Introduction. Contract law is pretty basic; once the agreement becomes “binding” on a party, withdrawal normally cannot occur without consequences. The OREF Sale Agreement is no different.
Reduced to basics, if the Seller refuses to perform before closing, the Buyer has a right to file a claim in arbitration for specific performance (i.e., asking the arbitrator to enter an award requiring the seller to perform the terms of the Sale Agreement) and for damages, if any. [Note: This issue can become complicated if the Seller had duties to perform before closing, such as subdividing the parcel to be conveyed.]
If the Buyer refuses to perform before closing, the Seller has the right to retain the earnest money deposit held in escrow. But that is the Seller’s sole remedy. Under the OREF Sale Agreement, contrary to some sale agreements, the Seller does not have the right to seek an award of specific performance of the buyer. There are many reasons for this, which are best explained in another article.
The earnest money deposit is the contractual “liquidated damage” amount the parties agreed would be the Seller’s damages for the Buyer’s nonperformance. This is why deposits are important, and sellers should give them serious thought before arriving at a figure. If it is too low, a Buyer can walk away with minor financial consequences while the Seller’s property was tied up for several weeks during a hot market. Before settling on the amount of the earnest money deposit, Sellers should consider what they will be doing going forward: Will the Seller put down a deposit on another property? Relocating and getting another job? Will they be moving furniture and furnishings; putting them in storage? Will they move to another state? What would the financial consequences be if the transaction failed? These issues should be vetted before settling on the amount of earnest money deposit.
Definitional Sections 43(g) and (k). The Sale Agreement provides that it becomes binding on the “Effective Date.” It defines this term as the date and time the contract has been “Signed and Delivered” which is further defined to mean when the Seller and Buyer “…have signed [the] document, and delivered it to the other party.” The text goes on to say that “When a document is “Signed and Delivered,” the document becomes legally binding on Buyer and Seller, and neither has the ability to withdraw it.”
Note that this defintion applies not only to the Sale Agreement, but to counteroffers and addenda, unless they provide otherwise.
However, The Devil Is In The Details. The above defintions are generally correct as far as they go, but there are certain unstated assumptions and/or exceptions in the text. [Admittedly they could all be set out in detail in the Sale Agreement, but it would be 25+ pages long, no-one would read or understand it, and the attorneys would have a field day! As it is, in Oregon, attorneys are rarely involved in residential real estate transactions using the OREF forms.]
Here are some of those devilish details:
- If the Sale Agreement is signed by a Buyer and their agent submits it to the Seller’s agent (aka, the listing agent) there will be a designated time for the Buyer to accept, counter, or reject:
“This offer will automatically expire on (insert date and time) _____________________ at __________ ______ [ ] a.m.[ ] p.m. (the “Offer Deadline”). If not accepted by that time, Buyer may withdraw this offer before the Offer Deadline any time before Seller’s transmission of signed acceptance. This offer may be accepted by Seller only in writing.”
- This means that, in fact, there is a right for the Buyer to timely withdraw the offer, even though he/she did sign it – so long as Seller has not accepted the offer and delivered it to the Buyer (or Buyer’s agent).
- Also, unstated, but important to remember is that a Seller can make a counteroffer to the Buyer. [See Section 52.] In a counteroffer the Buyer has now become the “offeror”, saying, for example, “I will accept everything in your offer, except the Sale Price must be $X.”
- Also, it is not entirely correct to say that the once the Sale Agreement becomes binding on Seller and Buyer “neither has the ability to withdraw it.” As noted above, even though the Buyer signed and submitted their offer and the Seller signed and accepted it, Buyer can still withdraw – but doing so will mean that he/she will likely forfeit their earnest money deposit. Section 33.2 of the Sale Agreement provides:
“If Seller signs and accepts this Agreement and title is marketable, Seller, at Seller’s option, may terminate this Agreement, and all Deposits paid or agreed to be paid will be paid to Seller as liquidated damages, if: *** (c) Buyer fails to complete this transaction in accordance with the material terms of this Agreement.”
- Though not expressly stated above (perhaps it should be) transmitting a signed acceptance to an offer late, i.e. after the stated deadline, is not technically binding on either party – unless the parties expressly agree otherwise, or through performance, they act in a manner affirming the terms of the Sale Agreement. In such cases, the best practice is for both parties to enter into a written agreement reciting that notwithstanding the late acceptance, they will treat the Sale Agreement as binding.
- Remember, it is not sufficient to merely sign an acceptance to make a contract binding – that signed document must be hand-delivered or electronically sent via electronic mail or facsimile (“transmission”) to the offering party (i.e., the “offeror”) or their agent. Signing your acceptance to an offer at 8:00 PM on Tuesday night but fogetting to deliver it back by the Wednesday’s 5:00 PM deadline means there is no binding contract.
Conclusion. Carefully reading the OREF Sale Agreement is critical to understanding the parties’ rights and duties, and for understanding the deadlines. The best time to do this is before signing. If there is a change of mind after signing, options can become limited and timing becomes criticial. Prompt action in notifying the other side is necessary in mitigating any damage that might occur. ~Phil
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