07/26/08: “Ready, Willing And Able”: Key Words

Housing Counsel

By Benny L. Kass

Q: I signed a contract to buy a condominium unit here in the District of Columbia but the Seller apparently has changed his mind. I think I am getting a good deal and don’t want to let him off the hook. What remedies do I have?

A: When a Buyer has “buyer’s remorse” and wants out the contract, the Seller usually has three remedies. He/she can keep the earnest money deposit, sue for breach of contract seeking money damages, or can file a suit known as Specific Performance.

This means that a Judge is asked to Order the Buyer to buy the property in question.

When a Seller decides not to move forward toward closing, the Buyer has to carefully review the Sales Contract. In the Washington Metropolitan Area, most residential transactions use the Regional Sales Contract, which has been prepared by GCAAR (Greater Capital Area Association of Realtors). Paragraph 26 spells out what happens should either the buyer or the seller default.

Referring to a seller default, the Contract states:

If Seller fails to perform or comply with any of the terms and conditions of this Contract or fails to complete Settlement for any reason other than Default by Purchaser, Purchaser will have the right to pursue all legal or equitable remedies, including specific performance and/or damages.

Some Sellers may modify this to read that should the Seller default, the Buyer’s only remedy is to get the earnest money deposit refunded. I cannot recommend such a modification for Buyers, since this language basically would give the Seller the right to sell the property for a higher price to a third party and only have to return the deposit to the first buyer.

In order for anyone to sue for specific performance, the Plaintiff must tell the Court that he/she is “ready, willing and able” to go to settlement.

The District of Columbia Court of Appeals recently handed down a decision which should be instructive for all parties to a real estate transaction. Ms. Clark entered into a contract with Mr.and Mrs. Route to buy property in the District of Columbia. The contract required the seller to complete a number of items prior to settlement. The parties had a walk-through inspection of the property two days before the scheduled settlement, and the Plaintiff found that one item dealing with waterproofing had not been done.

Clark, upon learning that the Seller did not intend to complete the waterproofing work, told the Seller “see you in Court” and walked out of the house. Ms. Clark postponed the scheduled settlement, and put her loan application on hold.

Shortly thereafter, Ms. Clark sued the Seller for specific performance; she did not ask for any money damages. The lower court ruled against Plaintiff Clark, who appealed to the District’s highest Court.

On July 3, 2008, the appeals court affirmed the denial. ( Clark v Route ).

Specific performance, said the Court, “is an extraordinary equitable remedy”. That means that the trial court’s has the right to determine whether a plaintiff was, in fact, “ready, willing and able”, and the Court of Appeals will accept that decision unless it was clearly erroneous.

The facts of the case persuaded the Court to uphold the trial court’s ruling. The Court found that by not going to settlement and by putting the loan in “limbo”, Ms. Clark had unilaterally modified the contract. “To sustain the right to specific performance of their contract, purchasers must show that they have performed or have offered to perform all of the obligations required of them by the contract.” The Court was also disturbed that Ms. Clark ceased communicating with the Seller, and instead filed the lawsuit.

When a court is faced with determining whether to grant specific performance, it has to make a judgement based on the equities of the two parties. This means that the judge has to decide if, based on the facts, the Plaintiff fairly treated the Defendant seller. In law school, a common expression we students used was that you have to “have clean hands in order to seek equitable relief”.

In this case, the trial court (and the high court) did not believe that Ms. Clark’s conduct was sufficient to grant her the equitable relief she was seeking; presumably the Court concluded that she did not have “clean hands”.

The Clark Court gives us guidance as to the alternatives available to purchasers when a seller refuses to comply with all of the terms and conditions of a real estate sales contract.

• the purchasers could refuse to go to settlement and then file a suit against the seller for any damages they might have sustained, or
• the purchasers could go to settlement and then sue “to recover from the seller such damages as they may have sustained by reason of” the Seller’s failure to comply with the requirements of the contract.

Courts will grant specific performance in many cases, but you really have to be “ready, willing and able” to complete your end of the contract bargain.