Failure to Adhere to the Contract’s Strict Requirements May Doom Claim

Where the sales contract required the buyer to submit a written request to inspect the property, the seller’s refusal to honor buyer’s oral inspection request did not constitute a breach of contract.  Miriam Equities v. LB-UBS 2007-C2 Millstream Road, LLC, 2022 NCBC 3 (J.Earp).  As a result, the seller justifiably retained the $1 million deposit when the buyer failed to timely close on the sale.

Buyer/Plaintiff submitted the winning auction bid for the right to purchase a piece of commercial property, which was advertised “as is” with “no due diligence or inspection period.” As part of the subsequent agreement to purchase (“Agreement”), Buyer agreed that it had been given “the opportunity to inspect” the property prior to signing the Agreement, and that any inspection of the property after signing of the Agreement must be in writing but the results of the inspection would not relieve Buyer of its obligation to purchase. (Opinion, ¶9).  The Agreement also provided that the purchase of the property was “not contingent” on Buyer obtaining financing, that Buyer was required to provide a $1 million deposit toward the sale, and that Buyer would forfeit the deposit as liquidated damages in the event it failed to timely close.

  At some point prior to the Closing date, Buyer made an oral request to inspect the property for purposes of conducting soil tests to secure financing for the property, notwithstanding the Agreement’s requirement for a written request. Seller admitted to receiving Buyer’s oral request, but still refused the request.  Buyer alleged that as a result of the Seller’s refusal to allow the inspection, it could not obtain financing to close on the property. The Closing did not occur at the date and time set forth in the Agreement and, thirty minutes after the Agreement’s deadline, Seller declared the Buyer in default and retain the deposit.  Buyer sued, seeking a declaratory judgment that Seller had breached the Agreement and requested the return of the $1 million deposit. Seller moved for summary judgment.

 Finding that Buyer admitted that it only made an oral request to inspect the property when the Agreement required all such requests to be written, the Business Court held as a matter of law that Seller did not breach the contract and that Seller was entitled to summary judgment on Buyer’s declaratory judgment claim.  The fact that a genuine dispute existed about when the oral request was made (i.e., pre-or post-Closing) was of no moment for the Business Court, nor did the Business Court cite to any affirmative defense (i.e., statute of frauds, etc.) in ruling for the Seller.  Instead, the Business Court focused on the Buyer’s admission that it had made only an oral request, which was an insufficient basis as a matter of law to maintain its declaratory judgment claim.

 Based upon this decision, a business should understand that it would be well-served to follow all obligations plainly set forth in the contract down to the “letter.”

 Additional Legal Points:

While one who acts in excess of his legal rights to prevent a condition precedent from occurring cannot later take advantage of the non-performance, the exercise of one’s legal rights (i.e., the refusal to grant the oral request to inspect the property to assist in obtaining financing) will not excuse non-performance.  (Opinion, ¶59-60).

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