Hillcrest Center, LLC v. Ton Real Estate Investments III, LLC

Background

Hillcrest Center, LLC agreed to sell a Saint Paul shopping center to Ton Real Estate Investments III, LLC (TREI) for $9,250,000. The agreement required Hillcrest to provide due-diligence materials and allowed TREI to terminate if it was dissatisfied, but required written certification and written notice by the applicable deadline. The agreement also required written notice of a default and gave the defaulting party 10 days to cure.

Hillcrest did not provide TREI with a survey, certificates of occupancy, or an owner’s title-insurance policy. TREI did not give written notice of dissatisfaction or elect in writing to terminate by the due-diligence deadline. Instead, the parties continued working toward closing and amended the agreement several times. The amendments moved the closing date, changed the purchase price and deposit terms, and eventually required Daniel Olswang and John Thomas to pay $250,000 jointly and individually if TREI failed to purchase the property by the specified date. Their obligation was secured by a promissory note, which became payable on demand if TREI failed to close.

TREI did not complete the purchase. Hillcrest demanded payment under the note, but Olswang and Thomas did not pay. Hillcrest sued for breach of contract and sought specific performance. After limited discovery, the parties filed cross-motions for summary judgment.

Analysis

The court applied Minnesota breach-of-contract law, which requires an enforceable contract, performance by the plaintiff of conditions that must occur before the defendant’s duty arises, and a breach by the defendant.

The court held that TREI could not avoid its obligations based on Hillcrest’s incomplete delivery of due-diligence materials. TREI did not use the agreement’s written-notice procedure, continued to recognize the agreement as binding, agreed to additional amendments, and continued working toward closing while knowing about the alleged deficiencies. The court concluded that TREI waived its right to rely on those deficiencies and could not later assert them as a basis for termination or nonperformance.

The court also held that the agreement remained enforceable after the parties failed to close on the date identified in the Second Amendment. By continuing to treat the agreement as binding and entering the Third Amendment, the parties mutually waived the earlier “Failure to Close” provision. The court alternatively concluded that the Third Amendment was independently enforceable because the parties exchanged mutual promises to buy and sell the property, which supplied consideration.

Because TREI failed to close by March 13, 2020, Hillcrest provided written notice, and TREI did not cure within 10 days, the court held that TREI breached the agreement as a matter of law. Because the note required payment after TREI’s breach and Hillcrest’s demand, and Olswang and Thomas did not pay the $250,000, the court also held that they breached the note.

Ruling and Remedy

Judge John R. Tunheim denied Defendants’ Motion for Summary Judgment and granted Plaintiff’s Motion for Summary Judgment. The court did not decide whether to order specific performance. Although specific performance can be available for a real-property transaction, the record showed that TREI had never secured financing to complete the purchase, and the court stated that completing the transaction could therefore be impossible. The parties were ordered to file simultaneous briefs addressing the appropriate remedy within 30 days after entry of the order.