Ralph and Carolee Thomas v. Montelucia Villas
302 P.3d 617
Ariz.2013Background
- Thomases contracted with Montelucia Villas to build a custom villa for $3,295,000 and paid $659,000 in installments as construction progressed.
- The contract labeled deposits as earnest money but allowed Montelucia to treat them as liquidated damages if the buyers breached.
- Closing was set for May 16, 2008; no certificate of occupancy existed then as required by the contract.
- Thomases terminated May 6, 2008, asserting illusory contract, failure of Montelucia to perform, and statutory issues; Montelucia later obtained a CO on August 27, 2008.
- The trial court awarded the Thomases a refund of the deposits; the court of appeals reversed, holding anticipatory repudiation allowed Montelucia to retain deposits without proving ability to perform; Supreme Court vacated and remanded to require proof of ability to perform.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Must a defendant prove ability to perform to retain liquidated damages for anticipatory repudiation? | Thomases argue Montelucia need not prove ability to perform. | Montelucia argued deposits were forfeitable as earnest money. | Yes; burden lies on Montelucia to prove ability to perform to retain deposits. |
| Are the deposits earnest money or progress payments? | Deposits were earnest money under the contract. | Deposits functioned as progress payments enabling construction. | Deposits classified as progress payments, not earnest money. |
| Did anticipatory repudiation by Thomases excuse Montelucia from performance and entitle it to damages? | Thomases repudiated, excusing Montelucia’s performance obligations. | Anticipatory repudiation creates damages only if the non-repudiating party was ready to perform. | Anticipatory repudiation excused performance; damages require proof of readiness to perform by the non-repudiating party. |
Key Cases Cited
- United California Bank v. Prudential Insurance Co. of America, 140 Ariz. 238, 681 P.2d 390 (Ariz. 1983) (repudiation damages require readiness to perform for recovery)
- Brigham v. First National Bank of Arizona, 129 Ariz. 160, 629 P.2d 996 (App. 1981) (earnest money vs. liquidated damages; portrayal of earnest money)
- Esplendido Apartments v. Olsson, 144 Ariz. 355, 697 P.2d 1105 (App. 1984) (earnest money versus progress payments context)
- Mech. Air Engineering Co. v. Totem Construction Co., 166 Ariz. 191, 801 P.2d 426 (App. 1989) (liquidated damages and breach proof burden)
- Bowen v. Kore11, 587 P.2d 653 (Wy. 1978) (discussion of liquidated damages and breach elements)