Kelley v. Leucadia Financial Corp.
1992 Utah LEXIS 113, 846 P.2d 1238, 203 Utah Adv. Rep. 14 (1992)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Standard remedy provisions in a real estate sales agreement that allow a buyer to rescind the contract upon the seller's failure to provide marketable title are for the buyer's benefit and do not preclude the buyer from seeking the equitable remedy of specific performance against the defaulting seller.
Facts:
- On March 2, 1987, William R. Kelley and First Security Bank (FSB) executed a standard Earnest Money Sales Agreement for residential property in Utah, which required FSB to furnish good and marketable title.
- A survey revealed an erroneous property description in FSB's deed, which excluded a stream and spring from the property Kelley intended to purchase.
- FSB attempted to cure the defect by negotiating with the adjoining property owners but was unsuccessful.
- The parties mutually agreed to extend the closing date several times to allow FSB time to resolve the boundary dispute, and FSB filed a lawsuit against the neighbors to quiet title.
- On September 4, 1987, FSB sent Kelley a letter demanding he close by September 15 on an "as is" basis, stating it would no longer pursue the quiet title litigation.
- On September 22, 1987, Kelley, through his attorney, tendered performance, stating he was ready to close on the condition that FSB honor its obligation to deliver the property free from the defects it had undertaken to cure.
- While Kelley's action was pending, FSB sold the property to another buyer, Leucadia Financial Corporation.
Procedural Posture:
- William R. Kelley filed an action in Utah trial court against First Security Bank (FSB) for a declaratory judgment and specific performance.
- The trial court granted Kelley's motion for partial summary judgment, ruling that he was entitled to specific performance.
- After the parties settled the remaining issues, the trial court entered a decree of specific performance.
- Leucadia Financial Corporation, having been substituted for FSB as defendant, appealed the trial court's judgment.
- The Utah Supreme Court transferred the case to the Utah Court of Appeals, an intermediate appellate court.
- The Court of Appeals reversed the trial court's decision, holding that the agreement's terms precluded Kelley from obtaining specific performance.
- The Utah Supreme Court granted certiorari to review the decision of the Court of Appeals.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a standard Utah Earnest Money Sales Agreement, which allows a buyer to rescind the contract if the seller cannot provide marketable and insurable title, preclude the buyer from seeking the equitable remedy of specific performance against the defaulting seller?
Opinions:
Majority - Stewart, J.
No. A buyer's remedies under a standard Utah Earnest Money Sales Agreement are not limited to those stated in the contract, and the buyer may seek specific performance against a seller who defaults by failing to provide marketable title. The remedy provisions allowing a buyer to rescind are for the buyer's sole benefit and cannot be used by a defaulting seller to escape their contractual obligations. Paragraph N of the agreement expressly allows either party to pursue any remedy provided by applicable law, which includes specific performance. Furthermore, Kelley's tender of performance was not improperly conditional; it merely required FSB to fulfill its pre-existing contractual obligation to provide marketable title, an obligation FSB acknowledged by initiating litigation to cure the defect. The 'as is' clause did not negate the express contractual promise to convey marketable title via a special warranty deed.
Concurring - Howe, A.C.J.
No, the buyer is entitled to specific performance. The majority correctly reconciles an inconsistency between two paragraphs of the agreement, properly holding that the option to terminate the contract due to a title defect belongs to the buyer. The court of appeals was misled by construing one paragraph literally instead of in the context of the other. The lower court also failed to consider whether the title defect could have been cured through an escrow agreement at closing, which was an option provided for in the contract.
Analysis:
This decision solidifies the rights of buyers using the standard Utah Earnest Money Sales Agreement, clarifying that default remedy clauses are not presumed to be exclusive unless explicitly stated as such. It affirms that buyers retain access to traditional equitable remedies like specific performance, preventing sellers from using title defects as a pretext to exit a disadvantageous contract. The ruling reinforces the principle that contract provisions benefiting one party cannot be invoked by the other party to their advantage and ensures greater stability and predictability in Utah real estate transactions.
