Modifying the agreement? Be careful!

The standard forms available to members through your association are painstakingly crafted and edited; they are then passed before the scrutiny of many for additional revisions before they are available for your use. But how much care and consideration are given to the hand-written changes made on an agreement or addendum? I’ve seen the work of many and I know the answer!

A recent example of a modification gone wrong goes like this: The prospective buyer of the home in question needed to take possession of the home approximately six weeks before settlement. The seller was willing to accommodate the buyer provided that any deposit would be “non-refundable.” The parties negotiated an agreement, calling for a $4,600 deposit. On the agreement, near the location where the amount of the deposit was entered, the listing agent wrote “non-refundable.” He also wrote under “Additional Terms” the following, “Buyers deposit is non-refundable.” The agreement also included several contingencies, including a mortgage contingency.

The buyer made a timely written mortgage application, but was ultimately denied a mortgage. The seller was unable to “buy-down” the mortgage, or do anything else to make it available to the buyer, so the buyer exercised his right to terminate the agreement. Because the mortgage application was denied, the buyer requested that the deposit money be returned. The seller refused.  After all, the seller reasoned, the agreement made clear that the deposit was not to be refunded.

The buyer sued the seller for the full amount of the deposit money.  The buyer argued that the mortgage contingency clause in the agreement of sale made clear that if an agreement was terminated because a mortgage loan was not obtained for settlement, “all deposit monies will be returned to buyer…”  The judge agreed and the buyer won!

Regardless of the wisdom of the decision, there is no doubt that the listing agent dropped the ball. Despite his effort, the listing agent created an ambiguity by drafting an agreement that provided both for the deposit to be refunded and for it not to be refunded. A well drafted agreement provides no ambiguity.

An ambiguity in a contract exists when there are two inconsistent provisions. A body of law has developed around interpreting ambiguous agreements. There are doctrines providing that hand-written entries prevail over pre-printed material. There are also doctrines that construe ambiguities against the person who drafts them. Regardless, no licensee should ever require a client to test the strength of their draftsmanship. Did the agent consider that there are several locations in the agreement where a buyer may terminate the agreement and have the deposit returned? Did the listing agent presume that if an inspection revealed a dangerous latent condition the buyer would not be able to terminate and take back their deposit?

When drafting a revision to a standard agreement of sale, one must consider all of the “what-ifs.” Go through all of the possibilities that one typically encounters in an agreement and reconsider whether the amendment works under all circumstances. Further, when making a change, it is important to note if the modification is to take precedent and control despite any language in the preprinted agreement or addendum to the contrary.

In other articles, we have suggested that when modifications are requested or needed, advise to your client to engage their legal counsel to draft them. PAR has a considerable number of preprinted addenda, and whenever possible, these should be employed. As I started out, the PAR standard forms have undergone rigorous testing and careful scrutiny, whereas hastily drafted modifications have not.