Whether you are a seller or a buyer of commercial property in Florida, it is very important to understand every aspect of your sales contract, including any damages term. In a recent South Florida case in which this provision was at issue, a seller was able to keep a buyer’s deposit money after the buyer breached the agreement. The Fourth District Court of Appeal ruled that the contract’s liquidated damages clause was flawed but that, by doing everything in its power to consummate the sale, the seller “cured” this defect and was entitled to receive the benefit of liquidated damages in this case.
MJP Distribution, LLC had a piece of property in Broward County it desired to sell. MJP found a buyer in Victory Christian World Ministries, Inc. The two sides agreed to a purchase price of $605,000. Victory made two deposits that totaled $75,000. Eventually, though, a disagreement emerged. The buyer sued the seller, alleging that the seller had breached the sales contract. The seller counter-sued, alleging that the buyer was the one who had breached the agreement.
The two sides went to court, and each side asked the judge for summary judgment in its favor. The trial judge rejected the buyer’s request but accepted the seller’s request. As part of this ruling, the court awarded the seller liquidated damages for the buyer’s breach. In accordance with the terms of the contract, that meant that MJP got to keep the $75,000 deposit it had received from Victory.
The buyer appealed but did not succeed. In its appeal, the buyer attacked the liquidated damages provision of the contract and the trial court’s enforcement of it. The liquidated damages provision in the MJP-Victory contract said that, if Victory breached, MJP got to keep all of the deposit money that Victory had paid. On the other hand, if the seller had breached, the buyer’s liquidated damages would be capped at simply receiving a return of all the deposit money it had paid to the seller.
The potential problem with the liquidated damages term, which was the crux of Victory’s attack against it, was the lack of mutuality in terms of each side’s obligation. When a contract contains a liquidated damages clause that is very one-sided, court sometimes throw this term out because only one of the two sides has “any real obligation.”
However, there is a way to “cure” this problem based upon a non-breaching party’s performance, and that is what happened in MJP’s case. MJP, by being “ready, willing, and able” to complete the transaction, cured the lack-of-mutuality defect in its contract with Victory. Florida courts have long held that a “promise lacking in mutuality at its inception becomes binding on the promisor after performance by the promisee.” MJP did everything it was required to do to make the sale happen. In other words, it, as the promisee, performed, which made the liquidated damages provision binding on the promisor, Victory.
Due to the way that the events unfolded in this case, the seller was entitled to enforce the liquidated damages provision and keep the $75,000 deposit from the buyer. However, the court cautioned, had the seller been the breaching party, a liquidated damages provision like this one would not have been enforceable, and the buyer would not have been limited, in terms of damages, to a return of its deposit money.
If you are considering buying or selling commercial property in South Florida, talk to the knowledgeable and experienced Florida real estate attorneys at Stok Folk + Kon. Our attorneys have the skills you need on your side in seeking to get a fair deal and the benefit of the bargain for which you contracted.
Contact us online or by calling (305) 935-4440 to schedule your consultation.
More blog posts:
South Florida Commercial Tenant Escapes $2M in Damages Because Lease Did Not Require it to Remove Subtenant, Florida Business Lawyers Blog, Oct. 30, 2015
Types of Recovery Available to a Florida Commercial Tenant When the Landlord Breaches the Lease, Florida Business Lawyers Blog, June 26, 2015