Wine, Cheese, and More Legalese

While Larry the Lawyer was preparing for his Halloween guests, I was fortunate enough to share some Freeman Vineyard Pinot Noir 2007 from the Russian River Valley with another lawyer certainly up to the job. I won’t go into the tasting notes, except to say that I highly recommend it if you can get some and that it definitely earned the 90 points that it was given in the Connosisseur’s Guide to California Wine.

One of the key parts of the discussion was the Default section of our Vue Charlotte contracts. Many have written me and said all that is at risk is your deposit. Before I go further, let me give you a disclaimer. If you want recommendations for wine, this blog might be able to give you some. But please don’t rely on any legal advice provided here. I pass on things that I hear, but when I actually pay a lawyer, that is the only time I will actually rely on the information I share.  So please take all that I say as points of discussion when you meet with your own attorney should you decide to do so.

If you read the Default section, you will see that if you default, MCL MAY TERMINATE, not WILL TERMINATE, but MAY TERMINATE the contract. If they do, then all that is at risk is your deposit. If they don’t terminate, this leaves them the option to pursue actual damages.

Also, the question is are Liquidated Damages their EXCLUSIVE remedy? It doesn’t say that it is. So therefore, it is possible that they may have other remedies, such as pursuing specific performance. Now, we do not know what was in the Celadon contract that may have made things easier for the Developer to pursue specific performance and win. In our contract, there is nothing mentioned one way or the other.

What about people who simply can’t close? I am going to share a note I received from one of our readers that mentioned the defense of impossibility.  The discussion I had over wine did not make me as comfortable that this was a valid defense as the reader and law professor below may think it is (and I’m not sure if you have to declare bankruptcy to use it). The basic law school case for impossibility is you rent your porch to see a parade; the parade gets cancelled; and you get sued because the renter did not get to watch the parade which is the only reason he rented in the first place. Obviously, performing on this contract is indeed impossible. It is a tougher argument to make that obtaining money, no matter how much, is impossible.

i have been speaking with a law professor about my contract at the vue. he reviewed it and said it’s very simple. this is a case of “impossibility of performance”. the bottom line is that those who choose not to close, may very well be bound to their purchase contract, but those who are UNABLE to close, should be and will be excused by any court for their impossibility of performance. as the law reads:

“Where contracts for the sale of goods are concerned UCC 2-615 sets forth three conditions which must be satisfied before performance is excused: (1) a contingency has occurred; (2) the contingency has made performance impracticable; and (3) the nonoccurrence of that contingency was a basic assumption upon which the contract was made.”

in our case, the contingency is obviously our ability to get financing.

http://www.west.net/~smith/imposbl.htm

Below is another mail I received from a reader on the subject of liquidated damages:

Hi Mike,
 
It’s scary enough when real attorneys try to interpret the law, but now we google- informed consumers are doing the same thing.  At least it gives us some information about where we stand.  The following excerpts are from various Internet sources.
 
Liquidated damages clauses possess several contractual advantages. First, they establish some predictability involving costs, so that parties can balance the cost of anticipated performance against the cost of a breach. In this way liquidated damages serve as a source of limited insurance for both parties. Another contractual advantage of liquidated damages clauses is that the parties each have the opportunity to settle on a sum that is mutually agreeable, rather than leaving that decision up to the courts and adding the costs of time and legal fees.

Liquidated damages clauses are commonly used in real estate contracts. For buyers, liquidated damage clauses limit their loss if they default. For sellers, they provide a preset amount, usually the buyer’s deposit money, in a timely manner if the buyer defaults.

At common law, a liquidated damages clause will not be enforced if its purpose is to punish the wrongdoer/party in breach rather than to compensate the injured party (in which case it is referred to as a penal or penalty clause). One reason for this is that the enforcement of the term would, in effect, require an equitable order of specific performance. However, courts sitting in equity will seek to achieve a fair result and will not enforce a term that will lead to the unjust enrichment of the enforcing party.[1]

In order for a liquidated damages clause to be upheld, two conditions must be met. First, the amount of the damages identified must roughly approximate the damages likely to fall upon the party seeking the benefit of the term. Second, the damages must be sufficiently uncertain at the time the contract is made that such a clause will likely save both parties the future difficulty of estimating damages. Damages that are sufficiently uncertain may be referred to as unliquidated damages, and may be so categorized because they are not mathematically calculable or are subject to a contingency which makes the amount of damages uncertain.

The issue here, as we see it, is the meaning of that part of section 13 that says the seller can’t keep any more of the deposit than 15% of the purchase price or the amount of actual damages, whichever is greater.  So, if the deposit is less than the 15%, the seller keeps that, if it’s more than 15%, the seller gives the rest back to the buyer.  We don’t have a clue what, “or the amount of actual damages, whichever is greater,” has to do in the context of this clause.

The whole purpose of the liquidated damages clause is to show agreement between buyer and seller at the time of signing the contract regarding default of the buyer, and to set the remedy at that time, instead of asking a court of equity to decide what the actual damages are; an impossible task in many cases, and ours in particular.

There are other legal topics we could talk about, but I have finished the bottle and this is all I can take for now. I am sure if you have gotten this far that you feel the same way!

None of us want to use legal means. We all hope it doesn’t come to that. But we will spend time in the blog understanding and discussing various legal options and points in case that is where MCL leads us.

Have feedback? Please leave a comment or write to Vuebuyer10@yahoo.com.

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One Response to Wine, Cheese, and More Legalese

  1. hopfull neighbor says:

    have a look at the observer article today on their condo crisis and action

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