Buying Real Estate from a Trust - Case Study Example

Senior Partner Junior Associate Re: Real E Transaction October 7, 2008 MEMORANDUM FACTS Barbara Buyer wanted to purchase real estate from a trust, which was represented by Sam Salesperson. Barbara Buyer entered into a written agreement with the seller (representative of the trust) as well as entering into a representation agreement with Sam Salesperson, the salesperson, which denoted the dual agency disclosure. This agreement required an earnest money payment. Far before the earnest deposit deadline, Buyer asked for a two day extension in making the earnest money payment. Salesperson agreed to it and stated that he would send a written document within the same business day to confirm this agreement. Two days passed and no written document to this effect. Buyer contacted Salesperson to ask for confirmation. Salesperson again promised to send it immediately. However, Buyer never received same. Days later, Salesperson notified Buyer that the contract was terminated. Buyer contacted the seller (representative of the trust) to discuss the terminated contract. However, to no avail. Through Buyer’s persistence and research, Buyer learned that Salesperson never requested an extension. In fact, Buyer found out that there was a higher offer received and the property was sold at the higher price to another purchaser. Buyer sues Salesperson and the seller. ISSUES 1. What is the cause of action? 2. If there is more than one, please detail each cause of action. 3. What is the breach of contract in this case? 4. What are the general principles and elements of a contract? 5. What is breach of contract? 6. What are the various remedies that the buyer may have in this scenario? ANALYSIS I. Elements of a Contract Parties form a binding contract when the following elements are present: (1) an offer, (2) an acceptance in strict compliance with the terms of the offer, (3) meeting of the minds, (4) each partys consent to the terms, and (5) execution and delivery of the contract with the intent that it be mutual and binding. Winchek v. American Exp. Travel Related Services Co., Inc., 232 S.W.3d 197, 199 (Tex. App. Houston 1st Dist. 2007). A contract modification must satisfy the elements of a contract: a meeting of the minds supported by consideration. Hathaway v. Gen. Mills, Inc., 711 S.W.2d 227, 228 (Tex.1986). Notice of the modification and the certainty of its imposition must be shown. Id. at 229. The existence of an oral contract may be proved by circumstantial evidence as well as direct evidence. Harris v. Balderas, 27 S.W.3d 71, 77 (Tex.App.-San Antonio 2000, pet. denied). In determining the existence of an oral contract, courts look at the communications between the parties and the acts and circumstances surrounding those communications. Palestine Water Well Services, Inc. v. Vance Sand and Rock, Inc., 188 S.W.3d 321, 325 (Tex.App.-Tyler 2006, no pet.). To determine whether there was an offer and acceptance, and therefore a “meeting of the minds,” courts use an objective standard, considering what the parties did and said, not their subjective states of mind. See Komet v. Graves, 40 S.W.3d 596, 601 (Tex.App.-San Antonio 2001, no pet.). II. Elements of Breach of Contract The elements of a breach of contract claim are (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach by the defendant; and (4) damages sustained by the plaintiff as a result of that breach. Southwell v. University of Incarnate Word, 974 S.W.2d 351, 354-55 (Tex.App.-San Antonio 1998, pet. denied). To prove that an offer was made, a party must show (1) the offeror intended to make an offer, (2) the terms of the offer were clear and definite, and (3) the offeror communicated the essential terms of the offer to the offeree. KW Const. v. Stephens & Sons Concrete Contractors, Inc., 165 S.W.3d 874, 883 (Tex.App.-Texarkana 2005, pet. denied). An acceptance must be identical to the offer; otherwise, there is no binding contract. Long Trusts v. Griffin, 144 S.W.3d 99, 111-12 (Tex.App.-Texarkana 2004, pet. denied). A “meeting of the minds” is not an independent element of a valid contract. It is merely a mutuality subpart of the offer and acceptance elements. Id. A “meeting of the minds” is a mutual understanding and assent to the expression of the parties agreement. See Weynand v. Weynand, 990 S.W.2d 843, 846 (Tex.App.-Dallas 1999, pet. denied). If evidence of the parties mutual agreement consists of their conduct and course of dealing with one another, their mutual agreement may be inferred from the circumstances, in which case the contract is “implied” as opposed to “express.” Double Diamond, Inc. v. Hilco Elec. Co-op., Inc., 127 S.W.3d 260, 267 (Tex.App.-Waco 2003, no pet.). An implied contract involves an inference from circumstantial evidence and is a question of fact. Id. A contract must be based on valid consideration. See Texas Gas Utilities Co. v. Barrett, 460 S.W.2d 409, 412 (Tex.1970). Consideration is a bargained for exchange of promises that consists of benefits and detriments to the contracting parties. Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 496 (Tex.1991). “It is quite elementary that the promise of one party is a valid consideration for the promise of the other party.” See Texas Farm Bureau Cotton Assn v. Stovall, 113 Tex. 273, 253 S.W. 1101, 1105 (1923). A contract that lacks consideration lacks mutuality of obligation and is unenforceable. Fed. Sign v. Tex. So. Univ., 951 S.W.2d 401, 409 (Tex.1997); Belew v. Rector, 202 S.W.3d 849, 854 n. 4 (Tex.App.-Eastland 2006, no pet.). Mutual promissory obligations by the parties to the agreement furnishes sufficient consideration to constitute a binding contract. Iacono v. Lyons, 16 S.W.3d 92, 94 (Tex.App.-Houston [1st Dist.] 2000, no pet.). III. Remedies for Breach of Contract The character and circumstances of the case will control the measure of damages for a sellers breach of a contract of sale, but the general purpose is to give the purchaser adequate compensation for any injuries sustained. Kelly v. Simon, 262 S.W. 202 (Tex. Civ. App. San Antonio 1924), writ dismissed w.o.j., (Oct. 29, 1924). Special damages are not recoverable, however, unless they were within the contemplation of the parties when they entered into the contract. Vaughan v. John Hancock Mut. Life Ins. Co., 61 S.W.2d 189 (Tex. Civ. App. Fort Worth 1933), writ refused. (As to the recovery of special damages, generally, see Tex. Jur. 3d, Damages § 11). In an action for damages for a sellers breach of a contract of sale, a purchaser is generally entitled to the benefit of the bargain and to recover for his or her loss. Gillispie v. Gray, 214 S.W. 730 (Tex. Civ. App. Fort Worth 1919). The ordinary measure of damages is the difference between the contract price and the market value of the property on the date of the breach. Smith v. Herco, Inc., 900 S.W.2d 852 (Tex. App. Corpus Christi 1995), writ denied, (Oct. 5, 1995) and rehg of writ of error overruled, (Nov. 2, 1995); This rule has been applied where the seller was able to carry out the contract but failed or refused to perform. Matthewson v. Fluhman, 41 S.W.2d 204 (Tex. Commn App. 1931). Where the seller merely delays his or her performance of the contract and consequently withholds possession, the proper measure of damages is the reasonable rental value of the property for the time the purchaser was kept out of possession. Harrison-Daniels Co. v. Aughtry, 309 S.W.2d 879 (Tex. Civ. App. Dallas 1958). Moreover, a purchaser cannot recover for the loss of the use of the property pending a sellers delay in perfecting title, in the absence of anything preventing the purchaser from taking possession and using the property. Reed-Allen Realty Co. v. Spencer, 138 S.W. 806 (Tex. Civ. App. San Antonio 1911). The measure of damages for a sellers breach of an agreement to make permanent improvements is ordinarily the difference between the value of the property with and without the improvements. Zimmerman v. Keith, 224 S.W. 288 (Tex. Civ. App. Amarillo 1920). However, where a seller fails to perform an agreement to improve a street adjoining the property, the purchaser is entitled to recover an amount sufficient to put the street in the agreed condition. Miller v. Wilson, 258 S.W. 540 (Tex. Civ. App. San Antonio 1924). Exemplary damages are not recoverable by a purchaser for breach of a contract to sell land in the absence of proof of abuse of process or other tortious conduct. A. L. Carter Lumber Co. v. Saide, 140 Tex. 523, 168 S.W.2d 629 (1943). IV. Causes of Action In an action by a buyer against a seller for damages for breach of a contract to sell real property, the buyer must plead and prove that all conditions precedent to the sellers performance were satisfied, waived or excused. See, Deutsch v. Boatmens Nat. Bank of St. Louis, N.A., 991 S.W.2d 206 (Mo. Ct. App. E.D. 1999); Cattail Associates, Inc. v. Sass, 170 Md. App. 474, 907 A.2d 828 (2006). In many instances, this will simply require proof that the buyer was ready, willing, and able to perform, and that actual performance or a tender of performance was made or excused. See, Pierce v. Clark, 66 Mass. App. Ct. 912, 851 N.E.2d 450 (2006); Empire Properties, Inc. v. Equireal, Inc., 449 Pa. Super. 476, 674 A.2d 297 (1996). Establishing that a buyer was ready and able to perform requires proof that the buyer had the financial capacity to acquire the property. See, Dvorak v. Christ, 692 N.E.2d 920 (Ind. Ct. App. 1998) [buyer failed to obtain financing]. A buyers readiness and ability to perform can be established with evidence that: (1) the buyer has the necessary funds to make the purchase See, Pierce v. Clark, 66 Mass. App. Ct. 912, 851 N.E.2d 450 (2006); McDermott v. Burpo, 663 S.W.2d 256 (Mo. Ct. App. W.D. 1983), [buyers established that they were able to purchase the property that was the subject of the contract by showing that they had sufficient cash on hand to pay the balance due under the contract, and were not prevented from performing merely because they failed to obtain a loan upon which their obligation to perform was conditioned]; (2) the buyer has sufficient assets and credit rating to give reasonable assurance that he or she will be able to obtain the necessary funds at the time for performance McKenna v. Woods, 21 Conn. App. 528, 574 A.2d 836 (1990) [purchaser had accumulated all but $3,725 of the amount of cash required to close prior to the conclusion of construction and although the plaintiff had not formally applied for a mortgage, he had discussions with a mortgage broker and was confident that he could secure one]; or (3) the buyer has obtained a binding loan commitment from a suitable lender, Spagat v Schak, 130 Ill App3d 130, 85 Ill Dec 389, 473 NE2d 988 (1985), [partnership was ready, willing, and able to purchase the subject property on the basis of a loan commitment to an individual partner where agent of the lender testified that the lender was aware of, but indifferent to, the fact that the property would be purchased by the partnership rather than by the individual partner], or has, made reasonable efforts to secure a loan commitment. See, Aubin v. Miller, 64 Conn. App. 781, 781 A.2d 396 (2001). Obtaining financing is the most common condition, but others may apply depending on the terms of the contract at issue. See e.g., Harrison v. Thomas, 761 N.E.2d 816 (Ind. 2002) [buyer to secure purchase of adjoining parcel]; Allen v. Cedar Real Estate Group, LLP, 236 F.3d 374 (7th Cir. 2001) [Indiana law] [buyers approval of environmental audit was a condition precedent to contract formation]; Litvak v. Smith, 636 S.E.2d 327 (N.C.App., 2006) [purchasers to obtain rezoning approval within a reasonable time]. The buyer may also need to prove that they made a demand for the sellers performance or provided other express notice that the buyer was willing to perform. See, R.C.P.S. Associates v. Karam Developers, 258 A.D.2d 510, 685 N.Y.S.2d 261 (2d Dept 1999). Often this translates into a requirement that the buyer made a tender of performance in order to place the seller in default. See, Pierce v. Clark, 66 Mass. App. Ct. 912, 851 N.E.2d 450 (2006); Shallow Brook Associates v. Dube, 135 N.H. 40, 599 A.2d 132 (1991) [buyers failure to tender purchase price precluded action for specific performance]. Tender may not be effective unless it is complete and unconditional. See, Kelley v. Leucadia Financial Corp., 846 P.2d 1238 (Utah 1992); Hegner v. Reed, 2 A.D.3d 683, 770 N.Y.S.2d 87 (2d Dept 2003) [even assuming vendors were in breach of the contract for sale of home on closing date because premises were not vacant, alleged defect was curable within a reasonable time, and thus purchasers were obligated to tender performance and permit the sellers the opportunity to cure]. Read More