The Defaulting Buyer and the Vanishing Earnest Money
Okafor agrees in writing to sell his 40-acre Arkansas farm to Delgado for $520,000, closing in 45 days. The contract states: 'Buyer deposits $25,000 earnest money with Riverbend Title, refundable only if seller fails to convey marketable title. Time is of the essence.' Delgado deposits the funds. On day 30, Delgado's lender denies financing; Delgado sends a letter demanding return of the $25,000, citing a financing contingency that appears nowhere in the signed document but was discussed orally at signing. Okafor refuses and, on day 46, sells the farm to a third party for $560,000. Delgado sues for the earnest money; Okafor counterclaims for breach. The parol evidence rule, the statute of frauds, and the doctrine of anticipatory repudiation are all potentially in play.
1. Can Delgado introduce evidence of the oral financing contingency? Analyze under the parol evidence rule and the statute of frauds.
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Parol evidence rule. The contract is a complete, integrated writing with a merger-style term ('refundable only if seller fails to convey marketable title'). Under the parol evidence rule, a party may not introduce prior or contemporaneous oral agreements that contradict or supplement a fully integrated writing. A financing contingency would contradict the express refundability term, so it is inadmissible. Even under a partial-integration analysis, contradiction is fatal.
Statute of frauds. A land sale contract must be in writing and signed. The writing here satisfies the SOF as to the sale, but the oral financing term is not in the writing and is not signed. Delgado cannot use the oral term to vary the writing.
Exceptions check. No fraud, mistake, or condition precedent to formation is alleged - the financing discussion was a term of performance, not a condition to the contract coming into existence. Delgado loses on this point.
2. Did Delgado breach, and what is the effect of Okafor's resale on day 46?
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Breach. Time was of the essence and Delgado failed to close on day 45 without a contractual excuse. His day-30 letter demanding return of the deposit is an anticipatory repudiation - a clear, unequivocal statement he would not perform. Okafor could treat it as breach immediately or wait.
Resale. Okafor waited past closing and resold. Because Delgado had repudiated, Okafor was entitled to cover. The resale at $560,000 actually yielded Okafor more than the contract price, so Okafor has no expectation damages - he is better off by $40,000. Okafor may still retain the earnest money only to the extent of actual damages; a forfeiture clause is enforceable as liquidated damages only if reasonable relative to anticipated loss. With no loss, retention of the full $25,000 is likely an unenforceable penalty.
Bottom line. Delgado breached; Okafor has no damages and must return the deposit (perhaps minus incidental costs actually proven).
3. If Okafor had resold on day 20 after Delgado's repudiation, would the result change?
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Yes, materially. A repudiation before the time of performance gives the non-breaching party the option to (1) treat it as breach and sue immediately, or (2) await performance. If Okafor resells on day 20 at $560,000, he has mitigated and again has no loss - the earnest money must be returned. The timing does not change the damages math; it only changes when Okafor's claim accrues. The key variable is the resale price, not the resale date. If the resale had been at $490,000, Okafor could recover the $30,000 difference plus incidental costs, and could apply the earnest money toward that judgment.