Daily Development for
Thursday, October 1, 1998
by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
Note that there are two items here. Each deals with a different aspect of the same case. The second item, to the editor, is by far the more interesting, but for clarity I have included the first item as a "warmer upper."
VENDOR/PURCHASER; ENFORCEABILITY; AGREEMENTS TO AGREE: A contract for the sale and purchase of realty is binding notwithstanding the contract's failure to indicate the purchase price, the exact size of the parcel and the allocation of certain air rights.
Lafayette Place Associates v. Boston Redevelopment Authority, 694 N.E.2d 820 (Mass. 1998).
In 1978, Lafayette Place Associates signed an agreement with the Boston Redevelopment Authority ("BRA") and the City of Boston for the commercial development of the "Hayward Parcel" on Washington Street. The agreement provided an arbitration mechanism for determining the fair market value of the Hayward Parcel and several alternatives concerning its exact boundaries. The parties agreed that any indefinite terms "shall be worked out by the parties . . ., but if they shall be unable to do so then the matter shall be resolved by arbitration . . . ."
After the defendants refused to extend the closing date, plaintiffdeveloper brought suit against the defendants seeking specific performance, or alternately, money damages. The trial court ruled that the City had breached the purchase and sale agreement and awarded money damages of almost $10 million.
On appeal, the defendants argued that the terms of the agreement were too indefinite to constitute a binding agreement. Noting that the agreement had progressed beyond the stage of imperfect negotiation, the Supreme Judicial Court of Massachusetts concluded that the agreement, although contingent on future events, constituted an enforceable contract because it provided sufficient mechanisms, such as a pricing formula, to reduce the uncertain terms to rights and obligations.
The court, however, ultimately set aside the lower court's judgment on the ground that neither defendant breached the agreement.
VENDOR/PURCHASER; BREACH; ABILITY TO PERFORM: Where objective criteria demonstrate that the contract cannot be carried out within the contractual time limits remaining, Seller is not liable for breach even if Buyer demands performance and Seller refuses; and Seller has no good faith duty to extend the time for performance.
Lafayette Place Associates v. Boston Redevelopment Authority, 694 N.E.2d 820 (Mass. 1998).
The contract was an elaborate staged acquisition contract for various elements of a proposed redevelopment project in Boston. Provisions regarding the parcel in question indicated that the Developer would have rights to acquire it only if and when the City determined that it intended to remove a parking structure on the site. Thus, it was uncertain exactly when the purchase would occur. There was a complex pricing formula that called for estimation of the fair market value of the property at the time of the contract and then, at time of actual sale, an estimation of the increase in that value attributable to redevelopment activities on other adjacent parcels subsequent to the contract. The Developer's option rights commenced by receipt of notice of the City's intent to terminate its use of the parking structure. The parties would not work out the pricing formula until the Developer actually declared its intent to acquire the parcel:
"The Developer may exercise the right and option set forth in this Section 6.02 by giving notice of its desire to purchase such rights to the City at any time within the Option Period. After the receipt of and following such notice from the Developer, the parties shall in good faith negotiate and enter into an agreement calling for the purchase and sale of the rights in question. Such agreement shall be in the customary form of agreements for the purchase and sale of real estate in the greater Boston area except that the agreement shall reflect such reservation and shall contain other appropriate provisions with respect to the integration of construction and other matters relevant to coordinated use of the rights conveyed and the rights retained by the City. . . .
"[I]f the Developer shall exercise the right and option set forth in this Section 6.02, there shall automatically be created an agreement by the Developer to buy and by the City to sell the ... Parcels.... [A]ppropriate details of the purchase and sale shall be worked out by the parties so as to conform to their intent under this Section 6.02., but if they shall be unable to do so then the matter shall be resolved by arbitration . . . "
The City elected to terminate the parking structure use and the Developer exercised its option in July, 1986.
In a later amendment, which extended the Developer's time for exercising the option, the parties added the following language, establishing a "drop dead date:" "[U]nless the City and the Developer shall agree to a further extension, the Developer shall lose its rights hereunder to proceed with an acquisition if a closing has not occurred by January 1, 1989, unless the City and/or the Authority shall fail to work in good faith with the Developer through the design review process to conclude a closing.' "
Also around this time, Boston elected a new Mayor, who believed that the price set for the property was inappropriately low, in light of increases in the value of the site due to a number of factors. The Developer alleged that the City engaged in a serious of obstructionist and delaying tactics. Ultimately, the Developer, in difficult financial straits, validly assigned its rights to a new Developer in May of 1988. Developer II proposed a dramatic new redevelopment scheme which required extensive governmental approvals. These were slow in coming, and, in addition, the City refused to provide any further extensions of the "drop dead date." On December 19, 1988, Developer II sent a letter with a catalogue of injuries to the Mayor. This letter included the following phrase:
"[W]e have no recourse but to officially notify the city that we wish to complete the transaction and make payment immediately."
The opinion does not indicate what response the City made, if any, to this demand. The Zoning Board, which the court found was not acting as agent for the City, responded that the transaction could not occur until the project was approved, and indicated that the "drop dead date" would have passed by then, suggesting that the price would be higher as a consequence.
On these facts, a jury awarded the Developer $9 million for the City's breach of contract.
On appeal: held: Reversed.
Although the court held that the contract formula was precise enough to make an enforceable contract, it concluded that the Developer never made clear that it was in a position to perform the contract according to its terms, and therefore the City had not been "put into breach." The court stated that "the general rule is that when performance under a contract is concurrent one party cannot put the other in default unless he is ready, able, and willing to perform and has manifested this by some offer of performance. Any material failure by a plaintiff to put a defendant in breach bars recovery, unless the plaintiff is excused from tender because the other party has shown that he cannot or will not perform. Even if a potential buyer notifies the seller of the buyer's intention to tender on a certain date and appears at the registry of deeds on that date with the required consideration, there may not be the "readiness to perform" that is a necessary condition of placing the defendant in breach." (Citations omitted)
Developer in the view of the court had a duty to "activate" the appraisal process within a time frame sufficient to establish a price and resolve other difficulties prior to the "drop dead date." "[T]he plaintiff cannot be ready, able, and willing to tender, nor can the plaintiff put the defendant in default, unless the plaintiff attempts to use the contractually specified mechanisms to overcome the very uncertainties they were designed for. If two parties form an agreement that incorporates procedural devices to overcome unknowns, a plaintiff must at least attempt to make use of those devices before he can claim that the unknowns prevented meeting his obligations at law. This is particularly true in a complex and heavily regulated transaction such as this one, where public entities and public and elected officials with changing policies and constituencies are involved, and the transaction spans many years."
As to the Developer's claim that the City had a good faith duty under the circumstances to extend the time for exercise of the option, the court states categorically that even if the sole purpose of the City in refusing to extend was to exact a higher price for the land, it had no good faith duty to waive an express contractual right, whatever the motive. Note that the contract had required that "the parties shall in good faith negotiate and enter into an agreement calling for the purchase and sale of the rights in question."
Comment 1: Although the court purports to be making a ruling on the law, it clearly is setting aside the jury's interpretation of the facts. At critical junctures throughout the opinion the court cites to the transcript to conclude that various alleged acts by the City that prevented the Developer from moving ahead were not the real cause of the delay.
Comment 2: If we can assume that the case has any validity (it is the Supreme Court of Massachussets, after all, which should follow a rule of law), then the case is quite helpful for persons faced with claims based upon "good faith duty to negotiate." The court states unequivocally that the good faith duty to negotiate, which was contractually required here, does not mandate that a party waive an express contract deadline. A few cases in other jurisdictions have found an implied duty of good faith to continue to negotiate beyond the expiration of option periods.
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