Elderkin v. Carroll

CATHELL, J. This case originated in Baltimore County and involves an option for the sale of and from Sandra Elderkin, Donald Elderkin (“appellants”), and their brother, Clarence Elderkin 1 to Douglas Carroll (“appellee”). 2 Appellee argues that he exercised the option. Appellants disagree. Carroll filed a complaint on July 13, 2005, against appellants in the Circuit Court for Baltimore County to specifically enforce the option, and additionally, claimed that appellants were enriched unjustly by expenses 3 incurred by appellee in obtaining permits and approvals for an access road to the land at issue. ³⁴⁷ Prior to trial, appellee withdrew all claims excepting specific performance. That trial commenced on December 11, 2006, without a jury.

On December 12, the Circuit Court granted appellee specific performance, but no written judgment was filed. On December 19, appellants filed a Motion to Amend Judgment pursuant to Maryland Rule 2-534, requesting that the court clarify the date on which appellee exercised the option to purchase the land at issue. Additionally, appellants requested that the court state the terms and time frame for them to convey the land at issue. Accordingly, on January 9, 2007, the Circuit Court for Baltimore County ordered appellants to convey the land on or before April 4, 2007, subject to their right to appeal.

Appellants exercised that right by filing a timely notice of appeal from both the judgment entered on December 12, 2006, and the order filed on January 9, 2007. On our own initiative, we issued a writ of certiorari before the case was heard in the Court of Special Appeals to determine whether Maryland law requires the timely exercise of an option contract in strict accord with its terms. Elderkin v. Carroll, 400 Md. 646 , 929 A.2d 889 (2007). Question Presented “Does Maryland law require the timely exercise of an Option in strict accord with its terms, and, if so, did Mr. Carroll comply with those requirements?” We shall hold that the failure to deliver a required deposit check to the seller along with the contract, constituted a material failure to comply with the terms of the option agreement, and consequently resulted in a failure on the part of appellee to successfully exercise the option.

I. Facts The facts of this case are largely undisputed. Appellee desired to purchase a 63 acre tract owned by appellants. That tract was described as two separate lots; the “Front Lot,” consisting of 18 acres of improved land with direct access to ³⁴⁸ Greenspring Valley Road and/or Stevenson Road, and the “Back Parcel” 4 which consisted of 45 acres of unimproved land that had no direct access to the roads. Ultimately, 5 appellants and appellee came to an initial agreement for the purchase of all the land, for a total of $8 million, in two stages.

The Front Parcel (the Front Lot) was sold for one million dollars. That initial contract of sale included a reference to the Back Parcel, which stated: “Sellers agree to [sign] a standard contract to sell the 45 acre remaining tract to the Buyer for a period lasting until June 30th, 2005. Buyer will attempt to obtain a contract from a third party to purchase this tract for a price of $2 million (net to seller)____” The first sale closed on April 15, 2005, and appellants conveyed the Front Parcel to appellee for $1 million. At closing, appellee was presented with an amendment which the parties believe granted him an option (the second contract) to purchase the Back Parcel.

It stated, in relevant part: “(c)(1) For the consideration to be outlined in subparagraph (7) below, which consideration shall be in addition to the purchase price for the Option Property (the “Option Property” is that parcel of ground [referred to as the Back Parcel]) in the event this option to purchase is exercised, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. “(2) The Seller offers to sell and convey to the Buyer and hereby grants to the Buyer the exclusive, assignable, and ³⁴⁹ irrevocable option to purchase the Option Property ... subject to the terms and conditions set forth herein and in the form of a standard Maryland Board of Realtors contract of sale to be hereafter executed, pursuant to which the Seller must receive net proceeds of no less than Two Million Dollars after satisfaction of all costs, expenses, fees, and other deductions relating to the sale and closing on the [Back Parcel].... “(3) The Buyer’s option to purchase the Property must be exercised by the Buyer on or before June 30, 2005. If the option to purchase is not exercised on or before that date, this option to purchase shall automatically cease and terminate, neither party shall have any further rights hereunder, at law or in equity, and the Agreement shall be null and void, all without further action or documentation by either party, unless otherwise agreed to by all parties. Closing under the Contract of Sale must be set forth no later than ninety days from the date of contract execution. The date of option expiration shall remain confidential, and no party shall disclose said date to any third party during the unexpired option period. “(4) The Buyer’s option to purchase shall be exercised by the timely delivery to the Seller at the Seller’s address (or to the Seller’s attorneys) of two copies of the Contract of Sale duly executed by the Buyer, together with a check payable to the order of the Seller for the amount of the earnest money deposit specified in the Contract of Sale.[ 6 ] Promptly upon receiving the same the Seller shall execute both copies of the Contract of Sale and return one fully executed copy to the Buyer.

The failure of the Seller to execute and return a fully executed copy of the Contract of Sale to the Buyer shall not affect its enforceability and the Contract of Sale shall be binding upon and enforceable ³⁵⁰ against the Seller in the same manner as if it had been executed by the Seller and returned to the Buyer. “(5) In the event that Buyer exercises the Option to purchase within the time and in the manner herein before provided, then thereafter the rights, duties, and obligations of each party with respect to the Property shall be governed by the terms and conditions contained in the Contract of Sale.[ 7 ] “(6) Time shall be of the essence of this Option Agreement. “(7) The consideration paid by Buyer to Seller for this Option shall be as follows. “(A) Buyer shall obtain within the option period at his own effort and expense all necessary permits and other required allowances by Baltimore County, the State of Maryland, and any other relevant regulatory body to build an access road from Greenspring Valley Road to Parcel 362 appropriate for access to residential property to be built on Parcel 362____ “(B) Buyer shall obtain within the option period at his own effort and expense Baltimore County and/or State of Maryland approval that the 50-foot wide access strip contemplated herein shall be owned by Seller in fee simple, whether by lot line adjustment or subdivision____” Appellee’s first attempt to exercise the option occurred when he submitted a new contract in April 2005. This would have been the third contract. It had been drafted prior to the negotiation and signing of the second contract (i.e., the amendment signed on the closing date of the first contract), and consequently, did not comply with the terms of the amendment/second contract. 8 Appellants’ attorney, Mr. Williams, responded to appellee via letter dated May 5, 2005. After ³⁵¹ stating that overall, the new contract appeared to be fíne, Mr. Williams pointed to several failures of the contract, including: (1) the wrongful inclusion of the 50-foot access strip, pursuant to paragraph 14(c)(7) of the second contract; (2) a change in the original purchase price, noted in paragraph 14(c)(2) of the second contract, to include the payment of $100,000 to the buyer’s agent, Heidi Krauss; and (3) the reduction of the purchase price by a $15,000 clean up fee.

In their brief, appellants point to several more deficiencies, including: (1) the non-payment of the $50,000 deposit as required by paragraph 14(c)(4) of the second contract; 9 (2) the failure of the (third) contract to reflect the terms of a standard Maryland Board of Realtors contract of sale as required by paragraph 14(c)(4) of the Amendment. Appellee then asked his realtor, Heidi Krauss, to prepare a standard contract (the fourth contract). After appellee made revisions, he submitted this fourth contract to appellants’ attorney, Mr. Williams, on May 20, 2005. Mr. Williams, replied via letter dated May 24, 2005, noting several deficiencies in appellee’s new attempt to exercise the option, which primarily included an incorrect description of the property that included the 50-foot access strip and unacceptable additional terms.

In appellants’ brief, they note additional deficiencies, including: (1) an incorrect settlement date; (2) the non-payment of the $50,000 deposit, because that “fourth” contract included a paragraph that provided that appellee had delivered a deposit check, in the amount of $50,000, to his agent, Ms. Krauss, payable to Coldwell Banker, to be held in escrow, instead of delivering a check payable to the sellers to them or their attorney; (3) the wrongful inclusion of a financing contingency; (4) addendums that included additional terms of a $15,000 clean up fee, and a provision to make the $50,000 deposit refundable for 45 days. ³⁵² Appellee’s next attempt to exercise the option was delivered to appellants’ attorney on June 23, 2005. While no communication was made to appellee regarding its deficiencies, appellants note in their brief the following: (1) the new contract (the fifth contract) again required a $50,000 deposit to be held in escrow by Coldwell Banker; and (2) unacceptable addenda that were submitted with the new contract, but were crossed out. The first addendum required a $15,000 deposit to be held in escrow for property clean up, and the second addendum accorded appellee the right to form a limited liability company and to convert the contract to transfer of an interest in the limited liability company. It further required that appellants pay their own attorney’s fees for the transaction.

Thereafter, as a result of appellants’ failure to respond to appellee’s numerous communications, appellee retained an attorney. 10 On June 30, 2005, the last day the option could be exercised, appellee and his attorney were able to reach appellants’ attorney, Mr. Williams via telephone. At that time, Mr. Williams informed appellee that he was under no obligation to give an explanation as to the deficiencies of appellee’s third attempt to exercise the option contract. Appellee attempted one final time to exercise his option, and submitted another contract to Mr. Williams (this would have been the sixth contract), along with a copy of the $50,000 deposit check payable to Coldwell Banker, which still was to be held by Ms. Krauss. On July 1, 2005, Mr. Williams sent a letter to appellee’s attorney informing appellee that his attempt to exercise the option was neither unequivocal or in accordance with the terms of the option, and referred specifically to: (1) the failure of appellee to make a cash deposit of $50,000 to the sellers; and (2) an addendum in the sixth contract that included a feasibility study for house site and access within 14 days from contract acceptance.

As noted above, appellee filed a complaint in the Circuit Court for Baltimore County on July 13, 2005. Ultimately, that ³⁵³ court granted appellee specific performance, subject to the appellants’ right of appeal, which was exercised on December 12, 2006, via a Notice of Appeal. Before the case could be heard in the Court of Special Appeals, we issued a writ of certiorari on our own motion. Elderkin v. Carroll, 400 Md. 646 , 929 A.2d 889 .

II

Standard of Review Pursuant to Maryland Rule 8—131(c), the scope of appellate review in cases where an action has been tried without a jury requires the reviewing court to: “review the case on both the law and the evidence. It will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses.” While the judgment of the trial court based on factual findings may only be set aside when “clearly erroneous,” the review on matters of law differ. “The ‘clearly erroneous’ portion of Md. Rule 8—131(c) does not apply to a trial court’s determinations of legal questions or conclusions of law based upon findings of fact.” Southern Mngm’t Corp. v. Kevin Wittes Const. Co., Inc., 382 Md. 524, 539 , 856 A.2d 626, 634-35 (2004). When the ruling of a trial court requires the interpretation and application of Maryland case law, we give no deference to its conclusions of law.

White v. Pines Community Improvement Ass’n, 403 Md. 13 , 939 A.2d 165 (2008); YIVO Institute for Jewish Research v. Zaleski, 386 Md. 654, 662-63 , 874 A.2d 411, 415-16 (2005); Nesbit v. Government Employees Ins. Co., 382 Md. 65, 72 , 854 A.2d 879, 883 (2004).

III

Discussion We have defined an option contract as: “ ‘[A] continuing offer to sell during the duration thereof which on being exercised!by the optionee becomes a binding and enforceable contract.’ ” Straley v. Osborne, 262 Md. 514, 521 , 278 A.2d 64, 68 (1971) (quoting Diggs v. Siomporas, 248 Md. 677, 681 , 237 A.2d 725, 727 (1968); David A. Bramble, Inc. v. Thomas, 396 Md. 443, 455 , 914 A.2d 136, 143 (2007)). To effectively exer ³⁵⁴ cise that option, the acceptance must be: “ ‘unequivocal and in accordance with the terms of the option.’ ” Bramble, 396 Md. at 455 , 914 A.2d at 143 (quoting Katz v. Pratt St. Realty Co., 257 Md. 103, 118 , 262 A.2d 540, 547 (1970)); See Simpers v. Clark, 239 Md. 395, 401 , 211 A.2d 753, 756 (1965) (“[I]t is well settled that the exercise [of an option] must be unconditional and in accordance with the terms of the option.”); Foard v. Snider, 205 Md. 435, 446 , 109 A.2d 101, 105-06 (1954) (“Whatever the option requires must be done.... [T]he exercise must be unconditional and in exact accord with the terms of the option.”). Courts have differed as to the extent the “exact matching” requirement must be applied. A leading case on that issue is Katz v. Pratt St. Realty Co., 257 Md. 103 , 262 A.2d 540 .

There, the parties both owned common stock in The Pratt Street Company. In an attempt to facilitate the dissolution of that company, they entered into a mutual option agreement to purchase certain parcels of land owned by that company. The first option allowed for the purchase of a parcel on Portland Street and a group of other combined properties. The second option allowed for the purchase of the Portland Street property or the combined properties.

The optionee, in a timely manner, attempted to exercise the second option, which allowed only for the purchase of one property—the Portland Street parcel—but reserved the right to purchase the combined properties. In determining whether that was a permissible exercise of the option, we stated: “If the exercise of the option is positive and unequivocal, the inclusion of an inquiry, a request for an additional benefit, a suggestion of a modification will not invalidate an acceptance if it is clear that the acceptance is not conditioned on the granting of the request. What the [optionee] did in their [attempt to exercise the option] was to add not a condition, but a completely extraneous comment covering their interpretation of the [option agreement]”. Katz, 257 Md. at 119 , 262 A.2d at 548 .

A later case discussing the “exact matching” requirement is Beckenheimer’s Inc. v. Alameda Associates Ltd. P’ship, 327 ³⁵⁵ Md. 536, 611 A.2d 105 (1992). The optionee was a sublessee for a food supermarket premises in a shopping center that had originally been leased to Acme, who in turn had a priority lease with Alameda Associates. In order to exercise its option to renew, the optionee was required to give 120 days notice, that the optionee not be in default, and that: “ ‘the net worth of [the optionee] on the date of such notice (as evidenced by the most recent certified financial statements of [optionee] which shall be included with such notice) is at least equal to the net worth of [the optionee] on the date hereof’ ” Beckenheimer’s Inc., 327 Md. at 540 , 611 A.2d at 107 . The optionee gave a timely notice of renewal, but failed to include a statement of financial worth.

As a result, Acme, the optionor, informed the optionee that it considered the lease expired, since the notice of renewal did not comply with the terms of the sublease. The trial court in that case granted summary judgment, finding that the optionee had failed to renew the sublease validly. On appeal, this Court noted that actual condition of renewal of the sublease required a specified net worth of the optionee, and that the provision requiring a certified statement of net worth was for the optionor’s convenience in determining that net worth. Further, the term “certified financial statements” was ambiguous at best.

It therefore made a distinction between “conditions,” which would have to be fulfilled prior to renewal (or exercising the option) and “covenants,” which, if not matched exactly, would not necessarily bar renewal. As a result, we concluded: “The breach by [the optionee] of the covenant to include a financial statement with the notice of renewal is not a material breach. Seemingly, only nominal damages are involved as compensation for the breach. Inasmuch as the three express conditions precedent to[optionor’s] contractual duty to renew have been fulfilled, equity could specifically enforce the covenant to renew.” (Footnote omitted.) Beckenheimer’s, 327 Md. at 555-56 , 611 A.2d at 114 .

It is, however, an important distinction that in Beckenheimer’s, the Court was reviewing the case to test the strength in favor of ³⁵⁶ the summary judgment granted by the trial court. That standard does not apply to the case at bar. Most recently, in the case of David A. Bramble, Inc. v. Thomas, 396 Md. 443 , 914 A.2d 136 , while we specifically did not decide whether an option holder must “match literally all the terms in the triggering offer in order to exercise its right____” Id. 396 Md. at 460 , 914 A.2d at 146 , we did state: “Maryland requires generally the literal matching of terms in cases involving the formation of binding contracts----” Id. Additionally, however, we noted that even in jurisdictions where an option holder is required to match exactly the terms of a triggering offer, and where a lack of materiality of omitted terms is no defense, there remain three exceptions to that rule: “(1) the property owner may waive exact matching, either through actions or express waiver; (2) proper names need not be matched ... and (3) the property owner, for the purpose of discouraging the holder of the preemptive right of first refusal, may not insert into the triggering offer terms which it[] knows will be repugnant to the holder.” Id. 396 Md. at 462 , 914 A.2d at 147 .

These cases seem to illuminate particular inquiries that must be made in determining whether the exercise of an option is valid: (1) is the acceptance in accordance with the terms of the offer? (2) Do the non-matching terms fall under any of the exceptions enunciated in Bramble? (3) Where the terms are not in accordance, was it merely an “additional term” that could be rejected by the optionor or was it a non-material covenant rather than a condition? In the instant case, we shall examine the relevant contracts submitted by appellee to answer these questions.

Contract No. 3 (the first attempt to exercise the option) The first defect alleged by appellants in their brief is the property description, which wrongfully included the 50- ³⁵⁷ foot access strip. 11 In the Contract of Sale and its Amendment (the second contract), supra, the property description specifically excluded that 50-foot access strip. To the extent that the 50-foot access strip specifically was excluded from the option property, it was a condition of the option, i.e., the property being sold was everything in the 45 acre tract except the 50-foot access strip. Where that term was added by appellee when he later attempted to exercise his option, it could not be simply an “additional term,” which could have been rejected by appellant. As such, when appellee attempted to include it he did not satisfy a condition of the sale.

The second defect was the change in the purchase price to reflect payment of appellee’s obligation to Ms. Krauss. Appellants objected. The purchase price was a material term in the contract. “[T]he purchase price is an essential term of any land sale contract.” Bramble, 396 Md. at 459 n. 12, 914 A.2d at 146 n. 12. It therefore should have been matched exactly.

Another, similar defect alleged by appellants was a reduction in the purchase price by a $15,000 “clean up” fee. Given its location in the contract, i.e., it was not included as an addendum, but rather was referred to in the “Purchase Price” section of appellee’s first proposed contract (the third contract), this was a change in the purchase price, which again would be a material change (as contrasted with Contract No. 4, infra). The primary defect, and the defect that we shall hold to be the ultimate failure with every attempt (all the proposed contracts/exercises) on behalf of the appellee to exercise the option, was a failure on the part of the appellee to submit a deposit to the seller, payable to the seller, with the Contract. In his attempt to exercise the option, appellee included a clause that required him to pay the deposit within five days of the contract.

As the option required that the deposit be ³⁵⁸ submitted with the contract as a condition of sale, this was a material omission on the part of appellee. The fourth alleged defect was the form of the Contract. The Amendment to the Contract, i.e.,