Opinion
No. A06-1275.
Filed: April 24, 2007.
Appeal from the District Court, LeSueur County, File No. 40-CV-05-319.
Rob A. Stefonowicz, Larkin Hoffman Daly Lindgren, (for respondent)
Adam J. Dowd, Schmitz, Ophaug Dowd, LLP, (for appellants)
Considered and decided by Randall, Presiding Judge; Hudson, Judge; and Wright, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2006).
UNPUBLISHED OPINION
On appeal from the district court's grant of specific performance in this real-estate dispute, appellants argue that the district court's decision is a result of its failure to apply the supreme court's holding in Hilton v. Nelsen, 283 N.W.2d 877 (Minn. 1979). Because the totality of the circumstances supports specific performance, the district court did not abuse its discretion. We affirm.
FACTS
Appellants Donald Kukacka, now deceased, and Agnes Kukacka, husband and wife, owned approximately 80 acres of undeveloped real property in Lanesburg Township in Le Sueur County, Minnesota. Appellant Richard Kukacka testified on behalf of the appellants at trial. In late 2001, appellants contacted a real-estate agent and listed their property for sale at a price of $1.2 million (approximately $15,000 per acre).
Respondent Giles Properties, a Minnesota corporation with its principal place of business in Elko, Minnesota, through its authorized agent, John Anderson, contacted the listed agent regarding the property. Respondent offered to purchase the property for $1.2 million, or $15,000 per acre, excluding unusable acres. Appellants accepted the offer and signed the purchase agreement on January 17, 2002. Pursuant to the purchase agreement, respondent paid $20,000 in earnest money to appellants, which still remains with appellants' realtor.
John Anderson is a land-development subcontractor for Giles Properties. Anderson's responsibilities include identifying land for development, acquiring land, working with local governments during the early development stages, and selling lots to builders.
Anderson testified that approximately 24 acres were not buildable because of road rights-of-way, utility easements, encroachments, and wetlands, and therefore the actual purchase price would be $816,000.
After executing the purchase agreement, respondent sought government approval for the development from the city of Montgomery (city). To obtain city approval, the property had to be annexed from Lanesburg Township. The township denied orderly annexation because of the lack of contiguity with other properties within city limits. Respondent, therefore, acquired the two properties immediately west of appellants' in order to resolve the contiguity problem. Respondent's development plan consisted of utilizing all three properties.
Annexation requires the city to accept the property into its incorporated boundaries in order to receive city services, i.e., water and sewer services. Annexation occurs by orderly annexation, a process where the city and township stipulate to annexation, or annexation by ordinance, a process that does not require township approval but requires the property to be contiguous to city property.
The parties' purchase agreement originally set a closing date on or before 30 days after preliminary plat approval by the Montgomery city council. Because the annexation process was taking longer than anticipated, on July 27, 2002, the parties amended the purchase agreement by setting a closing date of October 31, 2002.
On October 15, 2002, the parties met to discuss the status of the annexation process, development plans, and the closing date. Because the annexation process was still incomplete, respondent requested an extension on closing. Appellants refused to grant an extension and also refused respondent's alternative request of signing a cancellation agreement. No agreement was reached, and the parties departed.
Anderson testified that because no agreement was reached at the meeting, he believed the purchase agreement remained in effect and all parties would proceed forward.
The October 31, 2002, closing date came and went without action by either party. Respondent continued with the annexation process. Respondent completed the first development phase, including excavation, grading, and installation of city water and sewer service lines, on the two adjacent properties during the fall and winter of 2003-2004.
Anderson testified that respondent did not close on October 31, 2002, because annexation was not finalized and therefore city approval had not been granted. No financial reason existed for respondent's failure to close.
Appellants were aware of respondent's continued development efforts despite missing the October 31, 2002, closing deadline. Ronald Kukacka attended city annexation hearings for the two adjacent properties. Anderson also remained in contact with appellants' realtor during 2003 and 2004, confirming respondent's intention to close on the property. Appellants never attempted to cancel or rescind the purchase agreement after the missed closing date or pursue a breach-of-contract remedy.
By the fall of 2004, annexation and city approvals were complete for the two adjacent properties. Respondent extended the city's water and sewer services to all three properties in the development plan. To this point, respondent had incurred approximately $4 million in costs.
The costs were related to land acquisitions, infrastructure improvements, and engineering fees.
After the water and sewer services were extended to appellant's property (heightening its value), a "For Sale" sign appeared on the property. Appellants' realtor contacted respondent and inquired into respondent's interest in purchasing appellants' property. Respondent replied that the property was already under contract for sale. The sign was subsequently removed.
In December 2004, respondent notified appellants' realtor of its intent to close on the property. Respondent notified appellants of a closing set for January 21, 2005. Appellants did not object to the notice of closing. Respondent attended the January 2005 closing; appellants simply did not attend. Instead, Richard Kukacka contacted Anderson attempting to renegotiate the sales price. Richard Kukacka informed respondent that it could either sign a cancellation agreement and receive its earnest money back or pay $37,000 per acre. Respondent then sued appellants, seeking specific performance.
The district court, sitting without a jury, ordered specific performance of the purchase agreement, concluding that both parties, through their words and conduct, demonstrated their intentions to be bound by the purchase agreement. The district court's judgment and decree, entered May 15, 2006, ordered the parties to close on the sale of the property within 60 days. This appeal followed.
DECISION
Appellants argue that the district court abused its discretion in ordering specific performance. "[S]pecific performance of a contract to convey real estate is not a matter of absolute right, and if enforcement would be unconscionable or inequitable, performance will not be decreed." Boulevard Plaza Corp. v. Campbell, 254 Minn. 123, 136, 94 N.W.2d 273, 284 (1959). Specific performance is an equitable remedy that may be ordered within the sound discretion of the district court. Lilyerd v. Carlson, 499 N.W.2d 803, 811 (Minn. 1993). We review a district court's decision to award specific performance for abuse of discretion. See Flynn v. Sawyer, 272 N.W.2d 904, 910 (Minn. 1978).
Appellants argue that respondent is not entitled to specific performance. Specifically, appellants assert that respondent's breach of the purchase agreement by failing to close on October 31, 2002, and "its subsequent failure to take any action whatsoever to enforce the purchase agreement for over two and a half years" negates an award of specific performance. We disagree.
Appellants rely on an illustration to Restatement (Second) of Contracts § 369 (1981) for support. Section 369 states "[s]pecific performance or an injunction may be granted in spite of a breach by the party seeking relief, unless the breach is serious enough to discharge the other party's remaining duties of performance." In the illustration, the purchaser of farmland does not tender payment on the closing date but instead four months later. Id. at ill. 3. Such a delay is said to negate specific performance. Id.
Respondent technically breached the purchase agreement by failing to close on October 31, 2002, but the district court found that "there is no evidence to support a determination that [respondent] and [appellants], through their conduct or words canceled, abandoned or terminated the purchase agreement." Instead, "following [respondent's] breach, both parties' actions were consistent with the existence of an enforceable contract."
Respondent presented appellants with opportunities to either continue the contract and extend the closing date, or to cancel the purchase agreement. Appellants refused to do either.
Respondent continued the annexation and approval processes while appellants tracked respondent's progress. Richard Kukacka attended annexation hearings and respondent kept in contact with appellants' realtor, who presumably informed appellants of all such contacts. It was not until substantial improvements were made to the adjacent properties and respondent again contacted appellants to close that appellants took action. Richard Kukacka attempted to renegotiate a higher price for the land, acknowledging that a contract still existed. Richard Kukacka attempted to manipulate the situation by giving respondent an ultimatum, either sign a cancellation agreement or pay $37,000 per acre.
The district court analyzed respondent's request for specific performance under the five Saliterman v. Bigos factors:
(a) the contract must be established by clear, positive, and convincing evidence;
(b) it must have been made for an adequate consideration and upon terms which are otherwise fair and reasonable;
(c) it must have been induced without sharp practice, misrepresentation, or mistake;
(d) its enforcement must not cause unreasonable or disproportionate hardship or loss to the defendants or to third persons; and
(e) it must have been performed in such a manner and by the rendering of services of such a nature of under such circumstances that the beneficiary cannot be properly compensated in damages.
352 N.W.2d 494, 496 (Minn.App. 1984). The court made findings fully supported by the record on each of the five factors. Appellants do not appear to challenge the findings made regarding each of the Saliterman factors. Instead, appellants argue that the court improperly relied on Saliterman when it should have used Hilton v. Nelson, 283 N.W.2d 877 (Minn. 1979).
Appellants contend that Hilton is similar to the facts here. In Hilton, the purchaser, an investor, intended to rent the land to a tenant farmer, rather than farm or homestead it himself. Id. at 881. The court held that the land was lacking in uniqueness (if it is not unique, that weighs against specific performance) "[b]ecause any equivalent parcel of Minnesota farmland would serve these investment purposes." Id. In addition to the parcel's lack of uniqueness, the court considered whether (1) the purchaser had changed his position; (2) there were any unfulfilled contract conditions; and (3) the basic terms of the contract were misunderstood. Id. at 881-83.
First, appellants argue uniqueness of the land. Appellants argue that their land is farmland and respondent did not intend to utilize the land as such, thus rendering the land not unique. Simply because respondent intended to purchase and use the land for a purpose other than its current use does not automatically render the property not unique. Not all parcels of farmland are suitable for development. See In re Kreger, 296 B.R. 202, 209 (Bankr. D. Minn. 2003)("Land has consistently been treated as unique under Minnesota law. While the remedy of specific performance of enforceable real-estate purchase/sale agreements is not automatic, the remedy will ordinarily lie where performance is feasible.") (citing Thompson v. Kromhout, 413 N.W.2d 884, 885 (Minn.App. 1987)).
Second, arguing that respondent did not change its position, appellants assert that respondent failed to present evidence suggesting that the roads, water, and sewer were installed on the two adjacent parcels simply to develop appellants' property. The record is otherwise. Respondent's clear purpose for acquiring the two adjacent parcels was development of appellants' land. The record indicates that respondent continued the annexation process and sought development approvals from the city to complete its overall development plans, which included all three properties, including appellants', which was the lead property.
Third, appellants claim that unfulfilled contract conditions existed, including the requirements that appellants deliver a warranty deed and title insurance, that would allow respondent to terminate the contract if unfulfilled. Appellants presented no evidence or testimony at trial that respondent would not perform under the purchase agreement due to these unwaived contingencies. These are common contingencies in real-estate purchase agreements, and performance is typically due at the time of closing and not before.
Finally, appellants argue that a misunderstanding existed regarding the purchase price. The purchase agreement clearly stated that the purchase price excluded certain un-developable acreage, including roadways and wetlands. Although the exact figure of $816,000 was not written in the purchase agreement, Richard Kukacka testified to the history of the property and acknowledged that the property contained undevelopable acreage.
The Hilton court, based on the totality of the circumstances, declared specific performance inappropriate. In contrast, the totality of the circumstances here supports the district court's grant of specific performance. The district court made significant findings. We find no error of law.