Can A Seller Force A Buyer To Close On The Purchase Of Property?
Written by: Alan Nochumson
In Maisano, Marsha Avery owned approximately 21 acres of land directly north of the home owned by Daniel and Patricia Maisano, the opinion said.
Because of limited access to Avery’s land via a public road, according to the opinion, the yield from the 21 acres of land only allowed for three usable lots.
To increase the yield to nine usable lots, Avery sought to gain access to the land from a public road which was located between Avery’s 21 acres of land and the property owned by the Maisanos, the opinion said.
When the Maisanos rejected Avery’s initial request for an easement through their property, the parties entered int a written agreement, whereby Avery would purchase the Maisanos’ residential real estate for $1.35 million, the opinion said.
Under the written agreement entered into by the parties, Avery agreed to pay $150,000 directly to the Maisanos at the time of execution of the written agreement, with the remaining $1.2 million due at the time of closing, the opinion said.
On several occasions, Avery sought and obtained extensions to the closing date in order to give her additional time to secure funding for the agreed upon property acquisition.
After the written agreement was executed, the parties even swapped land by way of deed, whereby the Maisanos conveyed a portion of their land to Avery in order to allow her to construct an access road to her proposed housing development, the opinion said.
According to the opinion, the Maisanos also indicated that they did not actively restrict Avery from installing a storm water drainage system on a significant portion of their land for the development of the residential lots because she had committed in writing to purchase their land and continued to assure them that when she obtained the necessary funds from the sale of her “spec home” located on one of her nine lots, she would purchase their land.
Avery eventually transferred her property and the corresponding lots to a company in which she solely owned and operated, the opinion said.
When Avery, individually or through her company, failed to close on the real estate purchase, the Maisanos filed a complaint in the Chester County Court of Common Pleas against Avery and her company for, among other things, breach of contract of contract, seeking specific performance of the property transfer as well as damages in the amount of the remaining monies due to them for the agreed upon purchase price.
In their complaint, the Maisanos contended there was no stipulated liquidated damages clause in their written agreement with Avery, thus preserving their right to sue for specific performance and actual monetary damages.
The case eventually proceeded to a bench trial, following which the trial court found in favor of the Maisanos and against Avery.
In its ruling, the trial court concluded that Avery breached the written agreement, but only awarded the Maisanos the $150,000 already paid to them by Avery plus interest as liquidated damages, reasoning that the Maisanos failed to prove actual damages resulting from Avery’s breach of the written agreement.
The Maisanos then appealed the trial court’s ruling to the Superior Court.
On appeal, the Maisanos argued that specific performance was the exclusive remedy under the written agreement entered into by the parties in the event of a breach of the written agreement by Avery.
They pointed to paragraph 27 of the written agreement that was titled “Default.”
Under subsection (A) of that paragraph, “The seller has the option of retaining all sums paid by the buyer, including the deposit monies, should the buyer fail to make any additional payments as specified in paragraph 3; or furnish false or incomplete information to the seller, broker(s), or the mortgage lender, if any, concerning the buyer’s legal and financial status, or fail to cooperate in the processing of the mortgage loan application, which acts would result in the failure to obtain the approval of a mortgage loan commitment; or violate or fail to fulfill and perform any other terms or conditions of this agreement.”
Subsection (B) of that paragraph further provided that, “unless otherwise checked in paragraph 27(C), Seller may elect to retain those sums paid by the buyer, including deposit monies, in one of the following manners on account of purchase price; or as monies to be applied to the seller’s damages or as liquidated damages for such breach.”
The box referenced in subsection (C) of that paragraph included the following language: “The seller is limited to retaining sums paid by the buyer, including deposit monies, as liquidated damages.”
Subsection (D) of that paragraph stated that, “if the seller retains all sums paid by the buyer, including deposit monies, as liquidated damages pursuant to paragraph 27(B) or (C), the buyer and the seller will be released from further liability or obligation and this agreement will be void.”
In reviewing these subsections of paragraph 27 of the written agreement entered into by the parties together, the Superior Court observed the following: “First, under subdivision 27(A), in the event of a buyer default, a seller is not obligated to, but may, keep all sums paid by the buyer, including deposit monies. Second, under subdivision 27(B), sums paid by the buyer may be retained, at the seller’s election, on account of purchase price, as monies applied to damages claimed, or as liquidated damages for the breach. The seller is not limited by any election under subdivision 27(B) unless an election under subdivision 27(C) is exercised. Third, if a seller elects to limit himself under subdivision 27(C) to retain sums as liquidated damages, the seller is entitled to no further damages, the parties are released from any further liability, and the agreement is deemed null and void. Finally, nowhere in this provision is it provided that these default remedies are exclusive in the event of a breach. Nor is specific performance indicated as an exclusive remedy.”
In Maisanos, the Superior Court emphasized that the Maisanos did not check the box under paragraph 27(C) that would limit their remedy against Avery to liquidated damages and they expressly informed Avery in writing that they would not limit their legal remedies against due to her default under their written agreement.
While the written agreement does not expressly provide whether the Maisanos were entitled to specific performance under the written agreement, the Superior Court concluded that “the failure to do so does not preclude the Maisanos from seeking this remedy, which in practical effect, is merely an attempt to recover the purchase price.”
Relying upon the ruling handed down by the Pennsylvania Supreme court in Trachtenburg v. Sibarco Stations, 384 A.2d 1209 (Pa. 1978), the Superior Court in Maisanos pointed out that “in a real estate context, a seller’s demand for specific performance ‘is, in effect,’ an action for the purchase price of the property.”
As highlighted by the Superior Court in Maisanos, the Supreme Court in Trachtenburgclarified that, “if the common law court (enables) the seller to maintain a debt action for the full price, as well as for damages, his remedy at law should be regarded as complete and adequate” and, thus, “judgment for the full price is identical with a decree for specific performance.”
The Supreme Court in Trachtenburg noted, however, that a seller should not be allowed to recover the purchase price and still retain ownership of his land.
Consistent with the principles outlined in Trachtenburg and the plain language of the written agreement entered into by the parties, the Superior Court in Trachtenburg held that the trial court erred by faulting the Maisanos for not adequately proving the current market value of the property.
According to the Superior Court in Maisano, the Maisanos did not need to establish the current market value of the property, “as the proper measure of damages for specific performance was the purchase price” because, “as stated, in the case of a seller’s claim for breach of a real estate sales agreement, a claim for specific performance is a demand for the purchase price.”
In a footnote, the Superior Court did indicate that the damages due to the Maisanos by Avery under the written agreement would be reduced by any deterioration to the condition of the property, normal wear and tear excepted.
In doing so, the Superior Court in Maisano reversed the trial court’s ruling with respect to damages and remand the case to the trial court for a new damage trial.
The Superior Court’s ruling in Maisano clarifies that a seller, just like a buyer, can compel a property transfer by way of specific performance of a written agreement of sale.
The default provision contained in paragraph 27 of the written agreement entered by the parties in Maisano is not unlike the ones I see every day in my practice. It is, thus, imperative when representing a buyer in a real estate transaction to ensure that the buyer cannot be forced to acquire the property under the written agreement entered into by the parties. By failing to do so, the buyer could very well suffer the same fate as the buyer in Maisano.
Reprinted with permission from the April 8, 2019 edition of The Legal Intelligencer © 2019 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, firstname.lastname@example.org or visit www.almreprints.com.