11/18/2020

Earnest Money Contract Clauses

Earnest money is a very, very common element of a purchase agreement for all types of purchases: businesses; houses; equipment; and more. From my perspective, payment of earnest money is important only if the contract language makes it important.

Minnesota law defines earnest money only as money paid to express an intention of a buyer. See Silver Ball Too, Ltd. v. B & E Enterprises, 390 N.W.2d 12, 16 (Minn. Ct. App. 1986). As another source, Black's Law Dictionary defines earnest money as "A sum of money paid by a buyer at the time of entering a contract to indicate the intention and ability of the buyer to carry out the contract." These definitions are substantially the same. What they both express is the intent of the buyer. But, given earnest money is only going to be paid if there's some form of an agreement already in place, is it not the case that there is already some expression of intent on behalf of the buyer?

The importance of earnest money is when the contract language that speaks to retention of the earnest money or return of the earnest money is invoked. Most real estate purchase agreements do a nice job expressing clearly when the earnest money is returned versus retained because the language is templated. In any other contract, the innuendos of the deal result in newly drafted language on retention versus return. In other words, buying a house in Hugo is not the same as buying a business in Stillwater.

There are many different machinations to a purchase agreement and deal. Too many to get into in one blog. But the point being served here is to get a good lawyer to write good, clear, effective language on the disposition of your earnest money!

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney. All information contained in links are the property of the linked site.

Related Posts