Developer Forced To Pay Valuation Guaranty In Right Of First Refusal

Written by: Alan Nochumson

In Estate of Nicholas v. The Cutler Group (2015 Pa. Dist. & Cnty. Dec. LEXIS 56), a trial court judge in Bucks County recently enforced a valuation guaranty contained in a right of refusal set forth in a land acquisition deal entered into between a developer and individuals who sold land to the developer.

In the summer of 2002, Frank and Elizabeth S. Nicholas entered into a written agreement of sale with the Cutler Group Inc. for it to purchase over 300 acres of land owned by them in Hilltown Township, Bucks County, the opinion said.

At the time of entering into the written agreement, the parties entered into an additional, related written agreement, pursuant to which the Cutler Group was to reconvey five parcels of land, to be subdivided out from the over 300 acres, on which buildings were located at the time, the opinion said. One of those parcels of land being reconveyed to the Nicholases was known as the Walden property, the opinion said.

This related agreement also contained a “valuation guaranty,” which provided that, in the event that the Nicholases received a bona fide offer on these parcels of land, which included the Walden property, and the sale price was less than the agreed-upon fair market value, the Cutler Group would have the right of first refusal to tender an agreement of sale back to the Nicholases containing the exact same terms and conditions as those contained in that third-party offer, the opinion said. Under the related agreement, the Cutler Group had 10 days of its receipt of such an offer to exercise its right of first refusal, the opinion said.

If the Cutler Group elected not to exercise its right of first refusal, within 30 days from the closing of the third-party offer, it was obligated to make payment to the Nicholases in the amount by which the purchase price paid to them by the bona fide purchaser was less than the valuation for the subject parcel, as set forth in an exhibit to the valuation guaranty, the opinion said.

During negotiation of the written agreements with the Nicholases, the Cutler Group was represented by Richard P. McBride, who over the past generation has devoted most of his practice to representing the Cutler Group, the opinion said.

McBride drafted the written agreements that were executed by the parties and, in 2004, the closing for this real estate transaction took place, the opinion said.

A couple of years later, McBride was informed by the Nicholases of their intention to market the Walden property for sale to third parties, the opinion said.

The Nicholases eventually received an agreement for sale and purchase of the Walden property for $619,000, as compared to the valuation of $943,000 for the Walden property in the agreement they entered into when they sold their land to the Cutler Group.

The agreement of sale was conditioned upon their prospective purchasers obtaining mortgage financing for the acquisition of the Walden property, the opinion said.

In the agreement of sale for the Walden property, settlement was scheduled for Nov. 30, 2006, and, according to the agreement of sale, such date of settlement could only be extended by mutually written agreement of the parties, the opinion said.

The Nicholases did not immediately provide the Cutler Group with notice of the execution of the agreement of sale. Instead, after the prospective purchaser received a mortgage commitment for the anticipated real estate transaction, on Nov. 20, 2006, the Monday before the Thanksgiving holiday, Stephen P. Moyer, the attorney representing the Nicholases at the time, mailed a letter to McBride via overnight mail advising him that they had received a bona fide third-party purchase offer for the Walden property and that the date of settlement was scheduled for Nov. 30, 2006. At the time of the mailing, McBride’s office was located in the same building as the Cutler Group’s office.

The letter arrived at McBride’s office on the following day, the Tuesday before the Thanksgiving holiday. McBride subsequently transmitted the letter from Moyer to the Cutler Group. The Cutler Group did not respond to the letter.

The Nicholases and the prospective purchasers then orally agreed to extend the date of settlement.

When Moyer did not receive a response from either McBride or the Cutler Group, on Dec. 1, 2006, he sent another letter to McBride via facsimile and regular mail advising him that, since the Cutler Group did not respond to his previous letter, the Nicholases would be proceeding to settlement with the third-party purchase offer.

After receiving the letter, McBride forwarded the letter to the Cutler Group and he received no response about that letter from the Cutler Group as well.

Settlement for the Walden property between the Nicholases and the prospective purchasers took place Dec. 6, 2006.

When the Cutler Group declined to make payment of the difference between what the Walden property was valued at in their agreement with the Nicholases and what it sold for, the Nicholases filed a breach of contract action against the Cutler Group seeking a judgment for the amount owed under the valuation guaranty.

A nonjury trial before Bucks County Court of Common Pleas Judge Gary B. Gilman took place.

Gilman entered judgment in favor of the Nicholases and against the Cutler Group for the amount owed to them under the valuation guaranty. The Cutler Group then filed an appeal of the trial court’s ruling to the state Superior Court. As part of the appeal, Gilman issued a memorandum opinion.

In the memorandum opinion, Gilman flatly rejected the Cutler Group’s argument that the Nicholases failed to strictly comply with the terms and conditions of its right of first refusal to purchase the Walden property from them and, thus, owe no money to them under the valuation guaranty.

From the outset, Gilman stated that the terms and conditions of the Cutler Group’s right of first refusal were not clear and actually ambiguous, as alleged by the Cutler Group, and could not be strictly complied with and, thus, any ambiguity should be construed against the Cutler Group as its attorney, McBride, drafted the agreements entered into by the parties.

Gilman, one by one, then addressed the issues the Cutler Group had with the notice provided by the Nicholases prior to their sale of the Walden property.

First, the Cutler Group asserted that the Nicholases, by way of the Nov. 20, 2006 letter to McBride, only gave it advance notice of nine days of its right to exercise the first refusal prior to settlement, which had been originally scheduled for Nov. 30, 2006.

Gilman quickly dismissed that argument since settlement did not take place until Dec. 6, 2006, 15 days after McBride was notified of the impending sale and of the Cutler Group’s right to exercise the first refusal to purchase the Walden property.

Additionally, the Cutler Group argued that receipt of the notice on the Tuesday preceding the Thanksgiving holiday further impacted proper notice, as McBride’s personal holiday plans hindered his ability to timely communicate the notice to it.

Gilman faulted the Cutler Group and McBride for failing to properly exempt holidays or weekends from the computation in the notice provision. Although Gilman concluded “it was arguably discourteous for counsel for the Nicholases to mail the notice triggering the right of first refusal so close to the Thanksgiving holiday, [h]e d[id] not find that such pre-holiday mailing, on Nov. 20, 2006, renders the Nicholases’ claims non-meritorious.” Rather, Gilman reiterated that the Cutler Group had in excess of 10 days’ notice prior to settlement, given that the actual settlement in the Walden property did not occur until 15 days later, Dec. 6, 2006.

Gilman also rejected the Cutler Group’s argument that the Nicholases failed to provide it with proper notice by sending the letters to McBride rather than to it directly.

Yet again, Gilman pointed out that the agreement containing the right of first refusal and the valuation guaranty was silent as to who must receive notice and where it should be sent. According to Gilman, “if the relevant portions of the agreements were intended to require something other than the norm, as is suggested by Cutler, the agreements drafted by McBride were required to clearly so specify.”

Gilman also concluded that, “given McBride’s long-established role on behalf of Cutler, and the fact that his office’s physical location is practically shared with Cutler (given McBride’s office address of Suite 2 and Cutler’s office address of Suite 1) … notice and letters mailed and/or faxed to McBride’s office were reasonably consistent with and indicative of the parties’ intentions, and therefore sufficient to establish notice to Cutler Group.”

Gilman also did not believe that the Nicholases committed a material breach by failing to immediately notify the Cutler Group about the impending sale. At trial, the Nicholases explained that the delay in notification was based upon their false assumption that the individuals who made the third-party purchase offer were not bona fide purchasers until their mortgage contingency was approved. Gilman concluded that, “to the extent that the Nicholases’ reliance on receiving such approval impacted the date on which the Nicholases provided notice to Cutler,” such delay did not constitute a material breach of their agreement with the Cutler Group.

Gilman also did not accept the Cutler Group’s “assertion that the oral extension of the settlement date … from Nov. 30, 2006, to Dec. 6, 2006, was a material breach of the agreement, amounting to a material breach of the right of first refusal provision, thereby relieving Cutler of its obligation to pay the Nicholases pursuant to the valuation guaranty.” In doing so, he bluntly stated that this argument was “disingenuous,” as the Cutler Group was timely informed of the settlement date change, and suffered no harm as a result thereof and “was given even more time to exercise its right of first refusal than the 10 days noted in the valuation guaranty.” In Gilman’s own words, the Cutler Group elected to “sit on its right.”

In the end, Gilman emphasized that “the various assertions made on behalf of Cutler may have been bolstered if the surrounding circumstances indicated the slightest inclination by [it] to specifically enforce its contractual right of first refusal for the purpose of purchasing the Walden property.”

Reprinted with permission from the August 18, 2015 edition of The Legal Intelligencer © 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, or visit

Alan Nochumson