Makofsky v. Cunningham
| Decision Date | 24 July 1978 |
| Docket Number | No. 76-3499,76-3499 |
| Citation | 576 F.2d 1223 |
| Parties | Howard L. MAKOFSKY, Jr., Plaintiff-Appellant, v. Raymond C. CUNNINGHAM, II, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
James J. Morrison, Jr., New Orleans, La., for plaintiff-appellant.
Phillip A. Wittmann, James C. Gulotta, Jr., New Orleans, La., for defendant-appellee.
Appeal from the United States District Court for the Eastern District of Louisiana.
Before WISDOM, * GOLDBERG, and RUBIN, Circuit Judges,
Turning our federal robes into Louisiana garments in this multi-issued case arising out of a contract to sell Louisiana land and brought to a federal forum solely because of diversity, we conclude that title to the property was merchantable, the buyer was not justified in his refusal to perform the contract and therefore forfeited his deposit, and, on a companion tort claim, that the seller did not defame the buyer. Good faith in the performance of obligations is an integral part of the fabric of Louisiana's law of obligations 1 and consideration of this duty, interwoven with more literal adherence to the rules of civilian doctrine, leads us to conclude that the district court, which we affirm, was correct in its findings of fact 2 and in the results of their application. 3
Cunningham (as seller) agreed to sell 41 acres of land in New Orleans to Makofsky (as buyer) for $3,379,696. The act of sale was to be executed by August 1, 1974, but this time was to be extended to August 13 if the buyer notified the seller of any title defects or exceptions by July 12. As required by the contract, the buyer put a deposit in the seller's hands, in the form of an irrevocable letter of credit with Colonial Bank for $100,000; this letter represented the deposit "for all purposes of this agreement." The letter of credit provided that the seller could receive $100,000 on or before August 10 by presenting written certification to the bank that the buyer was in default in performance of the purchase agreement. Thus the deposit letter would be valid for 10 days after the scheduled closing date, but would expire 3 days before the closing if the date were extended. Although there was testimony concerning why there was a hiatus in dates, 4 the evidence did not directly establish any reason for it, or whether it was inadvertent; this must be determined by inference.
The contract also provided:
In the event Seller fails to comply with this agreement within the time specified or for any other reason, the Purchaser shall have the right either to demand the return of his deposit plus an equal amount to be paid as penalty by the Seller; or the Purchaser may demand specific performance, at his option. In the event the Purchaser fails to comply with this agreement within the time specified, the Seller shall have the right to declare the deposit, ipsofacto (sic), forfeited, and draw upon the letter of credit representing same, without formality beyond tender of title to Purchaser; or the Seller may demand specific performance.
On July 11, the buyer's lawyer timely notified the seller of several alleged title defects and exceptions to the title's merchantability, including a recorded purchase agreement for the same land with one Donald G. Goff. A document purporting to cancel this agreement had been recorded in the public records on May 22, 1974. On August 9, the seller arranged for the American Title Insurance Company to issue a title binder at the closing in favor of the buyer insuring against all of the alleged defects.
It became apparent that the sale could not be completed by August 10, and the seller therefore demanded that the deposit letter be extended. The buyer's lawyer promised that this would be done. However, partially because the buyer's original collateral had been unsatisfactory and partially because the buyer had vacillated with respect to the time extension, indicating at one time that he did not wish the extension and, at another, that he did, the bank, after some negotiations, refused to extend the letter of credit beyond August 10.
On the morning of August 9, the last banking day before the letter expired, the seller's attorney certified that the buyer was in default and received $100,000 from the bank. As a result, the bank applied the buyer's bank accounts to his indebtedness and sued in state court for the balance due, interest, and attorney's fees.
On the same day, the buyer's attorney obtained and notarized an affidavit from Goff in which Goff swore that the recorded cancellation of his purchase agreement was a forgery and that he had neither signed nor authorized it. The affidavit was recorded and sent to the seller's attorney on August 12.
The buyer immediately filed this action seeking damages from the seller for breach of contract, including return of the deposit, payment of the $100,000 penalty, loss of profits on resale of the property, bank charges for funding the letter of credit, and attorney's fees. He sought damages for libel and slander for the alleged false certification to the bank that the buyer was in default. In the alternative, should the court find that he was not entitled to damages for breach, the buyer demanded return of the deposit and specific performance of the purchase agreement.
The next day, August 13, both parties appeared for the scheduled closing. The plaintiff's attorney had not prepared the closing documents. The Goff purchase agreement was the only possible outstanding defect in the title in controversy that was not to be disposed of at the closing or shortly thereafter on the same day. (In accordance with Louisiana practice, some required items, such as mortgage certificates, would be obtained after the act of sale was recorded.) The seller demanded that the buyer take title, and the buyer refused. A notarial proces verbal of default was prepared on behalf of each party. 5 On August 14, Goff cancelled his purchase agreement and signed a sworn statement that he had been in error on August 9 and that he had indeed authorized the original cancellation.
The district court found that, because the buyer had not breached his obligations by August 9, the certification that he was then in default was "premature and in violation of (the seller's) contractual obligations." This violation would entitle the buyer to any damages caused by it, but the trial court found none. It also found that this did not amount to the kind of breach of the basic contract to buy and sell that would excuse the buyer from accepting title.
The trial court found no justification for the buyer's non-performance or his assertion that the title was unmerchantable. The court noted that the buyer did not have the funds to purchase the property and held that the buyer's solicitation of Goff's affidavit was "calculated to frustrate defendant's efforts to consummate the transaction." Judgment was accordingly rendered in favor of the seller, recognizing his right to retain the $100,000 deposit, and dismissing the cause of action for defamation. This appeal followed.
We consider first the hiatus in dates already noted between August 10 and August 13, the effect of the buyer's failure to obtain an extension of the letter of credit, and the resultant cashing of the letter by the seller.
The trial judge found that the contract was clear and unambiguous in requiring a deposit only until August 10, and interpreted LSA-C.C. art. 1963 6 as precluding the conclusion that the buyer was obligated to extend the letter of credit. The record amply supports the findings of fact; however, we differ with the conclusions that the contract as a whole was unambiguous and that the buyer had no duty to extend the letter of credit. 7
The letter of credit was issued on the same day as, and as an incident to, the buy and sell agreement. It was not a separate and distinct undertaking but a method of completing the sale agreement by providing security for the deposit that the buyer apparently could not or did not wish to make in cash.
The letter of credit is, of course, unambiguous in its expiration date of August 10, and the contract provides that the letter of credit shall constitute the deposit "for all purposes of this agreement." But the contract also contemplated closing by August 1 and an extension thereafter only at the buyer's request in the event problems arose. Although contracts generally are interpreted to give effect to the intention of the parties 8 as expressed in the written terms of the contract, e. g., Bank of Napoleonville v. Knobloch & Rainold, 1918, 144 La. 100, 80 So. 214, 216; Wilson Warehouse Co. of Texas, Inc. v. Maryland Casualty Co., La.App.1972, 269 So.2d 562; Grace v. Morales, La.App.1968, 210 So.2d 60, 63; Vaughan v. P. J. McInerney & Co., La.App.1943, 12 So.2d 516, 519, Louisiana courts will not interpret the words of a contract literally when this leads to unreasonable consequences or inequitable or absurd results even when the words used in the contract are fairly explicit. LSA-C.C. arts. 1945, 1950; Texaco, Inc. v. Vermilion Parish School Board, 1963, 244 La. 408, 152 So.2d 541; Crow v. Monsell, La.App.1967, 200 So.2d 700; Molero v. California Co., La.App.1962, 145 So.2d 602.
The parties have not suggested, and we cannot discern, any reason other than error or inadvertence for them to have required a deposit that would expire three days before the possible closing date. 9 They were each represented by able counsel experienced in Louisiana real estate transactions. Informed and experienced parties do not ordinarily bind themselves to unreasonable obligations. Burt v. Hebert, La.App.1976, 338 So.2d 717, 721, and cases cited therein.
The penalty clause provides that the deposit shall be forfeitable if the purchaser fails to comply with the agreement "within the time specified." In determining the intent of the parties, we are obligated to construe the clauses together and...
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