ShareA Nebraska court has considered whether a builder could exercise an option to buy back an owner's property in a development for the original purchase price when owner failed to enter into a building contract within four years.
In 1997, W.G.M., Inc., and Heritage Builders, Inc. ("Builder") had an agreement where the Builder would provide advice to the W.G.M. regarding a residential golf course development it was undertaking. In return, W.G.M. designated the Builder as the "exclusive builder" for the development and recorded notice of this agreement with the recorder of deeds. As part of the agreement, W.G.M. agreed to give the Builder in every purchase contract for the development the option to buy back properties at the purchase price if the purchaser failed to enter into a construction contract with the Builder within four years of purchase ("Option") with the Builder. The Builder could only exercise the Option between years four and five after the closing.
In September 1998, Robert Vande Guchte, M.D., ("Owner") purchased a lot from W.G.M. for $145,000. As part of the purchasing process, the Owner signed a "Notice" which set forth the terms of the Option.
In April 2002, the Owner listed his still undeveloped property for sale. He entered into a sales agreement with Gary Hoffman ("Buyer") for a price of $195,000. The sales agreement contained a financing contingency which allowed the Buyer to terminate the agreement if he was unable to obtain financing on certain terms. The Buyer's application for a loan was rejected in August 2002, as the bank determined that the Buyer would not obtain clear title to the property from the Owner and so the purchase was never completed.
In January 2003, the Owner's property remained undeveloped and so the Builder exercised the Option and sent the Owner purchase documents for the property at a price of $145,000. The Builder set a closing date for February 2003. The Owner filed two lawsuits, one against the Builder and one against the Buyer. The lawsuit against the Buyer sought specific performance of the purchase agreement, while the lawsuit against the Builder claimed that the Option was unenforceable and also claimed that the Builder had tortiously interfered with the Owner's agreement with the Buyer. The Builder filed a counterclaim against the Owner, seeking specific performance of the Option. The trial court ruled in favor of the Builder and ordered specific performance of the Option while dismissing both the Owner's lawsuits. The Owner appealed.
The Court of Appeals of Nebraska affirmed the trial court. The court first considered whether the Option was enforceable. The Owner argued that it was not enforceable because the Option was an unlawful penalty, an unreasonable restraint on alienation, and an unlawful tying arrangement in violation of the antitrust laws. The court dismissed the "unlawful penalty" argument because the Owner had failed to raise this argument before the trial court.
The court also rejected his argument that the Option was an unlawful restraint on alienation. The court found that the Option did not restrict the Owner from selling his property. The Option did not prohibit the transfer of title, and only could be exercised by the Builder between years four and five after the Owner's purchase if the Owner had not entered into a contract to build on the property. Therefore, the Option did not restrain the Owner in any way. The tying arguments were also dismissed, as the Owner failed to show that the Builder had the necessary market power to support this antitrust argument.
Next, the court considered the Owner's tortious interference with a contract argument. At the outset, a party making such an argument must show the existence of a valid contract. The contract the between the Buyer and Owner was a nullity due to the contract's financing contingencies. Thus, the court also rejected this argument because there was no valid contract to interfere with and so the court ordered specific performance of the Option.
In a separate opinion, the court also considered the Owner's lawsuit against the Buyer for specific performance of the purchase agreement. As stated above, the court ruled that the purchase agreement terminated by its own terms when the Buyer was unable to obtain financing and so the Owner's lawsuit for specific performance was without merit. Therefore, the court affirmed the dismissal of these allegations as well.
Vande Guchte v. Kort, No. A-04-777, 2005 WL 2129160 (Neb. Ct. App. Sept. 6, 2005). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].
Vande Guchte v. Hoffman, No. A-03-1345, 2005 WL 2129101 (Neb. Ct. App. Sept. 6, 2005). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].