Daily Development for Friday, July 25, 2008
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri

VENDOR/PURCHASER; BUYER’S REMEDIES: Breach of contract of sale by vendor maybe a violation of a state Unfair Practices Act. 

Schaumberg v. Friedmann, 888 N.E.2d 963 (Mass.App.Ct.2008)

The vendor under a contract to sell a condominium unit refused to close or to remove encumbrances on the title. The court found this was a violation of the Massachusetts Unfair Consumer Practices Act and held the vendor liable for treble damages and attorneys’ fees.

Friedmann contracted to sell a condo unit to Schamuberg and Dana. They gave Friedmann an earnest money deposit of $100,000. Their title examination disclosed several encumbrances, including a petition to foreclose a tax lien from the city of Cambridge, a tax taking from the city of Cambridge, and two writs of attachment. They notified Friedmann of the encumbrances and offered to extend the closing date to allow him time to remove them.

Friedman, however, refused to take any action to remove the encumbrances or extend the closing date. He also refused to return the purchasers’ deposit. He became abusive and threatening to the purchasers. He offered a deed to the purchasers from a limited partnership, but provided no evidence that he had authority to convey in behalf of the partnership or had a power of attorney from it.

The trial court found that his behavior was “was done unreasonably and in bad faith in violation of G.L. c. 93A, § 9(3) [the Unfair Consumer Practices Act.” The appellate court agreed.  Because the Act was violated, the court ordered Friedmann to pay (1) damages to compensate the buyers for their inspection and appraisal fees (trebled); (2) their attorneys fees for both the trial and the appeal; (3) their attorneys fees in preparing for the closing of the sale (which never occurred); and (4) a return of their $100,000, with interest at12%.

Reporter’s Comment 1: To be liable, Friedmann had to be classified as conducting “trade or commerce.” The court found that he was, as he “routinely purchased and sold residential property in Massachusetts as well as other States, operating under the name “Friedmann Financial Company.” He had sold seven other properties in Cambridge during the previous 25-year period. He held the condo unit as an investment and never lived in it. This seems to be a fairly minimal definition of “trade or commerce,” but it was enough.

Reporter’s Comment 2: The Act provides for treble damages, including “reliance” damages. The court indicated that Friedmann was lucky that the purchasers had not included their attorneys fees in preparing for the sale as damages; if they had done so, it would have been proper to treble them as well. The trebled inspection and appraisal fees amounted to only $2,925; if the attorneys fees had been trebled, they would have been $175,000!

Reporter’s Comment 3: The Unfair Consumer Practices Act makes illegal “unfair methods of competition and unfair or deceptive acts or practices.” How did this contract breach fit into that language? The court isn’t specific on the point, but it is hard to see how Friedmann’s conduct was an unfair method of competition or a deceptive act. This leaves only “unfair acts,” and I suppose Friedman’s behavior was indeed “unfair.” Exactly how bad does a contract breacher’s conduct have to be in order to fall within the Act? The standard is a bit vague, but apparently it requires a showing, not merely of a good faith difference of opinion as to the parties’ rights, but “knowing and wilful” conduct, engaged in “unreasonably and in bad faith.”

So this isn’t your grandfather’s breach of contract suit. Bringing in the Unfair Consumer Practices Act provides the plaintiff with much stronger remedies, including treble damages and recovery of attorneys fees. But not every contract breach will fit; the defendant must be in the “trade or business” of buying and selling real estate, and the breach must be fairly outrageous.

The Reporter for this item was Dale Whitman of the Missouri-Columbia Law School, emeritus.

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