After a seller was unsuccessful in obtaining title insurance as required under the sales contract, it returned the buyer’s earnest money and canceled the contract. The buyer filed suit, seeking performance of the contract.
The case is Saticoy Bay LLC d/b/a Saticoy Bay LLC Series 3834 Windansea St., a Nevada Limited Liability Company; and Iyad Haddad v. Farah Feda; and Nimratdip Deo (Supreme Court of Nevada, No. 84451).
Saticoy Bay and Iyad Haddad contracted with Farah Feda and Nimratdip Deo to sell residential property. The contract was contingent on Saticoy obtaining title insurance. Saticoy sought title insurance from an insurer who ultimately refused to issue a policy because it believed that the property was encumbered by a second deed of trust in addition to the first deed of trust.
Because it was unable to obtain title insurance, Saticoy returned Feda’s earnest money deposit and canceled the contract. Feda then filed suit seeking, among other things, specific performance of the contract. The lower court granted summary judgment and ordered Saticoy to convey the property to Feda per the terms of the contract. Saticoy appealed.
The appellate court affirmed the lower court’s decision.
“Saticoy contends that the district court erred in rejecting its frustration-of-purpose defense. We disagree,” the court stated. “This defense ‘does not apply if the unforeseen contingency is one which the promisor should have foreseen, and for which he should have provided.’ Here, Saticoy should have provided for the possibility that a single title insurer would not provide insurance, and it could have easily rectified this situation by consulting a second or even third insurer. Or, as Feda points out, Saticoy could have filed third-party claims against the first title insurer and the second deed of trust beneficiary in the underlying action seeking a declaration that the second deed of trust was no longer secured by the property.
“In any event, Saticoy’s frustration-of-purpose defense lacks merit because ‘[i]t is not enough that the transaction has become less profitable for the affected party,’” the court continued. “Here, the record indicates that even if Saticoy paid off the loan securing the second deed of trust, it still would have stood to make a roughly $112,000 profit based on its acquisition of the subject property for roughly $10,000 at the HOA foreclosure sale. Accordingly, we are not persuaded that the district court erred in rejecting Saticoy’s frustration-of-purpose defense.”