Recently, a Bucks County judge had cause to interpret the Maintenance & Risk of Loss paragraph in the PAR Agreement of Sale. In the underlying transaction, the Buyer contracted to purchase real estate from an estate with a settlement date of February 27. As fortune (or misfortune) would have it, the house suffered a catastrophic fire on January 30, effectively destroying it. Due to concerns surrounding the origin of the fire, the insurance company delayed payment on the claim.

Because of the delay in paying the claim, the Seller requested first one, then a second extension of the settlement date. The Buyer agreed to these requests, and settlement was rescheduled to April 15. Having not heard from the insurance company, the Seller’s attorney sent a letter to Buyer on April 12 in which he stated:

“The estate has done all it can to accommodate this sale, but I believe we are past the point of being able to close by April 15 under this agreement. I am not authorized to grant any further extensions. If your client wishes to make a new written offer on the property ‘as is,’ the [Seller] would be pleased to consider this offer.”

Also on April 12 and unbeknownst to the Seller, the insurance company issued a proceeds check for the full amount of the purchase price agreed upon by Buyer and Seller, as reflected on the Agreement of Sale. Buyer still wanted to purchase the property and did not respond to Seller’s attorney’s letter. When Buyer sought to enforce the Agreement of Sale after the Seller had received the proceeds check, the Seller asserted that the Agreement terminated by its terms because the settlement date of April 15 had passed.

The Buyer sued the Seller for specific performance on the Agreement. The trial court rejected the Seller’s argument that the Agreement was terminated by its terms, instead ordering the sale of the property to close. Part of the rationale behind this decision was based on the court’s ruling that Pennsylvania law requires notice terminating a contract to be clear and unambiguous. The court found that neither the Buyer nor the Seller clearly and unambiguously terminated the Agreement. In conjunction with this holding, the court also held that once a Seller requests and receives an extension of time, the Seller cannot later terminate the Agreement without reasonable notice to the Buyer.

The court then proceeded to interpret the Agreement. To ascertain the parties’ intent, the court first examined the written Agreement. The court prefaced its analysis by identifying that if there is an ambiguity within the Agreement, it would then examine the outward and objective manifestations of the parties in order to ascribe the “most reasonable” interpretation of the contract, keeping in mind what the Agreement sought to accomplish. In this instance, the court determined that the Agreement was clear and unambiguous. Specifically, Paragraph 23 reads as follows:

23. Maintenance & Risk of Loss.

(C) Seller will bear risk of loss of fire or other casualties until time of settlement. In the event of damage by fire or other casualties to property included in this sale that is not repaired or replaced prior to settlement, Buyer will have the option of rescinding this Agreement and promptly receiving all monies paid on account of purchase price or of accepting the property in its then condition together with the proceeds of any insurance recovery obtained by Seller. (Emphasis added).

The court concluded that the language of the Agreement unambiguously expressed the parties’ intent that the Buyer had the right to purchase the property and to receive the proceeds from the insurance company. Because neither party terminated the Agreement, the court ordered the Seller to complete the transaction.

Brett Woodburn is an attorney with Caldwell & Kearns, and serves as general counsel to PAR. A substantial portion of Mr. Woodburn’s practice is dedicated to representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He is also one of the voices of the Legal Hotline. To see the other members of Caldwell & Kearns and the Legal Hotline visit www.caldwellkearns.com.