Mandatory Closing Provisions Strictly Enforced in Real Estate Purchase Contracts
That hissing sound you hear is not just air coming out of the real estate bubble, it's the folks at Mining Investment Group, LLC ("MIG") who today learned the importance of a mandatory closing date where a contract specifies that "time is of the essence." The case, Mining Investment Group, LLC v. Roberts, shows just how strictly the courts will interpret real estate purchase contracts - indeed, what a difference a (business) day makes - where the contract includes a specific date for closing, a term that is currently quite common in many real estate purchase contracts.
The short story: MIG contracted with Roberts to buy some land for $126,000. MIG deposited $10,000 in earnest money into escrow, promised another $30,000 at closing and a note for the rest. The closing date was ultimately set on a Friday and MIG failed to deposit the $30,000 into escrow. Roberts then faxed the escrow company a cancellation after the close of business on the date of the closing, withdrawing the property from escrow. The next business day, however, MIG wired the $30,000 to the escrow company (the escrow company was closed over the weekend). Roberts refused to close and MIG sued Roberts for specific performance. Roberts countersued MIG for filing a groundless lis pendens against the property.
The trial court granted Roberts' motion for summary judgment that, in light of the "time of the essence" clause in the contract, the failure to close on the specific date was a material breach. The trail court enforced the liquidated damages clause of the contract, awarding the $10,000 earnest money to the Roberts, awarded attorneys' fees to Roberts pursuant to the contract and ordered the lis pendens to be released (although it did not find it was groundless). Both parties appealed and the Court of Appeals affirmed the trial court on all counts.
MIG relied upon one the Supreme Court's decision in Foundation Development Corp. v. Loehmann's, Inc., 163 Ariz. 438, 788 P.2d 1189 (1990), to support its argument that, notwithstanding the "time is of the essence" term of the contract, there must be a material breach to work a forfeiture of an equitable property interest, and that the "materiality" of a breach was a question of fact. Loehmann's involved a tenant in a commercial lease who was subject to a forcible detainer action after it was three days late paying an assessment for common areas. In Loehmann's the Supreme Court held that a "time of the essence" clause was not dispositive in determining the materiality of a breach, that "[t]he mere incantation that 'time is of the essence' works no magic to transform trivial untimeliness into a material breach; rather, the same factors . . . in determining general materiality apply to evaluating the effect of a particular 'time of the essence' provision."
At first blush, Loehmann's seems to support MIG, but the Court of Appeals saw it differently. The Court distinguished an "executory contract for the purchase of real estate" from leasehold contracts. The Court found an "equitable interest" in land under a purchase contract was sui generis to a "possessory interest" in land under a leasehold, with the possessory interest apparently enjoying more protection from "inequitable forfeiture" as described in Loehmann's. The Court was also troubled by having to "ignore the express terms that the parties contracted for and essentially rewrite the contract." Not surprisingly then, the Court affirmed the trial court's award of the $10,000 earnest money and attorneys' fees, also pursuant to the express terms of the contract. The Court also agreed with the trial Court's determination that the lis pendens was not groundless.
This case is a big deal, and I have to wonder whether it will withstand further review. There are many reasons why real estate deals do not close on a specific dates, which are usually agreed to weeks or months in advance. Bank delays in wiring money, lender or broker delays of all kinds and simple press of business sometimes makes a precise closing impossible. Further, in my view, it is grossly unfair and bizarre to enforce the "time is of the essence" provision in one type of real estate contract (a lease) but not in others (a purchase) under some legal fiction that one is possessory and the other is "merely equitable."
For now, at least, if you are buying property in Arizona, you better make sure you build in sufficient room for delaying closing because the slightest delay may result in a substantial forfeiture.
Originally posted at InjuryBoard by Geoff TrachtenbergNo Personal Jurisdiction Over Across-the-Border Bar That Overserves Patron Killing Arizona Pedestrian
Interesting and disappointing personal jurisdiction memo opinion from Division One, Womack v. KC Arena. In short, KC operates a bar on the Nevada side of the Arizona-Nevada border, over served a patron who then drove across the state line and killed an Arizona pedestrian. Moreover, plaintiffs asserted that KC employees knew the patron lived in Bullhead City and that he would return there after he left the facility.
KC filed a motion to dismiss based upon a lack of personal jurisdiction. The plaintiffs opposed the motion, asserted general and specific personal jurisdiction, and (smartly) requested the opportunity to conduct discovery on the issue of personal jurisdiction. The trial court, however, granted KC's motion and Division One affirmed!
General personal jurisdiction over any claim against a defendant arises when the defendant has "substantial" or "continuous and systematic" contacts with the state. Though the record contained evidence that KC (1) advertises on television broadcasts in Arizona; (2) lists its establishment in various Arizona telephone directories; (3) employs Arizona residents; and (4) maintained an interactive website that has a "chat room" and solicits email, the Court of Appeals determined that these contacts were insufficient for general personal jurisdiction (they claimed to ignore the website since it was not, apparently, raised in the trial court).
Specific personal jurisdiction over a related claim against a defendant arises when (1) the defendant performed some act or consummated some transaction with the state by which it "purposefully availed" itself of the privilege of conducting activities in the forum state; (2) the claim "arises out of or relates to" the defendant's forum-related activities; and (3) the exercise of jurisdiction would be reasonable. KC argued that there was not a sufficient nexus between the plaintiffs' claim and KC's contacts with Arizona - namely, its local television advertising and telephone directory listings - to support the exercise of specific jurisdiction because those contacts are unrelated to the events giving rise to the plaintiffs' claims. The Court essentially agreed, focusing particularly on the fact that the events giving rise to the liability occurred in Nevada and that the location of the "injury causing event" in Arizona was irrelevant.
The Court also affirmed the trial court's exercise of discretion in denying the plaintiffs an opportunity to conduct discovery because, in essence, the Court concluded that the additional discovery would not have made a difference in the analysis. Don't you love that kind of logic - speculating on the outcome of the appeal based upon discovery that was not allowed?
Personally, Judge Barker's concurrence makes the most sense to me:
KC runs a bar that is immediately across the river from Arizona. Certainly, the business of the bar, and plaintiffs' claim, "relate[] to" the steady stream of patrons that come to the bar from Arizona and re-enter Arizona after frequenting the bar's premises. KC chose to locate its bar in that location. It initiated those contacts. It should not be jurisdictionally immune from the impact that it is having on Arizona residents when it sends intoxicated drivers onto Arizona highways.
But, alas, it is so immune.
Originally posted at InjuryBoard by Geoff Trachtenberg
