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A recent case I thought you might find interesting is Russell v. Cook, 78 Wn. App. 427 (1995). It illustrates what happens when parties draft a Purchase and Sale Agreement they don’t completely understand.

The facts in Russell are confusing. Boiled down to their basics, Mr. Russell leased a house to the Taylors. The parties signed a “Lease with Intent to Purchase,” on September 24, 1988. The Taylors agreed to purchase the house within one year, and rent was set at $550 per month. The agreed purchase price was Russell’s outstanding mortgage balance.

Nearly four years later, in April 1992, the Taylors signed a Purchase and Sale Agreement and gave it to Russell. After negotiation, Russell accepted on May 1, 1992. The agreement gave the Taylors 90 days to apply for financing. The closing date was set as follows:

This sale shall be closed on OR BEFORE June 14, 1992, which shall also be the termination date of this agreement, provided, however, this sale shall also be closed after said date unless Seller or Purchaser gives written notice of termination after said date and before closing to the other party…”

It took me three tries before I understood what this clause was trying to say. It’s confusing because it first sets a firm closing date (June 14, 1992). It then extends closing indefinitely (“sale shall also be closed after said date.”) Thus, you have opposite extremes.

Did you also notice the June 14 closing date was set only 75 days into the Purchaser’s 90-day window to apply for financing? In short this document was hardly a model of clarity.

So what happened to the Taylors? Well, first they were unable to obtain financing. Consequently they increased their lease payments to $600 per month to compensate for the inconvenience caused, while they pursued other routes to buy the property.

In February 1993, Russell terminated their tenancy, and their rights to purchase the property under the September 1988 agreement. The Taylors gave notice they had cash to complete the transaction and were exercising their option to purchase. Russell refused, and filed an eviction action. The Taylors counter-sued for specific performance of the Purchase and Sale Agreement.

The September 1988 agreement was superseded by the April 1992 agreement;
The closing date of the April 1992 agreement extended indefinitely unless either side gave written notice to terminate; and
Russell’s notice that the September 1988 agreement was terminated did not affect the April 1992 agreement.

And because the Taylors gave notice they were ready to close before Russell terminated it, the Taylors were entitled to complete the deal.

Russell’s acceptance of the extra $50 per month rent payments implied he agreed to keep the option open; and
All the terms necessary to close were contained in the April 1992 agreement, and the parties simply required a closing date.

So what morals can be drawn from the story? First, be very clear when you draft. If you want to close by a specific date, say so. Don’t get trapped by the indefinite extension.

Second, our Courts will apparently enforce agreements that have no set closing dates as long as all other necessary elements of the transaction are in place. This seems a questionable decision to me, but may be the court’s attempt to rescue worthy purchasers from a bad agreement.

Third, when in doubt “do the right thing.” By continuing to pay rent, by paying extra rent, and by tendering the purchase price, the purchasers helped persuade the Court they were acting diligently and in good faith. This became important when they later asked the Court to rule in their favor.

NOTE: The Cooks took over from the Taylors while the case was on appeal, so that is why their name is on the case.

This article contains information of general interest, and is not intended to be, nor should it be relied upon as a substitute for specific legal advice.