Question

A developer and an investor had been in the real estate business for many years. Because of their long-standing relationship, the developer and the investor, neither of whom was an attorney, often dispensed with certain legal formalities when dealing with each other, thus saving the costs of lawyers' fees and other attendant expenses. The investor owned a parcel of land that the developer was interested in. At lunch one day, the developer offered to buy the parcel from the investor for $50,000. The investor accepted the developer's offer, and the parties agreed on June 15 as the closing date. The developer wrote out and handed the investor a check for $2,500 with "earnest money" written in the memo, and they shook hands on their deal. A few weeks before closing, the developer called the investor and told him she had changed her mind about purchasing the land because of a sudden economic downturn in the area. The investor appeared at the developer's office on June 15 with the deed to the land in his hand. The developer refused to tender the balance due, and the investor sued the developer for specific performance. Will the investor prevail? (A) No, because the agreement does not comply with the Statute of Frauds and is, therefore, unenforceable. (B) No, but the court will allow the investor to keep the $2,500 earnest money as damages. (C) Yes, because the $2,500 payment constituted part performance of the contract. (D) Yes, because the developer and the investor had established a course of dealing.

Answer 1

Based on the given facts, the correct answer is (B) No, but the court will allow the investor to keep the $2,500 earnest money as damages.

Step-by-step explanation:

The agreement between the developer and the investor to sell the land was a contract, which was formed when the developer made an offer to purchase the land and the investor accepted it. The fact that the parties did not use attorneys or put the agreement in writing does not necessarily make the agreement unenforceable. However, the agreement does not comply with the Statute of Frauds, which requires certain contracts, including contracts for the sale of land, to be in writing in order to be enforceable.

The payment of $2,500 by the developer to the investor constitutes earnest money, which is a deposit made by a buyer to show good faith and to bind the contract. If the developer breaches the contract, the investor is entitled to keep the earnest money as liquidated damages. However, the investor cannot force the developer to purchase the land or to perform the contract because specific performance is an equitable remedy, and the court will not compel the developer to perform the contract when the contract is unenforceable due to the Statute of Frauds.

Therefore, the correct answer is (B) No, but the court will allow the investor to keep the $2,500 earnest money as damages.