Opinion
No. FBT CV 06 5004737 S
March 19, 2009
MEMORANDUM OF DECISION
The plaintiff was a contract purchaser of residential property located at 370-372 Olive Street, Bridgeport. The defendants are Park City Ventures, LLC ("Park City"), the seller of the property, and Clarence Zachery ("Zachery"), the sole member of Park City. The plaintiff claims to be entitled to the refund of a $58,000 deposit which he paid to Park City when the contract of sale was signed in April 2006.
The terms of the contract (Ex. 2 3) included a purchase price of $580,000, a deposit of $58,000, a closing date of May 17, 2006 and a mortgage contingency date of May 11, 2006. Paragraph 3 of the contract covered the terms of the mortgage contingency. In order to exercise his right to terminate the contract, the plaintiff was required to demonstrate due diligence and to provide Park City with "written evidence from said bank or lending institution of his inability to qualify for said mortgage written notice of the plaintiff's exercise of his right to terminate the contract was to be given to Park City's attorney on or before May 11, 2006 "by first class mail, or by facsimile." Paragraph 3 further provided that "Time is of the essence with respect to the mortgage contingency date."
The property at 370-372 Olive Street was a multi-family dwelling with eight units. At the time the contract was signed, four of the units were occupied by tenants all of whom were receiving housing assistance under Section 8. Paragraph 25 of the contract provided: "Seller agrees to provide leases or other agreements proving the current existence of viable section 8 tenancies for all units listed on the attached Schedule B." Paragraph 25 was drafted by the plaintiff's attorney, Gerald Shea. There were two Schedule Bs attached to the contract. The Schedule B referred to in Paragraph 25 was a list of tenants and their base annual rents as of late 2005. The other Schedule B was a list to repairs to be completed by Park City prior to closing.
Paragraph 5 of the contract provided that, in the event of the buyer's default, the seller could either retain the deposit as liquidated damages "to cover legal fees and miscellaneous costs, incidental to the sale of the premises, plus loss of time in finding a willing in and able Buyer," or seek actual damages while retaining the deposit as security against such damages.
Following execution of the contract, the plaintiff contacted a mortgage broker, Michael Licameli, who attempted to secure mortgage financing to enable the plaintiff to purchase the property. Licameli requested copies of leases for all occupied units in the building. Three or four leases were furnished to him. At a meeting with the plaintiff, Zachery and the two real estate brokers involved in the sale, Licameli learned that only three of the units were occupied. Licameli expressed concern over obtaining financing unless at least six of the units were occupied. The parties agreed that each of them would try to find tenants for the vacant units. At the same meeting, the plaintiff, who was in the landscaping business, suggested some of his work force might be housed in the empty units.
Zachery testified that by May 8 all repairs required under the contract had been made. He acknowledged that two of the units required additional work before they could pass the physical inspection needed to qualify for Section 8 approval. On May 10, 2006, Licameli submitted a mortgage application on plaintiff's behalf to Astoria Federal. On May 11, the date the mortgage contingency was to expire under the contract, Attorney Shea sent a fax to Park City's attorney, Stephen Tower, requesting an extension of the mortgage contingency date until June 5, 2006. (Ex. 4.) The fax stated: "Please notify us by fax by 5:00 p.m. today if this is unacceptable to your client." No fax was sent by Tower rejecting the proposed new mortgage contingency date.
The fax referred to "2847 Fairfield Avenue, Bridgeport, CT." Both the attorneys and their clients agree that the communication was understood to apply to the contract for the purchase of 370-372 Olive Street.
The plaintiff was unsuccessful in his efforts to obtain a mortgage commitment. However, no notice was sent to the Park City or attorney Tower by June 5, 2006. On June 7, 2006, Attorney Shea sent a fax message to Attorney Tower stating: "Just to confirm the agent and client discussion, our client was unable to obtain financing on the above referenced property. This is because the rent roll could not be verified. Accordingly, please return the deposit." (Ex. 5.) Park City refused to return the deposit claiming that the plaintiff's notice was untimely. After June 7, 2006, the real estate brokers continued in their attempts to assist the plaintiff securing financing. Those efforts did not meet with success. On June 26, 2006, the plaintiff's attorney reiterated his demand for return of the deposit. (Ex. 6.) This demand was rejected by Park City's attorney who informed attorney Shea that Park City was electing retain the deposit as liquidated damages pursuant to the provisions of paragraph 5 of the contract. (Ex. 14.) That clause permitted Park City to elect between two options if the plaintiff either failed to pay the balance of the purchase price or "anticipatorily breaches" the contract. One option allowed Park City to retain the deposit as liquidated damages. The second option allowed Park City to seek actual damages and to retain the deposit as security for such damages. This litigation ensued.
The defendant has not asserted any claims that the June 7, 2006 notice was deficient in any other respect. The contract provided that in order to exercise the right to terminate the contract under the mortgage contingency clause the buyer was required to have "demonstrated due diligence" and to provide the "Seller with written evidence from said bank or lending institution of his inability to qualify for said mortgage." The June 7, 2006 notice provided to the Attorney Tower did not include any such written evidence.
The plaintiff's complaint initially set forth six counts. The first count alleged breach of contract against Park City. The second and third counts alleged misrepresentation against Park City and Zachery respectively. The fourth and fifth counts alleged fraud against Park City and Zachery respectively. The sixth count alleged unjust enrichment against Park City. The court heard evidence from the parties on February 4 and 10, 2009. After the close evidence the plaintiff withdrew the second, third, fourth, and fifth counts, leaving only the first and sixth counts for the court's consideration.
BREACH OF CONTRACT
The plaintiff claims that the notice sent by attorney Shea to attorney Tower on June 7 was sufficient to terminate the contract pursuant to the provisions of the mortgage contingency clause (Ex. 2 3, paragraph 3). The plaintiff first claims that the May 11, 2006 message from Shea to Tower, requesting the extension of the mortgage contingency date from May 11, 2006 to June 5, 2006 resulted in the deletion of the "time is of the essence" provision with respect to the contingency date. The plaintiff argues that because Shea failed to state that time was of the essence with respect to the June 5, 2006 date, that provision was no longer in effect. The court disagrees.
There is no evidence that the parties or their counsel ever discussed revising the contract to remove the "time is of the essence" provision from the mortgage contingency clause. Both the plaintiff and Shea testified at the trial and neither of them claimed to have discussed any such revision with Zachery, Tower or the real estate agents involved in the transaction. The mortgage contingency clause contains many provisions (e.g. the amount of the proposed mortgage, the term of the mortgage, the manner in which the buyer is to give notice to the seller of his failure obtain financing, etc.). The sole provision addressed in Shea's May 11, 2006 message to Tower (Ex. 4) is the mortgage contingency date. Under these circumstances, the court finds no evidence that the parties agreed to delete the "time is of the essence" provision from the mortgage contingency clause.
The plaintiff next asserts that even if time was of the essence with respect to the new mortgage contingency date of June 5, 2006, the notice sent by Shea to Tower on June 7, 2006 was timely enough to permit termination of the contract. In support of his position, the plaintiff relies on Federal Deposit Ins. Corp. v. Slinger, 913 F.2d 7 (1st Cir. 1990). In that case the court was asked to determine whether a contract purchaser who had paid a deposit was entitled to be repaid his deposit from the proceeds of a foreclosure sale. The contract contained a "time is of the essence" clause with respect to the closing date. On the closing date the contract purchaser had not been in a position to close. The court found that the seller's conduct following the specified closing date indicated that the seller had both tacitly and expressly waived the "time is of the essence clause." The court found that the contract had not terminated because of the contract purchaser's default and that the contract purchaser had an equitable right to have his deposit repaid out of the excess proceeds of the foreclosure sale.
The evidence in this case does not show that the defendant either tacitly or expressly waived the "time is of the essence" requirement with respect to the mortgage contingency date. The contract did not provide a "time is of the essence" provision with respect to the closing date. The parties were therefore obligated to close title within a reasonable time. Tulisano v. Schonberger, 74 Conn.App. 101, 106 (2002). The actions of the defendant in allowing the plaintiff additional time to raise the funds necessary to close title were consistent with the obligations of the parties and cannot be construed as a waiver of the plaintiff's failure to provide timely notice of his inability to obtain a mortgage commitment on or before the mortgage contingency date.
The court finds that the defendant did not breach the contract by failing to return the plaintiff's deposit and accordingly finds the issues on the first count in favor of the defendant.
UNJUST ENRICHMENT — EQUITABLE CONSIDERATIONS
In his remaining count (the sixth count) the plaintiff asserts that even if his notice of June 7, 2006 was untimely, he should not suffer the loss of the entire deposit of $58,000. He claims that, as a matter of equity, the defendant should not be permitted to retain the deposit unless he can demonstrate actual losses in the approximate amount of the deposit which are directly attributable to the plaintiff's failure to complete the purchase of Park City's property.
"A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another . . . Unjust enrichment is, consistent with the principles of equity a broad and flexible remedy . . . Plaintiffs seeking recovery for unjust enrichment must prove (1) that the defendants were benefitted, (2) that the defendants unjustly did not pay the plaintiffs for the benefits, and (3) that the failure of payment was to the plaintiff's detriment." James P. Purcell Assoc., Inc. v. Hennessey, 105 Conn.App. 1, 4 (2007), cert. denied, 285 Conn. 920 (2008).
Paragraph 5 of the contract provides that, in the event of the buyer's default, the seller had the option "(a) To hold and retain all sums of money paid in accordance with this Contract of Sale as liquidated damages to cover legal fees and miscellaneous costs, incidental to the sale of the premises, plus loss of time in finding a willing and able Buyer . . ." The plaintiff points out that the evidence shows that the defendant suffered little or no damage for legal fees. The defendant's counsel testified that he only charges fees to the defendant for transactions which closed. The plaintiff further claims that there might be evidence of "miscellaneous costs incidental to the sale of the premises" in the form of repairs which the defendant made in anticipation of closing. However, while the evidence as to the cost of such repairs is unclear, the amount would have been only a small fraction of the $58.000 deposit which the defendant has retained.
With respect to the loss of time in finding a willing and able buyer, the plaintiff simply asserts that there was no evidence that the defendant suffered any loss in the 52-day period between the date of the contract, April 12, 2006, and the plaintiff's June 7, 2006 notice to defendant's counsel of his inability to obtain a mortgage. In making this argument the plaintiff ignores the testimony from the defendant and his broker that the property remained listed for sale, without offers, for many months after the plaintiff's default. Zachery testified that following the plaintiff's default, he contacted a prospective purchaser who had offered $500,000 for the property in March 2006. That purchaser was no longer interested in the property. Zachery further testified that Park City lost the property to his mortgagee in 2007 through a strict foreclosure when it was unable to stay current with its mortgage payments. He estimated Park City's losses as the result of the plaintiff's failure to close at $300,000 to $400,000. The plaintiff did not present any evidence to show that Zachery's testimony with respect to the attempts to market the property or as to Park City's losses was inaccurate or incomplete. Nevertheless, the plaintiff invites the court to disregard that testimony as "incredible" claiming that it is not logical that the eight units in the property could not generate enough revenue to service a $250,000 mortgage.
In Vine v. Orchard, 181 Conn. 501, 510 (1980), the Supreme Court held that a plaintiff asserting an unjust enrichment claim against a seller of real estate who had retained the plaintiff's deposit as liquidated damages had the burden of proving that the damages suffered by the defendant were less than the amount of the deposit. In this case, the evidence supports the defendants' claim that Park City suffered damages greatly in excess of the deposit because of the plaintiff's failure to fulfill his obligation to purchase the property for the agreed upon price. It is apparent that deteriorating conditions in the real estate market resulted in Park City's inability to sell the property prior to losing the property to foreclosure.
Since the plaintiff has failed to carry his burden of demonstrating that Park City was unjustly enriched when it retained the deposit as liquidated damages, the court finds the issues on the sixth count for defendant, Park City. Judgment may enter in accordance with this memorandum of decision.