Do natural disasters void home purchase contracts?

Issue Date: - Feb. 18, 2008, Posted On: 1/31/2008
Case Law

A prospective seller in Louisiana changed his mind about selling his house after Hurricane Katrina hit and left his home with significant damage. But a pair of potential buyers who had already entered into a purchase agreement sued, rejecting his claim that an “act of God” voided the contract. Read on to find out who the courts sided with.
*A pair of potential homebuyers will get the house they planned to purchase after all, when the Court of Appeal of Louisiana, First Circuit decided on Jan. 16 that the seller failed to make an effort to uphold his end of a purchase agreement with the buyers.

The lawsuit ensued after a purchase agreement between the seller, defendant Keefe Hurwitz, and the prospective homebuyers, plaintiffs Wesley and Gwendolyn Payne, fell apart following the arrival of Hurricane Katrina in 2005.

Hurwitz had placed his Madisonville, La., home on the market, and the Paynes made an offer of $241,500. The parties signed a purchase agreement on Aug. 22, 2005. The buyers also submitted a deposit of $1,000 to the real estate agency representing Hurwitz, Houlemarde Realty. The closing date was set for Sept. 26, 2005, but the purchase agreement also provided an automatic extension of up to 60 days if home repairs were needed.Hurricane hits land
After Hurricane Katrina landed on Aug. 29, 2005, it left an estimated $60,000 in roof damage and water damage to various parts of Hurwitz’s house. Hurwitz, a self-employed contractor with insurance adjuster experience, made the repair estimates himself.

The Paynes, interested in discussing the closing date and a proposed closing date extension, allegedly had trouble contacting Hurwitz after the storm landed, due to mail and electronic communication system failures. They hand-delivered a letter to Hurwitz’s wife on Sept. 9, 2005 and e-mailed his real estate agent Angela Houlemarde. The Paynes’ loan officer also suggested they contact the lender’s title attorney to try to reach Hurwitz.
Hurwitz allegedly e-mailed the lender’s title attorney on Sept. 20, 2005, noting the extensive damage to his property, and explaining he couldn’t afford to sell his house under the previous terms.

“I will not be interested in selling for the same amount when and if I decide to sell my house,” Hurwitz wrote.Unenforceable due to act of God?
The Paynes responded by filing a petition for specific performance and damages on Oct. 3, 2005, claiming Hurwitz breached the terms of the purchase agreement. Hurwitz countered on Oct. 28, 2005 that performance of the contract was unenforceable due to force majeure, or an act of God. He further alleged that the house couldn’t be repaired before the 60-day closing extension deadline.

The matter went to trial and on Sept. 11, 2006, the trial court awarded the Paynes with the return of their deposit plus costs and other fees. However, the court found the Paynes were required to set a closing or put the seller in default to allow them to be entitled to specific performance.
Hurwitz appealed, claiming he had not breached the agreement and that the trial court erred in finding the contract wasn’t rendered null and void by an act of God. The Paynes also appealed, seeking specific performance of the purchase agreement.

Non-obligation not automatic

The appellate court looked to the Louisiana Civil Code as it examined Hurwitz’s claim that he was not obligated to follow through with the purchase agreement due to force majeure. Citing several articles of the code as well as similar cases previously handled by the courts, the appellate court noted several circumstances in which a party cannot escape a contract.

“If the fortuitous event prevents the obligor from performing his obligation in the manner contemplated at the time of contracting, he must pursue reasonable alternatives to render performance in a different manner before he can take advantage of the defense of impossibility,” stated the court, adding that an obligor isn’t released from a duty to perform simply due to the fact that a fortuitous event made performance more difficult.

Additionally, the appellate court pointed to a previous case based on issues that followed Hurricane Katrina, the case of Associated Acquisitions LLC v. Carbone Properties of Audubon LLC, where the court found that a defense of force majeure as an excuse for nonperformance didn’t work.

“‘A party is obliged to perform a contract entered into by him if performance be possible at all, and regardless of any difficulty he might experience in performing it,’” the appellate court noted.

Hurwitz’s only hindrance in meeting performance of the purchase agreement was to complete necessary repairs and close on the sale within the contract’s 60-day deadline, or any other deadline the parties would set, the appellate court said. Although the Paynes were willing to set a later deadline, Hurwitz rejected the completion of the agreement before the 60-day deadline extension had even expired.

The appellate court therefore agreed with the trial court’s conclusion that Hurwitz’s failure to perform on the agreement was “volitional in nature rather than the type of insurmountable obstacle necessary to invoke the defense of force majeure.”

The appellate court therefore ruled that none of Hurwitz’s claims on appeal had merit. It had a different opinion, however, regarding the Paynes’ appeal for specific performance.

Getting their house

Placing a party in default isn’t a prerequisite for filing suit for specific performance, the appellate court said, since the seller in the Paynes’ case advised that he would not execute the closing.

“If the seller simply refuses to agree to the fixing of a mutually acceptable date for the closing and affirmatively repudiates his obligation to sell … it is quite clear that there is no requirement for putting in default as a prerequisite to seeking specific performance,” the court explained.

Thus, the appellate court vacated the vacated the Paynes’ $2,000 award for the deposit and other fees and instead granted them specific performance of the purchase agreement for the amount they had offered, $241,500. Further, the case was remanded to the trial court so that it could set a date for the execution of the sale. Hurwitz was also ordered to pay all costs on appeal.

Wesley and Gwendolyn Payne v. Keefe Hurwitz.