SPECIFIC PERFORMANCE: EQUITABLE REMEDY TO ENFORCE AFFIRMATIVE OBLIGATION

When a party breaches an agreement, particularly when dealing with real estate, there is an equitable remedy known as specific performance that requests the trial judge issue an order to affirmatively force the breaching party to perform, i.e., close on the real estate contract.   You are asking the court to require the other party to specifically perform an affirmative obligation.  See Melbourne Ocean Club Condominium Ass’n, Inc. v. Elledge, 71 So.3d 144, 146 (Fla. 2011).

A decree of specific performance is an equitable remedy ‘not granted as a matter of right or grace but as a matter of sound judicial discretion’ governed by legal and equitable principles.  Specific performance shall only be granted when 1) the plaintiff is clearly entitled to it, 2) there is no adequate remedy at law, and 3) the judge believes that justice requires it.

Castigliano v. O’Connor, 911 So.2d 145, 148 (Fla. 3d DCA 2005) (internal citations omitted).

An example of specific performance may play out, as mentioned, in a real estate contract where a seller refuses to close on the transaction.

For instance, in M&M Realty Partners at Hagen Ranch, LLC v. Mazzoni, 2020 WL 7296793 (11th Cir. 2020), a buyer entered into a land sale contract with a seller.  The contract included a six-year (contingency) period for the buyer to secure permits required to develop the land.  Closing never occurred and the buyer sued the seller for specific performance – to force the seller to close on the sale of the land.

During the six-year contingency period, the buyer spent substantial monies to secure permits.  Meanwhile, during this period, the seller received a better offer for the land.  The buyer claimed this prompted the seller to avoid closing.  Nonetheless, when the buyer secured the approvals to develop the land, it notified the seller that it wants to close on the land.  The seller refused claiming the buyer had not satisfied all conditions to closing, prompting this lawsuit for specific performance.  The trial court ruled in favor of the seller holding that the buyer failed to prove it was ready, willing, and able to perform (close) under the contract because there was no evidence that the buyer had sufficient funds to close.  The Eleventh Circuit Court of Appeals affirmed.

To establish a prima facie claim for specific performance of a contract or for damages for breach of a contract, Florida law requires the plaintiff to show it was ready, willing, and able to perform the contract.  A purchaser may show it is financially ready and able by showing it has (1) the necessary “cash in hand,” (2) “personal[ ] possess[ion] of assets … and a credit rating” that show a “reasonable certainty to command the requisite funds,” or (3) “a binding commitment … by a financially able third party.”  It is undisputed that [the buyer]…in this case, had neither (1) the necessary $5 million of cash in hand [to close] nor (2) assets and a credit rating sufficient to command that sum. Therefore [the buyer’s] only hope is to show it had (3) a binding commitment from a financially able third party.

[The buyer] argues that it was ready, willing, and able to perform under the contract, first, because [the ultimate principals of the members of the buyer limited liability company] could command credit from a bank in excess of $5 million and, second, because [the principals] each had over $5 million in cash. As [the buyer] is relying upon the resources of third parties, namely [principals], to show it was ready, willing, and able to close, [the buyer’s] arguments properly go to the third possible showing, i.e., that it has a binding commitment from a financially able third party. [The buyer] argues that its principals’ personal resources are sufficient to show the company had a “reasonable certainty” of being able to complete the purchase, but this falls short of the “binding commitment” the law requires.

M&M Realty Partners at Hagen Ranch, supra, at *2 (internal citations omitted).

The Eleventh Circuit agreed that the fact that the buyer’s ultimate principals had the funds is of no moment.  There was no evidence to support that either of the principals made a binding commitment (or any commitment, for that matter) to give or lend the money to the buyer to close on the land.  The Eleventh Circuit was not going to disregard corporate formalities of setting up a limited liability company for purposes of insulating liability simply because the principals of the two members of the limited liability company independently had money to close.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

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