In 2006, the Thomases contracted to buy a fine new luxury residence at the Montelucia Villas. The contract called for 3 earnest money deposits totalling almost $660 thousand towards the $3.3 Million purchase price. Montelucia sent the Thomases a letter saying it would be prepared to close on May 16, 2008. The Thomases informed Montelucia on May 6, 2008 that they would not perform because of various reasons including Montelucia’s failure to get a certificate of occupancy for the residence. Their letter demanded return of the earnest money. Didn’t happen; and the Thomases sued for its return. The trial court found Thomases were entitled to a refund, but the Arizona Court of Appeals disagreed in THOMAS V. MONTELUCIA VILLAS, LLC (filed March 27, 2012 as no. 1 CA-CV 10-0761).
The Court of Appeals reviewed the contract and concluded that the Thomases’ jumped the gun, because Montelucia had until May 16, 2012 to perform, including obtaining the necessary occupancy certificate. The Court found that at the date of the May 6th letter, Montelucia had not breached the purchase agreement and that its time for performance had not arisen. In other words, the Thomases’ act of declaring the contract “over” was an anticipatory rupudiation of their obligations which rendered the buyers liable. Wait a second, said the Thomases. That’s only true if Montelucia had the ability to perform as Seller under the contract by May 16th.
Wrong, said the Court of Appeals. Once the Thomases repudiated the contract on May 6th, Montelucia was not obligated to get the occupancy certificate or to do anything more under the contract. Problem was, Section 12 of the contract was very specific about defaults and cure periods. The Thomases needed to give Montelucia written notice of its failure to perform, and then allow Montelucia a period of time to cure its deficient performance. Instead, the Thomases just said “it’s over” – walking away from its obligations. The Court found that the May 6th letter unequivocally repudiated the contract – meaning the Thomases refused to perform it any further. So, ironically, the party who believed it was the victim was the party that breached the contract by repudiating its terms.
If you want the other party to perform its contract obligations, you have to read the default provision and follow its instructions to the letter (pun intended). Otherwise, you cannot suspend your performance, and you sure can’t declare the contract terminated. The Thomases gave the Montelucia an opportunity to avoid its obligatuions just because they didn’t give the proper notice and chance to cure to Montelucia. Words in contract text are pretty much interpreted as set forth. Don’t act in haste – then you won’t have occasion to weep, like the Thomases likely did when they read this opinion..