Confidential

Facts

Margaret and Ralph Murphy entered into a real estate purchase option agreement with Center of Praise Ministries for a three year period. The price upon exercise of the option was $1.6 million. Center of Praise deposited $15,000 toward exercising its option. Before making any other payments, Center of Praise assigned the option to Mequity LLC and added an addendum to the option, making Mequity the optionee. The purchase price of the property was subsequently increased to $2 million. Further, the optionors were to continually receive $15,000 every six months. The first of the payments by Mequity was not received in a timely manner. The Murphys therefore returned the check and notified Mequity that the option agreement was terminated pursuant to an express term in the option agreement. Mequity had a title company re-submit the check back to the Murphys. The Murphys returned the check, requesting no further communication from Mequity. The Murphys decided to settle the suit with Mequity rather than pursuing a lawsuit.

The defendant contended that the option agreement did not terminate. The defendant cited Civil Code 3275 and a California Supreme Court ruling to support its contention.

The plainitiffs contended that Section 3275 was a discretionary provision and that their case was distinguishable from similar cases because in this case, the defendant was 19 days late with its payment.

Damages

The defendant claimed that the plaintiffs had breached the agreement when they failed to accept the check. The defendant sought consequential damages pursuant to Civil Code Section 3306. The plaintiffs claimed that the damages sought by the defendant were not foreseen, or reasonably foreseeable, thus they were not recoverable.

Result

The parties settled at mediation for $500,000. Mequity agreed to amend the option agreement to increase the price of purchase to $2.5 million and to shorten the option period. $145,000 was consequently released as an additional deposit to the Murphys.