RALPH THOMAS and CAROLEE THOMAS, husband and wife, Plaintiffs/Appellees,
MONTELUCIA VILLAS, LLC, a Delaware limited liability company, Defendant/Appellant.
Appeal from the Superior Court in Maricopa County, No. CV2009-004659 The Honorable J. Richard Gama, Judge
Opinion of the Court of Appeals, Division One, No. 1 CA-CV 10-0761 229 Ariz. 308, 275 P.3d 607 (App. 2012)
BEUS GILBERT PLLC Phoenix By Franklyn D. Jeans Tiffany E. Cale Cassandra H. Ayres Attorneys for Ralph Thomas and Carolee Thomas.
LAKE & COBB, P.L.C. Tempe By Joel E. Sannes Kiel S. Berry Blake Rebling Attorneys for Montelucia Villas, LLC.
Robert M. Brutinel, Justice
¶1 Buyers of a new home anticipatorily breached the purchase contract and then sued to recover progress payments made to the seller during the home's construction. The contract provided that these payments were to serve as liquidated damages in the event of the buyer's breach. We hold that the defendant seller, in order to retain the payments, must prove that it was ready, willing, and able to perform under the contract.
¶2 On January 20, 2006, Ralph and Carolee Thomas signed a contract with Montelucia Villas, LLC for the construction of a custom villa for $3, 295, 000. As part of the purchase agreement, the Thomases made three installment deposits totaling $659, 000, or twenty percent of the villa's purchase price. The remainder of the purchase price was due at close of escrow. Although the deposits became due as construction progressed and could be used by Montelucia rather than held in escrow, the contract characterized them as "earnest money deposits." The contract also provided, however, that Montelucia could elect to treat the payments as liquidated damages if the buyers breached.
¶3 On April 25, 2008, Montelucia notified the Thomases by letter that it had set the closing date for May 16. When the letter was sent, Montelucia did not have a certificate of occupancy for the property, which the contract required as a condition for closing escrow.
¶4 The Thomases responded on May 6 with a letter stating that they would not close on May 16 and they were terminating the purchase contract because the agreement was illusory, Montelucia had not performed, and Montelucia had violated Arizona statutes governing the sale of subdivided land. The letter asked Montelucia to return the $659, 000 in deposits. Montelucia did not respond to the letter or refund the deposits. Instead, it unsuccessfully attempted to obtain a certificate of occupancy for the property on May 8 and May 14. Montelucia ultimately obtained the certificate on August 27.
¶5 In February 2009, the Thomases sued to recover the deposits. Montelucia counterclaimed for breach of contract. On cross-motions for summary judgment, the trial court ruled that Montelucia had breached the contract by, among other things, not completing certain resort amenities, access points, and infrastructure and not providing a certificate of occupancy by the closing date. The court concluded that the Thomases were entitled to a refund of the $659, 000 in deposits.
¶6 The court of appeals reversed and remanded, holding that the Thomases had anticipatorily repudiated the contract by sending the May 6 letter. Thomas v. Montelucia Villas, LLC, 229 Ariz. 308, 310 ¶ 7, 275 P.3d 607, 609 (App. 2012) . The court concluded that because Montelucia was not a plaintiff seeking affirmative relief, but instead was seeking to retain the deposits in the face of the Thomases' lawsuit, Montelucia was not required to show its ability to perform. Id. at 310-11 ¶¶ 8, 10, 275 P.3d at 609-10.
¶7 We granted review to address whether a defendant must prove ability to perform to retain damages for anticipatory repudiation, a recurring issue of statewide importance. We have jurisdiction under Article 6, Section 5(3) of ...