Court Opinion

ID: 993172
Source: CourtListenerOpinion
Date Created: 2013-07-04 00:03:38.425846+00
Date Added: 2024-06-11T12:37:15.477014
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

GARY LIGHT; SOUTHERN GOLF
DEVELOPMENT, INCORPORATED,
Plaintiffs-Appellees,

v.

BEAVER CREEK DEVELOPMENT
                                                                      No. 97-1043
PARTNERS; JOHN SULLIVAN; JOSEPH
SULLIVAN; MARSH FINANCIAL,
INCORPORATED; LEXINGTON REALTY
SERVICES, INCORPORATED,
Defendants-Appellants.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
James C. Cacheris, Chief District Judge.
(CA-96-107-A)

Argued: July 16, 1997

Decided: September 30, 1997

Before MURNAGHAN, Circuit Judge, BUTZNER,
Senior Circuit Judge, and FOX, Chief United States District Judge
for the Eastern District of North Carolina, sitting by designation.

_________________________________________________________________

Reversed by unpublished per curiam opinion.

_________________________________________________________________

COUNSEL

ARGUED: Beth Ann Blackwood, BLACKWOOD & MADDEN,
L.L.P., Dallas, Texas, for Appellants. William McCauley Arnold,
MCCANDLISH & LILLARD, P.C., Fairfax, Virginia, for Appellees.
ON BRIEF: Mitchell Madden, Michelle Nicaud, BLACKWOOD &
MADDEN, L.L.P., Dallas, Texas, for Appellants. Patrick M. Pickett,
MCCANDLISH & LILLARD, P.C., Fairfax, Virginia, for Appellees.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Gary Light and Southern Golf Development, Inc. ("Light") and
Beaver Creek Development Partners ("Beaver Creek") entered into an
agreement hoping that they could develop a golf course and residen-
tial community. For a number of reasons, the property on which the
development was to be built was not purchased and the envisioned
golf course and residential community was never constructed. Gary
Light sued Beaver Creek alleging breach of contract. The district
court held for Light and ordered Beaver Creek to pay Light $250,000.
Since we believe that Light did not perform a necessary condition
precedent for recovery, we reverse the decision by the district court.

I. FACTS

In 1992 Ed Alfriend, the owner of two of the four parcels of land
at issue in the instant case, approached Gary Light about developing
the land into a golf course community. Light, a resident of Georgia
and an officer in Southern Golf Development, Inc., was in the busi-
ness of developing golf courses.

Light contacted other nearby landholders, and proceeded to enter
into option contracts to buy the land at issue. 1 The proposed site con-
_________________________________________________________________
1 There is some debate about whether the contracts at issue were option
contracts. The contracts were either option contracts or purchase agree-
ments with provisions limiting damages for nonperformance by the
buyer to the initial deposit amount. For the purposes of the analysis in
the present case, all the contracts operated as option contracts.

                    2
sisted of four parcels: the Asdee Lane parcel which consisted of the
Mosser and McMurtry tract,2 the Forbes parcel, and the Asdee Land
parcel.3 In addition to entering into option contracts to purchase the
properties at issue, Light also contacted the Prince William County
Park Authority and got "conceptual approval" of the project.

At the time Light entered into the option contracts, the land was not
properly zoned for a golf course and residential community. Thus, the
golf course venture was highly speculative because rezoning was
uncertain. In addition, Light did not have the capital to execute the
option contracts at issue so Light needed to find an investor. Light
sought an investor who would give him an equity share in the devel-
opment based on his work on the project. Light could not find a suit-
able investor and later entered into an agreement with Beaver Creek.
Beaver Creek did not provide Light with an equity share but agreed
to pay Light for his work. In addition, Light was entitled to additional
payments if certain conditions were met.

Light and Beaver Creek executed an assignment agreement
whereby Light assigned his rights to purchase the properties at issue
to Beaver Creek and Beaver Creek agreed to provide funding for
planning, zoning, and acquisition of the land. Light was responsible
for developing and obtaining funding for the golf course. It is the
assignment agreement which forms the basis of Light's breach of con-
tract claim.

The assignment agreement provided that Light would assign all of
his rights to purchase the four tracts of land to Beaver Creek.4 Beaver
_________________________________________________________________
2 Light entered into an option contract to buy two parcels from Alfriend
aggregately identified as the Asdee Lane parcel. The first parcel was the
Mosser parcel and the second was the McMurtry parcel. At the time
Light entered into the contract with Alfriend, Alfriend was about to go
into bankruptcy. The two parcels are identified based on the parties who
held the first mortgage on each parcel.
3 Asdee Lane and Asdee Land are two separate parcels. Asdee Lane
was owned by Alfriend, Asdee Land by Cowles.
4 The original option contracts expired after six months. Since it took
over two years for zoning to be approved, Beaver Creek needed to pur-
chase extensions on each of the option contracts.

                    3
Creek was to pay Light $30,000 after a three-day review period
expired. Light was also entitled to an additional $70,000 within ten
days from the date of approval of the zoning application.

In addition, Beaver Creek was responsible for all duties under the
assignment contracts, including earnest money deposits. Beaver
Creek also agreed to pay all reasonable costs incurred after the end
of the review period (three days) in connection with the zoning of the
property.

The assignment agreement also provided: "Subject to and contin-
gent upon the closing of all of the Contracts and the funding of
financing to cover the costs of the Golf Course (the`financing'),
[Beaver Creek] shall pay to [Light] a fee of $400,000." The fee would
be reduced to $250,000 if the zoning board approved a smaller than
projected number of housing units.

The assignment agreement also provided that Light would only be
entitled to the $250,000 payment if Light obtained financing for the
project within ninety days from the date of the zoning approval. The
assignment agreement provided:

          Notwithstanding anything contained herein, in the event the
          financing is not obtained within 90 days from the date of
          zoning and site plan approval for the Beaver Creek Devel-
          opment, Assignee will have no obligation to pay the
          $400,000 as described in [the assignment agreement].

Under the assignment agreement, Beaver Creek was responsible
for acquiring and developing the residential portion of the land. Once
all contingencies for developing the golf course were in place, Beaver
Creek agreed to convey the portion of land for the golf course to the
county for development by Light as a golf course.

For various reasons, Beaver Creek failed to purchase all but one of
the four parcels.5 Since the failure to purchase the property ultimately
_________________________________________________________________
5 Beaver Creek did not actually purchase any of the parcels. Beaver
Creek assigned its right to purchase the Cowles tract to Blue Ridge, a
corporation set up for the purpose of buying the Cowles tract. Blue Ridge
purchased the Cowles tract.

                    4
led to the breach of contract claim, we will briefly discuss the actions
which led to Beaver Creek's failure to purchase each property. How-
ever, since the Court's holding ultimately rests on the fact that Light
failed to perform the condition precedent necessary for him to
recover, Beaver Creek's failure to close the land contracts is not
directly at issue in the present case.

Asdee Lane (McMurtry)

Asdee Lane consisted of two parcels, the Mosser parcel and the
McMurtry parcel. These parcels were owned by Alfriend, but Mosser
and McMurtry held the first mortgage on each parcel.

At the time the assignment contract was signed, Alfriend was in
bankruptcy and the creditors had made a motion in bankruptcy court
to lift the stay and allow foreclosure on the McMurtry parcel. The
court ordered that if the note and interest secured by the McMurtry
property were not paid by July 1, 1994, the creditors could foreclose.
The bankruptcy court set out a plan for the property and determined
that the notes could be satisfied out of the financing and payment of
the purchase price between Alfriend and Light prior to July 1, 1994.
The order further required that 1) a payment of $22,500 be made on
or before December 17, 1993; 2) a payment of $15,000 be paid on or
before April 1, 1994; and 3) a firm commitment from an institutional
lender for the purchase price be obtained within 24 hours.

Beaver Creek alleges that it was not aware of the bankruptcy court
order when it entered into the assignment contract. The district court
found, as a factual finding, that Beaver Creek knew of the order as
of January 4, 1994 which was two weeks after the assignment agree-
ment was signed. Beaver Creek further alleges that it could not have
met the bankruptcy court's requirements since its funding source was
not from an institutional lender. Light argues that Beaver Creek
agreed to perform as required by the consent order. 6
_________________________________________________________________
6 Even Light does not argue that Beaver Creek knew the entire contents
of the bankruptcy order. In the assignment agreement, Beaver Creek pro-
vided funds for down payments on the properties, and Light used that
money to make the first payment under the bankruptcy court order. In
fact, Light admitted, "I'm not sure of the sequence of when I spoke with
him. The payment was made sometime in late December, but I'm not
sure if I had spoken with him at that point."

                     5
The lender later instituted foreclosure proceedings because the con-
ditions under the bankruptcy order had not been fulfilled. Alfred
Cowley, a friend and former business partner of Light, purchased the
McMurtry note prior to foreclosure. Light told Beaver Creek that
Cowley bought the note and that he was "friendly."

Unbeknownst to Beaver Creek, Cowley, Light, and Alfriend
entered into an agreement regarding the McMurtry tract. Alfriend
gave Cowley a deed in lieu of foreclosure, and Light agreed to pay
Alfriend $50,000 as a consulting fee on the project. 7 Light then, on
behalf of Beaver Creek, negotiated an extension of the option contract
on Alfriend's former property. Light negotiated this extension without
telling Beaver Creek that Alfriend no longer owned the property, and
had given Cowley a deed in lieu of foreclosure.

According to Beaver Creek, as the note was becoming due, Light
assured Beaver Creek that Cowley would agree to another extension.
However, Cowley refused to do so. Beaver Creek claims that it
assumed that it could protect its interest at foreclosure if Cowley ever
foreclosed on the note so it did not take any action regarding the
inability to get an extension on the note.8

However, Beaver Creek could not bid on the property at foreclo-
sure since Cowley had a deed in lieu of foreclosure. When Beaver
Creek failed to pay $15,000 required to maintain the current exten-
sion, Cowley filed the deed. On May 8, 1995, Cowley repudiated the
contract and said that he had no obligation to Beaver Creek since the
extension payment had not been made. Thus, Beaver Creek never
closed on the McMurtry parcel.
_________________________________________________________________

7 Moreover, Alfriend was entitled to half the profits from the sale of the
McMurtry property if the property was sold back to Beaver Creek. How-
ever, Alfriend was not entitled to any additional compensation if the
property was sold to another party. Thus, Cowley had a financial incen-
tive to encourage another party to purchase and develop the property,
since he would then not have to split the profits with Alfriend.

8 Beaver Creek had no obligation on the note. Alfriend was still obli-
gated to pay Cowley under the note.

                    6
Asdee Lane (Mosser tract)

Alfriend died and the remaining Asdee Lane tract became part of
his estate. The tract was scheduled to close July 24, 1995. His estate
was represented by Robert Rausch. Beaver Creek argues that Rausch
refused to settle under the terms of the original contract. The original
contract allowed Beaver Creek to pay off the notes and then take back
financing from the seller. It did not require an all cash closing. Rausch
preferred an all cash closing and did not believe that provision applied
because he did not believe that Beaver Creek had satisfied the condi-
tions for deferred financing. Beaver Creek then offered Rausch
$30,000 cash, and Rausch asked for $300,000.

Rausch also testified that Beaver Creek believed that it was the
only party who could develop the land since the zoning for the golf
course required all four parcels. It told Rausch that it believed it could
get the land cheaper at foreclosure. The district court gave great
weight to Rausch's testimony.

Forbes Tract

Forbes was the owner of one of the parcels at issue. Beaver Creek
paid Forbes over $150,000 over two years to obtain contract exten-
sions to purchase the property. Beaver Creek tried to negotiate
another extension. When Forbes refused, Beaver Creek allegedly
attempted to buy the parcel. Beaver Creek claims that Forbes would
not give the closing information to Beaver Creek, and that it called
the title company over twenty times to obtain the required informa-
tion. Forbes denies that Beaver Creek made any attempt to close.

Forbes now refuses to sell the property to Beaver Creek. In addi-
tion, Forbes is now selling the property for $1.1 million which is
$300,000 over the original contract price. Moreover, Forbes con-
firmed that Light has tried to purchase the property, and that Light
currently has an option on Forbes's property.

Asdee Land (Cowles tract)

Beaver Creek assigned its right to purchase the Cowles tract to
Blue Ridge Corporation. Blue Ridge was formed by Beaver Creek's

                     7
lawyer for the sole purpose of buying the Cowles tract. According to
Beaver Creek, Light's suit had already been filed and Beaver Creek's
financing source believed that it would be better for another party to
hold title to the Cowles tract. Blue Ridge purchased the Cowles tract
and, according to Beaver Creek, the Park Authority accepted the third
party purchase.

Payment of Services

In addition to the acquisition of the land, there is a controversy
regarding whether Beaver Creek paid professionals involved in the
project. The district court found that Beaver Creek breached the
assignment contract by not paying the professionals involved in the
contract. Beaver Creek asserts that the professionals were paid, and
that even if they were not, the failure to pay professionals had no
impact on Light since the zoning on the property was approved.

The district court determined that Beaver Creek breached the
assignment agreement 1) by not timely paying professional fees as
required by the assignment agreement; 2) by not making payment on
the McMurtry property as required by the bankruptcy court; and 3) by
not closing the land contracts in question. The district court held that
Beaver Creek's breach of the assignment agreement excused Light's
performance and awarded Light $250,000. Since Light's duty to per-
form was independent of any duty on the part of Beaver Creek, we
reverse.

II. DISCUSSION

In deciding whether Light is entitled to $250,000 we must deter-
mine whether a breach on the part of Beaver Creek entitled Light to
collect even if Light did not perform a necessary condition precedent
to recovery. We interpret the contract de novo . L.K. Comstock & Co.
v. United Eng. & Constructors, 880 F.2d 219, 221 (9th Cir. 1989) ("In
general ... principles of contract interpretation applied to the facts are
reviewed de novo.").

In order to recover under a contract, the party seeking recovery
must prove the performance of any conditions precedent upon which

                     8
his right of recovery depends. Morotock Ins. Co. v. Fostoria Novelty
Glass Co., 26 S.E. 850, 851 (Va. 1897). "A condition precedent calls
for the performance of some act or the happening of some event after
the terms of the contract have been agreed upon, before the contract
shall take effect." Id.

Where a contract requires the performance of a condition prece-
dent, the condition precedent must be performed before payment is
due. Restatement (Second) of Contracts § 225 (1981). However, a
party to the contract is under a duty not to prevent performance by the
other party. In re LCS Homes, 103 B.R. 736, 743 (E.D.Va. 1989); see
also Boggs v. Duncun, 121 S.E. 2d 359, 362 (Va. 1961). However,
such a duty does not arise "when the hindrance is due to some action
of the promisor which he was permitted to take under either the
express or implied terms of the contract." Whitt v. Godwin, 139
S.E.2d 841, 844 (Va. 1965). In addition, for a party's breach to excuse
the performance of the condition precedent, the breach must materi-
ally contribute to the other party's inability to perform the condition
precedent. Restatement (Second) § 245 (1981).

Paragraph 5 of the assignment agreement provided:"Subject to and
contingent upon the closing of all of the Contracts and the funding of
financing to cover the costs of the Golf Course (the`financing'),
Assignee shall pay to Assignor a fee of $400,000." Paragraph 8 of the
agreement further provided:

          Notwithstanding anything contained herein, in the event the
          financing is not obtained within 90 days from the date of
          zoning and site plan approval for the Beaver Creek Devel-
          opment, Assignee will have no obligation to pay the $400,0009
          as described in paragraph 5 hereof.

Therefore, the assignment agreement provided that Light would
receive $250,000 if he obtained financing within ninety days from
_________________________________________________________________
9 Paragraph 10 provides "In the event zoning is not obtained for a mini-
mum of 256 residential lots in the property, then the $400,000 payment
described in paragraph 5 hereof shall be reduced by $15,000 per lot, but
in no event shall said payment be less than $250,000." The parties agree
that the proper payment would have been $250,000.

                    9
zoning. This obligation is independent of any obligation on the part
of Beaver Creek, and obtaining financing was a condition precedent
to Light's recovery. Beaver Creek is neither obligated to close the
land contracts nor assist Light in his efforts to obtain financing. Bea-
ver Creek cannot obstruct Light's efforts, but Beaver Creek need not
take any affirmative action to aid Light unless such action is required
by the contract. Whitt, 139 S.E.2d at 840.

In Whitt, Whitt sold Godwin $12,000 worth of shares in Whitt's
corporation. Whitt paid the money to a mortgage company in order
to obtain a construction loan. The mortgage company's practices were
questionable and Whitt sought a refund of his money. The mortgage
company agreed to refund half of the $12,000 and agreed to return the
remaining half minus expenses. Whitt then entered into an agreement
to refund Godwin's $12,000 in exchange for Godwin's shares in the
company. Whitt agreed to pay Godwin all the money which he
received from the mortgage company plus any difference between the
amount Whitt received and the $12,000. Id. at 843. The mortgage
company refused to refund any money to Whitt unless Whitt and
Godwin signed a release. Godwin refused to sign the release, and
Whitt argued that Godwin's refusal excused Whitt's performance. Id.
The court held that Whitt had an independent obligation to Godwin
to refund the $12,000 and that Godwin had no obligation to sign a
release. The court further held that Godwin's refusal to sign the
release was neither wrongful nor in excess of his legal rights. Id.

In the instant case, just as in Whitt, Beaver Creek had no obligation
to assist Light by purchasing the land in question. Moreover, just as
in Whitt, Light's obligation was independent of any obligation on the
part of Beaver Creek. Since it is undisputed that Light did not obtain
financing within ninety days of zoning as required by paragraph 8,
Light did not fulfill the conditions precedent to recovery and is not
entitled to $250,000. Therefore, Light would only be entitled to
recovery if he could point to a breach on the part of Beaver Creek
which prevented him from performing the condition precedent.

Light first argues that Beaver Creek's failure to close on several
pieces of property was a breach which impacted Light's ability to
obtain financing. However, Beaver Creek had no obligation to pur-
chase the property. The golf course community was a speculative

                     10
venture and Beaver Creek made no promise to Light that it would
purchase the property. Moreover, even if Beaver Creek had an obliga-
tion to purchase the property under the assignment agreement, the
contracts at issue had a duration of six months. Since zoning took two
years, those contracts had long expired before the zoning had been
approved. Beaver Creek had no obligation to purchase contract exten-
sions, and it had no obligation to purchase the property before zoning
had been approved. Thus, Light only had the opportunity to receive
the $250,000 because Beaver Creek continued to purchase extensions
of the land contracts and because zoning was finally approved. How-
ever, since Beaver Creek had no obligation to purchase those exten-
sions, Light cannot argue that it was Beaver Creek's failure to
purchase the property which created Light's inability to obtain financ-
ing. The fact that the property had not yet been purchased may have
impacted Light's ability to obtain financing, but under the assignment
agreement, Beaver Creek had no obligation to purchase the property.

The district court determined that Beaver Creek's 1) failure to pay
professionals, 2) failure to purchase the McMurtry parcel, 3) delay in
obtaining zoning and 4) assignment of the right to purchase the
Cowles tract to a third party were breaches of the assignment agree-
ment. We assume, without deciding, that the district court was correct
and that Beaver Creek breached the assignment agreement. However,
in order to recover, Light must show that one of these breaches on the
part of Beaver Creek prevented his performance.

Beaver Creek's alleged failure to pay professional fees does not
excuse Light's performance since there is no evidence that the failure
to pay professional fees prevented Light from performing. The pay-
ments to professionals were either to obtain zoning approval, which
was obtained, or to design the golf course. None of these payments
impacted Light's ability to obtain financing.

Secondly, the district court found that Beaver Creek failed to fulfill
the requirements of the bankruptcy order regarding the McMurtry
property. Although there is serious doubt regarding whether Beaver
Creek had any obligation under the bankruptcy order, even if Beaver
Creek had such an obligation, the obligation did not prevent Light
from performing the condition precedent necessary for it to recover.
Light was entitled to $250,000, if it obtained financing within ninety

                    11
days of zoning. Light's obligation was independent and was not con-
tingent on Beaver Creek's purchase of the property in question. Thus,
Beaver Creek's failure to purchase the property did not excuse Light's
performance.

In addition, at least with regard to the McMurtry property, Light's
actions interfered with Beaver Creek's ability to purchase the prop-
erty. Prior to any breach on the part of Beaver Creek regarding the
McMurtry property, Light entered into an agreement with Cowley and
Alfriend regarding the McMurtry tract in which Alfriend gave Cow-
ley a deed in lieu of foreclosure, and Light agreed to pay Alfriend
$50,000 as a consulting fee on the project. Light never informed Bea-
ver Creek of the agreement. When Beaver Creek failed to make a
timely extension payment Cowley recorded the deed. Light cannot
now rely on Beaver Creek's failure to purchase the property since
Light was instrumental in the transfer of the property to Cowley.

The district court also found that Beaver Creek breached the
assignment agreement by delaying zoning. However, Light's duty to
obtain financing did not mature until after zoning was obtained. Since
zoning was in fact obtained and Light's obligation did not start until
after the zoning was obtained, any delay in zoning did not impact
Light's ability to obtain financing. Thus, the delay in zoning did not
excuse Light's performance.

Finally, the district court determined that Beaver Creek breached
the agreement by assigning its right to purchase the Cowles tract to
a third party. However, there is no evidence that this transfer
impacted Light's ability to perform. In fact, the purchase of the
Cowles tract by a third party occurred after the suit had been insti-
tuted and after Light's obligation to obtain financing had already
expired. Thus, Beaver Creek's assignment of the right to purchase the
Cowles tract could not have impacted Light's obligation to obtain
financing.

Thus, we conclude that Light had an independent obligation to
obtain financing for the golf course project in order to receive
$250,000. We further hold that none of the breaches cited by the dis-
trict court excused Light's obligation and that Light is not entitled to
collect $250,000.

                     12
Beaver Creek also asserts that the district court erred in not allow-
ing Marsh Financial and Lexington Realty Services, two of the part-
ners in Beaver Creek, to file a counterclaim. Light sought and was
granted leave to file suit against the general partners of Beaver Creek,
Marsh Financial and Lexington Realty Services. Marsh and Lexing-
ton timely filed an answer and a counterclaim. The district court dis-
missed the counterclaim holding that the claim belonged to Beaver
Creek and Beaver Creek had waived its right to file such a counter-
claim.

Under F.R.C.P. 13(a) Beaver Creek's counterclaim was a compul-
sory counterclaim, and thus Beaver Creek was required to file the
counterclaim with its response. Beaver Creek failed to do so. Thus,
Beaver Creek lost its right to file such a claim when it failed to do
so in its answer.

After the district court granted Light's motion to add Marsh Finan-
cial and Lexington Realty Services, Marsh and Lexington attempted
to assert Beaver Creek's waived counterclaim. The district court
denied Marsh and Lexington's motion arguing that the counterclaim
was in fact a claim on behalf of Beaver Creek. It determined that all
six counterclaims address injuries to Beaver Creek, and did not
impact Marsh and Lexington. Since Beaver Creek originally failed to
state a compulsory counterclaim and since the counterclaim filed by
Lexington and Marsh was really Beaver Creek's counterclaim, the
district court did not abuse its discretion in denying the claim.

Beaver Creek also sought leave of the court to file a counterclaim;
however, Beaver Creek did so after the case had already been tried
before the district court. Under the circumstances in the instant case,
it was not unreasonable for the district court to deny Beaver Creek
leave to file a counterclaim.

Finally, Beaver Creek argues that the district court erred in holding
Joe Sullivan personally liable. However, we need not reach that issue
since we find no liability on the part of Beaver Creek.

The judgment is

REVERSED.

                    13