Knott v. Racicot
| Decision Date | 03 May 2004 |
| Citation | 442 Mass. 314,812 NE 2d 1207 |
| Parties | JAMES M. KNOTT, SR. v. JOAN RACICOT, executrix, & another. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Present: MARSHALL, C.J., GREANEY, IRELAND, SPINA, SOSMAN, & CORDY, JJ.
Warren G. Miller (Henry T. Dunker, Jr., with him) for the plaintiff.
Kenneth J. Mickiewicz (Samuel B. Moskowitz with him) for Joan Racicot.
Brian J. Buckley for Deborah Kay Neumann.
For centuries under the Anglo-American common law, contracts executed under seal have conclusively been held to import consideration; the seal itself substitutes for the actual exchange of value between promisee and promisor. See, e.g., Schuster v. Baskin, 354 Mass. 137, 141 (1968). We are now asked to abolish the common-law presumption of consideration for option contracts3 executed under seal. At issue is the validity of a right of first refusal4 executed as a sealed contract between an owner of property and a tenant. The plaintiff, a potential buyer of the property, sought to invalidate the right of first refusal for lack of consideration. A Probate and Family Court judge found that consideration is not required for a sealed contract. The Appeals Court affirmed. Knott v. Racicot, 60 Mass. A,,pp. Ct. 1104 (2003). We granted the plaintiff's application for further appellate review and conclude that no sound legal justification exists for maintaining the common-law fiction that an option contract executed under seal conclusively imports consideration, and we adopt the position of the Restatement (Second) of Contracts § 87(1) (1981) concerning the validity of such contracts. However, for reasons we discuss below, our conclusion does not affect the judgment of the Probate Court, which we now affirm.
1. Background. We summarize the relevant facts and procedural history from the judge's amended findings of fact and elsewhere from the undisputed record, as necessary. We reserve for later discussion certain facts related to posttrial motions.
Louis S. Racicot (decedent) owned the Linwood Mill (property), a commercial property located in Northbridge and Uxbridge. In June, 1997, The Maiden Merchant International Incorporated entered into a written lease with Linwood Mill Realty, Inc. for office space in the property. The decedent signed the lease as president of Linwood Mill Realty, Inc., and the defendant Deborah Kay Neumann signed as chair, chief executive officer, and founder of Maiden Merchant. Neither Maiden Merchant nor Neumann ever paid rent for the leased space. However, Neumann provided services to the decedent without payment, including negotiating with other tenants, running errands, and permitting the decedent to use her telephone and facsimile machine.
On June 12, 1998, the decedent and Neumann executed a one-line document purporting to give Neumann a right of first refusal to purchase the property (first right of first refusal).5 The Worcester County registry of deeds refused to record it. The decedent and Neumann then asked an attorney to prepare a right of first refusal in a form the registry would record. The attorney sent the decedent and Neumann a generic right of first refusal that he had printed from a legal forms software program and into which he had inserted their names and addresses (second right of first refusal). The preprinted portion of the second right of first refusal recited that it was executed "under seal" and "[f]or good and valuable consideration, the receipt whereof is hereby acknowledged." Under the terms of the second right of first refusal, the decedent agreed not to sell the property prior to January 1, 2004, to a third party without first notifying Neumann of the third party's acceptable bona fide offer to purchase, and offering Neumann the opportunity to purchase the property on the terms recited in the bona fide offer. Further, Neumann was required to purchase the property within ninety days of notifying the decedent of her intention to do so. The second right of first refusal also provided for conveyance of the property with good and marketable title, subject only to the encumbrances referenced in the bona fide offer. On December 22, 1998, the second right of first refusal, signed by the decedent and Neumann and notarized, was filed in the Worcester County registry of deeds and recorded.
Some time thereafter, the decedent received an acceptable bona fide offer from Riverdale Mills Corporation, an entity owned and controlled by the plaintiff, James Knott, to purchase the property for $350,000. Through counsel, the decedent notified Neumann of the offer on January 18, 2001, "[i]n accordance with" the second right of first refusal. Two days later, on January 20, Knott and the decedent entered into a purchase and sale agreement. The purchase and sale agreement specifically referenced Neumann's right of first refusal; it appended the second right of first refusal as an exhibit. On January 25, 2001, the decedent and Knott amended the purchase and sale agreement (amendment) to provide that the decedent would grant Knott a mortgage on the property if Knott advanced certain funds to prevent foreclosure and made certain property repairs.6 Subsequently Knott paid approximately $174,000 in taxes and expenses for the property. On January 26, 2001, Neuman hand delivered written notice to the decedent's attorney that she intended to exercise her right of first refusal pursuant to the terms of Knott's offer. On January 30, 2001, the decedent died.
On March 30, 2001, Knott commenced a civil action against the decedent's estate for specific performance of the purchase and sale agreement. See G. L. c. 204, § 1. Joan Racicot, the decedent's widow and executrix (executrix), moved to add Neumann as a party defendant pursuant to Mass. R. Civ. P. 19 (a) (2), 365 Mass. 765 (1974). There followed various counterclaims and cross claims among the parties. Of significance here, Neumann filed a verified cross claim and counterclaim for specific performance of the right of first refusal, and Knott asserted as an affirmative defense that the right was void for want of consideration.7
The pending litigation did not deter the parties from pursuing their claims privately. On April 26, 2001, Knott delivered to Henry Lane, an attorney representing both the estate and the executrix, a check made payable to the estate for the agreed purchase price of the property minus Knott's $50,000 down payment and sums advanced under the amendment. Lane deposited the check into his client escrow account. That same day, April 26, Neumann's attorney, Mark L. Donahue, met Lane at the Worcester County registry of deeds and on behalf of his client tendered a check for $350,000 payable to the estate and drawn on the account of Donahue's law firm. Because a mortgage on the property prevented Lane from delivering a good and sufficient quitclaim deed to Neumann, as both the right of first refusal and the purchase and sales agreement required, Donahue did not leave his client's check with Lane. Instead he had Lane sign the check stub acknowledging the date and place that the check had been tendered, then left the registry with check in hand.
Trial was held on June 28, 2001. The judge entered his findings of fact and conclusions of law and his judgment on August 15, 2001, and amended his findings and conclusions on September 14, 2001, in response to a motion filed by Knott. The judge did not address whether Neumann gave actual consideration for the right, stating that He ordered the estate to convey the property to Neumann pursuant to the right of first refusal.
Knott appealed. He also sought, but failed to obtain, a stay of the judgment, first in the Probate and Family Court and then in the Appeals Court. Knott next moved for relief from judgment on grounds of newly discovered evidence and fraud pursuant to Mass. R. Civ. P. 60 (b) (2) and (3), 365 Mass. 828 (1974), and moved to correct the appellate record pursuant to Mass. R. A. P. 8 (e), as amended, 378 Mass. 932 (1979). The judge denied both posttrial motions. In an unpublished memorandum pursuant to its rule 1:28, the Appeals Court affirmed the judgment and the orders. It also rejected Knott's appeal concerning a posttrial contempt complaint brought by Neumann against Knott and the executrix. We granted Knott's application for further appellate review.8
2. Sealed option contract. To understand the role of seals in the law, some background is useful. Seals have a venerable history in our law of contracts. In medieval England, a time when most adults were illiterate, unable even to sign their names, contracts routinely were executed "under seal." That is, each party impressed on the physical document a wax seal or other mark bearing his individual sign of identification. H.O. Hunter, Modern Law of Contracts § 7:2 (2003). Under the common law, the seal became proof of the parties' identities and the document's authenticity, and loss or destruction of the sealed contract terminated the bargain. Nalbandian v. Hanson Restaurant & Lounge, Inc., 369 Mass. 150, 154 (1975). Moreover, the seal was said to import consideration, substituting for the actual giving of such. See, e.g., Schuster v. Baskin, supra (). See also 17 Am. Jur. 2d Contracts § 105 (2004) (); 1 S. Williston, Contracts § 2:14 (4th ed. 1990 & Supp. 2003). Over time, simply the words "under seal" or a similar phrase appearing in a mass-produced, form contract became sufficient to invest that document with the privileged status of a sealed instrument. See G. L. c. 4, § 9A, inserted by St. 1929, c. 377, § 2.9 See, e.g., Marine Contractors Co. v. Hurley, 365 Mass. 280, 285 n.2 (1974) (...
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