As failed commercial property deals go, the one at the heart of Miriam Equities, LLC v. LB-UBS-2007-C2 Millstream Road LLC, 2022 NCBC 3, was not outside the norm for a Business Court transaction autopsy. There was a missed closing, a vague but unsuccessful effort to resurrect it, and a debate about the fate of a 7-figure deposit by the erstwhile buyer. A grant of summary judgment for the defendant seller was an unsurprising outcome, but the path to that result was littered with transaction pitfalls that could have been a law-school exam issue spotting exercise.
Miriam Equities arose from an auction sale of commercial property “as is, where is with all faults and limitations” and with “no due diligence or inspection period.” Id. ¶ 8. In earlier motions practice, the Business Court considered and frowned upon discovery jockeying that accompanied plaintiff-buyer’s contention that the deal failed to close because of an allegedly improper denial of access to the parcel in the lead-up to closing. Judge Earp’s stern order, which we wrote about here, called out plaintiff’s discovery recalcitrance and vacillation of its theories about why access to the property was being sought.
Following Contract Provisions to the Letter, Especially When a Writing is Required
At summary judgement, Judge Earp dispatched plaintiff’s contention that the seller breached the contract by declining its oral request for inspection access to the property. The seller argued that the request was too close to the closing date and not for a purpose allowed under the contract, but the Court opted for the simplest out: such a request had to be in writing. The Court’s order noted the contract required that “[a]ll notices, demands, requests, and other communications required or permitted hereunder shall be in writing.” There was no evidence of anything other than an inspection request by telephone, nor did the Court find any basis to believe that the all communications in writing edict did not apply to that inquiry. Id. ¶¶ 41-42.
Carefully Align Requests Under a Contract with What is Permitted Under the Contract
The Court was unmoved by plaintiff’s assertion that an undisputed denial of an inspection request was an excuse for failing to close. Id. ¶ 18. The Court explained there was an “access right” under the contract for entry “at all reasonable times established by the Seller, but only for the purpose of conducting tests and making site inspections and investigations.” Id. ¶ 17.
Plaintiff contended that a denial of its requested inspection frustrated its ability to finance the transaction. But the Court again matched plaintiff’s lament to a contract provision that gave it nowhere to stand, even if the request had been in writing. The Court noted the contract expressly disallowed the contention that a lack of financing for the auction purchase could derail defendant’s obligation to close (Id. ¶ 10):
“Buyer understands and acknowledges that the purchase of the Property and this Agreement IS NOT contingent on Buyer obtaining financing for the purchase of the Property.”
Judge Earp further observed that post-execution inspections, under the contract, could not give rise to circumstances that could “in any way relieve Buyer of any of its obligations under this Agreement[.]” Id. ¶ 9.
Speak Up About Liquidated Damages, or Hold Your Peace and Write a Check
The Court held that if plaintiff-buyer had any prospect of recovering a $1 million deposit on the purchase, it bore the burden of showing it was an unreasonable penalty. See Seven Seventeen HB Charlotte Corp. v. Shrine Bowl of the Carolinas, Inc., 182 N.C. App. 128, 131 (2007). Judge Earp noted that plaintiff presented no evidence to support such a finding, and in any event concluded that $1 million was a reasonable liquidated damages figure “because the purchase price of the Property was more than twenty-three (23) times the amount of the deposit.” 2022 NCBC 3, ¶ 63.
A Signature is a Signature is a Signature
The Business Court had little trouble concluding that the contract contained what qualified as a reciprocal attorneys’ fee clause that would allow the defendant-seller to recover under N.C.G.S. § 6-21.6(a)(4). As a practice point for times in which contracts allow for various manners of execution, the Court took special note of the fact that the contract in Miriam Equities was executed electronically by the plaintiff-buyer. The statute requires that reciprocal attorney fee measures are enforceable “only if all of the parties to the business contract sign by hand[.]” But, the Court reminded that electronic signatures or images of manual signatures are not intended to thwart operation of such a fee provision. Id. §6-21.6(b).
- Be wary of the remedial limitations for parties to “as is” property transactions, and adhere to them assiduously when seeking what limited benefits they may provide.
Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP.