Many of my more sophisticated clients, for whom I draw contracts, commonly ask if we should put in a provision to require "Binding Arbitration" in the event of a legal dispute.
The idea, in theory, is a good one. Arbitration, it is said, will reduce the legal costs otherwise incurred in court; will produce fairer results less dependent on technicalities and based more on the merits and equities; and will resolve matters more quickly.
I'd sat on the sidelines for a long time and advised against them, primarily from cases I had watched and from my own personal convictions that I was able to use the mechanics of the legal system to obtain a more favorable result for most of my clients.
However, I finally got the benefit of putting Arbitration to the test, recently, when a client of mine got into a dispute with a large commercial contractor over several projects. Each project was governed by a separate contract, each of which provided for binding arbitration in the event of a dispute, and the contractor, pursuant to his rights, demanded binding arbitration. Because the contractor's attorney was a litigator who specialized in construction litigation, and because I did not want my first experience in arbitration to be against an experienced specialist when hundreds of thousands of dollars were on the line, I associated a colleage of mine who was also a construction litigation specialist.
Through the process, I got the opportunity to watch how binding arbitration worked, to see its advantages and disadvantages in action, and now feel more qualified than before to speak about arbitration.
First, my opinion: putting binding arbitration clauses in contracts is still, in my opinion, a bad idea. Arbitration, in my experience, does not adequately deliver on its promised benefits (costs and fairness), while subjecting its participants to a procedure and to rulings that are only loosely bound by a rule of law and, for the most part, are non-appealable.
Next, in the upcoming articles, I will discuss the structure of binding arbitration, its alleged benefits and its drawbacks, and allow the reader to draw his own conclusions. Stay tuned....
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Tampilkan postingan dengan label breach of contract. Tampilkan semua postingan
Minggu, 20 April 2008
Sabtu, 20 Oktober 2007
Real Estate Contracts -- Conclusion
A while back on this blog I wrote about real estate contracts (http://thebusinesslawblog.blogspot.com/2006_12_01_archive.html), and described a lawsuit which I was defending on behalf of a client. We tried the case out last week and, after successfully getting the judge to exclude most of the Plaintiff's evidence, we ended up settling the case for a nominal value (about one percent of what the Plaintiff was asking).
Now that the case is over, I can look back and give some advice to prospective buyers and sellers who find themselves in a contract dispute.
1. To the Buyer: it's rarely worth it to sue over a lost sale. In North Carolina, you've got two remedies of a seller breaches his contract to sell: either get a court order forcing him to sell the proprety to you, or ask for damages.
As for specific performance (the court order), this is great if the Court will do it, but it is what is called an equitable remedy, and the Court, in its discretion,
may not order the seller to convey the property to you. Also, to get this remedy, you have to take certain quick legal steps to tie up the property (called a Lis Pendens) before the seller sells it to someone else. In my case, the Plaintiff attempted to do this, but my clients sold the property too quickly. Therefore, that just left a remedy of damages.
As for damages, they are figured by subtracting the price you would have paid for the property (the contract price) from the actual market price. In other words, you have to argue that you were buying the property for less than what it was really worth. If, however, the seller immediately resells the property (and actually this is often the reason why the seller refuses to sell it to the original buyer), then a buyer will be able to show damages in the amount of the difference between what the property sold for and what the buyer had contracted to buy it for.
In my case, however, the buyer, in addition, attempted to sue for lost profits. My clients sold the property for only $15,000 more than the original price with the Plaintiff. But the Plaintiff claimed he thought it was "feasible" that he could have subdivided it and made $700,000 profit from the sales. The judge felt that testimony was speculative, and would not allow it into evidence.
2. Sellers, don't communicate in writing with the buyer. The Plaintiff/Buyer in my case based his hopes, in large part, on the fact that he'd carried on a string of email conversations with my client long after the closing time had passed. He argued that these conversations (in which closing dates were set and re-set) showed that my clients had waived the closing deadline. I was able to get this evidence excluded (without which the Plaintiff didn't have much of a case), but on appeal (or if the Plaintiff had dismissed his case and re-filed again), I don't know if that ruling would have stood. In any event, had my client not communicated in writing with the Plaintiff, this case probably would never have been filed.
3. Get an attorney to draw the contract. Self-serving, I know. But had I drawn the contract for my clients, I would have put in numerous provisions that probably would have kept this case from ever getting started, such as:
a. A time is of the essence provision.
b. A provision that any extensions of time must require additional earnest money.
c. A larger earnest money deposit.
4. Speaking of earnest money... One final piece of advice: if you're selling a serious piece of property, make sure you have a serious buyer by requiring a serious earnest money deposit. I'm convinced that the Plaintiff/Buyer was someone who was financially unsound and was attempting to "flip" the property with almost no money down. My clients only requested a $1,000 earnest money deposit--on a purchase of $389,000! The company that ultimately bought their property put down $25,000 earnest money, and bought the property in less than 14 days. Had my clients forced the Plaintiff/Buyer to come up with serious money (at least $10,000), he probably would not have been able to, and would have simply walked away, looking for another easy mark.
Now that the case is over, I can look back and give some advice to prospective buyers and sellers who find themselves in a contract dispute.
1. To the Buyer: it's rarely worth it to sue over a lost sale. In North Carolina, you've got two remedies of a seller breaches his contract to sell: either get a court order forcing him to sell the proprety to you, or ask for damages.
As for specific performance (the court order), this is great if the Court will do it, but it is what is called an equitable remedy, and the Court, in its discretion,
may not order the seller to convey the property to you. Also, to get this remedy, you have to take certain quick legal steps to tie up the property (called a Lis Pendens) before the seller sells it to someone else. In my case, the Plaintiff attempted to do this, but my clients sold the property too quickly. Therefore, that just left a remedy of damages.
As for damages, they are figured by subtracting the price you would have paid for the property (the contract price) from the actual market price. In other words, you have to argue that you were buying the property for less than what it was really worth. If, however, the seller immediately resells the property (and actually this is often the reason why the seller refuses to sell it to the original buyer), then a buyer will be able to show damages in the amount of the difference between what the property sold for and what the buyer had contracted to buy it for.
In my case, however, the buyer, in addition, attempted to sue for lost profits. My clients sold the property for only $15,000 more than the original price with the Plaintiff. But the Plaintiff claimed he thought it was "feasible" that he could have subdivided it and made $700,000 profit from the sales. The judge felt that testimony was speculative, and would not allow it into evidence.
2. Sellers, don't communicate in writing with the buyer. The Plaintiff/Buyer in my case based his hopes, in large part, on the fact that he'd carried on a string of email conversations with my client long after the closing time had passed. He argued that these conversations (in which closing dates were set and re-set) showed that my clients had waived the closing deadline. I was able to get this evidence excluded (without which the Plaintiff didn't have much of a case), but on appeal (or if the Plaintiff had dismissed his case and re-filed again), I don't know if that ruling would have stood. In any event, had my client not communicated in writing with the Plaintiff, this case probably would never have been filed.
3. Get an attorney to draw the contract. Self-serving, I know. But had I drawn the contract for my clients, I would have put in numerous provisions that probably would have kept this case from ever getting started, such as:
a. A time is of the essence provision.
b. A provision that any extensions of time must require additional earnest money.
c. A larger earnest money deposit.
4. Speaking of earnest money... One final piece of advice: if you're selling a serious piece of property, make sure you have a serious buyer by requiring a serious earnest money deposit. I'm convinced that the Plaintiff/Buyer was someone who was financially unsound and was attempting to "flip" the property with almost no money down. My clients only requested a $1,000 earnest money deposit--on a purchase of $389,000! The company that ultimately bought their property put down $25,000 earnest money, and bought the property in less than 14 days. Had my clients forced the Plaintiff/Buyer to come up with serious money (at least $10,000), he probably would not have been able to, and would have simply walked away, looking for another easy mark.
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