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Circumstances may change, but contracts do not

Written by Zana Tomich on July 28, 2021 Category: Business Law & Transactions, Contracts
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At some point in our lives, we have all been told, “Make sure you get it in writing.” This advice is often repeated because it is true. However, it is equally important to make sure to review and completely understand the terms of that writing. Contracts are binding. It is crucial to know exactly what you are agreeing to and how that may affect future decisions.

In a recent Michigan Court of Appeals decision, Cucchiara v. Cucchiara, a local business learned this lesson the hard way. A small, family-run pizzeria sold their business in 1995 for $130,000. The purchase agreement contained an “optional re-purchase provision” that stated the former owners would be given the opportunity to re-purchase the property should the current owners decide to sell. In 2002 the small pizzeria caught fire and was destroyed. The owners decided to rebuild the business and made significant improvements to the property by investing $347,000 of insurance proceeds into the building. As a result, the value of the property greatly increased. By 2018, a local real estate agent valued the property at $529,000. The owners decided to sell the property but seemed to forget that they previously agreed to “optional re-purchase provision.” The former owner reemerged, looking to buy back the property for $130,000, roughly 4 times less than the estimated current market value.

Shocked by the unfairness of the proposition, the current owners filed suit against the former owners to quiet title to the property so they could sell to another buyer willing to pay market value. Regardless of the inequity of the situation, the Court of Appeals declared that the “optional re-purchase provision” was unambiguous and enforceable. Therefore, the former owners had a right to re-purchase the property.

What can we learn from this case?  Circumstances may change, but contracts do not.

Be careful what you agree to. Contracts are binding. If circumstances have changed, it may be a good idea to revisit your contract and consult an attorney. Sometimes contracts can be negotiated and amended if you take a proactive approach.

In the above case, it would have been a good idea to renegotiate and amend the contract before investing the $347,000 of insurance proceeds into the new construction. For example, maybe the “optional re-purchase provision” could have been eliminated, or perhaps the language of the provision could have been adjusted to reflect fair market value. On the other hand, maybe the former owner would not negotiate at all, and the present owners would have had an opportunity to rethink whether or not they wanted to reinvest their insurance proceeds. Either way would have offered better alternatives.

There are many lessons to be learned from this case. The first is to understand what is in your contract. Second, think about possible risk factors or how specific contract terms may affect future business decisions. Third, if your circumstances have changed, review those terms again before making any business decisions. And lastly, if you feel uncertain, it is best to consult with an attorney because these decisions could have long-standing and severe implications.

Citation:

Cucchiara v. Cucchiara, 351199, 2021 WL 1499339 (Mich. App. Apr. 15, 2021).

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