Opinion
C.A. No. 18001.
Date Submitted: May 29, 2000.
Date Decided: June 2, 2000.
David J. Haley, Esquire, Law Offices of David J. Haley, Attorney for Plaintiffs.
Charles J. Brown, III, Esquire, UAW Legal Services Plan, Attorney for Defendant.
MEMORANDUM OPINION
I.
Prospective buyers of real property sue for specific performance of the contract. In accordance with the terms of that contract, the seller continued to market the subject property pending satisfaction of certain substantial contingencies. Before the prospective buyers could satisfy those contingencies, the seller received another satisfactory offer for the property. After giving the original buyers an opportunity to remove those contingencies, the seller decided to cancel the contract and delivered the second contract. Closing on that contract is scheduled for next week.
In order to clear title to close the second contract, the seller filed a Motion to Cancel the Notice of Lis Pendens. I conducted a hearing on that motion on May 24, 2000 at which time I heard testimony from six witnesses and received documentary evidence. The parties are in agreement to treat that hearing as the trial on the merits of the case and have submitted post-trial briefs addressed to the issues identified at the hearing. On the basis of the complete record, and having considered the parties' arguments, I conclude that the seller had a contractual right to terminate the contract after April 5, 2000 and exercised that right no later than April 12, 2000. Thus, I will grant the defendant's motion and enter judgment in his favor.
II.
On March 10, 2000, plaintiffs Vincent G. Kowal and Denise Cole-Hartzel, husband and wife, entered into a standard New Castle County Board of Realtors form of Agreement of Sale with defendant Daniel M. Clark, to purchase the property known as 507 Samuel Court, in Middletown, Delaware for a total consideration of $239,900.00. That amount was to be paid by them in three installments, as follows: $1,000 upon execution of the contract, $2,000 on or before April 14, 2000, and the $236,900 balance at the closing date. Mr. Brian Williams of Patterson Schwartz Real Estate acted as the seller's broker. Ms. Sherrill R. Fulton of Re/Max Eagle Realty represented the buyers.
The agreement is subject to two specific financing contingencies. First, there is a standard mortgage contingency, giving plaintiffs until April 5, 2000 to obtain a mortgage commitment in the principal amount of $215,910. If, by that date, the buyers failed either to obtain such a commitment or to waive the financing contingency, paragraph 8(c) of the contract provides that "Seller has the right to cancel this agreement until a written commitment is received by Seller." In the event of cancellation, the contract is terminated and the buyers' deposit money returned. Paragraph 8(d) further provides that if the buyers furnish a "commitment for mortgage financing [that] is contingent upon the sale of any real or personal property owned by Buyer, Seller may within 5 business days after receipt of a copy of the commitment, cancel this agreement in writing, and all deposit money shall be returned to Buyer."
Second, the contract included a "48 Hour Contingency" attached as an addendum to the form agreement, (1) stating that the contract was contingent on the sale and settlement of one residential property owned by buyers and the settlement of a second already under contract of sale and (2) giving the seller the right to continue to market his property. In the event seller received "another satisfactory offer," this addendum provided that "seller's Agent shall give Buyer and/or his/her Agent [48] hours [including two banking days] written notice to remove said contingency and proceed with the sale." If buyers thereafter fail to remove the contingency, the "Agreement shall become null and void and all deposit monies returned to Buyer[s]."
The contract specifies that all notices are to be in writing. At section 17 of the agreement, the buyers listed Fulton as their address for providing notices. Section 18, dealing with the seller's address, was left blank.
Buyers neither satisfied nor waived the mortgage financing contingency by April 5, 2000. Thus, from that date on, the seller had the right to terminate the contract, as described in paragraph 8(c) of the contract. Coincidentally, on April 5, 2000, seller received another satisfactory offer for the property. Williams telephoned Fulton informing her of the second offer. Fulton understood that Williams was giving her notice pursuant to the 48 hour contingency, and there is no dispute that she informed her principals. Notwithstanding that they had actual notice of the seller's receipt of another satisfactory offer, buyers now argue that the notice given by Williams on April 6 was deficient because it was not in writing. Because I decide the case on a different ground, I find it unnecessary to resolve this question.
Since April 6 was a Thursday, buyers had until Monday, April 10 to remove the contingency. On that day, Fulton telephoned Williams and stated that the buyers had obtained a satisfactory written mortgage commitment letter. Fulton may also have told Williams that the oral notice given on April 6 did not satisfy the requirements of the contract.
Fulton sent to Williams a copy of the "commitment letter" she had received from Mr. Phillip Throckmorton, the buyers' mortgage broker. Throckmorton testified that this letter was a "commitment letter" and the buyers argue strenuously that this letter satisfied all of the requirements of a written financing commitment.
This "commitment letter," however, expresses only the lender's preliminary approval, not an actual commitment. It states that "the customer's application has been Preliminarily Approved." After discussing the amount of the loan, the term, the interest rate and other matters, the letter states: "This approval is not a commitment to provide financing and is subject to the receipt and satisfactory review of the marked items prior to closing." Among other things, the letter reflects that it is subject to receipt of a "final HUD-1" settlement sheet for the buyers' unsold property.
After he received this document, Williams spoke with Throckmorton by telephone. Throckmorton told him that certain of the conditions indicated on the "commitment letter" had been satisfied but that the sale of home condition remained. Throckmorton also told Williams that the buyers were then attempting to lease the unsold house and that, if a satisfactory lease were secured, the mortgage lender would consider the sale of home condition satisfied. At trial, Throckmorton testified that he did not receive such a lease from buyers or Fulton until several weeks later.
The second house was sold and closed before April 10, 2000.
Seller and Williams discussed the situation, in particular the inadequacies in the "commitment letter," and determined that seller should cancel the agreement and proceed with the second contract of sale. It appears from the record that seller and Williams focused on the 48 hour contingency, not the mortgage contingency. Williams then faxed to Fulton a document entitled "Release of Sale and Disbursement of Deposit." The document was executed by Williams as "agent for seller" and required the purchasers' signature for release from escrow of their $1,000 deposit. The document indicates that the reason for the release was: "48 hour contingency not released."
Later in the day on April 10, Fulton wrote to Williams, as follows, in pertinent part:
I have not yet received a written notice exercising the contingency on the purchase of Samuel St., your listing. I did, however, receive from you a request for release of contract and disbursement of deposit.
[Buyers] have every intention of completing the purchase of this property. . . . If Mr. Kowal's property is not under sales contract prior to settlement, April 26, 2000, the mortgage company has already agreed to accept a lease on the property, and we have a willing tenant.
On April 12, 2000, Mr. Chris Cashman, the manager of Patterson Schwartz's office, responded to Fulton on behalf of the seller. That letter states, in pertinent part:
You received verbal notice from Brian Williams on Thursday, April 6th, 2000 that Mr. Clark had received and intended to accept another contract for his property. . . . The mortgage commitment delivered to us was not satisfactory to the seller. Also, you represented that it was incorrect. Your assurance that the commitment would be changed and a tenant would be obtained was not satisfactory to the seller.
In addition to the verbal notice you received written notice in the form of a release on April 10th. . . . An additional 48 hours has passed and a satisfactory commitment and lease have not been presented. . . . [Seller] is proceeding with the other contract and requests that the Kowal's sign the release.
At trial, plaintiffs produced a lease agreement dated April 12, 2000. The tenant is identified by name but no address is given for him. Fulton testified that this lease was not produced to defendant or his agent on that date because the check from the prospective tenant had not yet cleared and Fulton had not completed a credit report on him. As already mentioned, Throckmorton testified that he first saw this lease several weeks after the date of its execution.
Buyers argue that none of the oral notice, the April 10 release or the April 12 letter effectively cancelled the agreement. Critically, buyers claim that the release could not have cancelled the agreement because it was not signed by the seller, but by Williams, who was not authorized in writing to give such a notice. They further argue that the April 10 "commitment letter," coupled with the April 12 lease satisfied all contingencies to closing of the agreement.
Seller argues that he could have cancelled the agreement at any time after April 5, 2000, and that he did so on either April 10 or 12. He claims that neither the April 10 commitment letter nor the lease eliminated his right, under paragraph 8 of the contract, to cancel the transaction and return the deposit.
III.
In order to defeat seller's Motion to Cancel the Notice of Lis Pendens, buyers must prove only a probability that final judgment will be entered in their favor. The parties have agreed, however, that the matter has now been tried and is ready for final decision. Thus, the buyers have "the burden of proving the existence and terms of an enforceable contract by clear and convincing evidence." Moreover, the remedy of specific performance of contracts for the sale of land is a matter squarely within this court's discretion.
Donald J. Wolfe, Jr. Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery § 12-3, 816 (1998).
See, e.g., Gordon v. Rolfe, Del. Ch., C.A. No. 8171, Jacobs, V.C. (Feb. 26, 1986); McAllister v. Schettler, Del. Ch., 521 A.2d 617 (1986).
Although seller initially argued that the oral notice of April 6, 2000, triggered the 48 hour contingency, it became clear at trial that the pertinent issue in this case is whether either the April 10 release or the April 12 letter effectively terminated the agreement. For the reasons discussed below, I hold that the April 10 release properly communicated the seller's decision to cancel the contract.
April 5, 2000 was the Mortgage Commitment Date. As already noted, buyers neither satisfied nor waived the mortgage contingency by then. Thus, the seller had the right to cancel the contract at any time after that date. When he received the additional satisfactory offer, seller decided to give notice to buyers in accordance with the 48 hour contingency and did not act to cancel the agreement in accordance with the mortgage contingency.
Seller's decision to proceed under the terms of the 48 hour contingency and, thus, to give the buyers some additional opportunity to remove all financing contingencies, had a practical effect on the parties' conduct on April 10. This is so because, when buyers failed to produce satisfactory evidence of financing by April 10, the seller and Williams no doubt assumed that the agreement had automatically become null and void, in accordance with the terms of that contingency. Thus, there was no reason for the seller to give any additional notice expressly canceling the contract. The only issue remaining was to return to the buyers their deposit money. This seller sought to accomplish this by the release signed by Williams and delivered to Fulton on April 10.
For the purposes of this decision, however, I will assume, without deciding, that the oral notice given on April 6 was ineffective because it was not in writing. This assumption requires a different analysis of the parties' conduct on April 10 and thereafter but does not lead to a different result.
Testimony at trial showed that standard practice in the real estate business is for notices to be given in writing, in accordance with the language in the standard form of agreement. In an action for specific performance, however, where it is undisputed that actual notice was timely received, strict adherence to such a formal requirement would seem to be of lessened importance.
There is no suggestion that seller's decision to deliver notice in accordance with the provisions of the 48 hour contingency provision, amounted to a waiver of his right to cancel the contract under any other provision, including the termination provisions of the standard mortgage contingency found in paragraph 8 of the contract.
Buyer's failure to remove or waive the mortgage contingency by April 5 did not result in an automatic termination of the contract. Instead, it gave rise to a right to cancel by seller. Obviously, such a right must be exercised and notice of its exercise given. If that right was effectively exercised, it is immaterial to decide whether the oral notice on April 6 triggered the 48 hour contingency. Thus, I must determine whether seller's right to cancel was still effective on April 10, and if so, whether seller effectively exercised it.
I have little trouble concluding that the "commitment letter" obtained by buyers on April 10 did not terminate seller's right to cancel. That letter, on its face, stated that it was not a commitment to loan money. Further, the letter identified certain material contingencies to it ever becoming a binding commitment, including a sale of home contingency. Paragraph 8(d) of the contract gave the seller five days after receipt of such a contingent financing commitment the opportunity to cancel the agreement. From my review of the testimony and other evidence, I conclude that, although seller thought the contract was already null and void, by instructing Williams to sign and deliver the release and deliver the second contract, he intended to unequivocally communicate the fact of its cancellation to the first buyers.
I also conclude that the April 10 release sufficiently notified buyers of the cancellation. The contract does not specify how notice of cancellation should be made, other than that it be in writing. Therefore, any writing making clear the intent to cancel should suffice. Although it is not specifically stated in the April 10 release, that document adequately communicated the seller's intent to cancel the contract and proceed with the second offer. Certainly, when read in context of the oral communications between Williams and Fulton, that intention is unmistakable.
Buyers argue, however, that the April 10 release could not be effective because only Williams signed it, and not seller. This argument fails, for several reasons. First, plaintiffs' conduct betrays their present claim that Williams was not the proper party to send and receive documents of this nature. While they point out that Williams was not identified in Section 18 of the contract as the party to whom notices should be sent, every communication they had with the seller, at least between April 6 and 12, was actually directed by them to Williams, and not to seller himself. In the circumstances, buyers cannot gracefully challenge Williams's authority by arguing that he was not identified in the contract as seller's agent for purpose of sending or receiving notices.
Buyers also cite the Delaware Statute of Frauds and agency principles to attack Williams's authority to sign the April 10 release. They argue that because the release is a contract relating to the sale of land, it must be signed either by seller or by an agent lawfully authorized in a writing signed by him. In support, plaintiffs cite to Section 30, comment b of the Restatement (Second) of Agency.
Comment b indicates that in some states, if an agent signs a contract that falls within the Statute of Frauds, the agent need be authorized in writing to do so. Delaware appears to require such written authorization. Comment b goes on to state, however, that "[i]f an agent has not been authorized in writing, as required, the principal can later ratify a transaction entered into by him. . . ." Seller has obviously ratified Williams's actions.
See § 2714(a); Hessler, Inc. v. Farrell, Del. Supr., 226 A.2d 708 (1967); Mitchell v. Brimer, Del. Ch., C.A. No. 1117-S, mem. op. at 7, Jacobs, V.C. (January 12, 1987) ("[W]here a party to a contract for the sale of land causes the contract to be executed by an agent acting on that party's behalf, the agent's authorization must be in writing to satisfy the requirement of the Statute of Frauds.").
More importantly, while the authorization to enter into a land contract is covered by the Statute of Frauds, plaintiffs have not explained how or why a notice of cancellation is also covered by that law. Further, my view would not change even if one assumed that the release were, in fact, covered by the Statute. "The purpose of the statute (in the instant setting) . . . is to prevent the agent from making unfounded claims of authority to act on the principal's behalf. But where the principal has acknowledged the agent's authority . . . the danger of unfounded claims and perjured evidence no longer exists." In the circumstances, the purpose of the Statute is satisfied because there is no question about the principal's assent to the agent's actions.
Mitchell at 7-8.
Even if Williams did not have actual authority to bind defendant, he had apparent authority, at least with respect to these plaintiffs. See Restatement (Second) Agency, § 27.
Finally, those dealing with an agent must be reasonably diligent, and, if they have reason to question an agent's authority, are "duty bound to ascertain the extent of the authority." In this case, every objectively ascertainable fact indicated that the agent did, in fact, have authority to execute a release and give notice of cancellation of the agreement. If plaintiffs questioned that authority, they should have inquired at the time.
Limestone Realty Co. v. Town Country Fine Furniture Carpeting, Inc., Del. Ch., 256 A.2d 676, 679 (1969).
The testimony regarding the timing of the release and the conversation between seller and Williams was somewhat disjointed. Seller testified that he spoke with his agent at 5:00 p.m., while the release was faxed at 2:18 p.m. Whether the mistake is in seller's recollection or the fax machine's clock, I have no doubt that Williams acted with authority in signing the April 10 release and delivering the second contract.
As a final point, even if the April 10 release was defective, neither the contingent "commitment letter" nor the undisclosed lease barred seller from terminating the contract at a later time. The April 12 letter specifically stated that seller was proceeding with the other contract, and requested that buyers sign the release. Seller's intent to cancel could not have been clearer.
IV.
For the reasons stated above, Defendant's Motion to Cancel the Lis Pendens is GRANTED and this action is DISMISSED with prejudice.