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Pines Plaza Limited Partnership v. Berkley Trace, LLC

Court of Appeals of Maryland

May 21, 2013

Pines Plaza Limited Partnership
v.
Berkley Trace, LLC, The Hampton Company, Inc., and James P. Joyce

Bell, C.J. Harrell Battaglia Greene Adkins Barbera McDonald, JJ.

OPINION

McDonald, J.

This case concerns the interpretation of a contract for the sale of real property. Much turns on the actions of a party no longer present and the significance of what was left unsaid in the contract and related documents.

The controversy arose out of a contract to sell a shopping center – a contract that was amended on several occasions. Among other things, the buyer agreed to indemnify the seller for a real estate commission, which they both disclaimed in the contract itself, that might ultimately be owed to a particular real estate broker. Another provision provided for forfeiture of the buyer's $200, 000 deposit if the transaction did not close on the timetable in the contract. In order to raise funds for the purchase, the buyer recruited some investors to fund the deposit and most of the purchase price and assigned them interests in the contract.

Complications arose. The transaction ultimately closed after the appointed date. The real estate broker successfully sued the seller for a commission in the amount of $196, 666.66. The buyer went bankrupt and dropped out of the picture, leaving the seller and the assignee investors to sort out the consequences of those events under the contract. They resorted to the courts, and it is now our task to interpret the contract and related documents in light of Maryland law.

Under Maryland common law, one who takes an assignment of an interest in a contract for the sale of real property does not assume the obligations of the assignor under the contract, unless the assignment explicitly provides so. The seller in this case invites us to reverse that presumption and hold that an assignee normally assumes the obligations of the assignor under the contract, unless the assignment provides otherwise. We decline to do so. Accordingly, the seller here is not entitled to indemnification from the assignee investors for its liability for the broker's commission, even though the buyer (their assignor) is obligated to indemnify the seller.

Under Maryland common law, failure to meet a deadline for the settlement of a contract for the sale of real property is not a breach that triggers forfeiture of the buyer's deposit if the transaction closes within a reasonable time of the stated date, unless the contract clearly provides otherwise. The seller in this case asserts that this particular contract allows no deviation from the stated deadline. We disagree. The contract language itself suggests that the normal rule applies. And the seller proceeded to complete the settlement without declaring a default. Accordingly, the seller is not entitled to forfeit the deposit funded by the investors.

Finally, the seller seeks to have the investors' claim for refund of the $200, 000 deposit offset by the amount of indemnification ($196, 666.66) that their assignor, the buyer, owes the seller. In this regard, the seller's position has merit. An assignee, such as the investors here, who asserts a claim based on the assignment of a contract right is subject to an offsetting claim that the seller would have against their assignor arising from the same transaction. This concept, known as recoupment, applies even if the seller could not, as in this case, affirmatively assert that claim against the assignee.

Thus, the end result is, more or less, a draw.

Background

1998-2002: Pines Plaza seeks a buyer for its shopping center

Beginning in January 1998, Pines Plaza Limited Partnership ("Pines Plaza"), the Petitioner in this case, sought to sell a shopping center it owned ("the property") in the Ocean Pines community of Worcester County. Toward that end, Pines Plaza entered into an exclusive listing agreement with Crimmins Associates Real Estate ("Crimmins Associates"), a real estate brokerage firm. The listing agreement remained in effect for the next four years, but the property was not sold.

In early 2002 new owners took control of Crimmins Associates; Pines Plaza informed Crimmins Associates that it had decided not to renew its listings with the firm, including the unsold shopping center. Nevertheless, in a letter dated March 23, 2002, a representative of Pines Plaza informed Crimmins Associates that "if you do get a real buyer and a contract, [Pines Plaza] will accept it under the same terms and conditions of the original listing." June 2002: Crimmins Associates finds a buyer – Q-C

In June 2002, Crimmins Associates informed Pines Plaza that a potential buyer had been found. James Quillen[1] and Eric Chadwick proposed to purchase the property through a new venture, Q-C Pines Plaza, LLC ("Q-C"). The initial proposal fell through. But Mr. Quillen and Mr. Chadwick again expressed an interest in buying the property. This offer was apparently more attractive to Pines Plaza. In February 2003, Pines Plaza entered into a contract to sell the property to Q-C.

2003: The Contract, its First Amendment, and its Second Amendment, without a closing

The contract stated a purchase price of $6 million, required a deposit of $10, 000, and set the deadline for closing as April 15, 2003. The contract contained a provision in which Pines Plaza and Q-C both "represent[ed] and warrant[ed]" that no broker, other than one of the principals of Pines Plaza and the firm that represented Q-C, was entitled to a commission in connection with the transaction. Nevertheless, the contract also included an indemnification provision that "Purchaser shall indemnify and hold harmless from and against any claim for a broker's fee, commission, finder's fee or similar fee from Crimmins Associates ...." There apparently had been a discussion between Pines Plaza and Q-C, not memorialized in the contract, as to whether Crimmins Associates was due any fee. According to testimony by the principal of Pines Plaza, he insisted on the indemnification provision, even though Mr. Quillen said that he had already resolved the issue by paying $19, 000 to Crimmins Associates as a finder's fee.

Shortly thereafter, an unforeseen issue emerged, and Pines Plaza terminated the contract within the contract's rescission period prior to payment of the $10, 000 deposit.[2] To revive the deal, Mr. Quillen, one of the principals of Q-C, then drafted and faxed to Pines Plaza a "First Amendment to Contract of Sale" (the "First Amendment") that provided for, among other things, the reinstatement of the contract, payment of the non-refundable $10, 000 deposit by Q-C, and a new closing deadline of June 30, 2003.[3] The parties executed the First Amendment effective April 1, 2003, but the sale did not close on the appointed day.

Yet again Mr. Quillen returned to Pines Plaza and sought to revive the sale. Pines Plaza and Q-C entered into a "Second Amendment of Contract of Sale" (the "Second Amendment") which the parties executed on January 5, 2004. The Second Amendment provided that Q-C's deposit of $10, 000 was forfeited and would not be applied to the sale price. Further, the Second Amendment required an additional $200, 000 deposit by Q-C, which would be applied against the purchase price at closing, and specified a new deadline for the closing date as January 12, 2004. It also provided that the $200, 000 deposit could be retained by Pines Plaza as "liquidated damages" if the closing did not occur as agreed.

January 2004: Berkley Investors agree to fund the deposit and part of the purchase price

To raise funds needed for the deposit and purchase price, Q-C recruited three additional investors: Berkley Trace, LLC; The Hampton Company, Inc.; and James P. Joyce (collectively, the "Berkley Investors"), the Respondents in this case.[4] On January 9, 2004, Q-C assigned each of the three Berkley Investors a 25 percent tenant-in-common interest "in and to the Contract for the shopping center...." The written assignments also made reference to both the First Amendment and the Second Amendment. While the assignments recited in boilerplate language that they were provided in consideration of "mutual covenants" and other consideration, they did not identify the consideration provided by the Berkley Investors.[5] Nor did they state that the Berkley Investors were undertaking Q-C's obligations under the contract. Between January 7 and January 15, the Berkley Investors funded the $200, 000 deposit required by the Second Amendment of the contract and paid $3.1 million toward the $6 million purchase price by wiring funds to the settlement agent. Pines Plaza was aware of the assignments to the Berkley Investors, at least by the scheduled closing date of January 12, 2004.

January 12, 2004: Execution of closing documents

On January 12, 2004, Pines Plaza and Q-C executed closing documents, including a deed. Three days later, the settlement agent transferred $3.1 million to Pines Plaza's agent. Settlement, however, did not conclude on that date as Q-C failed to provide the remainder of the purchase price.[6] According to the Berkley Investors, however, one of the principals of Q-C, Mr. Quillen, advised that the deal had in fact closed on ...


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