Clients expect residential real estate transactions to be simple, and that expectation often flows into the legal profession. However, even relatively minor disputes can require sophisticated legal analysis. Disputes arising under the attorney review clause are but one example of how tangled legal thickets can arise from seemingly mundane circumstances.1
In the February 2005 edition of the Illinois Bar Journal, Helen W. Gunderson discusses practice under the attorney approval provisions, and gives a comprehensive review of current case law. She presents an excellent discussion of the "rejection and counter-offer" analysis found in the Olympic Restaurant case. Olympic Restaurant provides that a contract containing "an attorney approval clause is a qualified or conditional acceptance of the terms of the contract."2 Under this analysis, if an attorney sends a letter proposing to change the closing date from Monday August 18th to Friday August 15th and asks that Sellers be free to remove one particular fixture (i.e. a family heirloom the client said "was important but not worth killing the deal over"), the attorney has in fact rejected the initial contract and made a counteroffer.
Therefore, a practice of adding boilerplate language to all attorney approval letters declaring, "this letter is not a counter-offer" has developed. However, as Ms. Gunderson explains, many knowledgeable attorneys assert that such attempts to "have things both ways" simply does not work. Under conditional acceptance analysis, the original contract is either accepted or rejected.3 The Gunderson article explains this situation quite well and cites valuable resources.4 But it is disappointing that neither the Gunderson article nor any current case law analyze the common law doctrine of "condition subsequent" as a way to avoid the conditional or qualified acceptance and rejection/counter offer thicket altogether.
It does not appear that any party to any of these cases has argued that attorney review provisions (and home inspection provisions) constitute that legal creature known as the condition subsequent. This concept is often explained by contrasting it with the better-known legal creature known as the condition precedent. In Vuagniaux V. Korte, the 5th District Appellate Court stated:
"A condition precedent is to be performed before the contractual obligation becomes binding on the parties, while a condition subsequent is one which divests preexisting contractual liability on the failure to fulfill the condition. (Wysocki v. Bedrosian (1984), 124 Ill.App.3d 158, 163, 79 Ill.Dec. 564, 569, 463 N. E. 2d 1339, 1344; see generally Blackhawk Hotel Associates v. Kaufman (1981), 85 Ill. 2d 59, 51 Ill. Dec. 658, 421N. E.2d 166; 3A Corbin on contracts, 739 et, seq. (1960) "A ‘condition precedent’ is defined as an event which must occur or an act which must be performed by one party to an existing contract before the other party is required to perform. [citations omitted] The obligations of the parties end in the event that a condition precedent is not satisfied.") Maywood Proviso State Bank v. York State Bank & Trust Co. (1993), 252 Ill.App.3d 164, 168, 192 Ill.Dec.123, 127, 625 N. E. 2d 83, 87.) A condition subsequent, on the other hand, is an event which, if it occurs, discharges preexisting contractual liability."5
Similarly, the Northern District of Illinois describes the condition subsequent as follows:
A condition precedent is a condition that must be performed before contractual obligations become binding on both of the parties. Vuagniaux v. Korte, 273 Ill.App.3d 305, 309, 210 Ill.Dec. 38, 652 N.E.2d 840 (5th Cir.1995). "A condition precedent is defined as an event which must occur or an act which must be performed by one party to an existing contract before the other party is required to perform." Id., quoting, Maywood Proviso State Bank v. York State Bank & Trust Co., 252 Ill.App.3d 164, 192 Ill.Dec. 123, 625 N.E.2d 83 (1st Dist.1993). A condition subsequent is "an event which, if it occurs, discharges preexisting contractual liability."
A condition subsequent is "an event which, if it occurs, discharges (or dissolves) preexisting contractual liability." Given this easily understood definition, the analysis outlined above appears to make excellent sense. Especially in the context of the attorney review provision quoted from the Multi-Board Residential Real Estate Contract 3.0 cited below:
"If within ten (10) business days after Date of Acceptance, written agreement on proposed modification(s) cannot be reached by the Parties, this Contract shall be null and void"
Accordingly, a real estate contract becomes valid when signed and remains valid unless an attorney raises an issue and those issues remain unresolved after ten (10) business days. The application of condition subsequent analysis would mean that the issuance of an attorney approval letter by itself does not constitute a rejection of anything, but rather merely begins negotiation as to whether the condition subsequent is triggered.
Following this analysis, if an attorney sends a letter proposing to change the closing date from Monday August 18th to Friday August 15th and asks that Sellers be free to remove one particular fixture - - a family heirloom the client said "was important but not worth killing the deal over" - - and the Buyers’ attorney attempts to cancel the deal entirely, Seller can withdraw the request within the critical ten business day window and the condition subsequent is not triggered.
Under condition subsequent analysis, a contract would become null and void only if an attorney’s approval letter is written and the parties subsequently fail to reach agreement within the time period allowed by the contract. If no issues are raised, the contract obviously remains valid. If issues are raised and the parties resolve them to their mutual satisfaction, the contract obviously remains valid. If issues are raised, and a party declines to accept the proposal and then the original party withdraws the request within the critical time period, it can be argued that agreement was reached within the specified time, and since the condition subsequent was therefore satisfied, the contract remains valid.
To the author’s knowledge, the condition subsequent argument has not been raised with any Appellate Court. Therefore, whether this analysis would be accepted by the courts is unknown. The cases cited in endnote 4 do appear to state the current applicable case law.
Although residential real estate transactions too often involve tangled legal issues, the dollar amounts at stake often do not warrant extensive litigation, or appeal. Therefore, it might be prudent for the various bar associations who contribute to the drafting of standard approved forms to rewrite the attorneys’ review clause in a manner that expressly states that these provisions constitute a "condition subsequent." The author submits that we all will benefit by any development that reduces conflict and adversarial posturing in the typical house-closing context.
Just as some families believe you cannot have a wedding without a fight, some people apparently believe you cannot buy or sell a house without seeking to win one or another petty advantage by some "lawyer trick". The author encourages the real estate bar to do everything possible to suppress this way of thinking.
1 See Multi-Board Residential Real Estate Contract 3.0. "ATTORNEY REVIEW: The respective attorneys for the Parties may approve, disapprove, or make modifications to this Contract, other than stated Purchase Price, within five (5) business days after the Date of Acceptance. Disapproval or modification of this Contract shall not be based solely upon stated Purchase Price. Any notice of disapproval or proposed modification(s) by any party shall be in writing. If within ten (10) business days after Date of Acceptance written agreement on proposed modification(s) cannot be reached by the Parties, this Contract shall be null and void and earnest money refunded to Buyer upon written direction of the Parties to Escrowee. If written notice is not served within the time specified, this provision shall be deemed waived by the Parties and this Contract shall remain in full force and effect."
2 See unpublished 2nd District opinion, Terry v. Cafferata, No: 2-03-048, July 2004
3 See 93 Ill. Bar Journal at page 74.
4 See the following cases: Grossinger Motorcorp, Inc v National Bank and Trust Company, 240 Ill. App. 3d 737, 607 NE2d 1337 (1st Dist. 1992); Olympic Restaurant Corp v Bank of Wheaton, 25 Ill. App. 3d 594, 622 NE2d 904 (2d Dist.1993); Groshek v Frainey, 274 Ill. App. 3d 566, 654 NE2d 467 (1st Dist. 1995);Hubble v O’Connor, 291 Ill. App. 3d 974, 684 NE2d 816 (1st Dist. 1997); Dennis F. McKenna Co v Smith, 302 Ill. App. 3d 28, 704 NE2d 826 (1st Dist. 1998); Schwinder v Austin Bank of Chicago, 348 Ill. App. 3d 461, 809 NE2d 180 (1st Dist. 2004) (contract modification)
5 VUAGNIAUX V. KORTE 273 Ill.App. 3d 305, 652 N. E. 2d 840 210 Ill. Dec. 38 (5th Dist.1995)