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Real Estate Purchase Contract Ruled Unenforceable

Two parties can't agree?
What happens when two parties can’t agree? As in the case of King vs. Bray, the courts make the decision.

In a recent case (King vs. Bray), confusion over the wording of a contract had the buyers and sellers at odds. That’s why it’s so important to be very careful when drafting the terms of the contract, whether in an addendum or in the contract itself. Make sure the wording is absolutely clear.

Here’s what happened in this case.

The Kings and the Brays entered into a purchase and sale agreement for the Kings to buy the Brays’ home and assume their existing mortgage. The contract contained an addendum that stated: “When mortgage is assumed and loan is liquidated, sellers: Larry and David Bray are to be released from liability and VA [Department of Veterans Affairs] certificate is to be returned to Larry Bray.”

According to the Kings, nothing in the contract required them to return the VA certificate at closing as the Brays apparently expected. The Kings understood that the certificate would be returned after the loan was paid in full. When the Brays learned that the lender would not return the certificate until the loan was satisfied, they refused to close. At trial, the Brays testified that the addendum meant that when the loan was assumed they would get their certificate back at closing. The real estate sales associate who prepared the addendum testified that she understood that the certificate was to be returned at closing.

The Court’s Findings
The trial court found that the return of the certificate was a major consideration for the Brays when they signed the contract because they wanted to use the VA certificate to buy another home. The trial court found that there was no meeting of the minds because the Brays had a different understanding than the Kings. Accordingly, the judge entered an order denying the Kings’ request for specific performance of the contract. The Kings appealed to the Florida 5th District Court of Appeal, which stated that specific performance may be denied when a contract is unenforceable, because “Based on an ambiguity in the contract, the parties never reached a meeting of the minds regarding an essential term of the agreement.”

The Kings argued that the contract was clear and unambiguous and could not mean that the certificate of eligibility would be returned at closing because such an interpretation would result in an absurdity and render assumption of the loan, as contemplated by the contract, impossible to accomplish.

The district court found that, contrary to the assertion of the Kings, there are instances under federal law when a VA certificate can be returned at closing. For example, if the buyer is also a veteran or if the buyer applies for and receives a waiver from the VA Secretary, a certificate may be returned at closing. Therefore, the Brays’ intent to have the certificate returned at closing was not without basis in law, impossible or meaningless as the Kings contended.

The district court agreed with the trial court that the contract was ambiguous and that, therefore, the parties had never formed an enforceable contract based on their different views of what the contract meant. According to the district court, “It is well established that a meeting of the minds of the parties on all essential elements is a prerequisite to the existence of an enforceable contract.”

The court next had to determine whether the provision in the addendum regarding the certificate of eligibility was an essential element of the contract. The court stated that, while a meeting of the minds on every term may not be necessary for a contract to be formed, mutual assent is certainly necessary on an essential term. The trial court found that the provision regarding the return of the VA certificate was a major consideration of the sale, and the Kings did not argue otherwise. Accordingly the district court affirmed the trial court in denying specific performance. (King v. Bray 867 So2d 1224) (Fifth DCA Fla.)

Written by Jeff Marks, Legal Counsel, Northeast Florida Association of Realtors® (NEFAR) Reprinted with permission from author Jeff Marks and NEFAR News, July 2005 edition, a publication of the Northeast Florida Association of Realtors (NEFAR).