Plaintiffs entered into a contract with Montelucia Villas, LLC (“Montelucia”) for the construction of a custom home. The contract required Plaintiffs to pay certain deposits, with the remainder of the purchase price due at closing. The contract provided that Montelucia could elect to treat the deposits—characterized as “earnest money deposits” by the contract—as liquidated damages if the buyers breached the agreement.
Prior to the set closing date, Plaintiffs notified Montelucia that they were terminating the contract and demanded a refund of their deposits. When Montelucia failed to refund the deposits, Plaintiffs filed suit. On cross-motions for summary judgment, the trial court ruled that Montelucia had breached the contract and concluded that Plaintiffs were entitled to a refund of the deposits. Montelucia appealed.
The Arizona Court of Appeals reversed and remanded, holding that Plaintiffs anticipatorily repudiated the contract. The court concluded that Montelucia was not required to prove that it was willing and able to perform the contract because it was not seeking damages for the anticipatory breach, but instead was simply defending against the Plaintiffs’ claim for damages. The Plaintiffs appealed.
The Arizona Supreme Court vacated the opinion and remanded for further proceedings, holding that Montelucia must show that it was ready, willing, and able to perform the contract before retaining any damages. The Court concluded that a distinction between a plaintiff seeking affirmative relief and a defendant seeking to retain damages is simply unwarranted. Although the contract included a liquidated damages clause, the Court explained that the provision relieved Montelucia only of the burden of proving the amount of actual damages and not of the burden of proving a breach sufficient to support an award of damages. Montelucia must prove that it was ready, willing, and able to perform the contract to retain the deposits.
Justice Brutinel authored the Court’s unanimous opinion.
Posted by: Grace Rebling