Houston Humphreys LLC v. Houston Street Partners, LLC et al.

This appeal concerns the purchase and sale agreement for a 98,094-square-foot, multi-use commercial development in Nashville, Tennessee, known as Houston Station. Before marketing the property for sale, the defendant-seller discovered that approximately 100 square feet of the building encroached on neighboring property owned by CSX Transportation, Inc. and sought a lease from CSX to cover the encroachment. But before it could reach an agreement with CSX, the seller agreed to sell the property to the plaintiff-buyer. The buyer deposited $3 million as earnest money, and the parties scheduled a closing. Before closing, however, CSX demanded $550,000 per year for the encroachment. The seller then informed the buyer that it could not meet its obligations under their agreement. Meanwhile, the seller breached the agreement by executing two new leases without the buyer’s approval. The buyer extended the closing several times to allow the seller to cure its defaults, but the seller refused to terminate the new leases and could not reach a mutually agreeable arrangement with CSX. The buyer then let the closing deadline lapse and sued for, inter alia, reformation of the purchase agreement, specific performance, and damages. The seller then moved for summary judgment and requested an award of the earnest money on the theory that the buyer waived its objections by allowing the closing deadline to lapse. The trial court granted the motion, reasoning that the buyer had constructive notice of the encroachment and then breached the purchase agreement by failing to buy the property. Accordingly, the court found the seller was entitled to the $3 million deposit as liquidated damages and an award of attorneys’ fees and expenses under the agreement as the prevailing party. The buyer appeals. Following a thorough review, we respectfully disagree that the buyer had constructive notice that the seller did not have good and marketable title. We also disagree that the seller had a right to terminate the contract and receive the earnest money. Thus, we reverse the trial court’s judgment and remand for further proceedings consistent with this opinion.