When a real estate Purchase & Sale Agreement states if the Seller defaults, the sole remedy is for the buyer to get its deposit back, it is possible the Court may find that the return of the deposit may not be the sole remedy when the seller intentionally defaults. In the December 6, 2013 New Hampshire Federal Court decision of James Lintner and Mary Embree v. Bank of New York Mellon & Saxon Mortgage Service, Inc., the prospective buyer of real estate under a Purchase and sale Agreement sued the seller Bank for, among other things, breaching the agreement. The Bank filed a Motion to Dismiss and the federal court trial judge denied it. The motion was based, in part, upon the Bank’s argument that the Purchase & Sale Agreement provided that the sole remedy upon the sellers’ breach was the return of the deposit and that the Bank had, in fact, returned the deposit. The judge noted that whenever possible courts should avoid construing an agreement in a manner that leads to harsh or unreasonable results or places one party at the mercy of the other. The judge found that it is plausible that construing the agreement the way the Bank argued makes the entire agreement illusory since the seller can tie up the buyer’s deposit and hold the buyer to the agreement, yet could at any time find another buyer that offers a better deal and simply return the deposit to this buyer and get out of the deal without any obligations. The judge made it clear that later on in the case he could be convinced that the sole remedy for a seller’s breach is the return of the buyer’s deposit, yet, at this stage in reviewing the pleadings found the buyer’s position plausible based upon the agreement language and therefore would allow the proceedings to go further.
Buyers often do not wish to have the return of the deposit as the sole remedy in that the buyer may want the real estate and buyers who cannot purchase the real estate due to the seller’s conduct could have substantial damages such as the monies expended in reliance of purchasing the property. Buyers should be wary about signing a Purchase & Sale Agreement that lets a seller out of a deal with only returning the buyer’s deposit. With such a provision, the seller may feel he has nothing to lose in defaulting.
J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].