The missing contingency

By: James L. Goldsmith, Esq.

I am surprised I have not heard this one before. It strikes me as an easily made mistake. An offer was made on the Standard PAR Agreement of Sale. At Paragraph 28, Special Clauses - the one that says, "the following are part of this Agreement if checked:" - there was a check in the box indicating an Appraisal Contingency Addendum. And, in fact, an Appraisal Contingency Addendum accompanied the Agreement when delivered to the listing agent.

Within a day, the listing agent sent a marked-up agreement to the buyer's agent. The modifications were few and the counteroffer was acceptable to the buyer. The counteroffer was initialed and dated where the changes appeared, and fully executed copies were distributed to all involved.

Several days later, the buyer's agent realized that the Appraisal Contingency had not resurfaced after the original was delivered to the listing agent with the offer. There was never any discussion between the agents that suggested the contingency wasn't acceptable. Further, the fully executed agreement stated that the contingency was part of the agreement.

Is there an agreement? Is the Appraisal Contingency part of the agreement? It depends. If the buyer seeks to enforce the agreement, the argument is that the parties fully executed the agreement and, by reference, incorporated the terms of the written Appraisal Contingency. Absent a finding that the seller never received the Appraisal Contingency, the buyer's argument is persuasive. After all, the agreement states that a contingency is part of the contract - and it can be proved that the contingency, clear on its face, was drafted and submitted to the seller.

The opposing argument, however, is that, to be binding, parties must execute an addendum. But if we only needed to incorporate an addendum by reference, then why would we publish them and have signature lines?

The only conclusion I can state with certainty is that this situation is uncertain. And if certainty is reached, parties may still point fingers at one another, or try to pin responsibility on some other scapegoat. Clearly the best practice is that all parts of an Agreement of Sale be executed at the same time, travel together, and be delivered in like fashion.

Mr. Goldsmith is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels employers on employee relations issues as one of the voices of the PAR Legal Hotline.