Kanavos v. Hancock Bank & Trust Co.
479 N.E.2d 168, 395 Mass. 199 (1985)
Rule of Law:
To recover more than nominal damages for a breach of a right of first refusal, the party holding the right must prove that they were financially ready, willing, and able to perform their concurrent obligation to pay the purchase price. The burden of proving this financial ability rests on the plaintiff, not on the defendant who repudiated the contract.
Facts:
- Hancock Bank and Trust Company (bank) owned all the stock in a corporation whose sole asset was a fourteen-story apartment building.
- On July 16, 1976, the bank gave Harold J. Kanavos a written agreement granting him a 60-day right of first refusal to purchase the stock on the same terms as any future third-party offer.
- This right was granted in exchange for Kanavos surrendering a prior option to purchase the stock.
- In November 1976, the bank entered into a purchase and sale agreement to sell the stock to a third party for $760,000.
- In early December 1976, the bank completed the sale to the third party without first notifying Kanavos or providing him the opportunity to match the offer.
Procedural Posture:
- Harold J. Kanavos sued Hancock Bank and Trust Company in a Massachusetts trial court for breach of contract.
- At trial, the judge ruled that Kanavos's financial ability to purchase the stock was not a material issue for the jury to consider.
- The judge refused the bank's request to instruct the jury on this issue or to include a related question in the special verdict form.
- The jury returned a verdict for Kanavos, and the trial court entered a judgment for $780,000 in his favor.
- Hancock Bank and Trust Company (appellant) appealed the judgment to the Supreme Judicial Court of Massachusetts, arguing the trial court erred in excluding the issue of Kanavos's (appellee) financial ability from the jury's consideration.
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Issue:
Does a party holding a right of first refusal, in order to recover damages for its breach, have the burden of proving that they were financially ready, willing, and able to exercise the right?
Opinions:
Majority - Wilkins, J.
Yes, a party holding a right of first refusal must prove they were financially ready, willing, and able to exercise that right to recover damages for its breach. The general rule for contracts with concurrent obligations is that one party cannot put the other in default unless they can show they were able to perform their own part of the bargain. While the bank's repudiation excused Kanavos from making a futile tender of the purchase price, it did not make his ability to pay immaterial. To award damages to a party who could not have performed would be unjust. The court explicitly rejects older precedent suggesting a buyer's inability to pay is irrelevant and aligns with the modern majority view. Furthermore, the burden of proving this financial ability lies with the plaintiff (Kanavos), as the facts concerning his finances are best known to him and his ability to perform is an essential element of his claim for damages.
Analysis:
This decision solidifies Massachusetts contract law by aligning it with the prevailing American legal doctrine on repudiated contracts with concurrent obligations. It clarifies that a defendant's breach does not absolve the plaintiff of the need to demonstrate their own capacity to perform to recover substantial damages. By placing the burden of proof on the plaintiff, the court prevents a potentially insolvent option-holder from receiving a windfall on a deal they could not have consummated. This holding creates a significant evidentiary requirement for plaintiffs in similar cases, forcing them to affirmatively prove their financial readiness at the time performance would have been due.
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