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Rastek Construction & Development Corp. v. General Land Commercial Real Estate Co., LLC

Supreme Court of Virginia

November 30, 2017

RASTEK CONSTRUCTION & DEVELOPMENT CORPORATION
v.
GENERAL LAND COMMERCIAL REAL ESTATE COMPANY, LLC

         FROM THE CIRCUIT COURT OF CHESTERFIELD COUNTY Timothy J. Hauler, Judge

         PRESENT: All the Justices.

          OPINION

          D. ARTHUR KELSEY JUSTICE.

         In this case, a real estate broker, General Land Commercial Real Estate Company, LLC (the "Broker"), sued Rastek Construction & Development Corporation (the "Seller") to obtain a sales commission despite the fact that the contemplated sale ultimately never took place. Awarding the sales commission to the Broker, the trial court held that (i) the Broker was a third-party beneficiary of the sale agreement, (ii) the parties to the sale agreement waived its time-is-of-the-essence provision, and (iii) the Seller improperly prevented the closing.

         The Seller appeals each of these holdings and contends that error on any one of them warrants reversal. We reverse the judgment below and hold that the trial court erred as a matter of law by finding that the Seller improperly prevented the closing.

         I.

         In 2010, the Seller agreed to sell a parcel of commercial real property to G & G Harley Club, LLC (the "Buyer"). They settled on a purchase price of $3, 000, 000 and agreed that "[c]losing shall take place no later than October 1, 2010, time being of the essence." 2 J.A. at 661. When the closing did not occur on October 1, 2010, the deal eventually became subject to a "short sale" that had to be approved by Union First Market Bank (the "Lender"). Id. at 671-72. The Lender held a deed of trust on the property that could potentially exceed the property's net sales price. See id. The short-sale agreement, among other things, provided additional funds for the Seller to finish the construction of a commercial building on the property, released a portion of the parcel from the lien for a payment of $1, 620, 000 at closing, and stipulated that the closing must take place no later than March 31, 2011. See id.

         The sale agreement between the Seller and the Buyer also included multiple conditions precedent to closing, which, if unsatisfied by the closing date, would permit termination of the agreement by "either party" through "written notice to the other party." Id. at 662. Upon such termination, "neither Seller nor Purchaser shall have any liability hereunder except for any obligations which expressly survive the termination of this Agreement." Id. One of the conditions precedent to closing listed in the sale agreement provided that "Seller or Purchaser shall have obtained a final Certificate of Occupancy from Chesterfield County." Id. (emphasis added). The Broker introduced a "Temporary Certificate of Occupancy" into evidence that was obtained from Chesterfield County on January 6, 2012. Id. at 681-82 (emphasis added).[1]

         The Broker was not a named party to the sale agreement and did not sign it. The Seller and the Buyer, however, included a provision in their sale agreement stating that the "Seller shall pay a real estate commission fee . . . at the closing . . . to [the Broker] if and only if closing occurs." Id. at 663 (emphasis added).

         Instead of terminating the sale agreement when the closing did not take place on October 1, 2010, the parties executed several amendments setting a series of new closing dates, all of which failed due to unmet conditions precedent to closing. The final amendment, the "Fourth Amendment to Purchase and Sale Agreement, " provided that the closing would occur on October 21, 2011. Id. at 720-21. Several conditions precedent to closing still were not satisfied on October 21, 2011, and the sale did not close.

         Because the March 31, 2011 closing date established by the short-sale agreement had long since passed, the Lender gave notice of its intent to foreclose and set the foreclosure sale for January 19, 2012. The Seller and the Buyer scrambled to find a way to conclude a voluntary sale prior to foreclosure. On January 18, 2012, in the late afternoon on the day before the foreclosure, the Buyer's closing attorney forwarded a proposed HUD-1 settlement statement to the Seller and the Lender.[2] The settlement statement claimed that the Buyer had made a $620, 527.74 advance to the Seller for construction costs and attributed $541, 847.64 to the Seller in order to release mechanic's liens and judgment liens that attached to the property during construction. The settlement statement provided that the Seller would have to bring $922, 596.05 to closing for payment of costs in order to close.[3]

         The Seller contested the figures on the settlement statement, claiming that it included multiple inaccuracies and overstated the charges attributed to the Seller for releasing liens. The Buyer acknowledged some of these inaccuracies in email exchanges with the Seller the evening before the foreclosure but failed to provide a revised settlement statement prior to the foreclosure sale. See id. at 399-400, 509, 683, 727-28; see also supra note 3. In an effort to reduce its net payout so that the sale could still close, the Seller nonetheless attempted to persuade the Lender to accept even less payment on the debt owed than the Lender had agreed to accept in the earlier short-sale agreement. The Lender refused to do so. Thus, the last attempt at a voluntary sale failed, and the Lender sold the property at a foreclosure sale on January 19. The Lender purchased the property at the foreclosure sale and later sold it to the Buyer.

         Seeking a sales commission, the Broker sued the Buyer and alleged that they had an oral brokerage agreement between them. See 2 J.A. at 473. The trial court dismissed the suit because the alleged agreement violated the statute of frauds. See id. The Broker thereafter brought the present suit against the Seller to obtain a sales commission based upon the theory that the Seller improperly prevented the sale from closing and that, as a result, the Seller violated the Broker's contractual right to a sales commission through the Broker's capacity as a third-party beneficiary under the sale agreement.

         In its complaint against the Seller, the Broker alleged that the sale did not close for only one reason: The Seller was "unable to bring sufficient funds to closing to honor its obligation under the [sale agreement] to provide title free from all encumbrances to the purchasers." 1 id. at 4. The Seller filed a demurrer alleging that "[n]o brokerage fee is due because no closing occurred, " and thus, the Broker "is estopped . . . by the plain language in the [sale agreement]." R. at 36. The Broker responded that "the closing of the sale failed because [the Seller] was unable to bring sufficient funds to closing to clear the monetary liens and encumbrances, " and thus, "[t]he prevention doctrine is applicable to this case because the Agreement provides as a condition that the real estate commission is payable only if closing occurs." Id. at 48-49. The trial court denied the Seller's demurrer. Id. at 54-55.[4] Following a bench trial, the trial court ruled in favor of the Broker and awarded the sales commission.

         II.

         On appeal, the Seller asserts several assignments of error clustered around three challenges to the trial court's ruling: (i) the Broker did not qualify as a third-party beneficiary to the sale agreement; (ii) the sale agreement terminated of its own accord because closing did not occur on the closing dates agreed upon because "time was of the essence"; and (iii) even if the Broker was a third-party beneficiary and the parties had waived the time-is-of-the-essence provision, the Seller did not prevent the closing in violation of the "prevention doctrine" as a matter of law. See Appellant's Br. at 10-11.[5]

         Agreeing with this last assertion, we need not address the first two. See Commonwealth v. White, 293 Va. 411, 419, 799 S.E.2d 494, 498 (2017) (recognizing that "the doctrine of judicial restraint dictates that we decide cases 'on the best and narrowest grounds available'" (alteration and citation omitted)); see also Shareholder Representative Servs. v. Airbus Americas, Inc., 292 Va. 682, 689, 791 S.E.2d 724, 727 (2016) (concluding that a dispositive assignment of error obviates any need to address other assignments of error).

         A. Third-Party Beneficiary

         Before addressing the prevention doctrine, we must first frame the Broker's claimed status as a third-party beneficiary. Relying on Code § 55-22, the Broker argues that the provision in the sale agreement, which obligated the Seller to pay the sales commission "if and only if closing occurs, " 2 J.A. at 663, vested in the Broker an independent contractual right of action even though the agreement did not identify the Broker as a party to the agreement and the Broker did not sign it. See generally Thorsen v. Richmond SPCA, 292 Va. 257, 273, 786 S.E.2d ...


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