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COURT OF APPEALS DECISION DATED AND RELEASED January 31, 1996 |
NOTICE |
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A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and
Rule 809.62, Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 95-0850
STATE
OF WISCONSIN IN COURT OF
APPEALS
DISTRICT II
RUSSELL A. JORGENSEN
and
JEAN M. JORGENSEN,
Plaintiffs-Appellants,
v.
DEAN G. KATZ and
JUDY C. KATZ,
Defendants-Respondents.
APPEAL from a judgment
of the circuit court for Waukesha County:
MARK GEMPELER, Judge. Reversed
and cause remanded.
Before Brown, Nettesheim
and Snyder, JJ.
PER CURIAM. Russell A. and Jean M.
Jorgensen appeal from a judgment granting summary judgment dismissing their action
against Dean G. and Judy C. Katz for the Katzes' alleged failure to make a good
faith effort to satisfy the financing contingency in a residential offer to
purchase. We conclude that competing
inferences arise from the totality of the record which preclude summary
judgment. We reverse the judgment and
remand the action.
The record reveals the
following undisputed facts. On February
4, 1993, the Katzes offered to purchase for $67,000 real estate owned by the
Jorgensens. The Katzes' father, Gerald
Katz, a licensed real estate broker, prepared the offer to purchase. The offer was made contingent upon the
Katzes' ability to obtain "a firm written commitment for a conventional
mortgage loan for $60,300.00 with initial interest not to exceed 8.125% per
annum for a term of not less than thirty (30) years." By the Jorgensens' counteroffer, the
purchase price was reduced to $65,500 and the closing date moved to on or
before March 16, 1993.
On February 12, 1993,
the Katzes applied for a mortgage of $67,950 with an initial interest rate of
6% at The Equitable Bank S.S.B. A
credit report was ordered and completed by February 24, 1993. That report revealed a number of delinquent
credit accounts and an outstanding judgment against Judy. By a letter of March 25, 1993, the Katzes
were formally notified that their application had been rejected because of
delinquent credit obligations.
The Jorgensens' property
was subject to a sheriff's foreclosure sale on April 12, 1993. The Katzes' $50,500 bid was accepted. Having cleared up credit problems and being
gifted money by Gerald toward a larger down payment, the Katzes purchased the
Jorgensens' property with a mortgage from Equitable.
The Jorgensens commenced
this action for breach of contract. The
complaint alleges that the Katzes failed to take reasonable and necessary
efforts to procure financing at the terms and conditions indicated in the offer
to purchase. As damages they sought the
difference between the purchase price of $65,500 and the price at which the
property was sold of $50,500. The trial
court concluded that there was no dispute of fact that the Katzes made
reasonable efforts to obtain financing.[1]
We do not review a trial
court's decision granting summary judgment; we independently apply the
methodology set forth in § 802.08(2), Stats.,
to the record de novo. See Wegner
v. Heritage Mut. Ins. Co., 173 Wis.2d 118, 123, 496 N.W.2d 140, 142
(Ct. App. 1992). The methodology we
apply in summary judgment analysis has been stated often and we need not repeat
it. Id. Summary judgment should be granted where
there is no genuine issue of material fact and the moving party is entitled to
judgment as a matter of law. Id.
The moving party bears
the burden of demonstrating the absence of a genuine issue as to any material
fact with such clarity as to leave no room for controversy. See Grams v. Boss, 97 Wis.2d
332, 338, 294 N.W.2d 473, 477 (1980).
The inferences to be drawn from the moving party's proofs should be
viewed in the light most favorable to the party opposing the motion, and doubts
as to the existence of a genuine issue of material fact should be resolved
against the party moving for summary judgment.
Id. at 338-39, 294 N.W.2d at 477.
Wisconsin recognizes
that "`every contract implies good faith and fair dealing between the
parties to it, and a duty of cooperation on the part of both parties.'" Super Valu Stores v. D-Mart Food
Stores, 146 Wis.2d 568, 577, 431 N.W.2d 721, 726 (Ct. App. 1988)
(quoting Estate of Chayka, 47 Wis.2d 102, 107 n.7, 176 N.W.2d
561, 564 (1970)). There is no Wisconsin
case which defines the efforts required of real estate purchasers to satisfy
the financing contingency in an offer to purchase. The Jorgensens suggest that the duty of good faith is breached
when the loan applied for does not precisely meet the terms stated in the offer
to purchase.[2] We decline to adopt such a rule,
particularly in light of the language in the offer to purchase which gives the
buyer the option of obtaining financing upon different terms.[3] Whether a purchaser has exercised good faith
in trying to obtain financing so as to complete the transaction under the offer
to purchase is a matter to be determined on a case-by-case basis.
Looking at the totality
of the summary judgment record here, we conclude that competing inferences
arise as to whether the Katzes exercised reasonable diligence in obtaining
financing in order to complete the transaction with the Jorgensens. We look to three circumstances as giving
rise to an inference which defeats summary judgment. First, in just a little more than two weeks from the letter
rejecting their loan application, the Katzes were able to obtain a loan for
$55,000 from Equitable. Second, the
severe credit problems which prevented the approval of the Katzes' loan were
cleared up in short order.
Additionally, the Katzes applied for a loan that was not only in excess
of the purchase price and in excess of the amount stated in the financing
contingency in the offer to purchase, but which sought a lower interest rate as
well.
The Katzes claim that
they were only able to obtain the subsequent loan because money gifts from
Gerald increased their down payment and eliminated the need for mortgage
insurance. However, a factual issue
exists as to whether those gifts were made early enough to obtain the financing
within the terms of the offer to purchase.
Gift affidavits were dated March 18 and 23, 1993, for a total gift of
$6500. Similarly, the record reflects
that in early February and March 1993, Judy was making payments to satisfy
accounts listed as delinquent on the credit report.
The Katzes argue that
the March 25 rejection letter,[4]
gift money and clearing of the credit problems came too late to save the
transaction under the offer to purchase.
They contend that once the closing date passed, the offer to purchase
was null and void and they no longer had any duty to act. Although it is true that the offer included a
March 16, 1993 closing date, the record gives rise to an inference that the
parties continued the offer to purchase after the closing date passed. The affidavit of the Katzes indicates that
after the rejection letter was received, they made inquiries at two other banks
about the possibility of obtaining a loan "so as to enable us to
close."[5] The affidavit also acknowledges that they
continued to put effort into closing with the Jorgensens until April 9, 1993,
when the Katzes learned of the pending foreclosure sale. A factual issue exists as to whether the
parties continued the offer to purchase and whether good faith efforts to
obtain appropriate financing were made.[6]
While we do not decide
here whether the Katzes were obligated to seek a loan on the precise terms set
forth in the offer to purchase, we note that they attempt to justify their
decision to seek a loan in an amount in excess of that stated in the
offer. The affidavits establish that an
additional $10,000 was added to the loan amount for alterations, repairs and
improvements to the property. However,
the offer to purchase acknowledged the Katzes' knowledge that the property was
in need of repair and stated that the sale was an "as is"
condition. Gerald's affidavit indicates
that when he drafted the offer to purchase, he was aware that the property was
in need of substantial repairs, alterations and improvements and that the costs
would be approximately $10,000. Thus,
rather than supporting a conclusive finding that the Katzes acted in good faith
in seeking the loan for an excess sum, a competing inference arises that the
financing contingency did or should have anticipated the need for additional
funds.
Finally, the Katzes
argue that even if they concede arguendo that they breached the offer to
purchase, as a matter of law there were no damages. Their argument is based on what they characterize as
"uncontested evidence" that they would have been rejected for a loan
even if they had requested the amount specified in the contract. The "uncontested evidence" is the
affidavit of Equitable's loan officer stating that due to credit problems, the
Katzes would have been denied a loan on the terms stated in the offer. This proof is valid only as to what
Equitable would have done. The
financing contingency was not limited to one bank. While we do not decide what obligation the Katzes had to seek a
loan at other financial institutions, summary judgment cannot be based on
speculation that suitable financing was unattainable. This is particularly true in light of the fact that the Katzes
were able to purchase the property days later and intended to do so at the
contract price.[7] We have already determined that the record
gives rise to issues of fact as to the ability of the Katzes to timely obtain
appropriate financing. These factual
issues likewise bear on whether the alleged breach of the contract was causal
as to the Jorgensens' damages.
Upon reversal of the
judgment, we reject the Katzes' contention that the appeal is frivolous. Their motion for costs and attorney's fees
under Rule 809.25(3), Stats., is denied.
By the Court.—Judgment
reversed and cause remanded.
This opinion will not be
published. See Rule 809.23(1)(b)5, Stats.
[1] The trial court relied on an affidavit from a loan officer at Equitable stating that even if the Katzes had applied for a loan within the terms of the offer to purchase, the loan would have been denied. We read the trial court's decision to assume that there was a breach of contract but that it was not causal to the Jorgensens' damages.
[2] The Jorgensens cite Wiggins v. Shewmake, 374 N.W.2d 111 (S.D. 1985); Schottland v. Lucas, 396 So.2d 72 (Ala. 1981); and Beekay Realty Corp. v. Cayre, 256 So.2d 539 (Fla. App. Ct. 1972), in support of their proposition. We do not read these cases to establish the per se rule the Jorgensens suggest.
[3]
The financing contingency provides in part:
Buyer shall furnish Seller with
firm written mortgage loan commitment for stated financing or may furnish
Seller with firm written mortgage loan commitment for financing with terms that
may be different than above, within 25 days of acceptance of this offer to
purchase, or Seller may after said days at Seller's option, cancel this
agreement provided Seller has canceled this agreement prior to receipt of
required financing commitment, and all monies paid by Buyer shall be returned
to the Buyer in accordance with the terms of the offer to purchase. In the event Buyer applies for financing
with terms different from the financing terms set forth herein, and receives a
firm written mortgage loan commitment for such financing, Buyer waives the
right to cancel this contract on the basis of such difference(s) in the terms
of said financing.
The Jorgensens argue in their reply brief that this clause operates to protect the seller from a buyer who does not make a good faith effort to obtain financing. To the extent their argument suggests that the clause permits a buyer to obtain financing on terms less favorable than those stated in the contract, their point may be well taken. However, we need not decide the effect of the clause here.
[4] The Katzes argue that they did not have an obligation to make a second loan application when the initial application was not even decided until the closing date had passed. They submit that such an application would have been futile.
[6] The affidavit of the Katzes' attorney explains that one of the "apparent impediments" to financing was a judgment against Judy. The affidavit states that it took Judy's attorney "a period of time beyond the original closing date in the offer to purchase to obtain a release and dismissal of that judgment." However, the record is silent as to when the judgment was released. In light of the loan Equitable made after the Katzes' purchase at the foreclosure sale, just days after the Katzes apparently abandoned any notion of completing the sale, an issue of fact also exists as to how long the judgment remained an impediment to the loan.