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12/30/92 RICHARD M. ARONOFF v. LENKIN COMPANY &

December 30, 1992

RICHARD M. ARONOFF, ET AL., APPELLANTS
v.
THE LENKIN COMPANY & LERNER ENTERPRISES LIMITED PARTNERSHIP, APPELLEES; RICHARD M. ARONOFF, ET AL., APPELLANTS V. COMMONWEALTH LAND TITLE INSURANCE CO., APPELLEE



Appeals from the Superior Court of the District of Columbia; (Hon. Ricardo M. Urbina, Trial Judge)

Before Rogers, Chief Judge, Farrell, Associate Judge, and Pryor, Senior Judge.

The opinion of the court was delivered by: Farrell

FARRELL, Associate Judge: After a bench trial, the Superior Court upheld cancellation of a contract for the purchase and sale of a District of Columbia limited partnership and ordered that a one million dollar deposit (originally in the form of a letter of credit) be returned to the purchasers. The trial Judge ruled that by failing to tender insurable title to the limited partnership's realty, the sellers had not complied with an express condition precedent both to the purchasers' duty to perform at closing and to the sellers' own right to declare the deposit forfeit; therefore, they had no legal authority to draw down the letter of credit. In No. 91-CV-78, the sellers (appellants here) contend on alternative grounds that the court erred because title was insurable before they presented the letter of credit for payment, and hence the condition precedent was satisfied; and that, if the condition was not satisfied, it was excused because the purchasers' conduct contributed materially to the failure to tender insurable title. We reject the sellers' insurability argument in its broad form, but hold that the trial Judge did not address adequately a provision of the contract permitting the sellers, at closing, to arrange for fulfillment of any unsatisfied condition -- such as insurable title -- to the " reasonable satisfaction" (emphasis added) of the purchasers. We also conclude that the Judge must consider further whether the purchasers prevented the performance of the condition precedent. We therefore remand the case to the trial Judge for additional consideration of these issues.

In Nos. 90-CV-1425 et al., the sellers appeal from the dismissal under Rule 12 (b)(6) of the Superior Court Rules of Civil Procedure of their separate suit against the designated title insurer, Commonwealth Land Title Insurance Company, for negligence, breach of contract, and breach of fiduciary duty. Because we conclude that, as to the latter count, the sellers have stated a claim upon which relief can be granted, we reverse the dismissal in part and affirm in part.

I.

A.

In 1987, the sellers were the general partners of three partnerships doing business in the District of Columbia: ACO 14th & F Limited Partnership (ACO), Bender/14th Street Associates Limited Partnership (Bender), and Mason 14th & F Limited Partnership (Mason). These partnerships owned all of the general and limited partnership interests in a fourth entity, 607 14th Street Associates Limited Partnership (607 Partnership), which in turn owned a parcel of real property in the District of Columbia. Another entity, Lenkin Company (Lenkin), wanted to acquire this real estate. Negotiations followed and on September 15, 1987, the sellers entered into a written contract on behalf of ACO, Mason, and Bender to sell Lenkin all of the partnership interests in 607 Partnership for twenty-two million dollars. *fn1 The agreement noted expressly that time was of the essence and set the closing for November 2. At some point before November 2, Lenkin assigned half of its interest in the contract to the Lerner Enterprises Limited Partnership (Lerner).

In keeping with the contract, the purchasers deposited a one million dollar irrevocable letter of credit with the Commonwealth Land Title Insurance Company, and when a "feasibility period" allowing the purchasers to withdraw from the deal without liability expired, Commonwealth delivered the letter of credit to the sellers. Thereafter, the deposit was subject to forfeiture under specific circumstances. Section 10 (a) of the agreement provided:

If Sellers shall have fully performed their obligations hereunder and the Purchaser shall fail to close in accordance with the terms hereof, except for the failure of a condition precedent set forth herein, the Sellers shall be entitled to draw down the Letter of Credit and retain the proceeds received therefrom as liquidated damages (and as Sellers' sole remedy hereunder), and the Purchaser shall be released and discharged from any and all further liability or obligation hereunder. [ *fn2

The purchasers' duty to close was conditioned by section 9 of the contract, which provided in part:

The following conditions shall exist at the time of Closing hereunder, and the obligation of the Purchaser to purchase the Partnership Interests pursuant to this Agreement shall be expressly conditioned upon and subject to the satisfaction (or written waiver by the Purchaser) of each such condition:

(a) . . . the conditions concerning title to the Property contained in Section 5 shall have been fully satisfied.

In turn, section 5 required that

fee simple title in and to the Property shall be marketable, insurable (current revision) by the Title Company and free and clear of all liens, encumbrances, leases, agreements, easements, covenants, conditions and restrictions, except for those matters shown on Exhibit C attached hereto and made part hereof (the "permitted Exceptions"). [Emphasis added.]

The terms of the agreement defined "the Title Company" as Commonwealth Land Title Insurance Company. *fn3 Thus the contract made both the sellers' right to draw down the letter of credit and the purchasers' duty to tender the purchase price at closing contingent on whether title to 607 Partnership's real estate was insurable by Commonwealth.

In the event of a failure of condition, section 9 gave the purchasers the right, at their option, to terminate the agreement and obtain return of the letter of credit. The right, however, was limited by two other provisions. One (in section 9) gave the sellers "the right . . . to satisfy at Closing, to the reasonable satisfaction of Purchaser, any unsatisfied condition." The other (in section 5) required the purchasers to order a title report and notify the sellers of "variances" between the contract's schedule of permitted exceptions and the state of title at closing; it also gave the sellers the right to postpone settlement for up to two weeks in order to cure such a defect. *fn4

The purchasers, however, never ordered an update of title from Commonwealth and did not notify the sellers before settlement of variances or any other objections raised on November 2. They also cancelled a "pre-closing" scheduled for October 29, and did not supply the sellers with an updated closing checklist despite the sellers' request. *fn5 At the request of the purchasers, the settlement was scheduled for 3:00 p.m. on November 2 (thereby making bank transfers of funds and recording of documents impractical that day), and the parties convened as scheduled. The principal representative of the sellers was Richard Aronoff, the general partner of ACO. The purchasers were represented by their attorney, Jerald Pasternak, and another member of his firm, Alan Weitz. Also in attendance was Charles Duke, an officer and representative of Commonwealth. The sellers began the meeting by tendering the closing documents specifically listed in the contract and all documents previously requested by the purchasers. Almost immediately, the purchasers' representatives objected to various aspects of the tender and demanded for the first time additional documentation, including proof that the certificates of limited partnership for ACO and Mason were recorded. *fn6 Aronoff, anticipating this objection, had sent the ACO and Mason certificates to a commercial recording service that morning, and he informed the purchasers that proper recording in the District would take place either that day or the next. *fn7

More objections followed, and the atmosphere became rancorous. Other than the initial deposit, the purchasers had not delivered any of the purchase money to Commonwealth, and they refused to apprise the sellers whether alternative arrangements for payment had been made. Nor would they say whether they intended ultimately to close the deal or whether, in their view, any particular matter to which they had objected was a material default in the sellers' performance or a failure of condition. Their representatives stated only that they would not settle at that time, but instead would discuss their concerns with their clients and advise the sellers of their position the next day. Although neither party formally declared the other in default, at 8:45 p.m. the sellers tendered all of their conveyancing documents to Duke with a letter instructing him to retain them in escrow until 9:30 a.m. November 3, and to return them if the purchasers had not delivered sufficient funds by then to complete the settlement. *fn8 During the entire meeting, neither the sellers nor the purchasers had asked Duke if Commonwealth was satisfied with the tendered documentation and ready to commit to issue a title insurance policy in connection with the sale.

As it turned out, Commonwealth was not prepared to issue a new insurance policy on November 2. Duke believed a failure to transfer all of ACO's and Mason's interests in 607 Partnership could result in a cloud on the Purchasers' title to the underlying real estate, and possibly subject Commonwealth to liability. Hence, he required evidence that the ACO and Mason certificates had been recorded properly, since that evidence would confirm that the conveyancing documents accurately described the sellers as District of Columbia limited partnerships and identify to a legal certainty all ACO and Mason partners, general and limited. He did not articulate these concerns to the parties at the time, however, because amid all the disputes, no one asked him to review the documents to see if they were adequate for issuance of a title insurance policy. *fn9

The next morning Aronoff spoke with Michael Sanders, a senior attorney for the purchasers, and scheduled a meeting with him for 2:00 p.m. that day. Later that morning, at 11:00 a.m., Duke appeared personally at Aronoff's office and returned the documents tendered by the sellers the previous evening. At Aronoff's request, Duke confirmed in writing that the purchasers had not communicated with him and had not delivered any funds to Commonwealth. At 11:45 a.m., the sellers presented the one million dollar letter of credit to Riggs National Bank demanding payment. The bank promptly notified the purchasers of the demand.

On learning the sellers had presented the letter of credit for payment, the purchasers' counsel cancelled the 2:00 p.m. meeting and attempted to telephone Duke. When they reached him, he affirmed that he had not been prepared to underwrite a title insurance policy at the close of the settlement conference. The purchasers' counsel then drafted a letter purporting to terminate the contract and hand-delivered it to the sellers on the afternoon of November 3. The letter advised them that because Commonwealth had not been willing to underwrite title insurance at the closing, an express condition precedent had not been satisfied and the demand upon Riggs National Bank was unwarranted, a demonstration of bad faith justifying termination. The letter also demanded the sellers refrain from drawing ...


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