According to the case law as of the date of this article, a material breach by one party to a real estate sales contract may be considered a discharge of the other party’s obligations thereunder.
A Case Where A Buyer Failed To Pay The Earnest Money Deposit
In Nacoochee, Diane Pickett owned land in Walton County that she put up for sale in 2002 and a company named Eagle Land Group, Inc., offered to buy her 1,398.28 acres. Pickett accepted Eagle’s offer, and they signed a written agreement for the purchase and sale of the land.
The contract had a purchase price of $3,635,500, which equaled $2,600/ acre. The contract stated that the price was subject to adjustment if a survey showed “… acreage of more or less than 1,398 acres.”
Under Section 1.3 of the contract, the entire $3,635,000 was due in cash at closing.
The “earnest money” provision required two distinct payments. It initially required $20,000 to be deposited into an escrow account with Chicago Title Insurance Company within five (5) business days of the contract’s final signing date. Later, an additional $100,000 deposit was required into this same escrow account within five (5) business days after final acceptance of the property.
The contract defined breach to include a situation where if the buyer failed to perform its obligations, it would have 60 days after notice from Ms. Pickett, as the seller, to cure its failure. If the buyer failed to timely cure, the Ms. Pickett would have the right to terminate the contract and keep the earnest money as her full liquidated damages.
After signing the contract to buy Ms. Pickett’s acreage, Eagle Land Group, Inc. assigned its rights in the agreement to Nacoochee Corporation. Now, Nacoochee acted as buyer under the contract.
Nacoochee paid for two surveys to be conducted, which was allowed under the purchase and sale agreement. The first survey was a boundary survey. It found the total acres to be 1,402.50 acres. This was 4.22 more acres than the acreages stated in the contract (1,398.28). The second survey was a wetlands survey. It came back with a tally of 776.86 acres of wetlands.
Nacoochee never put any money into the earnest money escrow account (nor did Eagle Land Group, Inc.).
The closing date was agreed in the contract to be May 7, 2004. As closing date approached, Nacoochee submitted closing documents to Ms. Pickett.
In its closing documents, Nacoochee proposed a much lower purchase price. Nacoochee did not change the title provisions to the agreement and still expected to get clear title to the entire 1,402.50 acres.
Ms. Pickett refused to close with the lower purchase price. This led to Nacoochee offering to pay the full contractual purchase price ($3.6 Million) if Pickett would accept $1.7 Million, payable immediately, and accept a mortgage for the rest ($1.9 Million).
Ms. Pickett then received a formal demand from Nachoochee that she close the sale within 30 days for $1.7 million.
Meanwhile, in early May 2004, Ms. Pickett learned that the buyer never paid any of the earnest money deposit. Under the contract, these deposits should have been made in 2002.
On May 18, 2004, eleven days after the May 11, 2004, contractual closing date, Nacoochee’s attorney mailed Pickett’s attorney a check from his law firm trust account for $20,000, representing the initial earnest money deposit required under the contract.
Ms. Pickett’s attorney refused to accept the check.
Nacoochee also paid $100,000 representing the second earnest money deposit required by the contract into a single-party escrow account at Chicago Title Insurance Company.
On May 28, 2004, Ms. Pickett formally notified Nacoochee that the contract was terminated.
So, Nacoochee sued. Ms. Pickett counter-sued. At trial, the judge ordered the land be sold to Ms. Pickett in accordance with the terms of the contract (“specific performance”).
Both parties appealed to the reviewing court.
Nacoochee argued the judge was wrong to force it to pay the full purchase price of the property based on the acreage of the entire parcel, rather than reducing the price to exclude the wetlands acres.
Ms. Pickett argued the judge was wrong to deny her counterclaim for breach of contract damages. Ms. Pickett argued the trial court should not have granted specific performance of the contract, because the plaintiff’s breach entitled her to terminate the agreement altogether.
The appellate court agreed with Ms. Pickett. The plaintiff’s breach rendered the contract unenforceable and specific performance was an inappropriate remedy.
Once the buyer defaulted, or breached the contract, by not making the required escrow payments, then the seller was not obligated to perform under the contract.
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