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39. Is the seller likely to prevail?
A seller entered into a contract to sell to a buyer a house for a price of $150,000. The contract contained the following clause: «This contract is conditional on the buyer's securing bank financing at an interest rate of 7% or below.» The buyer did not make an application for bank financing and therefore did not secure it, and refused to proceed with the purchase. The seller sued the buyer for breach of contract.
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A is incorrect. As stated above, the buyer had a good faith duty to try and secure bank financing. The buyer breached this duty by failing to apply for financing.
B is incorrect. As stated above, the duty of good faith imposed an obligation on the buyer to make reasonable efforts to secure the described bank financing.
C is incorrect. A performance that is subject to an express condition cannot become due unless the condition occurs or its nonoccurrence is excused. The nonoccurrence of a condition may be excused in order to avoid disproportionate forfeiture. The excuse is inapplicable here because there was no forfeiture, which is defined by the comments to § 229 of the Restatement (Second) of Contracts as «the denial of compensation that results when the obligee loses his right to the agreed exchange after he has relied substantially, as by preparation or performance, on the expectation of that exchange.»