Stockton v. Sowerwine

Brief Fact Summary.

E.O. Sowerwine, III (Plaintiff), an assignee of an option to purchase certain real estate, brought an action alleging that Mark L. Stockton (Defendant), grantee of deed, wrongfully prevented him from exercising the option. Defendant appeals from decision of the district court holding that Defendant exhibited bad faith in preventing Plaintiff from exercising the option and ordered specific performance on the contract.

Synopsis of Rule of Law.

A party may not free himself from liability if he prevents the performance of a condition precedent upon which liability under the contract rests.

Facts.

Plaintiff’s father owned the property which is the subject of this dispute and had numerous financial problems and in order to save his ranch was given $300,000.00 from Defendant to discharge obligations. When Plaintiff received the money, he deeded to Defendant 1,510 acres of the ranch with a one-year option to repurchase 1,505 acres as set forth in an Agreement and Option to Repurchase. The parties agreed that upon exercise of the option Defendant could keep five acres from the 1,510 acres. Plaintiff then alleged that Defendant wrongfully prevented him from exercising the option. Specifically, Plaintiff alleged that Defendant’s actions display a conscious obstructive course of action towards the Plaintiff and his attempts to prevent him from exercising the option have hindered the Plaintiff. The option ran for one year and the purchase price was $303,000.00 plus $20,000.00. Evidence indicated that the land was worth more than one million dollars. Plaintiff’s father had not a
cquired financing and the option was assigned to Plaintiff. Plaintiff applied obtained financing and the following day he told the Defendant that he wanted to exercise the option. He also requested that Defendant provide him with a list of expenses incurred by him and a description of the five acres he wished to retain. Defendant refused to give him the list and refused to tell him which five acres he wanted. A surveyor of the land testified that Defendant told him which five acres he wanted and wanted it surveyed. Defendant along with his attorney also told the Plaintiff, who was not accompanied by counsel, that the option was not assignable and that Defendant could not exercise the option. Since the closing date was approaching and he could not obtain the loan without a description of the five acres, Plaintiff went to another bank for financing, however, the bank that he went to had been contacted by the Defendant and told that it would not be wise to provide Plaintiff with this loa
n due to restrictive covenants on the land. Plaintiff’s application for a loan was rejected. The lists requested by the Plaintiff were necessary to obtain financing and were not given by the Defendant until after the option period had expired. The trial court found that Defendant violated the implied covenant of good faith.

Issue.

Whether the Defendant violated the implied covenant of good faith in an option contract to repurchase certain real estate?

Held.

Yes. Judgment affirmed.
A fundamental principle of contract law is that a promisor may not take advantage of his failure to perform under a contract. If liability under a contract depends on the fulfillment of a condition precedent a person cannot avoid liability by making the condition impossible to fulfill. If the performance of one party is required for the performance of the other party, there is an implied promise by one to perform and for the other to cooperate. This theory is known as the implied covenant of good faith between contracting parties.
Here, it is clear that Defendant tried to hinder the Plaintiff’s exercise of the option to repurchase the real estate. This is evidenced through the Defendant’s failure to give a description of the land, which was required for Plaintiff to obtain financing. Furthermore, Defendant failed to provide Plaintiff with a list of expenses, which was needed to determine the purchase price. Therefore, Defendant purposely tried to prevent Plaintiff in his attempts to exercise the option to repurchase.

Discussion.

Good faith means honesty in fact in the transaction concerned. In other words, the parties must demonstrate honesty of intent in order to avoid liability.
A footnote in the case explains that under the option Defendant, had five days after the option was exercised to provide Plaintiff with a description of the five acres he wished to retain. However, Defendant knew that Plaintiff needed this information to secure the loan and that Plaintiff would pay for the expense of having the land surveyed. Defendant still failed to provide the Plaintiff with this information.