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ELEMENTS OF A BREACH OF CONTRACT ACTION IN PENNSYLVANIA LAW
Western District of Pennsylvania Bankruptcy Judge Bernard Markovitz provides, in a recent opinion, In re Wolfe, No. 05-34052-BM (Bankr. W.D.Pa. 11/6/07), what we think is a useful case study of the elements of an action for damages for a breach of a bilateral contract.
The case involved a claim, by the buyers, for a breach of an installment sale agreement for a personal care facility. The agreement was entered into in August 2001. The agreement provided for the buyers to pay $200,000, $20,000 down and another $2,049.04 per month for 156 months, along with the real estate taxes and insurance. The seller could declare a default in the event buyers: (1) failed to pay any monthly installment within thirty-one days of its due date; (2) failed to pay property taxes or assessments as they became due; and (3) failed to maintain adequate insurance. In the event buyers defaulted on these obligations, the seller could retain all installment payments made up to the time of the default as liquidated damages and also demand possession of the premises and surrender of the business. Upon their compliance with all of the above terms of the agreement pertaining to them, debtor agreed to deliver to buyers a general warranty deed to the premises.
Buyers were unaware of the fact that there was a mortgage on the facility. In June of 2004 the seller ceased making payments on the mortgage, and a foreclosure action was commenced a year later. The buyers continued to make their monthly payments through June of 2005 when they learned of the foreclosure action.
The opinion was silent on the disposition of the mortgage foreclosure action and it is assumed that there was no dispute that the seller was not going to be able to deliver a general warranty deed. The buyers asserted a breach of contract claim against the seller for the downpayment and installment payments along with the cost of some repairs they had made to the facility. The seller defended on the basis that it was the buyers who had breached by stopping the installment payments and by failing to purchase insurance for the property and the business and by failing to pay certain of the property taxes that had accrued back in 2002.
The Court's analysis began:
The primary objective when interpreting a contract is to ascertain and give effect to the intent of the parties. Murphy v. Duquesne University, 565 Pa. 571, 590-91, 777 A.2d 418, 429 (2001). In the case of a written contract, their intent is embodied in the writing itself. Insurance Adjustment Bureau, Inc. v. Allstate Insurance Co., 588 Pa. 470, 480, 905 A.2d 462, 468 (2006). When the language of the contract is clear and unambiguous, its meaning must be determined solely from the content of the contract itself. Crawford Central School District v. Commonwealth of Pennsylvania, 585 Pa. 131, 143, 888 A.2d 616, 623 (2005).
The agreement in the case provided that the seller would deliver a warranty
deed to the property to buyers once they had paid the purchase price in full. Implicit in that provision was an agreement by the parties that debtor would pay off the mortgage lien by the time buyers had paid debtor in full. This obligation on seller's part was necessary to effectuate the sale agreement. Without it, the agreement would make no sense. Having found that the seller's obligation to keep the mortgage current was an implied term of the agreement (and the agreement was bilateral), the Court went on:
It is the law in Pennsylvania that a party to a bilateral contract . . ., breaches a contract when she fails to do something she expressly or impliedly agreed to do. Johnson v. Finestra, Inc. (Construction Division), 305 F.2d 179, 181 (3d Cir. 1965). If the breach amounts to a material failure of performance, the other party is discharged from any liability under the contract. Borough of Greentree v. Tortorette, 205 Pa. Super. 532, 533, 211 A.2d 76, 77 (1965).
The Court then turned its attention to the seller's argument that the buyers failure to pay the 2002 real estate taxes was a breach that excused her performance and the issue of whether a particular default is "material."
Strictly speaking, it might be said that buyers breached the sale agreement when they failed to perform their contractual obligations. When performance of an obligation arising under a contract is due, any failure on the part of the party charged with that obligation amounts to a breach. Widmer Engineering, Inc. v. Dufalla, 827 A.2d 459, 467 (Pa. Super. 2003).
Comparing the amount of the unpaid 2002 taxes (which the Court estimated at $1,000) to the damages suffered by the buyers (over $114,000), the Court concluded that the failure to pay the 2002 taxes was immaterial. [Although not stated, the sellers delay in raising the default while the buyers continued to make the monthly payments likely contributed to the Court's conclusion that the default was immaterial.]
Every case is different and decisions usually turn on the facts. However, Wolfe provides an nice outline of issues and elements that need to be addressed in a breach of contract lawsuit.
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