Matthew 2535 Prop. v. Denithorne

313 A.3d 223

MATTHEW 2535 PROPERTIES, LLC

v.Richard E. DENITHORNE and Priscilla F. Denithorne, Appellants

No. 285 EDA 2022

Superior Court of Pennsylvania.

Argued December 7, 2023

Filed March 15, 2024

Appeal from the Judgment Entered March 4, 2022, In the Court of Common Pleas of Carbon County, Civil Division, at No(s): 18-1411. Steven R. Serfass, J.

Lindsey M. Cook, Lancaster, for appellant.

Erika A. Farkas, Bethlehem, for appellee.

Leo V. DeVito Jr., Bethlehem, for appellee.

BEFORE: PANELLA, P.J., LAZARUS, J., STABILE, J., DUBOW, J., KUNSELMAN, J., NICHOLS, J., MURRAY, J., McLAUGHLIN, J., and KING, J.

OPINION BY KUNSELMAN, J.:

I. Introduction

[1] This case involves the sale of a restaurant which burned down after the parties signed a sales agreement but before they closed on the deal. A court of equity ordered specific performance¹ – namely, that the owners of the now-vacant land, Richard and Priscilla Denithorne (Sellers), transfer legal title to Matthew 2535 Properties, LLC (Buyer). The court directed Buyer to pay the purchase price of $400,000, minus the value of insurance proceeds that a third party received following the fire. On appeal, Sellers challenge the finding that they breached the sales agreement and the order of specific performance. We affirm the finding of breach, but we vacate and remand for a new trial on what the order of specific performance should be.

II. Factual & Procedural Background

Sellers purchased the subject property in 1992 for their sons (Vincent, Michael, and David Denithorne) to run a restaurant. The three sons formed Denithorne Brothers, Inc. That corporation rented the property from Sellers and held a liquor license. Denithorne Brothers, Inc. closed the restaurant in early 2017.

Thereafter, Catherine Jaindl-Leuthe and her fiancé expressed interest in purchasing the property. See N.T., 6/2/20, at 7-8. Ms. Jaindl-Leuthe formed Matthew 2535 Properties, LLC to acquire the property. She formed a separate company, Good Spirits, LLC, to acquire the liquor license from Denithorne Brothers, Inc. and the restaurant equipment and inventory from Sellers.

Over several months, the parties engaged in counseled negotiations. On January 13, 2018, the parties signed a sales agreement for the real estate at a purchase price of $400,000. See Trial Ex. P-2 at 1, ¶ 3. They set the closing for April 30, 2018 but gave Buyer two optional extensions of 30 days, with the contract terminating on June 30, 2018. See id. at 1-2, ¶ 4(a).

Paragraph 16 of the agreement, "Risk of Loss/Condemnation," provided, "Seller[s] shall bear all risk of loss until closing and shall deliver the property in its current condition as of this date." Id. at 7, ¶ 16. In the event of damage to the property, Paragraph 16 further stated, "Seller[s] shall [(1)] coordinate any remediation of casualty with Buyer or [(2)] arrange for the provision of the funds for remediation at closing and may leave the property in its damaged condition if the proposed insurance settlement is acceptable to Buyer." Id. Finally, it required the parties to "cooperate and coordinate any remediation or assignment of proceeds to achieve the desired result of the Buyer without added cost to Seller[s]." Id.

On March 17, 2018, the restaurant was destroyed by a fire.

Nonetheless, Buyer wished to proceed with the sale. See N.T., 6/2/20, at 14, 16. Buyer expected Sellers "would get in touch" and the parties would "work out together how they would remediate the property or if [Buyer] could accept the property in its then-condition with any funds to … take the property back to where the restaurant was." Id. at 18.

Buyer made several requests to discuss the next steps and exercised its right to extend the closing date to give Sellers more time to coordinate remediation efforts. Sellers never met with Buyer to coordinate those efforts. Eventually, Buyer’s attorney wrote to Sellers’ attorney to set the closing for June 29, 2018. The letter also demanded Sellers assign to Buyer the proceeds from the insurance on the restaurant. See Trial Ex. P-6. Buyer’s attorney advised Sellers that Buyer was "financially ready, willing, and able to go to closing on the property." N.T., 6/2/20, at 19.

Buyer assumed Sellers were insured or that they chose to be self-insured. Id. at 27. Buyer later learned that Sellers had no insurance. Importantly, Denithorne Brothers, Inc. had insurance on the restaurant, but that corporation was not a party to the sales agreement. Because Sellers had no insurance proceeds to assign to Buyer, they refused to appear at the closing on June 29^th.

Buyer sued Sellers for breaching the sales agreement and asked the trial court for specific performance. Buyer did not name the sons or Denithorne Brothers, Inc. as defendants.

The matter proceeded to a bench trial, and Buyer presented evidence of the above facts. When counsel for Buyer asked one of the Sellers how much insurance proceeds Denithorne Brothers, Inc. received after the fire, Sellers’ attorney objected. She argued:

I don’t think [the court of equity should] consider the equities [as Buyer contends]. What [the court should] consider is the actual cost for remediation. And we need an appraisal, or we’re going to need a contractor’s proposal. The amount of the insurance money is not relevant. What we need to figure out, if [the court] is going to order remediation, is how much remediation would be, and there is no evidence of that.

Id. at 57. The court sustained Sellers’ objection.

In presenting their defense, Sellers testified to receiving a written, post-fire offer on the property from CNJ Holdings for $375,000. However, this offer included the liquor license, and no representative of CNJ Holdings testified as to the breakdown of the offer, See id. at 74-75.

The parties filed proposed findings of fact and conclusions of law, along with supporting memoranda of law. Eventually, the court issued an opinion and equitable decree in favor of Buyer.

The court found that the phrase "without added costs to the Sellers" in Paragraph 16 of the sales agreement was ambiguous. See Opinion and Order, 7/9/21, at 11. Because neither party had offered parol evidence to clarify the ambiguous phrase, the court found itself forced to rely on the other sentences of Paragraph 16 to interpret the contract. In its opinion, the plain language of those sentences clearly and unambiguously placed the risk of loss on Sellers until closing. Thus, the sales agreement required Sellers to deliver the property to Buyer "in its current condition," as of January 13, 2018. Id. at 11-12. Because Sellers failed to do so, the equity court found them to be in breach.

The court ordered specific performance of the contract at the purchase price of $400,000, "minus the amount of insurance proceeds paid to Denithorne Brothers, Inc. for the loss of the restaurant structure, excluding therefrom any amount paid for the loss of equipment and inventory contained within the structure." Id. at 16-17. The court considered this to be equitable, given the unique circumstances of this case.

It offered the following rationale for the order of specific performance:

because there was no testimony or evidence presented as to the value of the damaged and destroyed restaurant, the insurance proceeds provide the best estimate as to the true value of that structure … [Buyer] is, in effect, receiving the value of the insurance settlement as negotiated by the parties in the event of a loss and a failure to remediate on the part of [Sellers].

Id. at 14-15.

Sellers sought post-trial relief, which was denied. This appeal followed. Initially, in a split decision, a three-judge panel of this Court reversed and granted judgment to Sellers, as a matter of law.² Buyer asked for reargument before this Court en banc, which we granted.

III. Analysis

Sellers raise the following four claims of error on appeal:

1. Whether the [equity] court erred in determining that Sellers breached the agreement of sale, where the agreement provided that in the event of a loss, the Sellers were only obligated to coordinate remediation if they could do so without added cost to themselves?

2. Whether the [equity] court erred in determining that Sellers breached the agreement of sale where the agreement provided that settlement was to occur on or before June 30, 2018, but Buyer refused to proceed with the sale on or before that date?

3. Whether the [equity] court erred in granting specific performance where the order led to an inequitable result and failed to properly assess the value of the property?

4. Alternatively, whether the [equity] court erred in valuing the property as the purchase pince less "the amount of insurance proceeds paid to Denithorne Brothers, Inc. for the total loss of the restaurant structure, excluding therefrom any sum paid by the insurance company for the loss of personal property contained within the restaurant" where the only evidence submitted at trial was that the property’s post-fire value was $375,000?

Sellers’ Brief at 2 (capitalization removed). We address each issue in turn.

A. Whether Sellers Breached

[2] First, Sellers contend the equity court erroneously interpreted Paragraph 16 of the sales agreement when it found them in breach. Although Paragraph 16 provided, "Seller[s] shall bear all risk of loss until closing and shall deliver the property in its current condition as of this date," in their view, that sentence was negated by the clause "without added costs to Sellers," which appears later in the paragraph. Trial Ex. P-2 at 7, ¶ 16.

Sellers claim they were only obligated to coordinate remediation of the property, "if they could do so without added cost to themselves." Sellers’ Brief at 11. According to Sellers, "it is clear by the plain language of the contract that the parties contemplated that [Sellers’] maximum exposure, in the event of loss, would be the amount, if any, of their insurance proceeds." Id. at 14. They "are not able to coordinate...