McMillen v. Kadis

In re
RAYMOND E. MCMILLEN, JR.,
Debtor
______________________________________
RAYMOND E. MCMILLEN, JR.,
Plaintiff
v.
MARC KADIS,
Defendant/
Plaintiff in Counterclaim
v.
RAYMOND E. MCMILLEN, JR.,
Defendant in Counterclaim
U NITED STATES BANKRUPTCY COURT
D ISTRICT OF M ASSACHUSETTS
Chapter 13
Case No. 02-18501-WH
Adversary Proceeding
No. 04-1140
MEMORANDUM OF DECISION
While in a case under chapter 13, and facing imminent foreclosure on his home, Debtor
Raymond McMillen entered into a court-approved purchase and sale agreement with Defendant
Marc Kadis: Kadis would purchase the home at a bargain-basement price but permit McMillen
to continue living in it for five years, the first year’s rent to be deferred, and give McMillen a
five-year option to buy the home back at fair market value. Kadis did purchase the home but
also announced his intention not to the pay final installment of the purchase price, a $75,000
payment due seven years after the closing; he has also failed to give a mortgage securing that
obligation, as further required by the agreement. McMillen, for his part, occupied the property
for the five-year lease term but paid no rent. McMillen now sues for recision of the
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1 The purchase and sale agreement and the supplemental lease agreement were
memorialized in part on December 2 and in full by December 6, 2002.
2
agreement—citing Kadis’s breach and arguing fraud, duress, and unjust enrichment—and for
damages under Massachusetts G.L. c. 93A. Kadis counterclaims for the rent. The matter having
been tried, I now enter the following findings of fact and conclusions of law.
FINDINGS OF FACT
Raymond McMillen filed a petition for relief under Chapter 13 of the Bankruptcy Code
on September 25, 2001, thus commencing bankruptcy case No. 01-17472. At the time, he was
the owner of the real property located at 17 Bow Street, Wellesley, Massachusetts (“the
Property”), where he and his family had resided since 1971. The Property was encumbered by a
mortgage in favor of Ameriquest Mortgage Company (“Ameriquest”), and this mortgage was in
default. Ameriquest sought and obtained relief from the automatic stay and scheduled a
foreclosure sale for November 25, 2002. On November 22, 2002, while the first case remained
open, McMillen filed another petition for relief under Chapter 13, thereby commencing the
present case.
On December 2, 2002, McMillen and Kadis entered into a purchase and sale agreement.1
The material terms of the agreement were as follows:
1. 	Kadis was to pay a total purchase price of $250,000, including a cash payment of
$150,000 at the closing and a further cash payment of $100,000 on the seventh
anniversary of the closing.
2. 	Kadis was to secure his obligation to make a cash payment of $100,000 on the
seventh anniversary of the closing by giving McMillen a mortgage on the
property, which mortgage obligation would bear no interest and require payment
of principal in full only at maturity.
3. 	Kadis’s obligation to provide a mortgage would survive the closing.
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2 Rider to Purchase and Sale Agreement, ¶ 9.
3 The purchase and sale agreement did not specify how fair market value was to be
determined.
4 Purchase and Sale Agreement, ¶ 31.
5 Purchase and Sale Agreement, ¶ 31.
3
4. 	Kadis’s obligation to provide a mortgage “is based on buyer’s estimate of the cost
of repair of the property, and the parties agree that the amount of this mortgage
may be adjusted by subsequent agreement.” 2
5. 	Kadis was to lease the property back to McMillen for a term of five years; the rate
for the first year was $1200 per month; the rental rate would increase by $100 per
month in each successive year; and payment of the rent for the first year was to be
deferred, with payment of the first year’s rent to be made at the rate of $300 per
month for 48 months, commencing in the first month of the second year of the
lease.
6. 	During the five year term of the lease, McMillen would enjoy the exclusive
option to buy back the property for fair market value, and this provision too
would survive the closing.3
7. 	The property was to be conveyed to Kadis free and clear of liens.4
8. 	The agreement was subject to approval of the bankruptcy court and would not be
effective or binding on either party until so approved. 5
On December 3, 2002, McMillen filed, in the second case, a motion for leave to sell the Property
to Marc Kadis free and clear of liens. The motion set forth the terms of the purchase and sale
agreement. As McMillen explained in the motion, the initial proceeds of the sale would permit
him to pay in full the first and second mortgages on the property and his remaining obligations
under his chapter 13 plan.
On December 9, 2002, McMillen filed an amended motion for leave to sell the Property
to Marc Kadis free and clear of liens, setting forth the same terms as are set forth above.
Ameriquest filed an objection, stating that $150,000 (the amount payable by Kadis upon closing)
would not be sufficient to satisfy its mortgage in full. The Court held a hearing on the amended
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6 Kadis, in agreement with McMillen, testified that this occurred after the sale hearing.
Transcript, pp. 54 and 82. Kadis’s own testimony is thus at odds with his proposed finding of
fact as to the timing of this communication.
4
sale motion on December 16, 2002, at which McMillen, his attorney, and Kadis were in
attendance. Prior to the hearing, and in order to permit McMillen to have sufficient funds to
cover the existing mortgages and to fund in full his chapter 13 plan, the parties modified their
agreement to specify that the payment due upon closing would be increased to $175,000 and the
balance due on the seventh anniversary reduced to $75,000. In an order agreed to by both
McMillen and Kadis, as attested by their respective signatures thereon, the Court, by Judge Carol
Kenner, approved the agreement as so amended, stating, “[t]he cash portion of the sale price is
$175,000 and a mortgage in the amount of $75,000 is authorized.”
Kadis maintains that, prior to this hearing, he and McMillen also agreed that the second
payment would be stricken from the agreement altogether, and therefore that Kadis would
neither give nor be obligated to give McMillen a mortgage to secure a second payment. The
evidence shows that, at some point after the sale hearing, 6 Kadis informed McMillen that he
would not pay anything beyond the initial $175,000 payment. This communication occurred
after the sale hearing but before the closing, as Kadis himself remembers it. Had Kadis made the
statement at or before the sale hearing, he would not have agreed to the provision in the sale
order that expressly authorized a mortgage of only $75,000 instead of $100,000. There is no
writing or other evidence that McMillen agreed to this modification, and I find that he did not
agree to it. In fact, according to Kadis’s own testimony, Kadis did not present this modification
to McMillen as a proposed modification, for acceptance or rejection; rather, Kadis simply told
McMillen that this was what he planned to do. Moreover, the alleged modification is
inconsistent with the provision in the sale order—to which Kadis himself agreed—authorizing a
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mortgage of only $75,000 instead of $100,000. Had the second payment been removed from the
agreement, the authorization of any mortgage would have been unnecessary and nonsensical.
On the same day as the sale hearing, the bankruptcy court also allowed a Motion by
Ameriquest for relief from the automatic stay to foreclose on the property that was the subject of
the sale hearing. Consequently, McMillen was under pressure to close the sale to Kadis soon,
lest he lose the home to foreclosure. Notwithstanding Kadis’s announcement that he would not
pay McMillen anything more than the initial $175,000 cash payment, McMillen did in fact go
forward with the sale. He did so to avert loss of the house to foreclosure, to preserve his right to
live in it for the term of the lease with Kadis, and to ensure himself the right to buy the property
back from Kadis at a later date, pursuant to the exclusive option granted him by the purchase and
sale agreement. He did not believe, or indicate to Kadis, that he had assented to elimination of
the $75,000 second payment, and the mortgage securing it, from the purchase and sale
agreement. Faced with imminent foreclosure, he was simply leaving the performance and
enforcement of that obligation to another day.
The sale closed on December 20, 2002. Attorney David Baker represented McMillen at
the closing; Kadis represented himself. By quitclaim deed prepared by McMillen’s attorney,
McMillen transferred his interest in the property to Kadis, expressly reserving a possessory
estate for the life of McMillen, or for five years from the date of the deed, whichever came first.
At the closing, Kadis paid $175,000 in cash. Despite repeated demands from McMillen’s
attorney, he did not also give McMillen a mortgage to secure the $75,000 balance of the
purchase price. By virtue of the $175,000 that McMillen received at the closing, the Debtor paid
off the existing mortgages on the property, completed his chapter 13 plan payments, and
received a discharge.
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The deed from McMillen to Kadis recited that the conveyance was “for consideration
paid in the amount of [$175,000] and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged[.]” Kadis cites this as evidence that McMillen had
accepted Kadis’s reduction of the purchase price to $175,000. I do not construe this language as
evidence that McMillen accepted Kadis’s reduction. The deed expressly states that the
consideration includes, in addition to $175,000, “other good and valuable consideration.”Kadis’s
promise of an additional $75,000 and of a mortgage to secure it certainly qualifies as “other good
and valuable consideration” received. The language of the deed is not evidence that McMillen
agreed to Kadis’s modification.
McMillen alleges that Kadis entered into the purchase and sale agreement without
intention to pay the $75,000 second payment and that Kadis, in entering into the agreement,
misrepresented to McMillen his intention as to the second payment. McMillen has not proven
these allegations by a preponderance of the evidence. The evidence suggests instead that Kadis
decided not to make the second payment only after the agreement had been initially entered into
and even after it was modified to shift $25,000 of the consideration from the second payment to
the first. The evidence does not support a finding that Kadis entered into the agreement without
intent to honor his promise to make the second payment. Kadis resolved not to make the second
payment only after the agreement had been entered into and then modified.
After the closing, McMillen through his attorney David Baker, repeatedly demanded of
Kadis that he execute the mortgage required by the purchase and sale agreement, but Kadis never
did give McMillen a mortgage on the property to secure the second payment.
McMillen and his family occupied the property for the five-year duration of the lease that
constituted part of the purchase and sale agreement. At no time has he paid Kadis rent in any
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amount.
Kadis alleges that McMillen entered into the purchase and sale agreement without
intention to pay his rental obligations thereunder. He bases this allegation on two established
facts: first, that at the time of the purchase and sale agreement, McMillen lacked the financial
wherewithal to afford the rent; and second, that McMillen never paid any rent. The allegation is
not supported by a preponderance of the evidence. In view of McMillen’s insufficiency of
income, the parties expressly agreed to deferment of the first year’s rent, but both parties also
anticipated that he would be better able to pay the rent after the first year. Kadis has not shown
that the expectation was unrealistic. In any event, it was the parties’ true expectation, both
parties having acted on the basis of it. Moreover, McMillen’s failure to pay rent is more likely
attributable to an event that occurred after he entered into the contract: Kadis’s announcement
that he would not make the $75,000 second payment required by their agreement. In view of this
intervening cause, I see no reason to attribute his nonpayment to an original intent not to pay.
Since the sale, Kadis has paid the real estate taxes on the property, the water and sewer
bills, and the hazard insurance, but no evidence has been submitted as to the amount he has paid.
During the same time, he made minor repairs to the property on one or two occasions. The cost
of these repairs is not in evidence. McMillen has not otherwise permitted Kadis to come onto
the property for inspections or repairs.
Kadis alleges that McMillen failed to deliver title free of liens, as was required by the
purchase and sale agreement. He makes this allegation because the Town of Wellesley billed
him for taxes against the property that accrued before the sale. The evidence nonetheless shows
that McMillen, in his amended sale motion, sought authority to sell the property free and clear of
liens, and that the Court, by the agreed order of December 16, 2002, allowed the motion,
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including (as part of the motion) this demand. The Court thus did enter an order approving the
sale of the property free and clear of liens under 11 U.S.C. § 363(f). By virtue of this order,
McMillen satisfied his obligation to deliver the property free and clear of liens. Whether Kadis
took advantage of the order is an issue on which I need make no finding.
At some point approximately one year after the sale of the property, McMillen offered to
repurchase the property from Kadis for $195,000. Kadis rejected the offer. No evidence has
been offered that $195,000 was the fair market value of the property at the time of the offer. The
parties have submitted little evidence of value, consisting principally of their own opinions. The
Debtor himself opined that the fair market value at the time of the sale was in excess of
$400,000. No evidence of a lower value was presented by any party. McMillen never offered to
buy the property back at any other time or for another price.
JURISDICTION
Insofar as the contract at issue in this proceeding was entered into and approved in the
course of the Debtor’s administering his estate in bankruptcy, the parties’ dispute concerning
formation, breach, recision, and enforcement of the contract is a core proceeding. 28 U.S.C. §
157(b)(2)(A) (core proceedings include matters concerning the administration of the estate). The
Court has authority to enter final judgment in the matter.
DISCUSSION
The various counts in the complaint and the counterclaim all arise under state law. The
purchase and sale agreement was negotiated, entered into, and closed in Massachusetts; it
concerns the sale and rental of Massachusetts real estate; and it specifies that it is to be construed
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7 The agreement expressly provided that it was subject to approval of the bankruptcy
court and would not be effective or binding on either party until so approved. I find by a
preponderance of the evidence that Kadis announced his modification of the contract only after
the bankruptcy court approved the agreement. But even if the modification was announced
before the court approved the sale, the modification would not have been effective. Prior to the
court’s approval of the sale agreement, the agreement was not binding, and therefore either party
was free to rescind it unilaterally. Even before court approval, however, the parties were not free
to modify the agreement unilaterally. The agreement permitted modification of the amount of the
mortgage only “by agreement.” Kadis does not purport to have rescinded the agreement.
Rather, he purports to have modified the agreement, and the evidence shows that McMillen
never agreed to the proposed modification.
9
as a Massachusetts contract. For these reasons, the governing state law is that of the
Commonwealth of Massachusetts.
McMillen’s Complaint
a. The Second Payment
The first issue presented by McMillen’s complaint is whether, as Kadis contends, the
purchase and sale agreement was modified to reduce the purchase price to $175,000, without
requirement of a second payment and of a mortgage to secure it. The Court concludes that the
agreement was not so modified. The parties’ initial agreement provided for a purchase price of
$250,000, with $150,000 to be paid at the closing and $100,000 to be paid on the seventh
anniversary of the closing, and it further required that Kadis give McMillen a mortgage at the
closing to secure the second payment. After they entered into this initial agreement, but prior to
the bankruptcy court hearing on approval of the sale, the parties modified their agreement to
increase the initial payment by $25,000 and to reduce the second payment and mortgage by the
same amount. The court then approved the agreement, whereupon the agreement became
effective and binding on both parties.7 After the Court’s approval of the agreement, Kadis told
McMillen that he did not intend to make the second payment, but McMillen never agreed to this
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8 Kadis argues that the language of the agreed order approving the sale—“a mortgage in
the amount of $75,000 is authorized” (emphasis added)—indicates that the mortgage and second
payment were not required but merely optional. This argument holds no water. First, at the time
of the hearing, Kadis had not yet even announced that he would not make the second payment;
the elimination of the second payment was not a subject of the sale hearing or of the order; it was
not yet even a subject of discussion between the parties. Second, the sentence in question clearly
was intended to approve and require a shift of $25,000 of the purchase price from the second
payment to the first; it is not necessary to read anything more into the sentence than that. Insofar
as the word “authorized” is construed here as extending permission to Kadis, the permission is to
reduce the mortgage from $100,000 to $75,000, not to give no mortgage at all. I therefore find
no cause to construe the language in question as Kadis proposes.
10
proposed modification to the contract. The agreement expressly provided that Kadis’s obligation
to provide a mortgage “is based on buyer’s estimate of the cost of repair of the property, and the
parties agree that the amount of this mortgage may be adjusted by subsequent agreement.” The
agreement permitted modification of the mortgage amount only “by subsequent agreement.”
Having found that McMillen never agreed to Kadis’s modification, I conclude that the contract
was never modified to eliminate the requirements of a $75,000 second payment and of a
mortgage to secure it. Kadis remains bound to make this payment on December 20, 2009, the
seventh anniversary of the closing. 8
As the date for payment has not yet arrived, Kadis has not yet breached his obligation to
pay. However, Kadis has already breached his obligation to give a mortgage, and, especially in
view of Kadis’s repudiation of his obligation to make the second payment, this breach has
resulted in damage to McMillen in the amount of $75,000. McMillen is therefore entitled to
damages for breach in the amount of $75,000.
b. Recision
Although McMillen has demanded damages for Kadis’s breach of his obligation to give a
mortgage and repudiation of his obligation to make the second payment, he would prefer instead
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9 Though McMillen has not precisely quantified this amount, he apparently believes this
payment to Kadis would total approximately $200,000 and that he could fund the payment by
obtaining a reverse mortgage on the property.
10 Although McMillen does not mention duress in his complaint, he makes passing
reference, in his proposed findings and conclusions, to duress as a basis for repudiation or
recision. His argument is undeveloped and, at best, unclear. He seems to argue that the contract
should be voidable at McMillen’s option because he entered into the agreement only under force
of economic circumstance, as the only alternative to losing his home to foreclosure. This
argument has no merit. As Kadis correctly argues, the circumstances that compelled McMillen
into this agreement were not of Kadis’s making, and coercion sufficient to avoid a contract
requires that the coercive circumstances have been the result of coercive acts of the other party
the contract. International Underwater Contractors, Inc. v. New England Tel. and Tel., 8 Mass.
App. Ct. 340, 342 (1979). Duress is therefore of no assistance to McMillen.
11
that the court rescind the purchase and sale agreement. To effect this recision, he suggests, the
Court should return title to the property to him upon his restoring to Kadis a sum equal to the
amount paid by Kadis to purchase, hold, and maintain the property.9 He argues that recision is
appropriate because Kadis committed fraud in the inducement by representing to McMillen that
he would make a second payment of $75,000 when in fact he had no intention of making the
second payment. McMillen argues that by this misrepresentation of intent, Kadis induced him to
enter into the purchase and sale agreement under false pretenses.
McMillen has failed to prove this allegation by a preponderance of the evidence. The
evidence suggests that Kadis decided not to make the second payment only after the agreement
had been initially entered into, then modified to shift $25,000 of the consideration from the
second payment to the first, and then approved by the Court. When he entered into the
agreement and thereby made his promise to make a second payment, he did intend to honor the
promise. He did not make his promise without intent to honor it. There was therefore no fraud
in the inducement. Consequently, McMillen has shown no basis for recision. 10
Recision is also unavailable for a second reason. McMillen learned of Kadis’s change of
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position as to the second payment before the closing of the sale. At that point, McMillen had the
option of not going forward with the sale and of treating the purchase and sale agreement as
rescinded. Instead, he himself elected to go forward under the agreement by closing the sale. He
is entitled to enforce the agreement, but having elected to proceed under the contract, he can not
now seek its recision.
c. G.L. c. 93A
McMillen also seeks multiples damages, attorney’s fees, and recision under the
Massachusetts Consumer Protection Act, G.L. c. 93A. In order to prosecute his claim under that
statute, McMillen was obligated first to make a written demand for relief upon Kadis in
accordance with § 9(3) of the Act. G.L c. 93A, § 9(3). The demand letter is a jurisdictional
prerequisite to suit under the Consumer Protection Act. Bushay v. McDonnell (In re Bushay),
327 B.R. 695, 702 (1st Cir BAP 2005), aff’d 187 Fed.Appx. 17 (1st Cir. 2006). McMillen has
neither alleged nor shown evidence of compliance with this requirement. Accordingly, his count
under G.L. c. 93A is dismissed.
d. Unjust Enrichment
McMillen also asserts a claim for unjust enrichment, under which the Court is asked to
restore the parties to the status quo—in essence, to rescind the sale. However, he asks for this
remedy only if the court believes his breach of contract claim is not proven. The Court having
determined that McMillen is entitled to relief for breach of contract, the Court need not address
the merits of the count for unjust enrichment.
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11 Trial Exhibit H, Lease Agreement, ¶ 23.
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Kadis’s Counterclaim
In his counterclaim, Kadis asserts counts for fraud, breach of contract, unjust enrichment,
and violation of the lease agreement.
a. Fraud
In his count for fraud, Kadis contends that McMillen induced him to enter into the
purchase and sale agreement by, in part, promising to pay rent for his occupancy of the premises
during the term of the lease, but that McMillen had no intent to make the payments so promised.
Although McMillen did indeed breach his obligation to pay rent, I find that Kadis has failed to
establish that McMillen made the promise to pay rent without intent to honor that promise.
Without proof that McMillen misrepresented his intent, this count must fail.
b. Breach of Contract
In his count for breach of contract, Kadis seeks damages for McMillen’s failure to pay
the rent due under the lease portion of the purchase and sale agreement. The damages he seeks
include the unpaid rent and the attorney’s fees incurred to collect them. I find that the lease had
a term of five years and required payment of rent at the rate of $1,200 per month for the first
year, $1,300 per month for the second year, $1,400 per month for the third year, $1,500 per
month for the fourth year, and $1,600 per month for the fifth year, for total rent over the term of
the lease of $84,000. McMillen having paid no rent, Kadis has been damaged by McMillen’s
breach in the amount of $84,000. The lease also expressly provides that Kadis is entitled to
reasonable attorney’s fees incurred in collection of rental arrears. 11 Kadis, however, has adduced
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no evidence of the extent of the fees he has incurred in collecting the rent, and for that reason no
damages may be awarded for attorney’s fees. Damages for breach of contract shall be limited to
the rental arrears.
c. Unjust Enrichment
By his count for unjust enrichment, Kadis seeks compensation for McMillen’s use and
occupation of the property during the lease term. By this count, he seeks a remedy in equity in
the event that his count for rent under the contract is disallowed. The Court having already
determined that Kadis is entitled under the contract to damages in the amount of the unpaid rent,
this count is moot. Moreover, as there exists an adequate remedy at law, no further remedy is
available in equity.
d. Violation of the Lease Agreement
By this last count, Kadis alleges that McMillen has further breached the lease agreement
by denying him (Kadis) access to the property for the purpose of making repairs. He further
seeks a determination that he is entitled to possession of the premises on account of this breach.
Kadis does not address this count in his proposed findings and conclusions. The evidence shows
that McMillen did twice give Kadis access to the premises for purposes of making repairs, and
that on unspecified other occasions, McMillen denied Kadis access to inspect the premises or to
effectuate repairs. Kadis has submitted no evidence as to what (if any) damages were suffered
on account of denial of access. Indeed he has supplied no details as to these incidents. I
therefore cannot find that Kadis is entitled to damages for this alleged breach.
The request for a determination that Kadis is entitled to possession, either for these
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12 At the time of trial (but not still at present), McMillen still held a “life estate” (in fact,
an estate for years) in the property, and so it is not clear that Kadis had a right to possession.
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actions or for nonpayment of rent, is moot because the lease term (and McMillen’s reserved “life
estate”) has now expired. Insofar as Kadis has not addressed the issue of possession in his post-
trial submissions, I will not address that issue here. 12 However, the judgment herein shall be
without prejudice to Kadis’s seeking possession through the appropriate avenue in the state
courts. I make no ruling on the merits of that issue.
CONCLUSION
For the reasons set forth above, I conclude that McMillen is entitled to recover from
Kadis the sum of $75,000 for breach of the obligation to give a mortgage in that amount, and that
Kadis is entitled to recover from McMillen the sum of $84,000 for rent. These obligations shall
be set off against each other, resulting in a net right of recovery for Kadis and against McMillen
in the amount of $9,000. A separate judgment will enter accordingly.
Date: May 7, 2008 	_____________________________
William C. Hillman
United States Bankruptcy Judge
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