STATE OF MINNESOTA
IN COURT OF APPEALS
John A. Tebben, et al.,
Carlson Construction, Inc.,
Filed December 28, 1999
Kandiyohi County District Court
File No. C397354
Dan T. Ryerson, John E. Varpness, Gislason, Martin & Varpness, P.A., Suite 444, 7600 Parklawn Avenue South, Edina, MN 55435 (for respondent)
Considered and decided by Crippen, Presiding Judge, Short, Judge, and Forsberg, Judge.[*]
Respondent Carlson Construction, Inc., entered into a purchase agreement in 1994 to buy lots from appellant that respondent intended to improve and sell. Respondent purchased only one of the lots. Following trial of appellant's suit to enforce the agreement, the trial court concluded there was no breach of the contract because the contract addendum provided that
[t]he sale is contingent upon approval by the Farmers Home Administration of the lots and the proposed dwellings to be constructed on the lots by Buyer and the proposed selling prices projected by Buyer upon completion of construction of dwellings on the said lots.
There being no merit to appellants' contention that the contingency clause did not apply or was not legally effective, we affirm.
FmHA must approve sale of the completed dwellings and lot for FmHA financing. Buyer shall diligently pursue such approval and if the same cannot be obtained, this agreement shall be of no further force and effect and any moneys paid by Buyer to Sellers shall be returned to Buyer.
Appellant developed the land as required by the purchase agreement, performing fully under the contract so that the lots were ready to have dwellings built on them. Respondent closed on one lot, paid for it, and built a dwelling on this parcel.
The Farmers Home Administration program underwent significant changes in late 1994. These changes made it difficult to obtain FmHA financing for new construction projects for several reasons. The FmHA budget for new construction was cut. There were "virtually no funds available because the funding was already committed" to applicants with conditional commitments. The agency imposed new and lower "price caps" on the housing it would finance, and these caps made it "virtually impossible for any contractor to build a house under the price cap and still meet the FmHA criteria." Because of these changes, there were almost no contractors in the Willmar area building FmHA-financed homes, and "no construction statements" came in to Willmar's FmHA office "under the cap imposed after" October 1994, "other than on tax-forfeited lots." On November 16, 1995, respondent notified appellant that the sale could not go forth because the financing contingency could not be met.
Contending that the contingency clause in the purchase agreement does not apply, appellant points to testimony that the FmHA had funds for financing construction at a cost less than its price cap. But the trial court did not clearly err in finding that respondent's efforts to construct homes under price caps were "virtually impossible." The record includes overwhelming evidence that the FmHA drastically altered its standards for approving loans and approved virtually no newly constructed homes after October 1994 in its Willmar office. The agreement called for respondent to "diligently pursue" loan approvals, but there is nothing in the agreement that suggested it was the buyer's obligation to build and sell homes at prices substantially less than the cost of construction. In fact, the contingency agreement provided that the loan approval was to be sought for the "proposed selling prices projected by Buyer upon completion of construction of dwellings on the said lots," a clause that suggests the normal business practice of a buyer in projecting prices for the kind of construction that was to occur.
Appellant also contends that the contingency clause was overridden as a matter of law by other language in the contract that stated respondent's obligation to purchase the lots and close the transactions by certain deadlines. The trial court correctly determined that the loan approval clause was as represented, establishing that the sale was "contingent" and would be of "no force" if respondent could not obtain FmHA financing.
Similarly, the trial court did not err as a matter of law in finding that the contingency clause was not superseded by a clause requiring respondent to pay real estate taxes after a certain date, or by the past practices of respondent in closing some transactions before obtaining loan approval.
There is no merit to appellant's contention that the contingency clause must be disregarded because it effectively renders the contract "illusory." To the contrary, the clause required respondent to expend a "diligent" effort to obtain loan approval, which obligation the trial court found respondent had fulfilled.
[*] Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.
 We have reviewed, but deny, respondent's motion that the appeal should be dismissed as moot in light of the sale transaction by appellants since the appeal was filed.