Avery v. Hughe

Filing

OPINION issued by Michael Boudin, Appellate Judge; Bruce M. Selya, Appellate Judge and Jeffrey R. Howard, Appellate Judge. Published. [10-2379]

Case: 10-2379

Document: 00116293289

Page: 1

Date Filed: 11/18/2011

Entry ID: 5596940

United States Court of Appeals
For the First Circuit

No. 10-2379
JANE C. AVERY,
Plaintiff, Appellee,
v.
ROBERT W. HUGHES,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Joseph A. DiClerico, Jr., U.S. District Judge]

Before
Boudin, Selya and Howard,
Circuit Judges.

William C. Saturley, with whom Preti, Flaherty, Beliveau &
Pachios, LLP was on brief, for appellant.
Martin P. Honigberg, with whom Sulloway & Hollis, P.L.L.C. was
on brief, for appellee.

November 18, 2011

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SELYA, Circuit Judge. When defendant-appellant Robert W.
Hughes failed to close on a real estate purchase and sale agreement
(the Agreement), the seller retained his deposit, sold the property
to a third party for a lower price, and assigned its claim for the
price differential to plaintiff-appellee Jane C. Avery.
sued.

Avery

The defendant resisted, arguing that the circumstances

evinced the

parties'

liquidated damages.

intent

that

the deposit

would

serve as

The district court rejected the defendant's

position and construed the Agreement as allowing the recovery of
actual damages.

Avery v. Hughes, No. 09-cv-265, 2010 WL 3211069

(D.N.H. Aug. 11, 2010).

The defendant appeals.

We affirm.

The court below made its critical contract-interpretation
ruling on summary judgment. Consequently, we derive the facts from
the summary judgment record and rehearse them in the light most
flattering to the party against whom summary judgment was granted.
Foote v. Town of Bedford, 642 F.3d 80, 81 (1st Cir. 2011).
The plaintiff is a citizen and resident of Maine.

In

April of 2006, her mother died and, by will, named the plaintiff as
a co-executor of her estate (hereinafter variously the Estate or
the seller).

She also bequeathed to the plaintiff her house at 75

South Main Street, Wolfeboro, New Hampshire.

The house fronts on

picturesque Lake Winnipesaukee.
The plaintiff took title to the property, subject to the
rights of the Estate.

The Estate had few assets and retained the

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residual right to sell the house to the extent necessary to satisfy
creditors' claims.
plaintiff,

as

sole

See N.H. Rev. Stat. Ann. §§ 554:17, 559:1.
devisee,

leftover sale proceeds.

would

in

that

event

receive

The
any

Id. §§ 559:6, 559:19.

When an appraisal valued the property at $1,750,000, the
co-executors retained Prudential Spencer-Hughes (Prudential), a
real estate brokerage firm, to market it. The defendant, a citizen
and resident of New Hampshire, owns and operates Prudential.
As time went on, the defendant expressed an interest in
acquiring the lakefront home.

In March of 2007, the Estate and the

defendant entered into the Agreement, with Prudential acting as a
dual (disclosed) agent.

The purchase price was $1,600,000.

Certain provisions of the Agreement are of paramount
importance to the issues on appeal.

Paragraph 3 required the

purchaser to make a $25,000 deposit, by a personal check, "to be
held in an escrow account."

Paragraph 14, entitled "Liquidated

Damages," stated in pertinent part:
If BUYER shall default in the performance of
their obligation under this Agreement, the
amount of the deposit may, at the option of
SELLER, become the property of SELLER as
reasonable liquidated damages.
Paragraph 17, entitled "Additional Provisions," included language
specially inserted into the printed form, which reads:
Should the seller accept the terms and
conditions of the sale including the owner
financing contingency, the buyer's deposit
becomes non-refundable and will be released to
the seller prior to the buyer moving into the
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home, or
first.

March

Page: 4

15th

Date Filed: 11/18/2011

2007,

whichever

Entry ID: 5596940

comes

The Agreement impressed some unusual conditions on the
transaction.

For one thing, the seller covenanted in a separate

agreement (the Lease) to lease the premises to the defendant at a
rate of $3,000 per month.

Although the Agreement and the Lease

were set out in separate documents, they were interconnected; the
parties intended that the defendant would lease the property until
the closing of the purchase and sale transaction.

To this end, the

parties made the Agreement contingent on the Lease.
For another thing, the Agreement required the seller to
provide purchase money financing.

Specifically, the seller agreed

to take back a first mortgage for $1,250,000.

The remainder of the

purchase price — $325,000 — would be paid at the closing, which was
scheduled to take place on or before November 30, 2007.
After the parties executed the Agreement and the Lease,
the defendant tendered the deposit by a personal check dated April
12, 2007, in the amount of $25,000.

This check was delivered

directly to the seller, thus bypassing the Agreement's escrow
provision.1

It was deposited in May.

For several months thereafter, the defendant occupied the
residence.

As November approached, the parties agreed to postpone

1

Because this departure does not affect the resolution of the
issues on appeal, we do not dwell on it.
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the closing until February of 2008 to accommodate the Estate's
administrative needs.
At

the

end

of

2007,

the

relationship soured.

The

defendant continued to occupy the premises but stopped paying rent
and other charges due under the Lease.

The seller offered to make

various compromises, including further extensions of the closing
date, in order to facilitate the purchase and sale transaction.
These offers were unrequited and, by March 21, 2008, the defendant
had notified the seller that he would not be able to close.

By

mid-April, the defendant had abandoned the Lease and moved out of
the house.
Even

though

the

Agreement

had

cratered,

the

Estate

continued to work with Prudential to find a new buyer for the house
in what was by now a depressed market. The house was relisted and,
in August of 2008, sold to a third party for $1,200,000.
The Estate assigned its claims against the defendant to
the plaintiff, thereby unifying the causes of action resulting from
the defendant's breach of the Agreement and the Lease.

The

plaintiff filed suit in New Hampshire's federal district court. In
separate counts, her complaint claimed damages stemming from the
defendant's failure to perform his obligations under the Lease
(count 1) and damages for breach of the Agreement (count 2).

The

largest portion of her claimed damages derived from the $400,000
differential between the purchase price specified in the Agreement

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and the

price

actually

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paid

Date Filed: 11/18/2011

by the

eventual

buyer

Entry ID: 5596940

(adjusted

downward by the retained $25,000 deposit).
At the close of discovery, the plaintiff moved for
partial summary judgment.

The defendant opposed the motion.

With

respect to the breach-of-contract count, the defendant conceded
that

he

had

not

performed.

He

insisted,

however,

that

plaintiff's damages should be confined to the deposit.

the

In his

view, the terms of the Agreement were ambiguous, and he presented
evidence

indicating

that,

all

along,

he

had

considered

his

liability for a breach to be limited to the $25,000 deposit as
liquidated damages.
The district court rejected the defendant's importunings.
It found the Agreement unambiguous and concluded that the plain
language of paragraphs 14 and 17 gave the seller the right, in the
event of a breach, both to retain the deposit and to seek recovery
of actual damages.

Avery, 2010 WL 3211069, at *7-8.

The court

determined that the seller had not exercised its option to treat
the deposit as liquidated damages and thus granted partial summary
judgment to the plaintiff on the breach-of-contract count.2

Id. at

*8-9.

2

In the same rescript, the district court granted summary
judgment on the breach-of-lease count, see Avery, 2010 WL 3211069,
at *3-6, and the defendant does not challenge that ruling on
appeal.
We therefore limit our discussion to the breach-ofcontract count.
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After the district court denied the defendant's motion
for reconsideration, it held a trial on the issue of damages. With
respect to count 2, the jury awarded the plaintiff $263,734.25.
This timely appeal followed.
"We review orders granting or denying summary judgment de
novo,

considering

the

record

and

all

reasonable

inferences

therefrom in the light most favorable to the non-moving part[y]."
Estate of Hevia v. Portrio Corp., 602 F.3d 34, 40 (1st Cir. 2010).
We will affirm only if the record reveals "that there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law."

Fed. R. Civ. P. 56(a).

This case is being litigated in a federal court because
of the diverse citizenship of the parties and the existence of a
controversy in the requisite amount.

See 28 U.S.C. § 1332(a).

New

Hampshire law prescribes the substantive rules of decision, see
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938), including
relevant rules governing contract interpretation.

See Eaton v.

Penn-Am. Ins. Co., 626 F.3d 113, 114 (1st Cir. 2010).
The defendant attacks the district court's interpretation
of the Agreement on two fronts.

First, he claims that when he

entered into the Agreement he understood paragraphs 14 and 17 to
limit his exposure to damages for breach to $25,000.

Describing

the contractual language as ambiguous, he maintains that the court
ought to have left the question of the parties' intent to the
factfinder. See Rest. Operators, Inc. v. Jenney, 519 A.2d 256, 258
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(N.H. 1986) (explaining that while contract interpretation is a
matter of law, disputes over the meaning of ambiguities should be
resolved by the trier of fact).
Second, he claims that there is a genuine issue of fact
as to whether the Estate's acceptance of the deposit in May of 2007
constituted an election to take liquidated damages under the
Agreement. This factual issue is material, he says, because under
New Hampshire law a seller cannot both retain a deposit and seek
actual damages.

Neither contention is persuasive.

To begin, contractual language is ambiguous only "if the
parties to the contract could reasonably disagree as to the meaning
of that language."
2010).

In re Taber-McCarthy, 993 A.2d 240, 244 (N.H.

Unlike beauty, ambiguity does not lie in the eye of the

beholder.

Rather, an ambiguity exists only when the parties

present reasonable but conflicting interpretations of a contractual
provision.

Lassonde v. Stanton, 956 A.2d 332, 342 (N.H. 2008).

If

a contractual provision is not susceptible of reasonable but
conflicting interpretations, it is not ambiguous.

See Greenhalgh

v. Presstek, Inc., 886 A.2d 1000, 1003 (N.H. 2005).

Absent any

ambiguity, an inquiring court must look to the "plain meaning of
the language used."

Id.

This black-letter law is dispositive here. Paragraphs 14
and 17, whether taken singly or in combination, are free from
ambiguity because they can reasonably be read in only one way.

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Paragraph 14 is written with conspicuous clarity.

It

gives the seller the option to decide whether it wishes to retain
the deposit as liquidated damages.
bell.

That language is clear as a

Paragraph 17 does not restrict this unfettered option but,

rather, indicates that once the seller accepts the terms of the
Agreement,

the

deposit

becomes

nonrefundable.

This

nonrefundability language does not limit the option granted to the
seller under Paragraph 14.

The reason for making the deposit

nonrefundable is to provide consideration for the commitment to
extend purchase money financing as well as for the Agreement
itself.
Nothing

in

these

paragraphs,

or

elsewhere

in

the

Agreement, compels the seller to treat the deposit as liquidated
damages.

The defendant may have believed that to be the case, but

an unreasonable belief about the meaning of a contract term is
insufficient to ground a viable claim of ambiguity.

See Oliva v.

Vt. Mut. Ins. Co., 842 A.2d 92, 95 (N.H. 2004); cf. Allen v. Adage,
Inc., 967 F.2d 695, 702 & n.7 (1st Cir. 1992) (declining to use a
party's self-serving and unsubstantiated belief about a contract
term to determine its meaning).

The short of it is that the

defendant's

series

claim

depends

on

a

of

mental

gymnastics

inconsistent with the plain meaning of the language used.

Where,

as here, the pertinent contract terms are subject to only one
reasonable

interpretation,

that

controls.
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interpretation

necessarily

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The defendant cites C & M Realty Trust v. Wiedenkeller,
578 A.2d 354 (N.H. 1990), for the proposition that a nonrefundable
deposit already in the hands of the seller may serve as liquidated
damages.

This proposition is sound, but it does not benefit the

defendant.
In C & M Realty, the contract at issue contained language
identical to that in paragraph 14.
different.

But the facts were materially

There, the plaintiff sued to recover $100,000 of its

deposit, which the defendant had retained as liquidated damages
after the plaintiff's breach. Id. at 356. Importantly, the seller
in that case had explicitly elected the option of retaining the
deposit as liquidated damages.

Id.

this case made no such election.

By contrast, the seller in
Hence, C & M Realty is

inapposite.
In an effort to shift the trajectory of the debate, the
defendant invokes the election of remedies doctrine. This doctrine
provides that "liquidated damages and actual damages are, absent
express language permitting recovery of both, mutually exclusive
remedies, [so] that where an election is permitted, the election of
one remedy bars pursuit of the other."
1190, 1196 (N.H. 2008).

Orr v. Goodwin, 953 A.2d

Here, the defendant asserts that there is

a genuine issue of material fact as to whether the seller elected
to retain the $25,000 deposit as liquidated damages.

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This is wishful thinking.

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Entry ID: 5596940

Genuine issues of material

fact cannot be plucked out of thin air but, rather, must spring
from the record.
The election of remedies doctrine dictates that when a
party elects to retain a deposit as liquidated damages, he cannot
in addition seek actual damages.

See id.

Here, however, there is

not a shred of evidence that the seller either elected liquidated
damages or sought actual damages on top of liquidated damages. The
seller never chose liquidated damages at all.
Struggling to overcome this dearth of factual support,
the defendant analogizes this case to Orr and suggests that a party
need not make an affirmative election to choose liquidated damages.
While it is possible to make an election of remedies by conduct
rather than by words, the proposed analogy is deeply flawed.
In Orr, the purchasers of real and personal property
committed a breach of the relevant agreement after tendering a
$25,000 deposit. Id. at 1193. The agreement contained a provision
similar to

paragraph

14,

which

provided

the

sellers

"option" to retain the deposit as liquidated damages.

with
Id.

an
The

sellers kept the $25,000 and did not communicate with the defaulted
purchasers for over a year after learning of the breach.

Id.

On

these facts, the court concluded that the sellers had chosen their
remedy and could not double back for a second bite at the cherry.
Id. at 1195-97.

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The case at hand is cut from different cloth.

In Orr,

the sellers were held to have elected liquidated damages because
they kept the deposit and had "virtually no further contact" with
the purchasers for a long period of time after learning of the
breach.
conduct.

Id. at 1193.

So viewed, Orr is a case of an election by

See, e.g., Ricker v. Mathews, 53 A.2d 196, 199 (N.H.

1947); 27 Richard A. Lord, Williston on Contracts § 69:56, at 168
(4th ed. 2003).
Here,

however,

the

seller

did

plausibly give rise to a similar inference.

nothing

that

might

An attorney for the

seller told the defendant, within a reasonable time after the
defendant notified the seller that he would be unable to perform,
that the seller would not exercise its liquidated damages option.
Given this prompt and explicit disclaimer of the right to retain
the

deposit

as

liquidated

damages,

Orr

is

quite

plainly

distinguishable.
The defendant's fallback position is that the seller's
acceptance and retention of the deposit in May of 2007 gave rise to
an inference that it elected the liquidated damages option.
is sheer persiflage.

This

The defendant's breach did not occur until

much later, and there was no requirement that the seller make an
election immediately upon receiving the deposit.

On this record,

inferring an election would be unreasonable.
In a last-ditch effort to snatch victory from the jaws of
defeat,

the

defendant

suggests
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that

our

reading

makes

the

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liquidated damages provision superfluous.

He is wrong.

Entry ID: 5596940

Had the

seller been able to market the property to a third party at a price
higher than that specified in the Agreement, it could have elected
to retain the deposit as liquidated damages and, thus, receive a
windfall.

See C & M Realty, 578 A.2d at 356.
The script in this case played out differently.

The

defendant's breach left the seller facing a depressed market, and
the seller eschewed the opportunity to claim the $25,000 deposit as
liquidated damages, put the property up for sale, and sought actual
damages for the difference between the price specified in the
Agreement and the lower price actually obtained.

The Agreement

entitled the seller to follow this course of action.
We need go no further. The only plausible interpretation
of the Agreement is that it gives the seller the choice of whether
to retain the deposit as liquidated damages or instead to retain
the deposit and seek actual damages.

The seller chose to pursue

the latter alternative, and the plaintiff as the seller's assignee
exercised that right and proffered the evidence needed for a
recovery.

The failure of the defendant's claims of error follows

inexorably.

Affirmed.

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