ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF THE VIRGIN ISLANDS DIVISION OF ST. CROIX. D.C. Civil No. 74-882.
Adams, Rosenn and Hunter, Circuit Judges.
This appeal presents the question whether the trial court erred in determining that a liquidated damages provision in a sales contract pertaining to Virgin Islands real estate barred the recovery of actual damages by the seller when the buyer refused to go ahead with the transaction. We have concluded that it was not error in this case to limit the plaintiffs' recovery to the amount contemplated by the liquidated damages clause.
Plaintiffs, Co-Build Companies, Inc. (Co-Build), Warren L. Trafton, and Rogers P. Bressi, agreed on April 10, 1974, to sell two parcels of land located on the island of St. Croix to defendant Virgin Islands Refinery Corporation (VIRCO). The first parcel of land consisted of 201.35 acres, and it was to be sold for $4,201,920, of which $315,000 was to be paid by the buyer as a deposit.*fn1 The second parcel, totalling approximately 21 acres, was to cost $954,352, and was to be paid for at the closing.*fn2
Prior to the closing, which was to occur no later than November 15, 1974, the buyers delivered to the sellers a note for $315,000, the amount of the deposit. But the sale itself was never consummated. On November 18, 1974, the plaintiffs filed a complaint seeking specific performance, and on February 11, 1975, VIRCO filed a counterclaim for return of the deposit that had been paid to the plaintiffs.*fn3
The two parcels of real estate covered by the sales agreements were part of a larger tract subject to a first mortgage held by the Correa family. There was another lien on the property, which was evidenced by a second mortgage held by Latimer & Buck, Inc. On January 20, 1975, the Correa family declared the first mortgage to be in default and initiated foreclosure proceedings. It apparently had been the expectation of the sellers that the Correa mortgage would be satisfied by the purchase price paid to them by VIRCO. When VIRCO defaulted on the contracts and the Correa family sought to foreclose on the mortgage, Co-Build found it necessary to institute bankruptcy proceedings under Chapter XI of the Bankruptcy Act, and did so on February 28, 1975.
After the bankruptcy judge enjoined VIRCO from taking further action on its counterclaim against Co-Build, the District Court in the Virgin Islands, on May 5, 1975, stayed all proceedings in the case. More than one year later, on October 27, 1976, after the bankruptcy judge had issued an order providing that all matters in the action should be determined by the district court, the district judge lifted the stay. In its directive of October 27, 1976, the trial court granted plaintiffs' motion for leave to proceed with pre-trial discovery. Additionally, it set the dates by which discovery was to terminate and the trial was to commence, and granted plaintiffs' motion to amend the complaint in order to substitute a prayer for monetary damages instead of the prayer for specific performance.*fn4
The substitution of a request for monetary relief in place of the one for specific performance was necessitated by the financial condition of plaintiffs, who had insufficient funds with which to retire the outstanding debt on the land in question, and thus were unable to tender the land free and clear of encumbrances so as to demand specific performance on the part of VIRCO. Consequently, the plaintiffs amended their complaint, and the defendants filed an answer in response to it.
Plaintiffs later moved for summary judgment with respect to the issue of liability. VIRCO sought summary judgment so as to limit the plaintiffs' recovery to liquidated damages in the amount of the deposit, relying on a paragraph in the sales agreements dealing with the deposit as liquidated damages.*fn5
After granting both motions, the district court entered an order for the plaintiffs for the sum stipulated as liquidated damages. Plaintiffs appealed the judgment that restricted their recovery to the amount set forth in the liquidated damages clause.
The law applicable to the present dispute is that of the Virgin Islands, for the agreements in question arose in the Virgin Islands, the situs of the land covered by the agreements is in the Virgin Islands, and the contracts entail no significant relationship outside of the Virgin Islands. However, our attention has been drawn to no ...