Benefit-of-the-bargain damages award upheld

The Virginia Supreme Court has upheld a Danville Circuit Court decision awarding $200,000 for benefit-of-the-bargain damages and $42,500 in attorney’s fees to a seller for the breach of a commercial purchase agreement.

“We find no fault with the trial court’s finding that [Joshua] Payne and [Dr. Aijt] Chauhan breached the Purchase Agreement by failing to close on the transaction,” the court concluded.

The opinion is Payne, et al. v. Danville Doctors Building (VLW 022-6-003).

James A.L. Daniel of Daniel, Medley & Kirby, P.C., in Danville, who represented Danville Doctors, said he was “pleased with the decision” and that it was a “complicated case” made easier because it was not a jury trial.

Phillip B. Baker of Sanzone & Baker LLP in Lynchburg, who represented Payne and Chauhan, said it was a “very unfortunate case” and the “unfortunate result and reflection of when people who are friends handle things informally that matter, and don’t realize they create problems for each other until it’s too late.”

Purchase agreement

The parties signed an agreement for the sale of two buildings for $700,000, with a $25,000 escrow deposit and a Jan. 9, 2018, closing date. The agreement gave the buyers a 60-day “feasibility period” to inspect the property, apply for financing, conduct tests and obtain zoning information, during which time they could deliver written notice of dissatisfaction with the property and demand return of their deposit.

The parties did not dispute that there was a modification to the agreement which crossed out a paragraph limiting the seller’s remedy in the event of the buyer’s default to termination of the agreement and retention of the deposit. That paragraph was replaced with language that provided: “Upon default by the Purchaser except for any material breach of any of the provisions contained herein, the Sellers shall be entitled to retain Purchaser’s deposit in the amount of $25,000. [sic], and may avail itself of all remedies available to it in law or in equity including the right of specific performance.”

Other provisions provided: “(i) the purchaser’s options in the event of seller’s default were to seek specific performance of the Purchase Agreement or to terminate it and receive a refund of the deposit and attorney fees and costs in filing any specific performance action and that (ii) prior to any termination, the non-defaulting party shall provide notice of default and an opportunity to cure the default within 10 days prior to sending a written notice of termination.”

A listing agreement between the seller and a realty company was incorporated, and contained an addendum stating that the buildings “may contain materials containing asbestos.”

Failed closing

A contractor Payne hired to do renovations gave him a building inspection report which revealed asbestos in some of the caulking and tiles in the buildings. There was no evidence that the buyers informed the seller of the inspection report before the closing. Chauhan attended the closing; Payne did not. The closing failed.

Payne and Chauhan told Danville Doctors they would not purchase the properties due to recent medical problems they had suffered. Neither mentioned the inspection report or asbestos.

Danville Doctors sued and, while the suit was pending, relisted the property and sold it for $500,000. Finding that Payne and Chauhan had breached the agreement by failing to close, the trial court awarded benefit-of-the-bargain damages to Danville Doctors in the amount of $200,000 in lieu of the now unavailable specific performance relief originally demanded, as well as $42,500 in attorney fees.

Benefit-of-the-bargain damages

The Virginia Supreme Court found no error in the trial court’s finding that the purchase agreement had been breached by the failure to close, because “[a]t no time before the closing did [defendants] notify [plaintiff] in writing of the asbestos problem or provide […] an opportunity to address the issue.”

The court found that the defendants’ characterizations of the parties’ conduct as a rescission or an accord and satisfaction were incorrect under the circumstances and the trial court was entitled to believe plaintiff’s denial that it had agreed to allow defendants to terminate the agreement.

Further, the trial court did not err in ruling that the agreement was not ambiguous regarding the seller’s remedies in the event of a buyer’s breach, and that the replacement paragraph allowed the seller to retain the security deposit and avail itself of remedies available in law or in equity, including the right to specific performance.

The “only logical interpretation of this amendment is that it served as a complete substitution for the entirety of [the paragraph] addressing Danville [Doctors’] remedies in the event of the buyers’ default .Thus, the trial court did not err in interpreting the Purchase Agreement to allow for the award of benefit-of-the-bargain damages.”

The Supreme Court also rejected the defendants’ argument that benefit-of-the-bargain damages should be calculated in light of the cost to remediate asbestos. That argument was not made before the trial court and was briefed in a “cursory fashion” which “fail[ed] to unpack it at an adequate level of advocacy for us to act upon it.”

The court noted that “Danville Doctors never warranted that the property was free from asbestos, […] the listing agreement disclosed that asbestos ‘may’ be on the property, [and the] best that Danville Doctors could warrant was that it had no ‘actual knowledge’ of any hazardous materials on the property.”

The court also rejected defendants’ argument that the “agreement only authorized an award of attorney fees if the non-breaching party had provided a notice of default and an opportunity to cure.”

Where the agreement required such notice and cure period “‘prior to any termination’ for default[,]” and “Danville Doctors never sought to terminate the Purchase Agreement for default[,]” the trial court correctly interpreted the agreement to allow for prevailing-party attorney fees, the Supreme Court concluded.

Recent activity

Danville Doctors moved for fees on Jan. 25. A hearing is scheduled for April 4. Daniel said he “hopes that a hearing on additional fees will not be necessary, in light of the Supreme Court’s ruling.” Baker acknowledged the authority for additional fees, but intends to debate the matter at the hearing.