We blogged the Court of Appeals opinion here; go there for the facts. The Supreme Court disagrees with the Court of Appeals, deciding that Montelucia does after all have to prove its ability to perform before it can retain the earnest money.
The rule is salutary but the court sullies it by playing games with words, suggesting that the issue is whether “a defendant who seeks to retain damages” must show ability to perform. To call the benefits received by one party under a contract “damages” when the other decides to repudiate it is spin, not analysis.
On remand Montelucia must prove that it was ready to perform in order to keep the earnest money. For some reason the court seems uneasy about this since it spends several paragraphs explaining that this earnest money wasn’t, contrary to the contract language and Montelucia’s claim, really earnest money, it was progress payments. Maybe that’s right but since when is it for the Supreme Court to resolve disputed facts? This was a contract – the money’s function was what the parties intended it to be. And what does all this mean to the analysis – if it really was “earnest money” would it not be “damages?” Apparently not, because the court tells us that earnest money “typically” remains in escrow and “usually” does not finance construction. But what if it doesn’t and does, respectively?