Virginia Lawyers Weekly VA Lawyers Weekly
Where plaintiff sought to delay closing on a real estate purchase after discovering the presence of “hazardous wastes” and “hazardous substances” as defined by the parties’ contract, the trial court’s ruling that plaintiff breached the contract by not closing on the specified date is reversed.
The trial court misinterpreted expert testimony and the parties’ contract regarding hazardous wastes and substances. Plaintiff was entitled to delay closing to correct the problems and obtain an offset on the purchase price.
Purchase agreement
Sumner contracted to buy commercial property from Venture for $1.3 million. Section 3 of the agreement specified closing would occur on the later of two dates: within 30 days of the expiration of a 60-day study period or 30 days after all the conditions precedent to Sumner’s obligations to close had been satisfied. This section also provided that Sumner could call off the agreement at any time during the study period and get its deposit back.
The agreement gave Sumner the right to enter and inspect the property, and to conduct engineering and environmental studies at any time before the closing date. Section 5.6 contained Venture’s warranty that “to the best of [Venture’s] knowledge” there were no hazardous wastes or substances on the property. The agreement defined “hazardous wastes” and “hazardous substances” to include “oil, petroleum products, and their byproducts.”
Section 17 contained two conditions precedent: the property must be “free of Hazardous Materials” and that Venture’s warranties and other representations must be “true and correct at Closing.”
Section 17.2 provided that if the conditions precedent were not satisfied, Sumner could waive the conditions, call off the deal and get its money back, or take action to satisfy the conditions and delay closing for the time necessary to complete “Conditions Satisfaction Work.”
Environmental issue
In June, ECS, Sumner’s environmental consultant, found elevated levels of diesel total petroleum hydrocarbons (TPH) in the soil and building, and found volatile organic compounds in the groundwater. Venture agreed to delay closing until July 7, 2015.
On July 6, Sumner informed Venture that because there were hazardous materials present, the property’s condition was not consistent with Venture’s warranty in Section 5.6 or the conditions precedent to closing in Section 17.
Sumner said it was exercising its right to perform conditions satisfaction work, to delay closing until the work was completed and to take an offset from the purchase price to pay for the work.
On July 8, Venture denied that it misrepresented the property’s condition and terminated the agreement based on Sumner’s failure to close.
Negotiations failed and Sumner sued, seeking a declaration that it had the right to enter the property, perform conditions satisfaction work, receive a price offset and be awarded attorney’s fees and costs. Sumner also sued for specific performance. Venture counterclaimed, also seeking specific performance and damages for Sumner’s breach of the agreement.
The circuit court conducted a bench trial and took expert testimony. The court ruled that the experts concluded TPH is not a hazardous substance or waste as defined in Section 5.6 or in the industry. The court ruled that Venture was entitled to Sumner’s deposit.
Sumner moved for reconsideration, arguing that the court erred in interpreting the agreement because “TPH qualifies as a hazardous waste and substance under Section 5.6 of the Agreement and because the experts had not testified to the contrary. …
“In a letter opinion incorporated into its final order, the court maintained its interpretation of the expert testimony and stated that Sumner had not met its burden of proof because one expert had stated that TPH is not considered a hazardous characteristic and because another expert had opined about the general usage of similar terms in the industry but could not testify as to this Agreement in particular.”
Sumner appealed.
Resolution
“We find that the Purchase Agreement is unambiguous. It explicitly defines ‘[h]azardous wastes’ and ‘hazardous substances’ to include ‘any “oil, petroleum products, and their byproducts” as defined by the Maryland Statutes.’ … Moreover, Section 17.1(i) of the Agreement specifically makes all of Venture’s representations and warranties in Section 5 conditions precedent to closing. …
“Therefore, if any of Venture’s representations and warranties in Section 5 are not true as of the closing date, Sumner is released from its obligation to close and is entitled to exercise any of the available remedies under Section 17.2, including postponing the closing date to perform the Conditions Satisfaction Work and deducting the costs of that work from the purchase price. …
“The trial court misinterpreted the unambiguous Agreement because it misinterpreted the expert testimony. … The experts did not testify ‘that TPH does not meet the definition of hazardous waste or substance as defined by the Purchase Agreement, or used in the industry,’ nor did they ‘agree that TPH is not a hazardous waste or substance[.]’”
In fact, two of the experts “statements were directly to the contrary. The experts also did not ‘all agree[] [that] a petroleum product is not a hazardous waste or substance and as such not a hazardous material[.]’ …
“Because the trial court misinterpreted the parties’ Agreement, we reverse and vacate its judgment against Sumner. We remand this case for further proceedings consistent with this order.”
Reversed and remanded for further proceedings.
Sumner Partners v. Venture Investments. Record No. 181259 (Order) Oct. 17, 2019 (Appeal from Stafford Circuit Court). Michael Randolph Shebelskie, William Howell Wright Jr., Jonathan Lee Caulder for Appellant, William Ethan Glover, Jean Patricia Dahke for Appellee. VLW 019-6-074, 10 pp.
