Crosland Ardrey Woods, LLC v. Beazer Homes Corp. (Lawyers Weekly No. 10-16-0823, 21 pp.) (Linda Stephens, J.) Appealed from Mecklenburg County Superior Court (Robert P. Johnston, J.) N.C. App. Unpub.
Holding: Where a contract did not expressly limit remedies available to an aggrieved party upon breach of the contract, the trial court did not err in granting injunctive relief. Prospective damages were unascertainable, and the contract expressly allowed for retention of an earnest money deposit by the aggrieved party.
The plaintiff-developer entered into a contract with the defendant-contractor under which the contractor would build homes on 92 lots in a subdivision and convey them to buyers in a specified timeframe.
The developer built and sold single family residences on 65 lots to buyers. It failed to develop and sell the remaining 27 lots in the specified timeframe.
After the developer notified the contractor of its breach of the contract, the contractor contracted with Brentwood Homes, Inc. to sell the remaining 27 lots at a reduced price.
The developer brought an action against the contractor, seeking to enjoin the sale. The trial court granted an injunction against the contractor, preventing it from selling the 27 lots to Brentwood.
The contractor appealed.
Limitation of Remedies
The contractor argued that § 13(a) of the parties’ contract limited the remedies available to the developer in the event of a breach by the contractor, and the developer’s exclusive remedies were the retention of the $1.3 million earnest money as liquidated damages, and termination of the contract.
However, no express provision in the contract prevents the developer from retaining the earnest money as a remedy for the contractor’s breach under § 13(a) of the contract – for failing to take down the 124 additional lots – and from obtaining an injunction to prevent the contractor from engaging in further violations of the agreement by continuing to sell lots to a third party without the developer’s consent.
Principles of contract construction support equitable relief in addition to liquidated damages and contract termination for the contractor’s second breach under § 15(a) of the contract.
The contractor also argues that, even if the contract allows for equitable relief, the developer is not entitled to it.
It is apparent that, had the trial court not granted the developer’s injunction, the developer would have suffered irreparable injury without an adequate remedy at law.
The damages calculation offered by the contractor does not accurately reflect the damages that would arise in the event that the contractor was allowed to sell the 27 unbuilt lots to a third party at values much lower than their fair market price.
It is this second breach by the contractor, arising out of the contractor’s attempt to sell the 27 unbuilt lots on the market to a third party, that will result in irreparable harm to the developer. The developer’s ability to sell the 124 additional lots, which the contractor failed to take down, will be damaged if the contractor is able to sell the 27 unbuilt lots well below market value to a third party. Sale of the 27 unbuilt lots will interfere with, if not destroy, the developer’s ability to fairly price and sell any of the 124 additional lots for an unknown length of time.
Accordingly, the trial court did not err by granting the developer’s motion for summary judgment and permanently enjoining the contractor from further breaching its contractual obligations, when it is impossible to determine at this time how much monetary damage will result from the contractor’s breach.
The contractor argued that the earnest money is the developer’s compensation for the contractor’s breach and awarding the developer the injunction will result in double compensation for the developer.
The contract provided that the developer would retain the earnest money as liquidated damages if the contractor failed to take down the 124 additional lots. The liquidated damages provision operated as a complete substitute for any actual damages that the developer may have suffered when the contractor failed to take down the 124 additional lots. The parties’ contract did not specify a substitute remedy, however, in the event that the contractor attempted to sell 27 unbuilt lots to a third party without the developer’s consent.
Accordingly, the developer is entitled to injunctive relief to compensate it for the contractor’s breach of § 15(a).
The injunctive relief is distinct from and in addition to the developer’s retention of earnest money, and there is no double compensation for the developer.
We conclude that the permanent injunction prohibiting the contractor from conveying 27 unbuilt lots is not an unlawful restraint on the alienation of real property.
The contractor was in control of alienating the property. Any indirect restraint on alienation could be avoided if the contractor built a home on the unbuilt lots, as it agreed to do in the contract with the developer.
Once the contractor built a home, the contractor would be free to sell the lot to a third party without the developer retaining any legal right to or control over the sale, exercising an option of first refusal, or exercising a forfeiture of the realty on account of such action.
While the contractor would not be forced to construct homes on all of the unbuilt lots, when the contractor voluntarily opted not to build, the contractor would be permitted only to (1) obtain the developer’s permission to sell the unbuilt lots, or (2) “get in line” behind the developer with respect to selling vacant lots in the community.
Accordingly, the injunction is not a direct restraint on the contractor’s ability to alienate the property. Therefore, the injunction entered by the trial court does not operate as an unlawful restraint on the contractor’s ability to alienate the property.
The contractor lastly argues that the terms of § 15(a) should not be enforced because the contract was not in effect at the time of the alleged breach.
One party’s termination of a contract does not terminate all the rights and obligations set forth in that contract.
The covenant prohibiting the contractor from selling the unbuilt lots to a third party is valid and enforceable even after termination by the developer. The developer’s right to enforce § 15(a) of the option contract became executed upon the closing for each purchased lot and survived the closing of each purchased lot.
The developer’s termination of executor rights under the contract did not terminate the developer’s executed rights arising from the closing on the unbuilt lots.
Accordingly, the developer did not discharge the contractor from all of the contractor’s contractual obligations upon termination of the contract.