The Option ruled on by the Business Court yesterday in NRC Golf Course, LLC v. JMR Golf, LLC, 2010 NCBC 20, said that the Plaintiff had the option to purchase a golf course for “fair market value at exercise date validated by an independent third-party appraisal."
Plaintiff offered $750,000, which was the value for the golf course "validated" by an appraisal from Hotel & Club Associates, Inc., but the Defendant refused to close, contending that the Option was not valid.
It’s not unusual for North Carolina courts to enforce options which leave the purchase price to be determined by appraisal, so why did this option fail? See, e.g. Phoenix Ltd. Partnership v. Simpson, 688 S.E.2d 717, 719-20 (N.C. App. 2009) As the Business Court put it in the NRC case, the NRC Option "not only lack[ed] a sufficiently definite price term, but also lack[ed] a sufficient method by which to determine the price term." Op. ¶45.
What was necessary, said the Court, was a "clear and unambiguous direction on how to arrive at a purchase price, so that the parties do not have to reach further agreement before a final price may be determined." Op. ¶47.
The "fatal flaw" of this option was the lack of any agreed upon mechanism for selecting an appraiser or for resolving discrepancies in the fair market value opinions of different appraisers. There was sufficient elasticity in this option, as the Court saw it, to permit the seller to unilaterally employ its own appraiser, who might have delivered a much higher opinion of the fair market value for the property than the $750,000 offered by the plaintiff-buyer. In that event, the option contained no means for resolving the dispute over price.
The Phoenix case, mentioned above and which I wrote about a year ago, allowed buyer and seller each to choose an appraiser to determine the purchase price under the option. In the event of a wide variance as to fair market value, the option said that the two appraisers would pick a third appraiser, and that the purchase price would be the average of the two closest appraisals. That price determination provision wasn’t the focus of the opinion, which was the effect of a lengthy environmental clean-up of the optioned property on a "time is of the essence" provision.
That looks like the last opinion in 2010 from the Business Court, and also the last post this year from this blog. Happy New Year, and best wishes for 2011.