Caseflicks

Supreme Court of Connecticut • 1972

Luttinger v. Rosen

164 Conn. 45 | 316 A.2d 757 | 1972 Conn. LEXIS 644

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Takeaway

In short, this case enforces a mortgage contingency as written: buyers who diligently seek the specified financing may terminate the contract and recover their deposit when that financing is unavailable.

Background

The plaintiffs agreed to buy the defendants’ Stamford property for $85,000 and paid an $8,500 deposit. The agreement made the purchase conditional on the buyers obtaining a first mortgage from a bank or other lending institution for $45,000, with a term of at least twenty years and an interest rate no higher than 8½ percent. The plaintiffs also promised to use due diligence to obtain that financing. If they could not obtain it and gave timely notice, the contract required the return of their deposit and terminated both parties’ obligations.

The plaintiffs’ attorney, who knew the available mortgage market, applied to the only lender then willing to make a $45,000 loan on a single-family house. That lender offered a twenty-five-year loan at the prevailing rate at closing, but at no less than 8¾ percent. The plaintiffs timely notified the defendants that the financing contingency had failed and demanded their deposit. The defendants later offered an undefined arrangement to fund the interest-rate difference, but the plaintiffs declined. The trial court ruled for the plaintiffs and ordered recovery of the deposit; the defendants appealed.

Issues

Issue #1

Whether the plaintiffs exercised the due diligence required by the mortgage-financing contingency.

Holding

Yes. The plaintiffs used due diligence by applying to the only lender that could realistically have provided financing meeting the contract’s principal terms.

Reasoning

The trial court’s unchallenged findings established that the plaintiffs’ attorney was informed about mortgage terms offered by banks and lending institutions both inside and outside the area. Based on that knowledge, he applied to the only institution then capable of lending as much as $45,000 on a single-family residence.

The defendants argued that the plaintiffs should have submitted applications to additional lenders. The court rejected that argument because due diligence does not require a party to perform futile acts. Once the evidence showed that no other lender could satisfy the specified financing terms, further applications would not have been required.

Issue #2

Whether the mortgage commitment and the defendants’ later offer satisfied the contract’s condition precedent, entitling the plaintiffs to rescind and recover their deposit.

Holding

No. The required condition precedent was not met, and the plaintiffs were entitled to the return of their deposit.

Reasoning

A condition precedent is an event that the parties intend to occur before either party has a right to demand contractual performance. If that event does not occur, the contract is not enforceable according to its purchase obligations.

The contract unambiguously required a $45,000 mortgage from a bank or other lending institution at an interest rate not exceeding 8½ percent. The lender’s commitment set a rate at the prevailing rate at closing, with a minimum of 8¾ percent, so it did not provide the financing the contract required.

The defendants’ later proposal to fund the difference between the bank’s rate and the contract rate could not cure the failed condition. The parties had made the purchase contingent on obtaining qualifying institutional financing, not on the sellers’ separate and undefined promise to subsidize excess interest. For that reason, the trial court also properly excluded evidence of the later offer as irrelevant.