Friday, November 1, 2024

OPTION CONSIDERATION AND NOTIFICATION

             Francesco Scotti sold real property to Matthew Mimiaga in 2015. The deal was seller-financed: Mimiaga executed a Note for $870,000, due in five years, payable to Scotti. 

            Mimiaga also granted Scotti an option to repurchase the property in five years for $900,000. Scotti alleges that he timely exercised the repurchase option, although Mimiaga claims he never received the notice from Scotti. 

            So Scotti filed a lawsuit seeking specific performance of the option agreement and an order requiring Mimiaga to sell the property to Scotti for $900,000. 

            Mimiaga’s answer asserted that the option agreement lacked consideration and alternatively, had expired. Scotti took the position that the discount in the purchase price ($900,000 option price minus $870,000 initial sales price) constitutes valid consideration to support the option. 

            The trial court held that the option consideration must be distinct from the sale consideration. And since the purchase price for the property had been established before the option was negotiated, the option was unsupported by separate consideration. 

            The trial court further found no evidence to support that Scotti had timely exercised the option, as Scotti did not ensure that his notice letter was delivered. 

            Francesco Scotti appealed.

             The Appellate Court first reviewed the agreements reached between the parties. Scotti and Mimiaga had executed a two-page document titled “Option Agreement.” Which states that the purchase option was supported by “good and valuable consideration.” 

            The Court found that phrase – good and valuable consideration – to be conclusive and not subject to further litigation. 

            Mimiaga’s next defense relates to proper option exercise. The Option Agreement did not require that the notice be sent by certified or registered mail, or in any other manner that could be used as evidence of delivery such as courier or FedEx. Instead, Scotti claims that he merely mailed it. 

            The Appellate Court made short work of this one too, concluding that “if notice was mailed, [then] notice was received.” The initial issue is not delivery. Instead, the first hurdle is merely determining if sufficient evidence was presented that the notice was mailed. 

            If sufficient evidence has been presented that the notice was sent, then a rebuttable presumption is created that it was received. It is then incumbent upon Mimiaga to offer evidence that he did not receive it. 

            These are fact-intensive matters that are inappropriate for summary judgment. The case must be returned to trial court to further develop these facts. 

            Scotti wins; Mimiaga loses this round. See Scotti v Mimiaga; Case No. 2023-91; Rhode Island Supreme Court; October 18, 2024: https://casetext.com/case/scotti-v-mimiaga. 

            Questions / Issues: 

1.         Peppercorns. In many States it appears that a mere recitation of ‘good and valuable’ consideration suffices to create, well, consideration. Evidently lawyers have been arguing this point since the times of King Aethelred the Unready, who ruled from 1013-1014 (or maybe 865-871 or could be 978-1016), when contracting parties exchanged peppercorns to support consideration. 

2.         Enlightenment. Some States take a more enlightened view and boldly proclaim by statute that “Consideration means any consideration” (see by example UCC 3.303(b): https://www.law.cornell.edu/ucc/3/3-303#:~:text=The%20drawer%20or%20maker%20of,promise%20has%20not%20been%20performed.) *So* glad we got that one resolved. 

3.         Notice. A notice clause that doesn’t indicate the manner of notice delivery? Cue President Biden: C’mon man! 

                                                                        Stuart A. Lautin, Esq.*

 

* Board Certified, Commercial and Residential Real Estate Law, Texas Board of Legal Specialization

 

Licensed in the States of Texas and New York

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