 loan. Mr. Billman initially represented that the buyers had the funds needed to complete the sale, but later told the sellers the deal was off because his parents would not provide $5,000, and when the sellers offered to reduce the price by $5,000, he said he still needed another $1,500. The buyers then failed to cover the earnest money check, and Mrs. Billman stopped payment on it.

Issue

When a real estate contract is conditioned on the buyers' ability to obtain financing, may the buyers avoid performance merely because financing was not obtained within the stated period? More specifically, were the buyers excused here, or could the court find that they failed to make a reasonable and good faith effort to secure the required financing and therefore could not rely on the failed condition precedent?

Rule

Where a contract makes performance subject to the buyers' ability to secure financing, the financing clause is a condition precedent that carries an implied obligation on the buyers to make a reasonable and good faith effort to satisfy the condition. A promisor may not invoke the nonoccurrence of a condition precedent to excuse performance when the promisor's own conduct prevented or contributed to the failure of the condition.

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In Indianapolis, Nora Patel agreed to buy Eli Mercer’s house for $420,000. The contract stated that the sale was "subject to Buyer’s ability to obtain a conventional mortgage of not less than $280,000 within 21 days," and included a $5,000 earnest-money deposit as liquidated damages. Nora had one casual conversation with a loan officer, filed no application with any lender, and declared the deal off when no commitment arrived by day 21.

If Eli sues for the earnest-money deposit, which is the strongest argument for Eli?

Explanation. Where performance is subject to the buyer’s ability to secure financing, the financing clause is a condition precedent, but it carries an implied obligation that the buyer make a reasonable and good faith effort to satisfy it. A buyer may not invoke the nonoccurrence of that condition if the buyer’s own lack of effort prevented it. Nora’s single informal conversation and failure to file any application support recovery by Eli.