Opinion ID: 2073159
Heading Depth: 1
Heading Rank: 1

Heading: Claims Arising out of the Breakdown of the Contract

Text: The first factual nucleus here at issue, giving rise to Counts I and II of the Drinkwaters' action against Patten, comprises the breakdown of the October 31 closing, the subsequent negotiations culminating in Patten's conveyance to O'Brien and its declaration that it was terminating the purchase and sale agreement, and the Drinkwaters' negotiation of the refund check. The Drinkwaters contend that Patten's termination repudiated the contract and that they remain entitled to specific performance, while defendants contend both that the termination was an appropriate response to the Drinkwaters' prior repudiation of the contract and that it was subsequently ratified by the Drinkwaters' implied agreement to rescind the contract. We conclude that on this record the facts not reasonably in dispute are insufficient to compel a judgment either way as a matter of law. It is undisputed that Patten executed a written agreement to convey Lot No. 5 to the Drinkwaters and that Patten has not done so. Furthermore, nothing in the summary judgment record controverts the conclusion from the fact of his employment by Patten that O'Brien was not a bona fide purchaser. [1] In these circumstances, any judgment for either defendant on the Drinkwaters' specific performance claim must rest on some affirmative defense by Patten. As alternative bases for affirming the judgment in its favor, Patten asserts three affirmative defenses: 1) that the Drinkwaters by accepting the refund agreed to rescind the contract; 2) that the Drinkwaters earlier had repudiated the contract by demanding modifications as a condition of performance; and 3) that the Drinkwaters violated the time is of the essence clause of the contract. First, we conclude that the alleged rescission is on this record a question of fact rather than law. An agreement to rescind a contract is itself a contract and must be evaluated by principles of contract law. See Restatement (Second) of Contracts § 283 & comment a (1981). There appears on the record no express offer to rescind the contract and no express acceptance. Patten, announcing unilaterally that it was terminating the contract, sent the Drinkwaters an unconditionally negotiable check refunding the earnest money deposit, and the Drinkwaters negotiated that check. The question therefore is whether the parties by their conduct manifested a mutual intention to rescind. See id. § 19. Whether cashing the check manifested an intention to rescind the contract cannot be determined in this situation by resort to any per se rule or conclusive presumption; the relevant facts must be ascertained from the totality of the circumstances. See Emerson v. Sweet, 432 A.2d 784, 785-86 (Me. 1981) (vacating summary judgment for defendant, even though plaintiff had cashed check ISSUED FOR: All liability caused by accident described because other notations on the check raised factual question as to scope of accident described). From the record viewed in the light most favorable to the parties against whom the summary judgment was granted, a factfinder could rationally infer that the Drinkwaters reasonably believed at the time they cashed the check that Patten had sold the property to another customer, and reasonably concluded that failing to cash the check would be a futile act ... not required by law. Cf. O'Halloran v. Oechslie, 402 A.2d 67, 70 (Me.1979) (affirming decree of specific performance because following vendor's repudiation of contract, futility excused the tender of the purchase price). The record at this stage leaves unresolved two crucial factual questions: whether the Drinkwaters by cashing the check manifested an acceptance of the rescission of their contract and whether even if the Drinkwaters by their conduct are objectively taken to have agreed to rescindthat rescission was voidable for mistake or fraud because the Drinkwaters so agreed in reasonable reliance on an erroneous belief that the property had been sold to a bona fide purchaser. The defense of rescission is therefore insufficient to support the summary judgment. The second affirmative defense, repudiation, likewise presents an unresolved question of material fact. The deed tendered by Patten at the October 31 meeting contained two provisions that were absent from the purchase and sale agreement of August 31: in addition to the reservation of a gate easement, the deed incorporated by reference a Declaration of Restrictive Covenants, Common Easements, Exceptions and Reservations (the Declaration). In August Patten had given the Drinkwaters a Proposed Declaration substantially similar to the final version, and had responded to several questions raised by the Drinkwaters in regard to its terms. The Proposed Declaration, however, was not signed and was not referred to in the documents signed by the parties to the purchase and sale agreement. At the October 31 meeting the Drinkwaters, in refusing to close the sale, objected only to the proposed gate easement, not to the deed restrictions set forth in the Declaration. On November 26, however, the Drinkwaters' lawyer responded to Patten's offer to convey the property with no gate easement by threatening to sue for specific performance if the deed did not conform to the exact terms and conditions of the sales agreement. As I read said contract, the Drinkwaters' lawyer wrote, [n]o mention is made ... of easements or of any deed restrictions.... Patten's lawyer replied on November 30, both by telephone and by letter, that Patten's understanding of the negotiations was that the Drinkwaters would accept a deed without the gate easement but with the covenants and other restrictions set forth in the Declaration, an integral part of the subdivision plan. He enclosed a draft deed incorporating the Declaration by reference and closed by saying: Therefore, I again repeat that my client is ready, willing and able to deliver the warranty deed to them identical to the copy enclosed. May I please have the benefit of your early reply to [sic] your clients' position. Thank you very much for your attention to this matter. Seven days later Patten's lawyer followed with another letter announcing that Patten was terminating the contract; Patten on the same day conveyed the property to O'Brien. Because the contract contained no termination clause, whether those acts constituted a repudiation by Patten or merely responded to a prior repudiation by the Drinkwaters must be decided by common law principles. As a general rule, a request or demand to modify a contract does not by itself constitute a repudiation unless the party seeking the modification threatens a total breach of the contract. See Restatement (Second) of Contracts § 250 & comment b; 4 Corbin on Contracts § 973 (1951). The Drinkwaters do not dispute that Patten could fairly have taken their lawyer's statement, though phrased simply as an interpretation, as an insistence on a modification of the contract. A party to a contract with reasonable grounds to believe the other party will not perform may demand assurance of performance and may treat as a repudiation a failure to provide adequate assurance within a reasonable time. See Restatement (Second) of Contracts § 251. How much time is reasonable depends on the circumstances of the case, which here include the time of year and the geographic separation between the Drinkwaters and their Maine attorney. On this record, whether the Drinkwaters through their lawyer committed a per se repudiation or threatened a repudiation is a question for the factfinder, as is the question whether Patten, seven days after requesting the benefit of your early reply, was justified in treating the nonreceipt of any response from the Drinkwaters as a repudiation. The last affirmative defense, that the Drinkwaters were in breach of the preprinted time is of the essence clause in the purchase and sale agreement, has no merit. Patten argues that the Drinkwaters, knowing that time was of the essence, dillydallied at their peril. The phrase time is of the essence, however, does not mean make haste. It creates no independent obligation, but rather signifies that a party in breach of an obligation to perform at the agreed time thereby forfeits the right to demand performance from the other party. See Colbath v. H.B. Stebbins Lumber Co., 127 Me. 406, 411, 144 A. 1, 3 (1929). Patten has made no showing that there was ever any agreed time when the Drinkwaters failed to perform. The written purchase and sale agreement itself specifies only that [p]ossession [is] to be given on or before 15 days following completion of road in front of said parcel. Even if that clause specifies the date agreed to be of the essence, there is at the very least a factual dispute regarding whether the road was complete at any time in 1984. Because each of Patten's affirmative defenses leaves unresolved a genuine issue of material fact, the Drinkwaters' claim for specific performance of the purchase and sale agreement and the nullification of Patten's conveyance to O'Brien must proceed to a trial of the facts. We therefore vacate the summary judgment on Count II. In addition to their request for equitable relief, however, the Drinkwaters have also inserted into Count II of their complaint a request for punitive damages. No matter how egregious the breach, punitive damages are unavailable under Maine law for breach of contract: There is a distinction ... between fraud that will vitiate a contract and fraud that is actionable as deceit. See Forbes v. Wells Beach Casino, Inc., 409 A.2d 646, 655 (Me.1979). Although the Drinkwaters on appeal now argue that Count II should be reinterpreted as alleging tortious conduct, they have conceded that throughout the course of the Superior Court proceedings both sides treated the allegations of willful and fraudulent self-dealing as being directed exclusively toward the Drinkwaters' claim for equitable relief for the alleged breach of contract. The summary judgment must be affirmed as to the issue of punitive damages.