JLB Realty, LLC v. Capital Development, LLC (Maryland U.S.D.C.)

Filed: March 3, 2010
Opinion by Judge Benson Everett Legg

Holding: Purchaser was not equitably estopped from terminating contract for the purchase of real estate and receiving return of earnest money deposit, nor did it breach the contract’s implied covenant of good faith and fair dealing, when it gave termination notice to the Seller in accordance with the parties' agreement and expenses incurred by the Seller were not incurred until after the Purchaser had already delivered to the Seller its termination notice.

Facts: The parties entered into a contract for the purchase of real estate in Baltimore, Maryland, which afforded the Purchaser a right to terminate the contract and secure the return of its earnest money if the purchaser discovered a blemish on the title during the review period.

The Purchaser discovered a blemish on the title within the discovery period – a Land Disposition Agreement (LDA) with the City of Baltimore, which limited development of the real estate to not more than 30 dwelling units per acre. The Purchaser and Seller agreed that the LDA was cause for the Purchaser to terminate the contract, but further agreed that the Seller would have 45 days to negotiate a release of the LDS with the City and that the Purchase had the right to terminate the Contract by written notice to the Seller at any time before a release of the LDA was executed and recorded.

The Seller was unable to negotiate a release of the LDS and the Purchaser determined that it would either exercise the 45 day termination right or, if the parties could agree, proceed under a revised agreement that included substantial modifications to the initial transaction. The parties acknowledged from that point forward that the original agreement was defunct.

The parties were unable to negotiate any further agreements and the Purchaser provided the Seller with written notice of termination.

The Seller refused to return the earnest money and Purchaser sued and filed a Motion for Summary Judgment. The Seller opposed.

Analysis: No reasonable jury could conclude that the Seller considered the original deal to be in full force and effect, or that the Purchaser intended to pursue the deal as laid out in the initial contract. Further, the Seller’s alleged detriment - $400,000 paid to the City to release the LDA – was not incurred until after the Purchaser terminated the contract.

Moreover, no breach of the implied duty of good faith and fair dealing can occur where the matter is covered by an express contract clause. It was undisputed that the First Amendment to the contract gave the Purchaser the right to terminate the contract if the LDA had not been released within 45 days. It was clearly understood and acknowledged by the parties that the original agreement was defunct. At no time after the expiration of the 45 day period did the Purchaser ever represent that it intended to waive its right to terminate and proceed with the original deal.

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