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IN THE DISTRICT COURT OF APPEAL THIRD DISTRICT OF FLORIDA
CASE NO: 3D16-1881
Lower Tribunal Case No: 15-009465 CA 01 (23)
Liork, LLC and Keren Ben Shimon, Appellants/Plaintiffs,
v.
BH 150 Second Avenue, LLC,
Appellee/Defendant.
APPELLANTS’ INITIAL BRIEF
RICHARD J. LEE, P.A. MILITZOK & LEVY, P.A. 3230 Stirling Road Suite 1 Hollywood, Florida 33021 305-598-0816 Email: [email protected] Co-Counsel for Appellants
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TABLE OF CONTENTS
TABLE OF CONTENTS....................................................................................... i
TABLE OF CITATIONS....................................................................................... ii
LEGEND................................................................................................................ v
STATEMENT OF THE CASE AND FACTS....................................................... 1 Statement of the case......................................................................................... 1 Statement of the facts........................................................................................ 3
SUMMARY OF THE ARGUMENT COUNT I - VOID CONTRACT............... 8
ARGUMENT COUNT I - VOID CONTRACT.................................................. 10
CONCLUSION COUNT I - VOID CONTRACT............................................... 34
SUMMARY OF THE ARGUMENT COUNT II - PENALTY CLAUSE.......... 34 ARGUMENT COUNT II - PENALTY CLAUSE.............................................. 37 CONCLUSION COUNT II - PENALTY CLAUSE........................................... 49
CERTIFICATE OF SERVICE............................................................................. 50
CERTIFICATE OF COMPLIANCE.................................................................... 50
** APPENDIX FILED AS SEPERATE DOCUMENT **
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TABLE OF CITATIONS
CASES Aiken v. WCI Communities, Inc. 26 So. 3d 691 ( Fla. 2d DCA 2010 ).............................................................. 27
Allington Towers North, Inc. v. Rubin, 400 So. 2d 86 ( Fla. 4 DCA 1981 )......................................................13, 14,15, 18th
Berndt v. Bieberstein 465 So. 2d 1264 ( Fla. 2d DCA 1985 )....................................................................43
Blue Lakes Apartments, Ltd. v. George Gowing, Inc. 464 So. 2d 705( Fla. 4 DCA 1985)..................................................................27th
Citimortgage, Inc. v. Turner 172 So. 3d 502 ( Fla. 1 DCA 2015 )..........................................................10, 37st
Coleman v. B.R. Chamberlain & Sons, Inc. 766 So. 2d 427 ( Fla. 5 DCA 2000 )...............................................................45th
Gilman Yacht Sales, Inc. v. FNB Investments, Inc. 766 So. 2d 294 ( Fla. 4 DCA 2000 )..........................................................10, 37th
Goldblatt v. C.P. Motion, Inc. 77 So. 3d 798 ( Fla. 3 DCA 2011 )............................................................34, 38rd
Gomez v. Timberoof Roofing Co., Inc. 4D14-4685 ( 2016 ).....................................................................................10, 37
Hot Developers, Inc. v. Willow Lake Estates, Inc. 950 So. 2d 537 ( Fla. 4 DCA 2007 )...............................................................43th
Howard Cole & Co. v. Williams 27 So. 2d 352 ( 1946 )......................................................................................12
Hutchison v. Tompkins 259 So. 2d 129 (Fla. 1972 ).............................................................................45
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Jackson v. Shakespeare Foundation, Inc. 108 So. 3d 587 ( Fla. 2013 ).....................................................................10, 37
James v. DuBreuil 385 So. 2d 708 ( Fla. 3d DCA 1980 ).............................................................30
Jenkins v. City Ice & Fuel Co. 160 So. 215 ( 1935 )........................................................................................13
Johnson Enters. Of Jacksonville, Inc. v. FPL Group, Inc. 162 F. 3d 1290 ( 11 Cir. 1998 )....................................................................13 th
Lefemine v. Baron 573 So. 2d 326 ( Fla. 1991 )....................................................................38, 42, 43
McNorton v. Pan Am. Bank of Orlando 387 So. 2d 393 ( Fla. 5 DCA 1980 ).............................................................43th
Miami Coca-Cola Bottling Co. v. Orange-Crush Co. 291 F. 102 (D. Fla. 1923) ,affirmed, 296 F. 693 ( 5 1924)..........................12 th
Murry v. Zynyx Marketing Communications, Inc. 774 So. 2d 714 ( Fla. 3d DCA 2000 ).............................................................20 Office Pavillion S. Fla., Inc. v. ASAL Prods., Inc. 849 So. 2d 367 ( Fla. 4 DCA 2003 ).............................................................12th
Ortiz v. PNC Bank, National Association 188 So. 3d 923 ( Fla. 4 DCA 2016 ).......................................................10, 37th
Pan Am-Am Tobacco Corp. v. Department of Corrections 471 So. 2d 4 ( Fla. 1984 )..............................................................................12
Perez v. Aerospace Academy, Inc. 546 So. 2d 1139 ( Fla. 3d DCA 1989 )..........................................................45
Ponce Development Company v. Espino 449 So. 2d 317 ( Fla. 3d DCA 1984 )...........................................14,19, 20, 22
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Rekal Company, Inc. v. PGT Industries, Inc. 8:13-cv-1433-T-33TGW ( M.D.Fla. 2013).............................................................13 RKR Motors, Inc. v. Associated Uniform Rental & Linen Supply, Inc. 995 So. 2d 588 ( Fla. 3d DCA 2008 )..................................................36, 39, 48 Rosenberg v. Lawrence 541 So. 2d 1204 ( Fla. 3d DCA 1988 )............................................................12
Sanchez v. Crandon Wholesale Drug Co. 173 So. 2d 687( Fla. 1965 ).............................................................................14
Scherer v. Laborers International Union of North America 746 F. Supp. 73 ( 1988 )............................................................................30, 31 Schneir v. State 43 So. 3d 135 ( Fla. 3d DCA 2010 )...............................................................30
Slattery v. Wells Fargo Armored Service Corp. 366 So. 2d 157 ( Fla. 3d DCA 1979 ).............................................................30 Weitz Company, LLC v. MCW Acquisition, LLC 116 So. 3d 623 ( Fla. 3 DCA 2013 ) ......................................................10, 37rd
STATUTES
Chapter 86, Florida Statutes............................................................................1, 2, 45
RULES
Rule 9.020( i )( 3 ), Fla. R. App. P............................................................................2 Rule 1.510(g). Fla. R. Civ. P. ...................................................................................8
OTHER
Restatement ( Second ) of Contracts § 75 ........................................................13, 14
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LEGEND
The Appellants may sometimes be jointly referred to herein as “Appellants”,
or individually referred to by their respective names. The Appellee may also
sometimes be referred to herein as the Appellee or by its name.
The symbol “R” shall refer to the Record on Appeal. The symbol “SR” shall
refer to the Supplemental Record on Appeal. The symbol " DSR" shall refer to
Direct Supplemental Record on Appeal. The symbol “App.” shall refer to the
Appendix to the Appellants’ Initial Brief. The symbol “ HT” shall refer to hearing
transcripts. The symbol “DT” shall refer to deposition transcripts.
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STATEMENT OF THE CASE AND OF THE FACTS
Statement of the case.
This is an appeal from two partial summary judgment orders which were
incorporated by reference into a final judgment disposing of all judicial effort in
this case by the lower court except for collateral matters.
On February 18, 2016 the lower court entered a non final order denying the
Appellants’ motion for partial summary judgment as to Count I of the Second
Amended Complaint ( R., vol. 2, pp. 205-277) ( hereinafter “Complaint” ) and
granting the Appellee’s cross motion for partial summary judgment as to Count I
of the Complaint ( “Count I Order” ) ( R., vol. 7, pp. 1036-1037; App. 1 ). Count I
was for a declaratory judgment pursuant to Chapter 86, Florida Statutes,
requesting that the lower court declare the contract between the Appellants and the
Appellee void and unenforceable for lack of consideration at inception, and that
the Appellants’ payments of $3,295,000.00 be returned to them. A motion for
reconsideration as to the Count I Order ( R., vol. 5, pp. 782-796 ), was filed and
denied by the lower court.
On July 11, 2016 the lower court entered another order denying Appellants’
motion for partial summary judgment as to Count II of the Complaint and granting
Appellee’s cross motion for partial summary judgment as to Count II of the
Complaint ( “Count II Order” ) ( R., vol. 7, pp. 1038-1040; App. 2 ). Count II was
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also for a declaratory judgment pursuant to Chapter 86, Florida Statutes,
requesting that the lower court declare a provision of the contract between the
parties pertaining to liquidated damages is an unenforceable penalty clause and
that the plaintiffs’ payments of $3,295,000.00 be returned to them. A motion for
rehearing as to the Count I Order and the Count II Order was filed. ( R. Vol. 7, pp.
995-1025 ).
A Notice of Appeal was filed on August 4, 2016 ( R., vol. 7, pp. 1029-1035;
App. 3 ). However, an order denying the Appellants’ motion for rehearing was not
rendered and filed by the lower court until October 25, 2016. Accordingly,
pursuant to Rule 9.020( i )( 3 ), Fla. R. App. P., this appeal was held in abeyance.
On October 26, 2016, the lower court order denying the motion for rehearing as to
the Count I Order and the Count II Order was filed with this Court along with
Appellants’ Status Report. This Court then took the appeal out of abeyance and
ordered that Appellants’ Initial Brief be filed on or before December 27, 2016.
This Court subsequently determined the Count I Order and the Count II Order
were insufficient to form a final appealable order, and relinquished jurisdiction so
that a proper final judgment could be entered by the lower court. On November 10,
2016 the lower court entered a final judgment incorporating therein the Count I
Order and the Count II Order ( DSR.; App. 4 ).
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Statement of the facts.
In 2013 the Appellee was selling to the general public interests in an office and
retail condominium project with approximately 100 units, located at 150 SE
Second Avenue, Miami, Florida ( “Condominium Property” ).
In 2013 the Appellee and Appellant Keren Ben Shimon ( “Shimon” ) entered
into a form contract that was drafted and prepared by legal counsel for the
Appellee ( “Subscription Agreement” ) ( Exhibit “A” to Complaint; R. vol. 2, pp.
205-277; App. 5 ).
On October 17, 2013 the Subscription Agreement was assigned to Appellant
Liork, LLC ( “ Liork” ) pursuant to an assignment agreement ( Exhibit “B” to
Complaint; App. 6 ). The assignment agreement adds Appellant Liork to the
Subscription Agreement, but does not release Appellant Shimon. Accordingly,
both Shimon and Liork are Plaintiffs and Appellants in this case.
The Subscription Agreement was a bilateral agreement ( a promise for a
promise ), wherein Appellant Shimon promised to pay the Appellee the sum of
$5,650,000.00 plus a percentage share of closing costs, in consideration of the
Appellee’s supposed “promise” to sell units 101,102,103, and 104 of the
Condominium Property to Appellants.
From the time the Subscription Agreement was entered into, to the date it was
terminated by the Appellee, the Appellee never owned the Condominium Property.
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The Appellee alleged in the Subscription Agreement that it had some type of an
arrangement with the third party owner of the Condominium Property to buy it,
but the Subscription Agreement did not state any of the terms. And, the
Appellants were never advised of any of the terms of the alleged third party
arrangement. Moreover, no written third party agreement was ever shown or
given to the Appellants, and no alleged written third party agreement was ever
produced by the Appellee in the lower court proceedings.
The Subscription Agreement was drafted by Appellee’s counsel in such a
way as to create the illusion that the Appellee had promised to buy the
Condominium Property, convert it to condominiums, and then sell units 101, 102,
103, and 104 of the Condominium Property to the Appellants. However, the
Subscription Agreement did not actually contain any binding and enforceable
promises by the Appellee. This is so because the Appellee retained for itself in the
Subscription Agreement the option of declining to purchase the Condominium
Property for any reason or no reason at all, and the Appellee also retained for itself
the option to terminate the Subscription Agreement at any time in Appellee’s sole
discretion.
The Appellants paid to the Appellee three payments totaling $3,295,000.00.
The Subscription Agreement, did not state a date certain as to when the balance of
the purchase price was to be paid, but it provided that the balance of the purchase
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price was to be paid 30 days prior to the date that Appellee “anticipated” and
“expected” it might close on the purchase of the Condominium Property from the
third party seller. Such notice just advised as to what the Appellee “anticipated”
and “expected” it might do in the future, but it did not actually require or bind the
Appellee to do anything. Id est, what the Appellee was imagining it might do in
the future. The Appellee could still decide not to buy the Condominium Property
for any reason or no reason at all, or, choose to terminate the Subscription
Agreement at any time in Appellee’s sole discretion. On the other hand, the
Appellants were required to make the final payment when the Appellee sent
Appellants notice of the anticipated closing date.
Prior to receiving the notice of an anticipated closing date, Appellant Shimon
asked Andres Klein, an agent of the Appellee, if the Appellee knew when
Appellee was going to buy the Condominium Property. Appellant Shimon asked
because there was another property that she wanted to also invest in, and she
wanted to make sure that there would be sufficient funds available when necessary
to pay the balance of the purchase price under the Subscription Agreement.
Appellant Shimon was advised that the Appellee did not know when the closing
would be, giving Appellant Shimon the impression that nothing was going to
happen anytime soon.
Notwithstanding Appellee’s statement that it did not know when the closing
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would be, soon thereafter on December 2, 2013 the Appellee sent a notice to the
Appellants advising that the Appellee “anticipated” and “expected” that it might
close the purchase of the Condominium Property on January 15, 2014, thereby
requiring the Appellants to make a final payment of $2,469,154.04 on or before
December 16, 2013 ( “Anticipated Closing Letter” ) ( Exhibit “C” Complaint;
App. 7 ).
With just two weeks notice, the Appellants were unable to make the
$2,469,154.04 payment by December 16, 2013 and asked Appellee for some
additional time to make the payment. Not only did the Appellee refuse any
additional time to make the payment, but Appellee immediately thereafter sent the
Appellants a default notice on December 19, 2013. ( “Default Letter” ), resulting
in termination of the Subscription Agreement and supposed forfeiture of all three
of Appellants payments totaling $3,295,000.00 as liquidated damages. ( Exhibit
“D” Complaint; App. 8 ).
As it turned out, the Appellee did not close on January 15, 2014. In fact,
the Appellee did not close on the Condominium Property until some six weeks
later on February 28, 2014. This meant that the Appellants should have had until
January 30, 2014, ( 30 days before the February 28, 2014 closing ), to make the
final payment, but Appellee seeing a “gotcha” moment refused to give any
additional time and prematurely defaulted Appellants in the middle of December,
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so it could terminate the Subscription Agreement and keep the Appellants
payments totaling $3,295,000.00.
At the time the Subscription Agreement was terminated and Appellee kept
Appellants $3,295,000.00, the Subscription Agreement was still totally executory
on the part of the Appellee. Not only had the Appellee not purchased the
Condominium Property, but at the time of termination of the Subscription
Agreement, the Appellee still had the right to decline purchasing the
Condominium Property for any reason or for no reason at all, and Appellee still
had the right to terminate the Subscription Agreement at any time in its sole
discretion.
The $3,295,000.00 kept by the Appellee as supposed liquidated damages,
resulted in the Appellants forfeiting an amount in excess of 58% of the purchase
price ( $3,295,000.00 ÷ $5,650,000.00 = 58.3% ).
Further, notwithstanding the Appellees failure to disclose and attempts to
hide from the Appellants and the lower court, it was ultimately determined from
public records and third party depositions, that the Appellee in fact had entered
into a new agreement with a replacement buyer and received payment of
$5,500,000.00 plus a share of closing costs, from the replacement buyer for the
four units the Appellants were to buy before Appellee bought the Condominium
Property on February 28, 2014. This resulted in a windfall profit of
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$3,295,000.00 to the Appellee. In this regard, there is a pending motion before the
lower court pursuant to Rule 1.510(g). Fla. R. Civ. P. for failing to disclose and
affirmatively misrepresenting this fact in affidavits that were filed with respect to
the motions for summary judgment as to both counts I and II.
The Appellee took Appellants’ $3,295,000.00 in exchange for absolutely
nothing. From the date the Appellee and Appellant Shimon signed the
Subscription Agreement to the date the Subscription Agreement was terminated,
the Appellee never had any binding enforceable obligation to do anything, and the
Subscription Agreement was still completely executory on the part of the
Appellee when it was terminated by the Appellee.
SUMMARY OF THE ARGUMENT - COUNT I - VOID CONTRACT
When a bilateral contract ( a promise for a promise ) like the Subscription
Agreement, is not mutually enforceable by its terms, the contract is invalid from
inception due to lack of mutuality of obligation resulting in a failure of
consideration. Such contracts are often referred to as “illusory” contracts since
they give the illusion of a binding promise when none is actually made.
Florida law is clear that when one party retains unto itself the option of
fulfilling or declining to fulfill its obligations under a contract, as is the case of the
Appellee under the Subscription Agreement, there is no valid contract and neither
side may be bound under the contract since there is no mutuality of obligation and
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there is a failure of consideration from inception on the contract. Since the
Appellee’s “promises” in the Subscription Agreement were unenforceable, there
was no consideration given by the Appellee in exchange for the promises made by
the Appellants.
Florida law is also clear that at all times during which an illusory contract
remains a bilateral executory contract, neither side is bound under the contract
because there is no mutuality of obligation while the contract remains executory.
At the time the Subscription Agreement was terminated and Appellee kept all
the Appellants’ payments, the Subscription Agreement was completely executory
as to the Appellee, because the Appellee had not purchased the Condominium
Property and still had the right not to buy the Condominium Property for any
reason or for no reason at all. Also, at the time of termination of the Subscription
Agreement the Appellee still had the right to terminate Appellants’ subscription at
any time in its sole discretion. There can be no question that the Subscription
Agreement was an unenforceable executory agreement at all times from its
inception to the time it was terminated. Thus, there was never a point in time
where the Subscription Agreement was an enforceable agreement, and it was void
at all times from inception to termination and the supposed forfeiture of the
Appellants’ $3,295,000.00.
Accordingly, the Subscription Agreement is void ab initio as a matter of law.
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The Appellee never had any right to keep any of the Appellants’ payments, and the
payments of $3,295,000.00 are the property of Appellants and must be returned to
them.
ARGUMENT - COUNT I - VOID CONTRACT
Standard of review.
An order on a motion for summary judgment is reviewed de novo. Gomez v.
Timberoof Roofing Co., Inc. 4D14-4685 ( 2016 ); Weitz Company, LLC v. MCW
Acquisition, LLC, 116 So. 3d 623 ( Fla. 3 DCA 2013 ). Review of an orderrd
interpreting a contract is also de novo. Jackson v. Shakespeare Foundation, Inc.,
108 So. 3d 587 ( Fla. 2013 ); Ortiz v. PNC Bank, National Association, 188 So.
3d 923 ( Fla. 4 DCA 2016 ); Citimortgage, Inc. v. Turner, 172 So. 3d 502 ( Fla.th
1 DCA 2015 ). st
This standard is well explained by the court in Gilman Yacht Sales, Inc. v.
FNB Investments, Inc. 766 So. 2d 294 ( Fla. 4 DCA 2000 ). The court stated: th
“The interpretation of a written contract is a question of law to be decided by the court. An appellate court is not bound to give thetrial judge’s interpretation or construction of a contract any weighted presumption of correctness. To the contrary, a decision construing a contract is reviewable on appeal under a de novo standard of review, and therefore we are required to consider for ourselves anew the meaning of the disputed contractual language.” ( internal citations omitted )
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Void Contract.
The Subscription Agreement contains provisions whereby the Appellee retained
for itself the option of fulfilling or declining to fulfill, its obligations under the
Subscription Agreement to purchase the Condominium Property, and the
Appellee also retained for itself the right to terminate the Appellants’ subscription
at any time in Appellee’s sole discretion.
In addition, the Subscription Agreement contained provisions whereby the
Appellants could lose all their rights under the Subscription Agreement and forfeit
all their payments, even if the Appellee had not purchased the Condominium
Property and still had the option not to purchase the Condominium Property, and
still had the option to terminate the Appellants’ subscription at any time in
Appellee’s sole discretion. Paragraph 4 of the Subscription Agreement states, in
part, that:
“ Subscriber understands and agrees that this Subscription may be rejected by the Company [ Appellee ] at any time in its sole discretion. ... If the Subscription is rejected, all funds received from the Subscriber will be returned, without interest, by the Company, and, thereafter, this Agreement shall be of no further force or effect. Additionally, if the Company [ Appellee ] accepts the Subscription, but the Company does not purchase the Property for any reason or for no reason at all, all funds received from the Subscriber will be returned, without interest, to Subscriber and this Agreement will be of no further force or effect.” ( emphasis added ).
Appellee never had to perform its “promise” to purchase the Condominium
Property, because Appellee could decide at any time not to purchase the
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Condominium Property “...for any reason or for no reason at all, under the
provisions of paragraph 4 of the Subscription Agreement. Also, the Appellee
could decide”... at any time in it’s sole discretion” to reject the Appellants’
subscription. Id est, terminate the Subscription Agreement.
It is black letter law in Florida that when one party retains unto itself the
option of either fulfilling or declining to fulfill its obligations under a contract, as
is the case with Appellee under the Subscription Agreement, there is no valid
contract and neither side may be bound under the contract since there is no
mutuality of obligation and a failure of consideration.
“It is a fundamental principle of contract law that a promise must be
supported by consideration to be enforceable.” Office Pavillion S. Fla., Inc. v.
ASAL Prods., Inc., 849 So. 2d 367, 370 ( Fla. 4 DCA 2003 ). A contract which isth
not mutually enforceable is an illusory contract. And, “where one party retains to
itself the option of fulfilling or declining to fulfill its obligations under the
contract, there is no valid contract and neither side may be bound”. Rosenberg v.
Lawrence, 541 So. 2d 1204, 1206 ( Fla. 3d DCA 1988 ), Pan Am-Am Tobacco
Corp. v. Department of Corrections, 471 So. 2d 4 ( Fla. 1984 ); Howard Cole &
Co. v. Williams, 27 So. 2d 352 ( 1946 ); Miami Coca-Cola Bottling Co. v.
Orange-Crush Co., 291 F. 102 (D. Fla. 1923) ,affirmed, 296 F. 693 ( 5 Cir. 1924) th
“Under Florida law, when a promise ‘appears on its face to be so insubstantial
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as to impose no obligation at all on the promisor - who says, in effect, ‘ I will if I
want to’ - then that promise may be characterized as an’ illusory promise,’ i.e., ‘a
promise in form but not in substance.” Rekal Company, Inc. v. PGT Industries,
Inc.8:13-cv-1433-T-33TGW ( M.D. Fla. 2013 ), citing Johnson Enters. Of
Jacksonville, Inc. v. FPL Group, Inc., 162 F. 3d 1290, 1311 ( 11 Cir. 1998 );th
Office Pavilion South Florida, Inc. v. Asal Products, Inc., 849 So. 2d 367 ( Fla.
4 DCA 2003 ) citing Johnson Enter. Of Jacksonville, inc. v. FPL Group, Inc.,th
162 F. 3d 1290 ( 11 Cir. 1998 ). th
When a bilateral contract ( a promise for a promise ), such as the one in the
instant case, is not mutually enforceable by its terms, the contract is invalid due to
lack of consideration. “In a contract where the parties exchange promises of
performance, ‘ [I]f either of the promises in the contract is unenforceable then
there is no consideration for the other promise.’ Rekal supra, citing Allington
Towers North, Inc. v. Rubin, 400 So. 2d 86, 87 ( Fla. 4 DCA 1981 ); Jenkins v.th
City Ice & Fuel Co., 160 So. 215 ( 1935 ).
In Office Pavilion South Florida, Inc. v. Asal Products, Inc., 849 So. 2d 367,
370 ( Fla. 4 DCA 2003 ), the Court stated:th
“The Restatement of Contracts illustrates these contract principles. Section 75 acknowledges that ‘a promise which is bargained for is consideration if, but only if, the promised performance would be consideration.’ Restatement ( Second ) of Contracts § 75 ( emphasis added ). However, the Restatement further provides in Section 77, [a] promise or apparent promise is not consideration if by its terms
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the promisor or purported promisor reserves a choice of alternative performances.’ The commentary to this section explains: Words of promise which by their terms make performance entirely optional with the ‘promisor’ do not constitute a promise.... Where the apparent assurance of performance is illusory, it is not consideration for the return promise.” ( emphasis original ) Florida law is also clear that at all times during which an illusory contract
remains a bilateral executory contract, neither side is bound under the contract
since there is no mutuality of obligation while the contract remains executory. “As
long as the contract remain[s] a bilateral executory agreement it [is]
unenforceable...” Ponce Development Company v. Espino, 449 So. 2d 317, 319
( Fla. 3d DCA 1984 ); Sanchez v. Crandon Wholesale Drug Co., 173 So. 2d 687
( Fla. 1965 ).
Allington Towers North, Inc v. Rubin, 400 So. 2d 86 ( Fla. 4 DCA 1981) isth
similar to the instant case in that pursuant to a contract the seller promised to
convey real property to the buyer, and the buyer promised to pay for it. The court
held that the contract was an executory bilateral contract as in the instant case.
However, the contract provided that the buyer had the right to cancel the contract
at any time before closing. The court found that the seller had to convey if the
buyer decided to go forward, but the seller had no corresponding right to enforce a
sale and closing. The court stated “ We cannot envision a clearer case of lack of
mutuality.”
In the instant case the Appellants had to pay for the Condominium Property
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units if the Appellee decided to go forward, but the Appellants had no
corresponding right under the Subscription Agreement to enforce a sale and
closing because the Appellee could decide not to purchase the Condominium
Property for any reason or for no reason at all up to the time of closing. Also, the
Appellee retained the right to terminate Appellants’ subscription at any time in its
sole discretion up to the time of closing. As in Allington, supra, one would be hard
pressed to envision a clearer case of lack of mutuality and failure of consideration
than in the instant case.
Paragraph 3 of the Subscription Agreement states, in part:
“ The Manager [ Appellee ] shall notify Subscriber [ Appellants ] the anticipated date of Closing (‘Anticipated Closing Date’ ) and Subscriber must pay the full amount of the Subscription Price plus the Closing Costs at least thirty ( 30 ) calendar days before the Anticipated Closing Date. If Subscriber fails to pay the full Subscription Price and the Closing Costs thirty ( 30 ) calendar days before the Anticipated Closing Date, Subscriber shall be in default as per Paragraph 13 of this Agreement.” ( emphasis added )
Paragraph 13 of the Subscription Agreement provides:
“If Subscriber fails to make the payments in the manner and the time as set forth in this Subscription Agreement, Subscriber shall be in default and ALL payments made by Subscriber shall be retained by the Company as liquidated damages and ( not as a penalty ) and the Subscriber shall not be entitled to receive any distributions from the Company and shall lose all rights in the Company. In such case the Company may assign the unit assigned to Subscriber to another member.” (emphasis added )
With respect to paragraph 3 of the Subscription Agreement, on December 2,
2013 the agent of Appellee, Andres Klein, sent the Anticipated Closing Letter to
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Appellants advising that the Appellee anticipated closing the purchase of the
Condominium Property on January 15, 2014, and giving Appellants two weeks to
make full payment of the balance of the Subscription Price plus estimated closing
costs totaling $2,469,154.04 on or before December 16, 2013.
When Appellants received the Anticipated Closing Letter, they advised
Appellee that two weeks was insufficient time to obtain $2,469,154.04, and asked
Appellee for some additional time to pay the balance. Appellee refused to grant
Appellants any extension of time whatsoever, and on December 19, 2013 sent
Appellants the Default Letter advising that Appellants were in default of the
Subscription Agreement for failure to pay the balance of $2,469,154.04 by
December 16, 2013.
The Appellee did not buy the Condominium Property on January 15, 2014 as
anticipated. In fact the Appellee did not buy the Condominium Property until
February 28, 2014, some month and a half later, and some two and a half months
after the Appellants rights under the Subscription Agreement were terminated on
December 16, 2013.
When the Subscription Agreement was terminated, several things allegedly
happened. First, Appellants’ payments were allegedly forfeited to Appellee.
Second, Appellants no longer had any rights under the Subscription Agreement.
Third, Appellee could sell Appellants Condominium Property units to others.
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On December 16, 2013, pursuant to the provisions of paragraph 13 of the
Subscription Agreement, Appellants were automatically in default. There was no
actual requirement under the Subscription Agreement that Appellee send the
Default Letter in order for Appellants to be in default. Appellee sent the Default
Letter to allegedly give “formal” notice to Appellants that they were in default and
that Appellee would exercise any and all rights under the Subscription Agreement.
Though not required under the terms of the Subscription Agreement, the Default
Letter does however memorialize the fact that as far as Appellee was concerned
Appellants’ rights were terminated and payments forfeited under the Subscription
Agreement on December 16, 2013.
Additionally, at the time of the alleged default on December 16, 2013 when
Appellants lost all their interests under the Subscription Agreement, and
supposedly forfeited all their payments, the Subscription Agreement was still
totally executory as to the Appellee, since Appellee had not yet purchased the
Condominium Property, and Appellee still had the option to decline to purchase
the Condominium Property. In this regard, the Appellee was very careful in its
wording in both paragraph 3 the of Subscription Agreement and the Anticipated
Closing Letter, to preclude any assertion that the Appellee had given up it’s option
not to purchase the Condominium Property when it sent notice subscribers to
make their final payments.
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The Appellee did not say anything in the Anticipated Closing Letter that
could conceivably be construed as waiving its right not to buy the Condominium
Property for any reason or for no reason at all. Instead, the Appellee only stated
that it “anticipated” and “expected” a closing on the Condominium Property. If
ever challenged on this issue, all the Appellee needed to have done is cite a
dictionary. “ anticipate” means “to imagine or expect that something will happen”.
Cambridge Dictionary.
So, the Anticipated Closing Letter and the wording of paragraph 3 of the
Subscription were careful not to change anything. The Subscription Agreement
always “anticipated” that the Appellee might buy the Condominium Property,
subject to the Appellee electing not to buy it for any reason or no reason at all.
Accordingly, the Appellee could still at any time right up to the actual closing on
the Condominium Property choose not to buy it for any reason or no reason at all,
and simply return the subscribers deposits. In addition, the Appellee also still had
the option to rejecting the Subscription Agreement at any time in its sole
discretion. This is the same scenario in Allington, supra, wherein the seller could
change its mind right up to the closing, causing the court to note: “ We cannot
envision a clearer case of lack of mutuality.”
Accordingly, the Subscription Agreement was still totally executory as to
Appellee on December 16, 2013, and, as a matter of law, it was not an
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enforceable agreement at the time of the alleged default and termination of
Appellants’ rights, and alleged forfeiture of their $3,295,000.00.
Of particular importance is the fact that the Appellee did not close on January
15, 2014 as stated in the Anticipated Closing Letter. In fact, the Appellee did not
close on the Condominium Property until six weeks later on February 28, 2014.
This meant that the Appellants should have had until January 30, 2014, ( 30 days
before the February 28, 2014 closing ), to make the final payment, but Appellee
refused to give any additional time and prematurely defaulted Appellants in the
middle of December, so it could terminate the Subscription Agreement and keep
the Appellants payments totaling $3,295,000.00.
This Court has allowed a promisor to cure the unenforceable promises it made
at the inception of a contract by full and complete performance of the illusory
promises it made to the promisee. In Ponce Development Company v. Espino, 449,
318-319, So. 2d 317, 319 ( Fla. 3d DCA 1984 ), this Court stated:
“... the construction contract in this case, as drafted by Ponce, lacked mutuality of obligation at its inception in that the promisor’s ( Ponce’s ) duty under the agreement was optional. As long as the contract remained a bilateral executory agreement it was unenforceable against the Espinos [internal citations omitted ]. But when the contract became executed by the promisor’s full performance according to the terms of the contract--except as to transfer of title at closing, which final act was impeded by the promisee--the defect of lack of mutuality of obligation was cured and could not be a defense to enforcement of the contract.” ( emphasis added ).
-19-
Also see Murry v. Zynyx Marketing Communications, Inc., 774 So. 2d 714
( Fla. 3d DCA 2000 ).
In the instant case Appellee chose to preclude any possibility of curing its
illusory promises it had made to Appellants. The Appellee could have given
Appellants additional time to make the final payment until the Appellee had cured
it’s illusory promises by fully performing the Subscription Agreement. Instead of
sending the Appellants the Default Letter and refusing to give them additional
time to make the final payment, Appellee could have followed the holding in
Espino, supra, and given the Appellants the opportunity to close on their four units
once the Appellee had cured its illusory promises by purchasing the
Condominium Property from the third party and tendering delivery of units
101,102,103, and 104 to the Appellants. If the Appellants did not close upon
tender of delivery of their four units, then Appellants may be estopped from
claiming a void illusory contract, because Appellee had cured it’s illusory
promises making it no longer executory on the part of Appellee except for the
transfer at closing, which is such event would have been impeded by the
Appellants. See Espinos, supra.
But that is not at all what happened. To the contrary, the Appellee rather than
continuing the Subscription Agreement, it refused to give the Appellants anymore
time and could not wait to default the Appellants, even though at that time the
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Subscription Agreement was still totally executory as to the Appellee. Greed being
the driving force, the Appellee thought they had a “gotcha” moment where they
could keep the Appellants $3,295,000.00 and sell the four condo units to someone
else. Appellee’s mens rea in this was made clear by Appellee’s failure to disclose
and its affirmative attempt to hide from the lower court and the Appellants the fact
that a replacement buyer had bought the Appellants four units before Appellee
closed on the Condominium Property with the third part seller.
This is particularly egregious in light of the fact that the Appellants should
have had until January 30, 2014 rather than December 16, 2013 to make the
payment because the Appellee chose, for whatever reason, to close the purchase of
the Condominium Property on February 28, 2014 rather than January 15, 2014
which created the premature December 16, 2014 payment due date in the first
place.
Also, relating to estoppel, the Appellee argued to the lower court that
because of various alleged misrepresentations made in the Subscription
Agreement, the Appellants should be equitably estopped from claiming that the
Subscription Agreement is a void contract. Since the so called “promises” made
by the Appellee in the Subscription Agreement were unenforceable by the
Appellants against the Appellee, the Appellee could not be harmed, as a matter of
law, by any misstatements allegedly made by the Appellants in the Subscription
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Agreement. It is axiomatic that the Appellee could not have relied on or have been
harmed when it has made no binding enforceable promise to the Appellants to do
anything. As a matter of law there can be no detrimental reliance by the Appellee,
because the Appellee did not have to do anything, and the Subscription Agreement
was void ab initio in any event.
Moreover, the Appellee cited no case law that would allow estoppel under the
facts of this case. However, Espinos, supra, addresses certain narrow
circumstances in which estoppel is appropriate with respect to illusory contracts.
As stated above, the Appellee did not cure any of it’s illusory promises as to the
Appellants before Appellee terminated the Subscription Agreement. Instead of
immediately terminating the Subscription Agreement, if Appellee had cured it
illusory promises and attempted tender of delivery to the Appellants on or after
February 28, 2014 and Appellants refused to close, then the Appellants might be
estopped from claiming an illusory contract. This would be the only circumstances
in which a one might be estopped from claiming an illusory contract, not because
of an alleged misstatement in a contract that is void ab initio.
The Appellee also argued in the lower court that mutuality of obligation in
the Subscription Agreement is not necessary because there was “other
consideration” for the Subscription Agreement that prevents it from being a void
contract for failure of consideration.
-22-
Appellee erroneously argued that other consideration is the Appellee’s
promise to convert the Condominium Property into an office condo, and to
provide the Appellants with condo units in the converted Condominium Property.
This argument is absurd, because such promises are made illusory by the
provisions of the Subscription Agreement which allow the Appellee to decline to
purchase the Condominium Property in the first place. The Appellee would
obviously have elect to buy the Condominium Building before it could convert it
to an office condo and convey condo units to the Appellants.
Also, the Appellee argued that the Appellee was limited as to when it could
terminate the Subscription Agreement and this was consideration for the
Subscription Agreement. Appellee erroneously argued in the lower court that if
Appellee was going to terminate the Subscription Agreement it had to do so
within 120 days after November 15, 2013. In this regard, the Appellee is
referencing “Recital” paragraph “A” of the Subscription Agreement which states ,
in part:
“It is anticipated that the acquisition of the Property and the conversion to an office condominium will take place on or about November 15, 2013, however, there might be an extension of one hundred twenty ( 120 ) days if the renovations being performed by the current owner to the Property are not completed in a timely manner.” ( emphasis added )
This recital in the Subscription Agreement is obviously and necessarily
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conditioned on the Appellee’s absolute right not to buy the Condominium
Property in the first place as provided for in paragraph 4 of the Subscription
Agreement.
Also, this recital states that it is “anticipated” that the closing would be on or
about November 15, 2013. Accordingly, there is no outside date agreed to
because it merely references an “anticipated” date. Further, there is no provision
in the Subscription Agreement that required the Appellee to return payments
within 120 of the anticipated purchase date, and there is no provision in the
Subscription Agreement that would put the Appellee in breach or default of the
Subscription Agreement if it does not do so. As a matter of fact, there is no
provision of the Subscription Agreement that ever puts the Appellee in breach or
default of the Subscription Agreement for failing to abide any of the terms of the
subscription Agreement.
Additionally, paragraph 4 of the Subscription Agreement allows the Appellee
to terminate Appellants’ subscription at any time in its sole discretion. This
termination right that the Appellee reserved for itself is not limited to a date
certain.
Appellee necessarily conceding that this language in the recital does not
actually state or legally require the Appellee to buy the Condominium Property
within 120 days of November 15, 2013, further argued in the lower court that
-24-
such language should be construed to at least require the Appellee to make a good
faith effort to do so, and that would be other consideration for the Subscription
Agreement.
The language of paragraph 4 of the Subscription Agreement which states the
Appellee can choose not to purchase the Condominium Property for any reason or
for no reason at all, makes it crystal clear that a good faith effort to purchase is
not to be assumed or implied. When the Appellee can decide not to buy the
Condominium Property for any reason or for no reason at all, one cannot
reasonably assume that the Appellee is required to make a good faith effort to buy
the Condominium Property. If the Appellee decided not to buy the Condominium
Property and walk away from the deal, it did not even have to say why. The
language in the Subscription Agreement is the complete opposite of an implied
requirement of a good faith attempt to purchase, it is a disclaimer. Pursuant to the
terms of the Subscription Agreement, the Appellee could opt not to buy the
Condominium Property without giving any reason whatsoever as to why it chose
not to purchase the Condominium Property.
Also, the Appellee argued to the lower court that it promised to give Class A
interests in the Appellee in exchange for Appellants payments, and that this is
other consideration. Again, this promise is directly contingent on the Appellee
electing to buy the Condominium Property which it does not have to do for any
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reason or no reason at all, and is also directly contingent on Appellee not electing
to terminate the Appellants’ Subscription at any time in its sole discretion.
By the unambiguous terms of paragraph 4 of the Subscription Agreement, if
the Appellee chooses to terminate Appellants’ subscription at any time in its sole
discretion, or, if Appellee elects not to buy the Condominium Property for any
reason or no reason at all, the Subscription Agreement terminates and is of no
further force or effect, and with it goes any promise therein to give Class A
interests in Appellee to the Appellants.
All of the above supposed “promises” that the Appellee erroneously argues
are “other consideration” are completely unenforceable and illusory promises.
They are not other consideration as a matter of law.
The Appellee also incorrectly argued to the lower court, that because the
Subscription Agreement provides for refund of the Appellants’ deposits if the
Appellee chose not to buy the Condominium Property for any reason or no reason
at all, or, if the Appellee chose to terminate Appellants’ subscription at any time in
its sole discretion, that qualifies as other consideration.
Assuming arguendo, that the Appellee would have to return payments in
the event it chose not to buy the Condominium Property, or, chose to terminate the
subscription, it still would not be other consideration for the Subscription
Agreement. And, as an aside, there is even a question whether the Appellee
-26-
actually had an obligation to return payments since there is no provision in the
Subscription Agreement that called the Appellee in breach or default under any
circumstances.
The law in Florida is that an agreement to return deposits is not consideration
and does not keep a contract from being unenforceable and void. An agreement to
return the buyers deposit where the seller retains to itself the option of fulfilling
or declining to fulfill its obligations under the contract, does not make the
contract enforceable. Aiken v. WCI Communities, Inc. 26 So. 3d 691 ( Fla. 2d
DCA 2010 ); Blue Lakes Apartments, Ltd. v. George Gowing, Inc. 464 So. 2d
705( Fla. 4 DCA 1985) Sellers obligations are wholly illusory. Clearly, if theth
seller can simply return the deposit and elect not to fulfill its promises under the
contract, then the seller could cancel and walk away from the agreement at any
time “scot-free” and without suffering any cost whatsoever. A promise to return
the deposit is not other consideration as the Appellee erroneously argues.
Accordingly, the fact that paragraph 4 of the Subscription Agreement states
that in the event the Appellee decides not to buy the Property for any reason or
for no reason at all, or decides to reject the subscription at any time in its sole
discretion, the Appellee will return payments without interest, does not make the
Subscription Agreement enforceable. In any event, it is an undisputed fact that the
Appellee did not return any portion of the Appellants payments totaling
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$3,295,000.00.
Citing case law from outside Florida, the Appellee also argued to the lower
court that the Subscription Agreement is not illusory because if Appellee did elect
to buy the Condominium Property it would have to close with the Appellants.
This is not Florida law. No Florida cases, or federal cases applying Florida law,
can be found which support the erroneous argument that the Appellee makes.
However, the point is moot in any event because under the terms of the
Subscription Agreement, the Appellee could leave the Appellants out by simply
electing to terminate the Appellants’ subscription at any time in its sole discretion,
and then elect to purchase the Condominium Property at any time thereafter.
The Appellee put provisions in the Subscription Agreement so that it could
decide not to buy the Condominium Property, return the deposits and walk away
with no liability whatsoever. That is the language from paragraph 4 of the
Subscription Agreement quoted hereinabove. The Appellee also put provisions in
the Subscription Agreement that would allow it buy the Condominium Property
and get rid of the Appellants or some other subscribers by simply terminating their
subscription and returning their deposits, and then enter into a new agreement with
new subscribers, presumably at a higher price. Paragraph 4 of the Subscription
Agreement states, in part, that:
“ Subscriber understands and agrees that this Subscription may be rejected by the Company at any time in its sole discretion. ... If the
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Subscription is rejected, all funds received from the Subscriber will be returned without interest, by the Company, and, thereafter, this
Agreement shall be of no further force or effect." ( emphasis added )
The Appellee made sure that it could do whatever it wanted to do under the
Subscription Agreement and walk away without incurring any liability or
obligation whatsoever except to return deposits. Moreover, it is clear from the
language put in the Subscription Agreement by the Appellee that the Appellee
wanted to retain the ability to get rid of Appellants even after they had made
multiple payments. Thus, Appellee included the language of paragraph 4 “If the
Subscription is rejected, all funds received from the Subscriber will be
returned,...” ( emphasis added ).
It is also clear from the provisions of the Subscription Agreement that the
Appellee was not sure how the condo sales would go. Would it be a bust or a
home run? “RECITALS” paragraph “B” states;
“In the event the Company does not receive sufficient capital contributions [ deposits ] to fund acquisition of the Property, the Class B Member, on behalf of the Company, may apply for and obtain a loan from a banking institution or from a third party...”
Accordingly, in the event the sale of condos was a bust, and a loan could not
be obtained or it did not make sense to obtain a loan, then under paragraph 4 the
Appellee could decide not to buy the Condominium Property for any reason or no
reason at all, return deposits and walk away. But what if it was a home run? What
if it became apparent in time that some subscriptions had been sold too cheaply
-29-
and could have commanded higher prices? Paragraph 4 takes care of this
eventuality too. In that event, the Appellee could line up prospective replacement
subscribers at higher prices, and then reject one or more of the previous
subscriptions at any time in its sole discretion, return the deposits, and sign up
new subscribers at better prices. Paragraph 4 allows the Appellee to get rid of
subscribers and still buy the Condominium Property by simply returning their
deposits and walk away.
Appellee also erroneously argued to the lower court that other consideration
for the Subscription Agreement was the pre-existing contract with a third party to
buy the Condominium Property. Florida law is unequivocally clear on this point.
The Appellee’s alleged pre existing duty to buy the Condominium Property is not
and cannot be consideration for the Subscription Agreement as a matter of law.
The Preexisting Duty Rule does not allow a preexisting duty to be consideration
for a new subsequent agreement like the Subscription Agreement. Schneir v.
State, 43 So. 3d 135 ( Fla. 3d DCA 2010 ); James v. DuBreuil, 385 So. 2d 708
( Fla. 3d DCA 1980 ); Slattery v. Wells Fargo Armored Service Corp., 366 So. 2d
157 ( Fla. 3d DCA 1979 ).
However, there is an aberrant federal case in Florida which has recognized a
narrow exception for a pre existing duty to a third party. Scherer v. Laborers
International Union of North America, 746 F. Supp. 73 ( 1988 ). But this
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exception cannot be applicable when there is an illusory promise in the new
agreement relating to the pre existing duty to the third party. The exception for a
pre existing duty to a third party that the federal court followed in Scherer, supra,
is based on the theory that if the promise made in the new agreement [Subscription
Agreement ] affects the promisors [ Appellee ] rights under a pre existing third
party agreement [ agreement to buy Condominium Property from the third party
seller ], then the giving up of rights under the pre existing third party agreement
may be deemed consideration for the new agreement.
So, the theory is if the promises made by the Appellee to the Appellants
somehow changed Appellees obligations to the third party seller in the alleged
third party agreement to purchase the Condominium Property, then that
theoretically might be consideration for the Subscription Agreement. Three
problems however. One, that is not the Preexisting Duty Rule in Florida. Two,
there is absolutely no evidence in the record below as to the terms or conditions of
any alleged third party purchase agreement, or that there even was one. Third,
since the promises made by the Appellee to the Appellants in the Subscription
Agreement were illusory and unenforceable, there was no way, as a matter of law,
that unenforceable promises in the Subscription Agreement could have in anyway
changed any rights that the Appellee may have had in the alleged third party
agreement to buy the Condominium Property.
-31-
In the instant case, since the Appellee retained unto itself the right not to buy
the Condominium Property for any reason or no reason at all, it clearly did not in
any respect forgo or give up any opportunity it had to get out of the contract with
the third party to buy the Condominium Property.
There is absolutely nothing under Florida law that supports Appellee’s
erroneous argument that the preexisting contract somehow is consideration for the
Subscription Agreement. Moreover, although the Appellee made this argument to
the lower court, it chose not to establish that it even had an agreement with a third
party. Appellee chose not to produce the alleged third party agreement in this
case, and the Subscription Agreement does not state any terms or conditions of the
alleged third party agreement.
The Appellee has made every conceivable argument, regardless of how
ludicrous or far fetched, that there is somehow “other consideration” for the
Subscription Agreement. None of the arguments have any merit whatsoever under
Florida law.
Further, Appellee doing whatever it could to avoid liability on count I filed
two improper affidavits as summary judgment evidence. Count I is a claim
alleging an illusory non enforceable bilateral fully integrated written contract. As
such, the lower court was required to construe the Subscription Agreement within
the four corners of the document itself pursuant to the Parol Evidence Rule. The
-32-
lower court was not allowed to consider any extrinsic evidence unless so allowed
by the Parol Evidence Rule. The lower court did not find or declare any latent
ambiguity or other matter that might allow extrinsic evidence to be admitted into
evidence pursuant to the Parol Evidence Rule. In this regard, the two affidavits
submitted by the Appellee as summary judgment evidence were in violation of the
Parol Evidence Rule. One affidavit was from Daniel Serber Esq. , Appellee’s
attorney who drafted the Subscription Agreement. That affidavit was replete with
impermissible factual allegations, as well impermissible interpretation of the
meaning of the Subscription Agreement. The affidavit was largely lawyer
argument disguised as fact, and the statement of factual evidence not permissible
under the Parol Evidence Rule. Likewise, the other affidavit was from Andres
Klein, the agent of Appellee, who basically stated the same things as Serber. The
Serber and Klein affidavits were intended to corroborate each other.
Appellants filed a motion to strike the affidavits, but the lower court denied
the motion on the grounds that had not had yet read them. Subsequently, on
motion for reconsideration the lower court conceded that it had based it’s ruling
denying the Appellants’ motion for summary judgment as to count I and granting
the Appellee’s cross motion on count I, in part on the affidavits on matters that
were excluded by the Parol Evidence Rule. The interpretation of the Subscription
Agreement should be from within the four corners of the document.
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CONCLUSION AS TO COUNT I
The lower court’s order granting summary judgment for Appellee as to Count
I and denying Appellants’ cross motion for summary judgment as to count I is
erroneous and must be reversed, and a judgment must be entered for Appellants
declaring that the Subscription Agreement is unenforceable and void ab initio
because there was no consideration to form a contract from the inception since
Appellee retained unto itself the option not to perform its promises under the
Subscription Agreement and because the Subscription Agreement was totally
executory as to the Appellee at the Subscription Agreement was terminated. And,
further order that the Appellee shall forthwith return to the Appellants their
payments totaling $3,295,000.00, along with pre and post judgment interest.
SUMMARY OF THE ARGUMENT - COUNT II - PENALTY CLAUSE
Assuming arguendo, that the Subscription Agreement is not an unenforceable
void contract, paragraph 13 of the Subscription Agreement which provides for
forfeiture of all Appellants’ payments totaling $3,295,000.00, is in any event an
unenforceable penalty clause. Under Florida law provisions of a contract which
act as a penalty or a deterrent under the guise of liquidated damages, are never
allowed, Goldblatt, infra.
The Florida Supreme Court has held that if damages are readily
ascertainable, or, if the amount to be forfeited is grossly disproportionate to the
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damages that might reasonably be expected to follow from a breach thereby
showing an intention to induce full performance rather than to liquidate damages,
then a supposed liquidated damages clause must be stricken as a penalty clause.
In the instant case, the damages were readily ascertainable and the amounts
to be forfeited were grossly disproportionate to any reasonably expected damages.
Additionally, with respect to an intention to induce full performance rather than to
liquidate damages, in the instant case there is sworn testimony by the Appellee’s
attorney who drafted the Subscription Agreement, that Appellee’s intent was to
induce the Appellants full performance of the Subscription Agreement.
Accordingly, in the instant case not only is there circumstantial evidence of an
intent to induce full performance rather than to liquidate damages as elicited by
the two pronged test set out by the Florida Supreme Court, but there is also direct
sworn testimonial evidence that it was the Appellee’s intent to induce Appellants
to fully perform the Subscription Agreement.
Additionally, the terms of paragraph 13 of the Subscription Agreement
provided that all amounts paid by the Appellants from time to time during the
pendency of the Subscription Agreement were to be forfeited in the event of a
default regardless of what the actual harm was. Therefore, the Appellee could
collect more than the actual damages suffered. Paragraph 13 gave the Appellee
the potential for windfall profits, in that all of the Appellants’ payments were to be
-35-
forfeited regardless of the total amount of such payments, and regardless of how
the total of such payments relate to any reasonably expected damages. Further, the
Appellee was also allowed, pursuant paragraph 13 of the Subscription Agreement,
to sell the Appellants’ four units to replacement buyers without provision for any
credit or set off whatsoever to be given to the Appellants for amounts paid by
replacement buyers.
Discovery and investigation in this case uncovered that the Appellee realized
a windfall profit of $3,295,000.00 by keeping the Appellants payments because
Appellee had a replacement buyer for the four units Appellants were going to buy.
This Court has held that such a result is unacceptable and unenforceable as it
constitutes an award that is disproportionate to actual harm, operates as a penalty,
and is unconscionable under the circumstances.
In RKR Motors, Inc., infra, this Court held; “The prime factor in
determining whether such sum is a penalty or a forfeiture is whether the sum
named is just compensation for damages resulting from the breach.”
( emphasis original ).
Based on Florida law and the undisputed facts of this case, paragraph 13 of
the Subscription Agreement is an improper penalty clause.
-36-
ARGUMENT - COUNT II- PENALTY CLAUSE
Standard of review.
An order on a motion for summary judgment is reviewed de novo. Gomez v.
Timberoof Roofing Co., Inc. 4D14-4685 ( 2016 ); Weitz Company, LLC v. MCW
Acquisition, LLC, 116 So. 3d 623 ( Fla. 3 DCA 2013 ). rd
Review of an order interpreting a contract is also de novo. Jackson v.
Shakespeare Foundation, Inc., 108 So. 3d 587 ( Fla. 2013 ); Ortiz v. PNC Bank,
National Association, 188 So. 3d 923 ( Fla. 4 DCA 2016 ); Citimortgage, Inc. v.th
Turner, 172 So. 3d 502 ( Fla. 1 DCA 2015 ). st
This standard was well explained by the court in Gilman Yacht Sales, Inc. v.
FNB Investments, Inc. 766 So. 2d 294 ( Fla. 4 DCA 2000 ). The court stated:th
“The interpretation of a written contract is a question of law to be decided by the court. An appellate court is not bound to give the trial judge’s interpretation or construction of a contract any weighted presumption of correctness. To the contrary, a decision construing a contract is reviewable on appeal under a de novo standard of review, and therefore we are required to consider for ourselves anew the meaning of the disputed contractual language.” ( internal citations omitted )
Penalty clause.
Paragraph 13 of the Subscription Agreement operates as a penalty clause
although disguised as a liquidated damages clause. Paragraph 13 provides:
-37-
“If Subscriber fails to make the payments in the manner and the time as set forth in this Subscription Agreement, Subscriber shall be in default and ALL PAYMENTS made by Subscriber shall be retained by the Company as liquidated damages and ( not as a penalty ) and the Subscriber shall not be entitled to receive any distributions from the Company and shall lose all rights in the Company. In such case the Company may assign the unit assigned to Subscriber to another member.” (emphasis added ). Under Florida law provisions of a contract which act as a penalty or deterrent, are never allowed. Goldblatt v. C.P. Motion, Inc. 77 So. 3d 798, 801 ( Fla. 3 DCA 2011 ). rd
In Lefemine v. Baron, 573 So. 2d 326 ( Fla. 1991 ), the Florida Supreme Court held: “...this Court established the test as to when a liquidated damages provision will be upheld and not stricken as a penalty clause. First, the damages consequent upon a breach must not be readily ascertainable. Second, the sum stipulated to be forfeited must not be so grossly disproportionate to any damages that might reasonably be expected to follow from a breach as to show that the parties could have intended only to induce full performance, rather than to liquidate their damages.”
The damages consequent on a breach were readily ascertainable.
In “RECITALS” paragraph “A” of the Subscription Agreement it states that
the Appellee entered into an agreement with a third party to buy the Condominium
Property before it entered into the Subscription Agreement with the Appellants.
Moreover, the Subscription Agreement provides that the Condominium Property
units 101,102,103,and 104 were being sold to the Appellants for an aggregate
-38-
price of $5,650,000.00, plus a percentage share of closing costs.
Accordingly, at the time the Appellee entered into the Subscription Agreement
with the Appellants, the Appellee knew the purchase price it was to pay the third
party seller for the Condominium Property, and Appellee also knew how much the
Appellants were going to pay Appellee for the four units they were buying.
Since both the cost of the Condominium Property and the selling price of the
four units were known to the Appellee at the time the Subscription Agreement was
entered into, the damages were readily ascertainable at the time the Subscription
Agreement was entered into. To-wit; the lost profit on the sale of units101,102,
103, and 104 of the Condominium Property.
In RKR Motors, Inc. v. Associated Uniform Rental & Linen Supply, Inc. 995
So. 2d 588 ( Fla. 3d DCA 2008 ), this Court found the argument that precise
damages were not readily ascertainable not to be persuasive, because preciseness
is not the legal standard. Rather damages must be readily ascertainable, and they
must compensate for actual damages resulting from the breach, and that a more
formulaic approach for calculating damages such as one for lost profit should have
been used.
The Appellee attempted to avoid the fact that the damages were readily
ascertainable by erroneously arguing in the lower court that there were
hypothetical and speculative other damages that could have been sustained
-39-
besides its lost profit on the four units being sold to the Appellants, and Appellee
argued that those damages were not readily ascertainable.
The Appellee made several specious arguments in this regard in the lower
court. Appellee argued that if 100% of the subscribers for all the units in the
Condominium Property did not make all of their respective payments when due,
the whole project could fall apart based on the way Appellee had structured the
deal, and that the Appellee could also lose a deposit it made to the third party
seller of the Condominium Property.
The Appellee attempts to hold each and every subscriber in the Condominium
Property responsible for all possible damages as to the whole project if any one of
the many subscribers failed to make a single payment when due. Such an
argument is ludicrous in the extreme.
Moreover, there is nothing in the form Subscription Agreement that would in
any way put the Appellants, or other subscribers, on notice as to any of these
hypothetical and speculative damages that the Appellee wants to hold them
responsible for.
There is absolutely no mention in the Subscription Agreement as to how the
Appellee structured the deal, and there is no mention of any of the terms and
conditions between the Appellee and the third party seller of the Condominium
Property. There was no way that the Appellants could have reasonably anticipated
-40-
or expected any damages except for possible lost profit on the four units they
were to purchase. And as far as lost profit on the four units is concerned, only the
Appellee would know what that would be, since the Appellee was the only one
who knew how much they were paying for the Condominium Property.
Additionally, the Appellee never told the Appellants anything that would
result in the Appellants knowing about any of the speculative and hypothetical
damages that the Appellee argues. In this regard, the summary judgment affidavit
of Appellant Shimon ( “Shimon affidavit” ) was corroborated by the deposition
testimony of Andres Klein a Manager and agent of Appellee.
The Shimon Affidavit stated: that she was never told about any of the terms
or conditions of the alleged agreement that Appellee supposedly had with a third
party to buy the Condominium Property; and, she was never told what the capital
contributions referred to in the Subscription Agreement were going to be used for;
and, she was never told that if every subscriber for all the units in the
Condominium Property did not make all their payments timely, that the Appellee
might not be able to buy the Condominium Property. Appellee’s Manager Andres
Klein, testified that he is the one who met with Appellant Shimon to sell her the
four units and he stated in his deposition testimony that he never told her any of
the things mentioned in Appellant Shimon’s affidavit . Andres Klein said he did
not think it was necessary to tell her such things.
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If the Appellee’s argument is given any credence whatsoever, then damages
would never be readily ascertainable according to the Appellee’s argument. There
could always be theoretical and speculative other damages, and they clearly would
never be readily ascertainable if one party never told the other party as to what
the damages might be under a potential or theoretical worst case scenario.
In the instant case, the damages if the Appellants did not close were readily
ascertainable at the time the Subscription Agreement was entered into, making
paragraph 13 of the Subscription Agreement an unenforceable penalty clause
pursuant to the holding in Lefemine, supra.
The sum forfeited was grossly disproportionate to reasonably expected damages.
The Florida Supreme Court in Lefemine, supra, is clear that the sum
stipulated to be forfeited must not be grossly disproportionate to damages that
might reasonably be expected to follow from a breach that shows the parties
intended to induce full performance, rather than to liquidate damages.
For the reasons stated hereinabove, it is clear that the Appellants had no
knowledge of, and could not have reasonably expected any of the theoretical and
hypothetical damages the Appellee argues. The only damages that could be
reasonably expected was loss of a profit on the four units the Appellants were
going to purchase.
In the instant case the forfeited amount exceeds 58% of the purchase price.
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When a supposed liquidated damages amount exceeds 10% of the purchase price,
it is suspect as being a penalty to induce performance rather than a bona fide
attempt to liquidate damages. Also, amounts of 50% or more of the purchase price
almost always are held to be penalty clauses. Berndt v. Bieberstein, 465 So. 2d
1264 ( Fla. 2d DCA 1985 ) disallowing alleged liquidated damages of over 55% of
the purchase price. Retaining 50% of the purchase price paid as a deposit was
shocking to the court. McNorton v. Pan Am. Bank of Orlando, 387 So. 2d 393
( Fla. 5 DCA 1980 ). Also see, Hot Developers, Inc. v. Willow Lake Estates, Inc.,th
950 So. 2d 537 ( Fla. 4 DCA 2007 ) for a review by the court of various caseth
findings as to the percentage range for liquidated damages versus a penalty.
With respect to an intention to induce full performance rather than to
liquidate damages, in the instant case there is sworn testimony by the Appellee’s
attorney who drafted the Subscription Agreement, that Appellee’s intent was to
induce the Appellants full performance of the Subscription Agreement.
( DT Daniel Serber, Esq. , SR. 9, pp. 1256-1524; App. 9 ). So, in addition to the
circumstantial evidence from the two pronged test created by the Florida Supreme
Court in Lefemine, supra, there is the direct evidence of the intent to induce full
performance by the attorney who drafted the Subscription Agreement.
Additionally, Paragraph 13 of the Subscription Agreement calls for the forfeiture
of all payments made by the Appellants and therefore the forfeiture amount, by
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definition, cannot in any respect relate to reasonably expected damages. Pursuant
to the provisions of paragraph 13 of the Subscription Agreement the amount to be
forfeited could vary from -0- to $5,650,000.00, because it arbitrarily depends on
the total of all payments made at time of default.
The Subscription Agreement required the Appellants to pay a larger and
larger amount of the purchase price as time passed even though the Subscription
Agreement remained totally executory on the part of the Appellee, and required no
action or obligation whatsoever on the part of the Appellee as more and more
payments were required to be made. As more payments were made, they all
became subject to potential forfeiture under paragraph 13, and the more motivated
the Appellants would become to fully perform the Subscription Agreement, or
said another way, the more of a deterrent it became for the Appellants not to fully
perform the Subscription Agreement. Such a provision is an illegal penalty to
coerce and induce full performance.
Such a supposed “liquidated damages” formula has absolutely no relationship
whatsoever to any reasonably expected actual damages, but it is simply a method
of inducing full performance. This point is brought into sharp focus by the fact
that the Appellants made an extra payment of $1,600,000.00 on November 11,
2013 which was not due under the Subscription Agreement until the final payment
was due. Had the early payment not been made by the Appellants on November
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11, 2013, then at the time of the alleged default on December 16, 2013 the
liquidated damage amount under paragraph 13 would have been $1,695,000.00
instead of $3,295,000.00. This is so, because had the early payment not been made
the total of the prior payments paid under the Subscription Agreement would have
been $1,695,000.00 and not $3,295,000.00.
The liquidated damages amount is unconscionable under the circumstances.
Assuming arguendo, that paragraph 13 is otherwise enforceable, this Court,
as well as others, have held that equity will relieve against its enforcement when
the liquidated damages amount is unconscionable under the circumstances. RKR
Motors, Inc. v. Associated Uniform Rental & Linen Supply, Inc. 995 So. 2d 588
( Fla. 3d DCA 2008 ); Hutchison v. Tompkins, 259 So. 2d 129 (Fla. 1972 );
Coleman v. B.R. Chamberlain & Sons, Inc., 766 So. 2d 427 ( Fla. 5 DCA 2000 );th
Perez v. Aerospace Academy, Inc., 546 So. 2d 1139( Fla. 3d DCA 1989 ).
The Appellants’ claims in this case were brought in law and equity pursuant
to Chapter 86, Florida Statutes. Accordingly, equitable relief is proper and
appropriate in this case. Notwithstanding that the Appellee attempted to hide
material facts from the lower court, Appellants and Appellants’ counsel, such
hidden facts were ultimately discovered and are in the record.
In this regard, the Appellee and its counsel caused two affidavits to be filed in
support of and in opposition to the cross motions for summary judgment filed by
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the parties as to counts I and II. One affidavit was from Daniel Serber, Esq. the
attorney for the Appellee who drafted and prepared the Subscription Agreement
and handled all legal matters pertaining to the Condominium Property project .
The second affidavit was from Andres Klein, an agent of the Appellee. The
following statement is in paragraph 31 of both the Serber and the Klein affidavits:
“ The closing of the Property acquisition occurred on February 28, 2014, using funds received from all the Subscribers, plus additional funding secured by the Class B Member to complete the shortfall created by Plaintiff’s default.”
Upon investigation, Appellants filed and served a request that the lower
court take judicial notice of certain documents filed in the public records of
Miami-Dade County, Florida by the Clerk of Courts. ( R. vol. 4, pp. 581-684 ).
Based on the documents filed and served for which the lower court was required to
take judicial notice, several important facts were determined.
First, the deed into the Appellee for the Condominium Property was
recorded February 28, 2014 and corroborates part of the statement in paragraph 31
of the Serber Affidavit and the Klein Affidavit that; “The closing of the Property
acquisition occurred on February 28, 2014...” Based on the documentary tax
paid, as certified on the deed by the Clerk of Courts, Appellee paid the third party
seller $23,750,000.00 for the Condominium Property. Since the Appellee
represents that it had previously paid a $1,100,000.00 deposit to the third party
seller, and since the Subscribers paid all closing costs in addition to the purchase
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price of their respective units, the Appellee needed $22,650,000.00 to pay the
purchase for the Condominium Property on February 28, 2014.
Secondly, on March 3, 2014, Appellee recorded the deeds whereby Appellee
conveyed to the various subscribers their respective units in the Condominium
Property ( including the replacement buyer for the Appellants’ units 101,102,103,
and 104 ), for an aggregate sales price, exclusive of the additional amounts paid by
the subscribers for closing costs, of $32,029,625.00. Again the sales price was
determined from the documentary tax amounts paid as certified on the deeds by
the Clerk of Courts. This means that the Appellee had $9,379,625.00 more than it
needed to close on the purchase of the Condominium Property. And, if you add to
that the $3,295,000.00 that the Appellee kept and did not give back to the
Appellants, then the Appellee had $35,324,625.00, which is $12,674,625.00 more
than it needed to purchase the Condominium Property.
Third, the replacement buyer for units 101,102,103, and 104 which were the
units the Appellants were going to buy, paid the Appellee $5,500,000.00 for those
four units, with that purchase price being determined from the documentary tax
shown as paid on the deed to the replacement buyer as certified by the Clerk of
Courts. This resulted in a windfall profit to the Appellee of $3,295,000.00 on the
sale of 101,102,103, and 104. That is, Appellants $3,295,000.00 that Appellee
wrongfully kept. Despite the efforts by the Appellee to conceal the facts, the
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record is clear that not only did the Appellee not have any actual damages in the
instant case, but Appellee realized a windfall profit.
In RKR Motors, Inc., supra, this Court stated; “The prime factor in
determining whether such sum is a penalty or a forfeiture is whether the sum
named is just compensation for damages resulting from the breach.”
( emphasis original ).
There is nothing just and proper about the Appellee keeping the Appellants
$3,295,000.00 under the facts and circumstances of this case. And, it is submitted
that the Appellee completely understood that it was improper and unjust for it to
keep the Appellants money, and that is why Appelleedid not disclose and
attempted to conceal the fact that the Appellee had a replacement buyer who had
paid Appellee in full before the Appellee ever purchased the Condominium
Property.
CONCLUSION AS TO COUNT II
The lower court’s order granting summary judgment for Appellee as to Count
II and denying Appellants’ cross motion for summary judgment as to count II is
erroneous and must be reversed, and a judgment entered for Appellants declaring
that paragraph 13 of the Subscription Agreement is unenforceable as a penalty
clause because damages were readily ascertainable, and because the amount
forfeited in excess of 58% of the purchase price shows, along with other evidence,
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that the intent was to induce full performance of the Subscription Agreement
rather than to liquidate damages, and because forfeiture of Appellants
$3,295,000.00 is unconscionable under the facts and circumstances of this case.
And, further order that the Appellee shall forthwith return to the Appellants their
payments totaling $3,295,000.00, along with pre and post judgment interest.
Respectfully submitted, RICHARD J. LEE, P.A. 3230 Stirling Road Suite 1 Hollywood, Florida 33021 305-598-0816 Email: [email protected] Co-Counsel for Appellants
By: Richard J. Lee SS/ FBN 230162
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing was served viaemail on this 27th day of December, 2016 to: Jonathan A. Heller, P.A.,[email protected], [email protected], [email protected]; and to JayM. Levy, P.A., [email protected]; [email protected].
Richard J. Lee SS/ RICHARD J. LEE
CERTIFICATE OF COMPLIANCE
I HEREBY CERTIFY that this Initial Brief is prepares in Times New Roman 14 -point font.
Richard J. Lee SS/ RICHARD J. LEE
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