Prudential Preferred Properties v. J and J Ventures, Inc.

• Decision Date: 21 September 1993
• Docket Number: No. 93-1,93-1
• Citation: 859 P.2d 1267
• Parties: The PRUDENTIAL PREFERRED PROPERTIES, a Wyoming corporation, Appellant (Plaintiff), v. J AND J VENTURES, INC., an Idaho corporation; and James E. Miller, Appellees (Defendants).
• Court: Wyoming Supreme Court

Page 1267

859 P.2d 1267

The PRUDENTIAL PREFERRED PROPERTIES, a Wyoming corporation, Appellant (Plaintiff), v. J AND J VENTURES, INC., an Idaho corporation; and James E. Miller, Appellees (Defendants).

No. 93-1.

Supreme Court of Wyoming.

Sept. 21, 1993.

Paul J. Drew of Drew & Carlson, Gillette, for appellant.

James L. Edwards of Stevens, Edwards & Hallock, Gillette, for appellees.

Before MACY, C.J., and THOMAS, CARDINE, GOLDEN and TAYLOR, JJ.

TAYLOR, Justice.

A failed attempt to sell Wyoming ranch property resulted in this controversy. As the payee of a promissory note in default, a listing broker sued the maker, who was also the corporate purchaser of the property, and an individual guarantor to collect the unpaid principal and interest. The broker also sued the sellers of the ranch to collect the equivalent of unpaid commission fees under provisions of a listing contract that entitled the broker to a share of a forfeited earnest money deposit from an executory contract to sell real estate. Through summary judgment, the district court denied all claims.

Our analysis, differing from that of the district court, discloses that in attempting to create the promissory note, the broker failed to provide consideration in return for the promise to pay. Therefore, we hold that the promissory note was invalid and the broker cannot recover against either the maker or the guarantor. The promissory note was apparently intended as security for the purchaser's earnest money in the executory contract. However, this motive was never realized. No consideration flowed from the broker, as the payee of the promissory note, to the sellers. As a result, the earnest money deposit, which was necessary to create the executory contract between the sellers and the purchaser, was never received. The invalid executory contract prevents the broker from recovering against the sellers.

With these modifications, we affirm the decision to deny all claims by the broker. Ambiguity in the final order of the district court requires a remand to issue an order in conformity with this decision. On remand, we order the district court to reconsider the taxation of reasonable attorney's fees and costs in light of our decision.

I. ISSUES

Appellant, The Prudential Preferred Properties of Gillette, Wyoming, the listing broker of the failed sale (hereinafter Prudential, broker or payee), presents a single issue:

Whether the liquidated damages provision of the subject real estate purchase contract, which allows the sellers to retain a defaulting buyer's earnest money, is unenforceable as a matter of law.

Appellees, J and J Ventures, Inc., the maker of the promissory note and purchaser of the real estate (hereinafter J and J, maker or purchaser), and James E. Miller, the guarantor of the promissory note (hereinafter Miller or guarantor), characterize the issue on appeal differently:

Was Summary Judgment properly granted by the District Court in favor of appellees?

Appellees, Larry Pabst and Connie Pabst, the sellers of the real estate (hereinafter sellers), did not participate in this appeal, but reserved a right to request further relief on remand. The person who transfers real property by sale is commonly referred to as the "vendor." However, the relevant documents at issue in this case use the term "seller" or variants. We shall preserve that usage in specific references to the parties to this action since authorities acknowledge it as being proper. Black's Law Dictionary 1360 (6th ed. 1990).

II. FACTS

A chronology of events involved in this controversy offers the best opportunity for understanding and analysis. Several agreements create the relevant relationships between the parties. While the documents are styled in various forms, each is a simple contract between the parties.

On October 9, 1990, the sellers executed a listing contract with the broker. This contract granted a right to sell the Pabst Ranch, located fifty miles north of Gillette in Campbell County, Wyoming, for a listing price of $750,000.00 to be paid in cash or by a new loan. The broker agreed "to accept deposits" made in conjunction with the sale of the property. For these services, the sellers agreed to pay five percent of the selling price to the broker as a commission. The parties provided another means of payment for the broker in the listing contract. "In the event of forfeiture of payments made by a prospective purchaser, the sums received shall be divided between the broker and the [sellers], 50% thereof to said broker, but not to exceed the commission agreed upon herein, and the balance to the [sellers]." As part of an incorporation clause, the parties agreed that no verbal agreements modified any of the terms or conditions of the listing contract. The term of the listing contract was extended through January 9, 1992.

On October 18, 1991, J and J, as maker, and Miller, as guarantor, executed a promissory note with the broker, as payee. The promissory note provided:

For value received, J And J Ventures, Inc., an Idaho Corporation, hereinafter called Maker, promises to pay to the order of The Prudential Preferred Properties, hereinafter called Payee, the sum of $150,000.00, together with interest at the rate of 10% per annum.

The amount due herein shall be paid as follows:

Entire balance due October 25, 1991[.]

If suit is brought to collect this note, the Payee shall be entitled to collect all costs and expenses of the suit, including reasonable attorney's fees not less than 10% of the indebtedness remaining. Any requirement for presentment of notice of dishonor, demand, and protest are hereby waived by Maker and any guarantor. Any extension of time of payment on allowance of partial payment shall not constitute a waiver of any of Payee's rights under this note.

J. and J. Ventures, Inc.

By: [Signature ]

James E. Miller, Secretary

For value received, each of the undersigned unconditionally guarantee payment of this instrument and waive any requirement of demand, protest and notices of payment. All questions of diligence on the part of Payee are also waived and extensions may be granted without giving notice to the undersigned.

[Signature ]

James E. Miller

(Emphasis added.)

On October 18, 1991, J and J, as purchaser, also formalized an executory contract with the sellers. The "Offer, Acceptance and Receipt Specific Performance Contract (Farm & Ranch & Vacant Land)" detailed various responsibilities of the parties. The purchaser offered to buy the ranch for $750,000.00 payable as $150,000.00 "earnest money deposit" and $600,000.00 "cash or certified funds at closing." The sellers accepted the offer.

According to the language of the executory contract, the broker accepted the earnest money deposit "as a fiduciary for Seller and/or Purchaser" and agreed to "retain such deposit in its trust account." On the signature page, the broker acknowledged receipt of "the earnest money deposit on the 18 day of October, 1991 at 5:00 o'clock P.M." under the signature of an agent. On page one, the broker acknowledged receipt of "($150,000.00) One Hundred Fifty Thousand Dollars from Purchaser in the form of Promissory Note."

The parties agreed to a closing date of November 15, 1991. If the purchaser defaulted, the executory contract provided, in pertinent part:

In the event of default by the Purchaser, and if Seller elects to treat this Contract as terminated, then all payments made hereunder shall be paid to Seller as liquidated damages, such amount being agreed by the parties hereto to constitute compensation for the loss of opportunity suffered by the Seller due to such breach.

The sellers reserved the right to continue to offer the property for sale until closing. If another offer was accepted, the sellers acknowledged that a breach of contract might occur.

The sellers and the broker did have negotiations underway with other potential interested parties. A limited partnership extended an offer to buy on October 14, 1991 promising to pay $825,000.00 during the period of an option contract. This offer was secured by an earnest money deposit of $40,000.00. On October 25, 1991, the offer was modified to a "backup" offer, in the event that the sale to J and J was not completed. As part of the modification, the limited partnership's earnest money payment was reduced to $30,000.00 cash which was already on deposit in the broker's trust account.

On October, 29, 1991, the broker sent a default notice to Miller making a demand on J and J, as maker, and Miller, as guarantor, to pay the principal and interest owed on the promissory note. It is undisputed that no payments were made prior to the notice or subsequent to the notice.

On November 6, 1991, the sellers made a counter-offer to the limited partnership. The counter-offer amended the option period to five years from six, and moved a payment date. The limited partnership accepted the counter-offer as a "backup" by November 12, 1991.

On November 15, 1991, the closing date for the executory contract, the purchaser defaulted on that agreement. Apparently, the purchaser did not have sufficient cash to complete the transaction. On the same day, the sellers accepted the "backup" offer and sold the ranch to the limited partnership under terms of the option contract.

On December 4, 1991, the broker filed this action seeking to collect from the maker and the guarantor the unpaid principal and interest on the promissory note. On January 29, 1992, the broker filed an amended complaint adding a cause of action against the sellers for the equivalent of the unpaid commission fees after termination occurred on the executory contract. The broker claimed the fees were due under provisions of the listing contract permitting the broker to share in any forfeited earnest money deposit.

The maker and the guarantor answered that the broker had not been damaged by the default on the note and that any amounts claimed under the...