Leet v. Totah

RODOWSKY, Judge. In this action alleging breach of a contract to sell land by the vendors’ refusal to convey, the purchaser obtained judgment for $15 million in expectation interest damages. A contract provision limited the purchaser’s remedies for the vendors’ default, “including failure to make full settlement,” either to specific performance or to rescission and return of the purchaser’s deposit. The circuit court ruled as a matter of law that the provision limiting remedies was void, as contrary to public policy, or, if not per se void, that the provision was inapplicable under the facts of the instant action.

Following the vendors’ appeal, this Court granted certiorari on its own motion to review that legal ruling. The property involved is approximately 417 acres of farm land (the Property) in the Germantown area of Montgomery County. The vendors and appellants are Harry M. Leet (Leet) and Helen A. Leet, husband and wife (the Leets). Leet, a member of the New York and Ohio bars, moved to Montgomery County in 1949, where he has become a real estate investor.

Leet acquired the Property by two conveyances, one a deed to Leet of November 12, 1958, and the second a deed to Leet, as Trustee, of February 5, 1973. The total, original investment was approximately $430,000. By deed dated June 22,1982, Leet had conveyed a portion of, or interest in, the Property to Helen A. Leet. The appellee, Sami E. Totah (Totah), is a real estate developer who has conducted that business in Montgomery County and in other jurisdictions. 1 Totah, as purchaser, and the Leets, as vendors, executed the original contract for ⁶⁴⁹ the purchase and sale of the Property on December 28, 1984, at which time Totah paid a $100,000 deposit. 2 The original contract was modified by a number of written addenda.

Insofar as appears from the record, the parties negotiated, drafted and executed the original contract and the addenda without the counsel of any member of the Maryland bar. Under the contract the Property was not to be conveyed as an entire tract. In their contract the parties contemplated that Totah would formulate a plan of development for the Property that would be approved by public authority. The total purchase price was based upon the number of dwelling lots or units actually approved, and Totah was to settle incrementally, by groupings of approved lots, over a period of up to nine years after settlement on the first lots that he acquired.

The date of the first settlement depended on approval by appropriate public authorities of rezoning, of the preliminary plan of subdivision, and of final engineering for the first grouping of lots, and on notice to proceed under a public contract for water and sewer service. A preliminary plan was to be submitted within 180 days from December 28, 1984. The outside date for obtaining all of the approvals, absent extension at the vendors’ option, was December 31, 1988, four years from when the contract was signed. Absent the required approvals at that time, either party had the option to declare the contract void, in which event the deposit would be refunded to Totah.

The contract set the price to the Leets of a single family lot at $11,500, of a townhouse lot at $9,000, and of a MPDU (Moderately Priced Dwelling Unit) at $100. These prices were subject to adjustment for inflation measured by the United States Bureau of Labor Statistics National Consumer Price Index. Under the then extant 1974 master plan for ⁶⁵⁰ Germantown, and under the then applicable R-200 zoning of the Property, the parties contemplated that the Property would produce approximately 1,500 lots. The contract set $14 million as the minimum total purchase price of all of the approved lots.

Because Leet did not want to wait until the first of the contemplated series of settlements to find out whether Totah had any objections to the title, the contract required title examination to be completed within 120 days following execution of the contract. The contract then provided: “[TJitle at that time is to be good of record and in fact, marketable and fully insurable by a title company at regular rates, without exception, or the sale is to be declared off at the option of Purchaser and deposit returned, unless the defects are of such character that they may be remedied by legal action within a reasonable time, but the Seller and Agent are hereby expressly released from all liability for damages by reason of any defect in the title, except due to act or omission of Seller subsequent to date of this Contract. From the date of acceptance of the conditions of the contract by Purchaser, Seller shall take no action ... which will result in any additional change to the Title or any additional encumbrance, easement, restriction, covenant, or condition on the property without the prior written consent of Purchaser.” We shall hereinafter refer to the above-quoted provision as the “Title Warranty Clause.” With respect to possible defaults, the contract contained the following provisions: “If Purchaser shall default under this Contract of Sale, the balance of the Good Faith Deposit and accrued interest thereon, shall be paid to Seller, ... this Contract of Sale shall terminate and the parties hereto shall be released from further liability or obligation to the other. “If Seller shall default under this Contract of Sale, including failure to make full settlement pursuant to the terms hereof, Purchaser, at its option, may (i) direct that ⁶⁵¹ the balance of the deposit with interest thereon be paid to Purchaser, the Contract terminated and each party relieved of further liability or obligation to the other, or (ii) seek relief in the courts to require specific performance. Seller shall not be liable for money damages for any default hereunder. “In the event of default under this Contract of Sale, the non defaulting party agrees to provide at least thirty (30) days’ written notice from date of notice of default for the defaulting party to cure the default.” We shall hereinafter refer to the second of the three above-quoted paragraphs as the “Remedies Limitation Clause.” It is the clause on which the Leets exclusively rely in seeking a reversal of the money judgment entered against them.

Totah assembled land planners, engineers, and legal counsel to address preparation of a plan of development for the Property. By April 17, 1985, it had become evident to both parties that the maximum lot yield from the Property would be less than initially contemplated. On that date the parties reduced their projection of the number of lots that the Property would yield to 1,024. The minimum total purchase price was reduced accordingly to $10 million.

The “outside date for obtaining all the approvals” was extended to December 31, 1989, and Totah obtained an option further to extend that date to December 31, 1990, by paying an additional deposit of $50,000 in cash. The parties further agreed that Totah’s “obligation to submit a preliminary plan ... is hereby delayed to December 31, 1987.” That deadline could be further extended by agreement of “legal counsel for both parties ... that it would be detrimental to the property to submit such preliminary plan by December 31, 1987.” During this period the staff of the Maryland-National Capital Park and Planning Commission was developing its recommendations for a new master plan for the German-town area, and the staff was giving serious consideration to recommending rezoning the Property to require a minimum ⁶⁵² lot size of two acres per dwelling unit. By their fourth addendum, dated March 31, 1986, the parties agreed that if the new master plan showed a minimum yield of 1,000 residential units for the Property, Totah would perform a boundary and topographical survey of the Property within nine months of that plan's adoption. If the yield on the new master plan were less than 1,000 units, Totah would have the option to void the contract and to obtain return of the deposit.

In August 1987, the Staff Draft of the Comprehensive Amendment to the Germantown Master Plan was published. The draft recommended a minimum lot size of two acres per dwelling unit for the Property. Totah nevertheless continued to urge to the planning staff that the Property was appropriate for planned development, a species of floating zone. Totah also continued pursuing his efforts to convince community organizations that his concepts for development of the Property were appropriate.

By mid-December 1987, as the contractual deadline for submitting a preliminary plan was rapidly approaching, Totah’s zoning counsel wrote to Leet, explaining why counsel believed submission of a preliminary plan at that time would not be advisable, and requesting an extension. Leet replied that he would extend the time only if certain changes were made in the contract, including an increase in the minimum price to $16 million. Totah thereupon caused a preliminary plan to be prepared on a highly expedited basis and had it filed on December 29, 1987. Totah’s letter of December 31, advising Leet of that filing, crossed in the mail with Leet’s letter of January 2, 1988, warning Totah that he was in default if the preliminary plan had not been filed timely.

The Planning Commission, in September 1988, issued its final draft of the new master plan. The Commission proposed continuation of the R-200 zoning on the Property, but in addition recommended that it be developed as PD-2, a planned development floating zone. The Montgomery ⁶⁵³ County Council, sitting as the District Council, essentially approved the new master plan in June 1989. Totah, in August 1989, applied for a zoning reclassification to PD-2 for the Property.

The accompanying development plan proposed a mix of single family detached homes and garden apartment units. While the application for zoning reclassification was pending, Totah, on December 8, 1989, paid the Leets $50,000 to extend the deadline for all contractually required approvals to December 31, 1990. Then, by letter to the Leets of December 19, 1989, Totah called for settlement on the entire Property to be held on December 27, 1989, at which time Totah would pay the minimum total purchase price of $10 million. Calculations enclosed with the letter undertook to demonstrate that the maximum number of single family dwelling units and of MPDUs, either under the then existing R-200 zoning or under the proposed PD-2 zoning, would produce, at the stipulated prices, after cost of living adjustments, a total purchase price less than the minimum $10 million.

Totah took the position that all unfulfilled conditions of the contract were for his benefit, and that he waived those benefits. The Leets replied through counsel, who became trial counsel in this action. 3 Their reply referred to Totah’s purported breaches and to failures to satisfy conditions. The Leets spoke of the dramatic appreciation of the Property during the period it had been under contract. 4 The letter concluded: “Mr. and Mrs. Leet hereby cancel the contract unless you notify us forthwith that you will agree to adjust the price equitably.” ⁶⁵⁴ Totah filed this action on December 28, 1989, one day after the date he had specified for settlement. 5 In addition to suing the Leets, Totah’s complaint also joined the Leets’ three adult children as defendants. This was because the Leets had conveyed undivided interests in the Property to their children after Totah had completed the title examination made within 120 days following the signing of the contract.

One deed is dated December 31, 1986, and a second is dated January 14, 1987. Each deed is from Leet, “Donor,” to his three children, “Donees.” Each deed reads in relevant part: “WITNESSETH, that in consideration of the love and affection Donor has for Donees, Donor does hereby give, grant and convey to Donees in equal shares an undivided twelve (12) acres of Donor’s portion of [the Property], being part of the same land which was conveyed to Harry M. Leet by deed dated November 12, 1958____ “Helen A. Leet, wife of Donor, consents to and joins in this deed, for the purpose of releasing her marital estate in the property conveyed, and otherwise as may be pertinent.” Leet testified that the interests conveyed were gifts to his children and were intended to take advantage of the maximum annual gift tax exclusion. He testified that, in concentrating on estate planning, he simply forgot that the contract with Totah provided that “Seller shall take no action ... which will result in any additional change to the Title.” After a battle of motions, the recounting of which would be both unnecessary and painful, the case was at issue on Totah’s consolidated amended complaint and the defendants’ answer and request for jury trial. Count I of the complaint, with which we are principally concerned here, ⁶⁵⁵ alleged breach of contract by the Leets in failing to convey after settlement had been called for by Totah.

Under Count I Totah’s requests for relief claimed (1) $100 million in damages from the Leets and (2) specific performance by the Leets and by their children. Count II of the complaint alleged breach of the Title Warranty Clause by the gifts to the children. The Count II requests for relief claimed (1) damages from the Leets and (2) specific performance by the Leets, but not by their children. 6 While the action was awaiting trial, Totah’s counsel, by letter of November 29, 1990, informed the Leets’ counsel that the financing commitment secured by Totah to purchase the Property was to expire on January 31, 1991. Totah had paid his bank $15,000 to extend to the 1991 date the financing commitment under which funding for the December 27, 1989, closing was to have been obtained.

As the trial date in this action approached, more motions were filed. Two days before trial the circuit court held a hearing on all pending motions. At that time counsel for Totah directly addressed the Remedies Limitation Clause by making, as described in the docket entry, “plaintiff’s oral motion in limine as to damage clause.” Counsel submitted that it was “essential” that the court rule on the Remedies Limitation Clause before the trial began saying: “[I]f I know that I am faced with a contract that gives me no damages whatsoever under the circumstances of this case, I ought to know that at the beginning of trial, not the end.” After extended argument, the court ruled that “the damage ⁶⁵⁶ waiver does not apply ... [t]o any count.” The docket entry records that the oral motion in limine was granted. Prior to proceedings before the jury on the first day of trial, counsel and the court returned to the subject of the Remedies Limitation Clause.

Totah’s counsel requested the following: “Your Honor, I would like to ask in light of the Court’s ruling that you made that damages can be claimed under all counts, that [defense counsel] be precluded during the opening argument to the jury from describing this ‘you can’t get any damages’ clause and starting to get the jury confused about something that you have already ruled on.” Defense counsel argued that the proper time for instructions was after the close of the evidence. The court ruled: “I am going to instruct them [(the jurors)] as to that [(invalidity or inapplicability of the Remedies Limitation Clause)], but I am going to let him [(defense counsel)] argue it [(the Remedies Limitation Clause)].” In that same colloquy Totah’s counsel advised the court that the claims for relief by way of specific performance were being withdrawn “in light of the ruling” that the court had made two days earlier. 7 In the course of his opening statement, defense counsel referred to a power of attorney to Leet from the children- ⁶⁵⁷ grantees. 8 Totah objected, contending that the circuit court had ruled, pre-trial, that the power of attorney was irrelevant. During the ensuing bench conference, Totah’s counsel further urged the court then and there to advise the jury of the court’s ruling on the Remedies Limitation Clause, but the court adhered to its decision to instruct at the end of the case. Defense counsel concluded his opening statement by telling the jury that “the key to getting the right answer in this case [is to] find it in the contract.” Again Totah’s counsel objected and, at the bench, requested an immediate instruction that the Remedies Limitation Clause had been ruled out of the case.

The court deferred until after the luncheon recess. After reconvening, but out of the presence of the jury, the parties again presented their arguments pro and con. When the jurors reentered the courtroom the court advised them that it had “ruled as a matter of law that the provision ... stating that the seller shall not be liable for money damages for any default hereunder was void as a matter of law. You will not consider that as a part of the contract.” Substantially the same instruction was included in the court’s charge to the jury at the conclusion of all of the evidence.

The jury returned a verdict in favor of Totah for $15 million, representing the market value of the Property at the time of settlement, less the contract price. That verdict was on Count I. Under the court’s instructions, and because the jury found that the damages awarded under Count I fully compensated the plaintiff, no verdict was rendered on Count II, alleging breach of the Title Warranty Clause, or on any other count submitted to the jury. ⁶⁵⁸ This appeal followed. The Leets argue but one point, namely, that the circuit court erred in ruling the Remedies Limitation Clause out of the case as a matter of law. In support of the ruling Totah’s arguments may be condensed into three substantive points: (A) The more general Remedies Limitation Clause does not apply to the breach of the more particular Title Warranty Clause; (B) Limitation of damages for this intentional breach of contract is unconscionable and contrary to public policy; and (C) The remedy may not be limited to specific performance where the seller has thwarted that contract remedy by deliberately clouding the seller’s own title.

Procedurally, Totah argues that the Leets failed to preserve the claimed error for appellate review because no exceptions were taken following the court’s instructions to the jury concerning the Remedies Limitation Clause. I The Remedies Limitation Clause could not be more plain. The judgment for $15 million representing the loss of the benefit of the bargain directly conflicts with the provision that the “[sjeller shall not be liable for money damages for any default hereunder.” If the quoted provision operates, the judgment must be reversed. We turn then to Totah’s reasons why the clause does not operate.

A Totah’s first argument is based on a construction of the contract. The contract contains two provisions limiting damages, one in the Remedies Limitation Clause and the other in the Title Warranty Clause (“Seller and Agent are hereby expressly released from all liability for damages by reason of any defect in the title, except due to act or omission of Seller subsequent to date of this Contract.”). The Leets also agreed to “take no action ... which will result in any additional change to the Title.” This covenant was breached, Totah submits, by the conveyance to the Leets’ children. Totah further submits that, because the ⁶⁵⁹ Title Warranty Clause is the more particular of the two clauses dealing with limitations of damages, breaches of the covenants relating to title are not governed by the more general Remedies Limitation Clause.

Within the Title Warranty Clause, a post contract, unauthorized “change to the Title” is not protected by any limitation of damages. Accordingly, Totah concludes, the breach that changed the title is fully compensable, unlimited by either clause. The argument is irrelevant to the case presented on this appeal. Thé judgment appealed from was rendered on Count I, alleging a total breach by the Leets through their failure to settle.

The Leets unsuccessfully defended against that claim, within the strictures of the circuit court’s ruling on the Remedies Limitation Clause, by contending that conditions precedent to the vendors’ obligation to convey had not been satisfied, and by contending that one or more breaches by Totah excused the vendors’ duty to perform. But the jury returned no verdict on Count II of the complaint, so that there is no fact-finding whether the Leets substantially breached the Title Warranty Clause. There was never any determination whether, had the Leets gone to closing, they could have produced good title, through the cooperation of their children, as they contended they could. Although the evidence is undisputed that the conveyances to the children were made, that breach would be merely incidental if it were cured by the time of closing.

Thus, it is presently immaterial whether the Title Warranty Clause applies to the breach alleged in Count II, to the exclusion of the Remedies Limitation Clause. The conclusion, either way, on that issue does not prevent the plain words of the Remedies Limitation Clause from applying to the claim asserted in Count I on which judgment was rendered. B Totah’s public policy argument characterizes Leet’s conduct as unconscionable and in bad faith. Totah emphasizes these factors: ⁶⁶⁰ “(1) attempting to extract from Totah sums vastly in excess of the contract price, (2) deliberately disabling himself from conveying the Property by unauthorized conveyances to his children, and (3) persisting in his default for such a protracted period of time that Totah’s ability to perform expired together with a loan commitment that simply could not be renewed.” Brief and Appendix of Appellee at 21. 9 Totah places principal reliance on the language, emphasized below, from the opinion by Judge Levine for this Court in Maryland-Nat’l Capital Park & Planning Comm’n v. Washington Nat’l Arena, 282 Md. 588 , 386 A.2d 1216 (1978). “[U]nless clearly prohibited by statute, contractual limitations on judicial remedies will be enforced, absent a positive showing of fraud, misrepresentation, overreaching, or other unconscionable conduct on the part of the party seeking enforcement.” Id. at 611 , 386 A.2d at 1231 (emphasis added).

The Remedies Limitation Clause is the product of arms length bargaining between two sophisticated businessmen, Totah and Leet. The evidence shows that the writing was typed in Totah’s office. The provision could not have come as a surprise to Totah. Further, there is mutuality between the Remedies Limitation Clause, dealing with a default by the vendors, and the clause which deals with a default by the purchaser.

In the latter event, even if the Property had declined in value below a determinable total purchase price, or below the minimum purchase