Being Careful about One’s Agreements

Parties finding themselves in default of a contract have a strong incentive to cure that default. Often, however, the urgency to remove oneself from a precarious legal posture can lead to even greater future jeopardy. As an instructive example, the case of Rehm v. Parra Family Limited Part, No. 32,200 (Ct. App N.M. 2013) shows how a limited partnership seeking to desperately hold on to some commercial property unwisely went too far in waiving some of its significant rights.

In 2002 Parra Family Limited Partnership (“Parra”) entered in to a standard purchase agreement with the Rehm Revocable Trust (“Rehm”) to buy some commercial property for $450,000. After several defaults in making required monthly payments required under the agreement, the parties agreed to a modification of the original agreement. Parra agreed to pay $23,000 more in principal due to the uncured default as well as delinquent property taxes assessed against the land. When Parra defaulted again, Rehm, relying on authority from the new agreement, went to court and filed a complaint for a declaratory judgment and an injunction on June 30, 2011, seeking a release of the special warranty deed from escrow. If granted by the court, Parra would lose all rights to the property in question.

Under pressure, Parra entered into a new stipulation for settlement and/or judgment (Stipulation). Parra agreed in the Stipulation that (1) it was in default on the Contract and the subsequent amendment, (2) Rehm had provided valid notice to Parra but Parra had failed to cure the default, and (3) Rehm was entitled to the release of the special warranty deed. But if Parra followed up by making payments to Rehm it could hold on to the property. But if Parra did not make the payments as specified, upon the filing of an affidavit by Rehm’s attorney, and “without further hearing or notice to Parra herein, [Rehm] shall be entitled to immediate entry of [j]udgment against Parra as prayed for in the [c]omplaint.”

After going in to bankruptcy and coming out of that process after dismissal, Parra still owed Rehm payments to purchase the property but then fell behind again. Rehm submitted an affidavit to the court and obtained a judgment against Parra which terminated his rights to the property. On appeal, Parra argued that the District Court violated its procedural due process rights and the forfeiture was inequitable. The Court of Appeals rejected that the lower court had breached its due process rights and found that Rehm merely enforced the rights it had under its most recent Stipulation with Parra. Because “Parra and its attorney voluntarily and knowingly agreed to the immediate-entry-of judgment provision in the Stipulation,” Parra had to abide by the consequences of it subsequent default. If its attorney had secured a different procedure to be employed in the event of default, Parra may have maintained its ownership rights to the commercial property.

Mr. Giddens and the other attorneys at Giddens & Gatton Law, PC have experience representing New Mexico business owners in contract and lease agreement negotiations. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico. Call the office at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com for more information.