Massachusetts Supreme Judicial Court Rules in Real Estate Contract Breach Case

The Massachusetts Supreme Judicial Court reached an interesting decision in a real estate contract case, KGM Custom Homes, Inc. v. Prosky, 468 Mass. 247 (2014).

The case involved a deal for the defendants to sell approximately 45.7 acres of land to the plaintiff, K.G.M. Custom Homes, Inc. (K.G.M.), with the purpose of developing residential homes. The price was to be determined by the number of approved and permitted buildable home lots. The closing was set for 21 days after all the final approvals were granted.

Several years later, after the builder had been working to secure approval and permits, and after a dispute regarding the calculated sale price, the defendants’ attorney falsely informed the plaintiff’s attorney that the defendants had received a higher offer for the property, and that the plaintiff’s attorney should calculate damages based on the liquidated damages provision of the contract. The plaintiff builder filed suit, seeking to have the contract enforced. While the lawsuit was still pending, the builder received approval for its plan, and the parties met to attempt to close the offer. Allegedly, due to the behavior of the defendants’ attorney, the parties were unable to close the sale.

At trial, the judge found that the defendants’ attorney’s tactics that prevented the closing from occurring resulted in an actual breach of the contract, based on a breach of the implied covenant of good faith and fair dealing. As a result, the judge allowed the plaintiffs to choose compensatory damages or specific performance. The plaintiff builder chose compensatory damages.

On appeal, the defendants did not contest that they anticipatorily repudiated the agreement, but they argued that their attorney’s actions did not constitute an actual breach. They also challenged the plaintiffs’ selection of remedy, since they claimed that the plaintiffs’ failure to amend their complaint prevented them from doing so. Lastly, they argued that, even if the plaintiffs were entitled to damages, the judge erred in requiring the defendants to pay the plaintiffs’ attorney’s fees.

The Appeals Court affirmed the judgment, with the exception of the attorney’s fees award.

The Supreme Judicial Court found that the trial court did not err in finding a breach of the contract and that the choice of remedy was proper. Regarding the award of attorney’s fees, however, it found that this was improper because the liquidated damages clause did not contain any explicit language regarding legal fees, and under the “American Rule,” absent a statute or court decision regarding attorney’s fees, they are generally not available as a remedy.

Whatever your real estate legal needs may be, the attorneys at Pulgini & Norton will provide you with the highest caliber of legal counseling. Our attorneys are skilled in matters such as condominium conversions and have represented numerous Boston residents in real estate transactions, including the purchase of residential homes. We can guide you through the purchase process, review and negotiate critical documents, and facilitate the closing. For a confidential consultation, call us at 781-843-2200. You can also complete our online form.

More Blog Posts:

The Advantage of Hiring a Massachusetts Property Transaction Lawyer, Massachusetts Real Estate Lawyer Blog, published May 28, 2015

Massachusetts Supreme Judicial Court to Rule in Real Estate Agent Case, Massachusetts Real Estate Lawyer Blog, published May 21, 2015

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