Agreement of Sale Releases Do Not Terminate Contract

James L. Goldsmith, Esquire

The Agreement of Sale Release is one of PAR's shortest standard forms yet it can cause great damage when improperly used.

Previously I cautioned that the Release is not a substitute for a notice of termination. An example given was a transaction where the buyer failed to obtain a mortgage commitment within the time stated in the agreement of sale. The seller chose to terminate the agreement, as was his right, and asked his listing agent to follow through.

The listing agent should have given the buyer agent a written notice of termination but instead gave the buyer a standard Release signed by the seller. Rather than having the buyer sign the Release, the buyer agent worked frantically with his client to get a mortgage commitment which was then delivered to the listing agent in lieu of the Release.

PAR's Agreement of Sale Release does not terminate a contract. The listing agent submitted a Release to the buyer rather than a written termination. Using the Release allowed the buyer to continue in the transaction. Had the listing agent submitted a written Termination, the transaction would have terminated. (The association's response to that type of misuse of the Release led to the publication of a new standard form: the Notice of Termination of Agreement of Sale.)

The Release may also be misused when it fails to include all of the provisions of the termination agreement by and between buyer and seller. Take, for example, the case of a transaction destined for failure because of a title problem that made transfer of "marketable" title an impossibility. The Standard Agreement of Sale gives the buyer a choice: 1) take what title the seller can provide (rarely an acceptable alternative) or 2) terminate the Agreement and recover deposits and out-of-pocket expenses incurred in obtaining a title report, attorneys' fees and similar expenses referenced in the Agreement. As you would expect, the buyer elected to terminate the contract, seek out-of-pocket expenses and the return of deposit monies.

The buyer agent knew that one of her responsibilities was to secure a return of her buyer's deposit money. She also knew that a Release signed by the buyer and seller would expedite its return. She therefore prepared a Release that stated that all of the buyer's deposit would be returned to buyer, had the buyer sign it and delivered it to the listing agent. The listing agent, in turn, had the seller sign it and returned it and the buyer's deposit to the buyer agent.

Days later the buyer reminded her agent that she was also entitled to attorneys' fees and title search costs as is permitted under Paragraph 19 of the Agreement. Unfortunately for our buyer and her agent, the seller responded by denying the request. The seller took the position that the transaction had been fully settled as was evidenced by a signed Release executed by all parties.

While it's true that a Release is intended to bring finality to a transaction, it is also true that it must recite each and every condition to be invoked by both sides as part of the termination agreement. Any term that is omitted is lost. The broker should have made clear that the release of the parties was dependent upon the payment by the seller of the buyer's out-of-pocket expenses as permitted in the Agreement.

Keep in mind that while PAR has published a standard Release, it may not fit every situation. The standard Release provides only for the distribution of deposit monies and does not have a location to recite other terms that may be part of the final settlement or resolution of the terminated transaction. As with other legal documents, a lawyer's review may have prevented the problem.