Last month, we reviewed recent decisions addressing actions for specific performance of real estate contracts of sale. The “other side of the coin” is actions for return of real property contact downpayments. Some recent examples follow:
413 Throop, LLC v. Triumph, the Church of the New Age, 2017 NY Slip Op 06516 (App. Div. 2nd Dept. September 20, 2017)
In an action for specific performance of a contract to purchase real property, Supreme Court granted defendant’s motion to dismiss the complaint and to cancel the notice of pendency and granted defendant’s cross-motion for return of the down payment.
The Appellate Division summarized the facts and prior proceedings:
The plaintiff signed a contract to purchase a parcel of real property from the defendant. The plaintiff alleged that the defendant breached the contract and sought specific performance or, in the alternative, damages. The plaintiff also filed a notice of pendency with respect to the property. The defendant moved to dismiss the complaint pursuant to, inter alia, CPLR 3211(a)(1), on the ground that the contract contained a provision limiting the purchaser’s remedy, in the event of the seller’s default, to return of the down payment. The defendant also sought to cancel the notice of pendency, to direct the plaintiff to pay costs and expenses under CPLR 6514(c), and to impose sanctions pursuant to 22 NYCRR 130-1.1. The Supreme Court granted those branches of the defendant’s motion which were pursuant to CPLR 3211(a)(1) to dismiss the complaint and to cancel the notice of pendency, but it denied those branches of the defendant’s motion which were to direct the payment of costs and expenses and to impose sanctions.
And summarily concluded that:
[S]upreme Court properly determined that the defendant had conclusively established as a matter of law that the disputed provision in the contract clearly and unambiguously limited the purchaser’s remedy in the event of the defendant’s breach of the contract to the return of the down payment, and thus precluded specific performance or an award of damages. Accordingly, the court properly granted that branch of the defendant’s motion which was to dismiss the complaint pursuant to CPLR 3211(a)(1), and thereupon, properly directed cancellation of the notice of pendency[.]
K.A.M.M. Group, LLC v. 161 Lafayette Realty, Inc., 2017 NY Slip Op 06260 (App. Div. 2nd Dept. August 23, 2017)
After a jury trial in an action to recover a down payment made pursuant to a commercial lease, Supreme Court entered a judgment directing a return of the deposit.
The Appellate Division described the facts and prior proceedings:
In April 2013, the plaintiff K.A.M.M. Group, LLC…entered into a commercial lease with the defendant 161 Lafayette Realty, Inc.…to commence on October 1, 2013. In connection with the lease, the tenant made a downpayment in the sum of $65,792. Thereafter, the tenant learned that the premises were leased to another tenant through December 31, 2013. After efforts to resolve the matter failed, the tenant opted to cancel the lease and requested the return of its down payment. The landlord did not return the down payment. The tenant and one of its principals commenced this action.
After a nonjury trial, the Supreme Court found that the plaintiffs were entitled to rescind the lease and to recover their downpayment due to the landlord’s mistake as to the commencement date of the lease. The landlord appeals, arguing that any mistake as to the start date of the lease was insubstantial and did not warrant cancellation of the lease.
The applicable law:
Rescission “rests upon the equitable principle that a person shall not be allowed to enrich himself [or herself] unjustly at the expense of another”…and is invoked “where the parties can be substantially restored to their status quo ante positions”…The remedy of rescission may be granted where, as here, a mistake existed at the time the contract was entered into if “the mistake is so material that . . . it goes to the foundation of the agreement”[.]
[T]he landlord’s principal admitted at trial that a mistake was made regarding the commencement date of the parties’ lease. Contrary to the landlord’s contention, however, the mistake as to the commencement date related to a material term of the lease…and substantially defeated the purpose of the lease…Accordingly, the Supreme Court properly determined that the plaintiffs were entitled to rescind the lease and to recover their downpayment[.]
Feldshteyn v. Brighton Beach 2012, LLC, 2017 NY Slip Op 06160 (App. Div. 2nd Dept. August 16, 2017)
Supreme Court granted defendant’s motion to dismiss the complaint in an action to recover a down payment made pursuant to a contract for the sale of real property.
The Second Department summarized the facts and prior proceedings:
The plaintiffs commenced this action, inter alia, to recover a $55,000 down payment made pursuant to a contract for the sale of real property. The defendant seller moved pursuant to CPLR 3211(a)(1) to dismiss the complaint. In support of its motion, the defendant submitted a purchase agreement, an attorney’s affirmation, a letter from the defendant’s attorney to the plaintiffs’ attorney designated as a “Time of the Essence Notice” dated March 20, 2013, a second letter from the defendant’s attorney to the plaintiffs’ attorney dated April 12, 2013, designated as a “Time of the Essence Notice,” and a third letter from the defendant’s attorney to the plaintiffs’ attorney deeming the contract terminated and informing the plaintiffs that the defendant was retaining the down payment[.]
The applicable law:
“A motion pursuant to CPLR 3211(a)(1) to dismiss based on documentary evidence may be appropriately granted only where the documentary evidence utterly refutes the plaintiff’s factual allegations, thereby conclusively establishing a defense as a matter of law”…”The evidence submitted in support of such motion must be documentary or the motion must be denied”…”In order for evidence submitted in support of a CPLR 3211(a)(1) motion to qualify as documentary evidence,’ it must be unambiguous, authentic, and undeniable’”[.]
“[J]udicial records, as well as documents reflecting out-of-court transactions such as mortgages, deeds, contracts, and any other papers, the contents of which are essentially undeniable, would qualify as documentary evidence in the proper case”…”At the same time, [n]either affidavits, deposition testimony, nor letters are considered documentary evidence within the intendment of CPLR 3211(a)’”[.]
Here, the letters submitted by the defendant did not constitute documentary evidence within the meaning of CPLR 3211(a)(1), and should not have been relied upon by the Supreme Court as a basis for granting the defendant’s motion to dismiss the complaint. The only documentary evidence submitted in support of the defendant’s motion was the purchase agreement, which did not “utterly refute” the plaintiffs’ allegations or conclusively establish a defense as a matter of law[.]
Mineroff v. Lonergan, 2017 NY Slip Op 05430 (App. Div. 2nd Dept. July 5, 2017)
Supreme Court denied plaintiff’s motion for summary judgment and granted defendants’ cross-motion for summary judgment in a dispute over a contract for the purchase of real property.
The Appellate Division summarized the facts:
On or about October 6, 2014, the plaintiffs entered into a contract with the defendants pursuant to which the defendants were to purchase from the plaintiffs a property located in Southampton for $5.6 million. The contract provided that the closing was to take place on or about October 31, 2014.
The contract stated that, in the event of a default by the defendants, the plaintiffs’ sole remedy would be to retain the $560,000 down payment as liquidated damages. The contract also included a rider, pursuant to which the plaintiffs represented that “the Premises is free and clear of any mold or evidence of any existing mold remediation.”
Prior to the closing, by letter dated October 16, 2014, the defendants cancelled the contract, claiming, among other things, that an inspection of the property revealed extensive evidence of mold throughout the premises, and requested the immediate return of their down payment. In response, the plaintiffs asserted that the defendants failed to allege a substantial and material breach that would permit them to cancel and repudiate the contract. Therefore, according to the plaintiffs, the defendants’ unilateral cancellation and repudiation of the contract and their demand for the return of their down payment constituted an anticipatory breach, entitling the plaintiffs to retain the down payment as liquidated damages.
The prior proceedings:
The plaintiffs commenced this action against the defendants, alleging that they were entitled to retain the down payment based upon the defendants’ breach of the contract or anticipatory breach of the contract. The defendants counterclaimed, alleging, in their second counterclaim, that the plaintiffs’ representation that “the Premises is free and clear of any mold or evidence of any existing mold remediation” was false, and, therefore, the plaintiffs breached and defaulted in their performance of the contract, by reason of which the defendants had the right to cancel the contract and were entitled to the return of their down payment. The defendants also filed a notice of pendency against the property.
In an order dated September 1, 2015, the Supreme Court, inter alia, denied that branch of the plaintiffs’ motion which was for summary judgment on the complaint, granted that branch of the defendants’ cross motion which was for summary judgment on their second counterclaim, directed the County Clerk to cancel the notice of pendency, and directed the plaintiffs to return the down payment. On September 30, 2015, the court entered a judgment which, upon the order, in effect, dismissed the complaint, and is in favor of the defendants and against the plaintiffs on the defendants’ second counterclaim in the principal sum of $560,000.
Summarizing the record:
Contrary to the plaintiffs’ contention, the Supreme Court properly granted that branch of the defendants’ cross motion which was for summary judgment on their second counterclaim. In support of their cross motion, the defendants submitted, among other things, the affidavit of a professional engineer who stated that he performed an inspection of the subject property on October 11, 2014, and that he “observed evidence of water in the basement, including puddles, rust on the bottom of the boilers and metal, stains on the floor and walls, and suspect mold.” He further stated that he “observed suspect mold on the garage ceiling, the basement utility room, the sub-basement utility room, and the second floor master bedroom closet.” The engineer recommended that “a mold specialist be called in to evaluate the toxicity of the mold” and that “the scope of the mold” could only be known by having “a certified industrial hygienist or someone with similar experience test the mold.” This affidavit established, prima facie, that the premises was not “free and clear of any mold.”
Contrary to the plaintiffs’ contention, the contract does not indicate that they represented that the premises is free and clear of “toxic” mold only. “When the contract is in writing, the best evidence of what the parties intended is what they said in that writing”…”It is the role of the courts to enforce the agreement made by the parties— not to add, excise or distort the meaning of the terms they chose to include, thereby creating a new contract under the guise of construction”…The provision at issue here states: “Sellers represent that the Premises is free and clear of any mold or evidence of any existing mold remediation” (emphasis added). Interpreting this provision as referring only to “toxic” mold would be adding a term to the contract that the parties chose not to include.
And concluding that:
The plaintiffs correctly assert that the contract includes a provision stating that the defendants’ obligation to purchase the premises is conditioned upon the “[t]he accuracy, as of the date of Closing, of the representations and warranties of [the plaintiffs] made in this contract” (emphasis added) and also includes a provision granting the plaintiffs the right to attempt to cure any defects the defendants are unwilling to waive and adjourn the date of closing for a period, or periods, of up to 60 days in order to do so. The plaintiffs assert that by cancelling the contract before allowing them the opportunity to cure the defendants’ objections, the defendants anticipatorily breached the contract, entitling the plaintiffs to retain the down payment. However, the provision at issue states that “the premises is free and clear of any mold or evidence of any existing mold remediation” (emphasis added). Therefore, the condition is incurable inasmuch as any attempt to eradicate the existing mold will constitute evidence of existing mold remediation on the date of closing.
In opposition to the defendants’ prima facie showing, the plaintiffs failed to raise a triable issue of fact…Even assuming that the photographs submitted by the plaintiffs were properly authenticated, they do not depict all of the areas of the premises in which the inspector observed mold. Furthermore, the affidavit of one of the plaintiffs, in which he stated that “to the extent that any such Defects did exist, I can unequivocally assert that we were never aware of any such defects,” does not prove that mold was not present. Accordingly, the Supreme Court properly granted that branch of the defendants’ cross motion which was for summary judgment on their second counterclaim, entitling them to the return of their down payment.
Bullaro v. Lido Dunes, LLC, , 2017 NY Slip Op 03925 (App. Div. 2nd Dept. May 17, 2017)
In an action to recover a down payment made pursuant to a contract of sale for real property, a jury found in favor of plaintiffs, and Supreme Court denied a motion to set aside the verdict.
The Second Department summarized the facts:
The plaintiffs entered into a contract dated June 22, 2009, to purchase a parcel of real property located in Lido Beach from the defendant Lido Dunes, LLC…The sale was contingent on Lido Dunes’ lender approving it as a short sale. The contract set the closing date as July 1, 2009, but provided that the closing could be extended for up to 180 days in order for the approval to be received. The parties agreed to a closing date of December 28, 2009, and the plaintiffs purported to give notice that time was of the essence. At the closing on December 28, 2009, the title insurer refused to insure the title without written approval from Lido Dunes’ lender that the HUD-1 settlement statement was approved and that the documentation the lender required for the short sale had been received. When the lender’s representative could not be reached, Lido Dunes adjourned the closing until December 30, 2009, due to its inability to transfer title because of the objection raised by the title insurer’s agent. By letter dated December 28, 2009, the plaintiffs indicated that they deemed the contract terminated due to Lido Dunes’ failure to deliver title within 180 days of the scheduled closing date, and demanded return of their down payment. The plaintiffs did not appear for the closing on December 30, 2009.
The prior proceedings:
The plaintiffs commenced this action to recover their down payment. The defendants interposed an answer with a counterclaim for a judgment declaring, inter alia, that Lido Dunes was entitled to retain the down payment. Prior to trial, the parties agreed that the sole issue to be determined by the jury was whether Lido Dunes was ready, willing, and able to deliver insurable title on December 30, 2009. After the trial, the jury returned a verdict finding that Lido Dunes was not ready, willing, and able to do so. Lido Dunes moved pursuant to CPLR 4404(a) to set aside the verdict and for judgment as a matter of law dismissing the complaint and on its counterclaim, or, alternatively, to set aside the verdict as contrary to the weight of the evidence and for a new trial. The Supreme Court denied the motion. A judgment was subsequently entered in favor of the plaintiffs and against Lido Dunes in the principal sum of $99,500[.]
[T]he Supreme Court properly denied Lido Dunes’ motion pursuant to CPLR 4404(a). “A motion for judgment as a matter of law pursuant to CPLR 4401 or 4404 may be granted only when the trial court determines that, upon the evidence presented, there is no valid line of reasoning and permissible inferences which could possibly lead rational persons to the conclusion reached by the jury upon the evidence presented at trial, and no rational process by which the jury could find in favor of the nonmoving party”…In considering such a motion, “the trial court must afford the party opposing the motion every inference which may properly be drawn from the facts presented, and the facts must be considered in a light most favorable to the nonmovant’”[.]
Here, there was a valid line of reasoning and permissible inferences which could lead rational persons to the jury’s conclusion that Lido Dunes failed to establish that it was ready, willing, and able to deliver insurable title on December 30, 2009[.]
A jury verdict should not be set aside as contrary to the weight of the evidence unless the jury could not have reached its verdict on any fair interpretation of the evidence[.]
Latipac Corp. v. BHM Realty LLC, 2017 NY Slip Op 01793 (App. Div. 1st Dept. March 9, 2017)
Supreme Court denied plaintiffs’ cross-motion for summary judgment seeking return of a real estate contract of sale deposit.
The First Department summarily held that:
Plaintiff purchaser failed to establish, as a matter of law, that it was entitled to a return of its deposit on a real estate contract…Even if plaintiff had established that defendant seller was in breach of the contract, which it did not, it would still be obligated to tender performance so long as the seller had the ability to cure its default within a reasonable time…Plaintiff failed to tender performance and did not afford the seller an opportunity to cure.
There are also issues of fact surrounding plaintiff’s ability and willingness to proceed with the sale on the closing date…most notably because it failed to present checks or other proof that it had funds to purchase the property[.]
Pizzurro v. Guarino, 2017 NY Slip Op 01013 (App. Div. 2nd Dept. February 8, 2017)
In an action to retain a down payment made upon a contract for the sale of real property, Supreme Court granted defendant’s motion for summary judgment dismissing the complaint and directed the return of the down payment.
The Second Department summarized the facts and prior proceedings:
The plaintiff seller and the defendant purchaser entered into a contract for the sale of real property. Under the contract, the defendant made a down payment of $30,000, which was less than 10% of the purchase price. A closing never occurred, and the plaintiff resold the property to another buyer for a higher price. The plaintiff thereafter commenced this action to retain the defendant’s down payment. The defendant moved, inter alia, for summary judgment dismissing the complaint and directing the return of the down payment. The plaintiff cross-moved for summary judgment on the complaint. The Supreme Court, among other things, granted those branches of the defendant’s motion and denied the plaintiff’s cross motion.
The defendant failed to demonstrate his prima facie entitlement to judgment as a matter of law dismissing the complaint and directing the return of his down payment. A buyer “who defaults on a real estate contract without lawful excuse, cannot recover the down payment,” at least where, as here, that down payment represents 10% or less of the contract price…Contrary to the Supreme Court’s conclusion, this rule applies even in the absence of a liquidated damages clause in the contract…and does not require a showing of actual damages…Therefore, the defendant’s contention that he was entitled to summary judgment dismissing the complaint and directing the return of his down payment on the ground that, even if he defaulted, the plaintiff could not retain his down payment absent a liquidated damages clause or actual damages is without merit.
However, the plaintiff also failed to establish her prima facie entitlement to judgment as a matter of law on the complaint. The plaintiff failed to eliminate issues of fact as to whether the defendant defaulted on the contract, including whether she properly made time of the essence so as to permit her to hold the defendant in default under the contract…Accordingly, the plaintiff’s cross motion for summary judgment on the complaint was properly denied.
Ma v. Biaggi, , 2017 NY Slip Op 03547 (App. Div. 2nd Dept. May 3, 2017)
In an action to recover the down payment pursuant to a contract of sale for real property, Supreme Court granted defendants’ motion for summary judgment dismissing the complaint.
The Second Department summarized the facts:
The plaintiff and the defendant Edgestone Group, LLC…entered into a contract for the sale of real property pursuant to which the plaintiff was required to tender, simultaneous with the execution of the contract, a down payment in the sum of 10% of the purchase price, or $2.6 million, for deposit with the defendant Richard M. Biaggi, as escrowee. The plaintiff provided a down payment check for that amount at the time of the execution of the contract, but stopped payment on the check six days later. The plaintiff thereafter tendered a number of replacement checks collectively totaling $2.6 million, including bank checks totaling $840,000 and a company check in the sum of $1.76 million. The bank checks were successfully deposited by Biaggi, but the plaintiff stopped payment on the $1.76 million company check. Edgestone terminated the contract by notice of termination dated April 14, 2014, as a result of the plaintiff’s failure to tender the full down payment amount. By notice of termination dated April 22, 2014, the plaintiff notified Edgestone that she had elected to terminate the contract of sale.
The prior proceedings:
The plaintiff commenced this action against Edgestone and Biaggi, for, inter alia, the return of the $840,000 partial down payment sum. Edgestone asserted counterclaims for, among other things, breach of contract. The plaintiff moved for injunctive relief, and the defendants cross-moved, inter alia, for summary judgment dismissing the complaint. The Supreme Court, among other things, granted that branch of the defendants’ cross motion which was for summary judgment dismissing the complaint[.]
The applicable law:
As a general rule, rescission of a contract is permitted for such breach as substantially defeats its purpose. It is not permitted for a slight, casual, or technical breach, but . . . only for such as are material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract’”…Here, the Supreme Court properly determined that the plaintiff’s repeated stop payment of the down payment check constituted a material breach of the contract[.]
Addressed plaintiff’s contention:
The plaintiff contends that, despite her material breach, section 9.2 of the contract contemplated that any breach by the plaintiff would be held in abeyance until the time of closing, thereby prohibiting Edgestone’s termination on that basis. Section 9.2 of the contract provides that, “in the event the transaction contemplated by this agreement shall not close on account of purchaser’s default, then this agreement shall terminate and the retention of the deposit shall be Edgestone’s sole and exclusive remedy under this agreement.” Contrary to the plaintiff’s contention, nothing in the plain language of section 9.2 prevents Edgestone from terminating the contract prior to closing as a result of the plaintiff’s material breach…To interpret section 9.2 as the plaintiff asserts would require adding terms to the contract that the parties did not include, improperly making a new contract for the parties under the guise of interpreting the writing[.]
In light of the plaintiff’s material breach, the Supreme Court also properly determined that she was not entitled to return of the partial down payment amount. A buyer who defaults on a real estate contract without “lawful excuse’” cannot recover the down payment amount, at least where, as here, that down payment represents 10% or less of the contract price…The plaintiff’s contention that she is entitled to return of the partial down payment amount pursuant to section 4.2.4 of the contract is without merit. Accordingly, the Supreme Court properly granted that branch of the defendants’ motion which was for summary judgment dismissing the complaint.
Highbridge House Ogden LLC v. Highbridge Entities LLC, 2016 NY Slip Op 08295 (App. Div. 1st Dept. December 8, 2016)
Supreme Court granted plaintiff’s motion for summary judgment dismissing defendant’s second counterclaim for breach of contract and return of a down payment.
The Court summarily concluded that:
Generally, courts in this State “may not look beyond the agreed-upon remedies to award the buyer specific performance in circumstances other than those in which the parties agreed it would be available”…Pursuant to the parties agreement in this case, defendant buyer was required to bring an action within 45 days after the plaintiff seller’s alleged default. Because the defendant buyer failed to meet this requirement, the motion court correctly held that the claim for specific performance was barred. Defendant buyer’s motion to renew this argument was likewise unavailing. However, where a seller seeks to invoke a restricted remedies clause, the seller must first acknowledge that a title defect exists…This is not a case, as the motion court incorrectly found, where the plaintiff seller “`conceded from the outset its inability to convey clear title, and invoked from the outset the restricted remedies clause of the contract’”…Here, it is clear from the record that plaintiff seller denied any defect in title and instead insisted that defendant buyer timely close notwithstanding any defect. Doing so was insufficient to invoke the restricted remedies clause. As a result, the motion court erred in finding that the restricted remedies clause applied in this case. Alternatively, even if the restricted remedies clause controlled the resolution of this dispute, the motion court was incorrect in finding that the defendant buyer defaulted. Under the restricted remedies clause, defendant buyer was entitled to a five-day election period upon receipt of plaintiff seller’s notice invoking the restricted remedies clause, to elect either to terminate or accept “as is.” Requesting an adjournment before this five-day election period expired did not constitute a default by defendant buyer. Thus, plaintiff seller’s motion for summary judgment on defendant buyer’s breach of contract counterclaim seeking return of its deposit should have been denied.
Kweku v. Thomas, 2016 NY Slip Op 08051 (App. Div. 2nd Dept. November 30, 2016)
Supreme Court, upon reargument, granted plaintiff summary judgment for return of a $30,000 down payment on a contract for the sale of real property.
The Second Department summarized the facts:
By contract of sale dated September 3, 2013, the plaintiff…agreed to buy, and the defendant Reginald Thomas…agreed to sell, a residential property located in New Rochelle. The defendant John A. Jasilli was identified as the attorney for the seller, and also as the escrowee, who was to hold the $30,000 down payment made by the buyer. The contract included a mortgage contingency clause which provided that the buyer must receive a written mortgage commitment in the amount of $625,950 by a specified commitment date, pursue the mortgage application with due diligence, and cooperate in good faith with the institutional lenders. The buyer and the seller never closed on the contract because the buyer was unable to obtain a mortgage loan, which led to the present dispute regarding the buyer’s right to a return of the $30,000 down payment.
The complaint and prior proceedings:
The complaint contains a single cause of action, alleging that the buyer complied with the terms of the contract and, thus, was entitled to a return of the $30,000 down payment. The defendants’ affirmative defenses included allegations that the buyer acted in bad faith by failing to disclose the true status of his loan application process and that he applied for mortgage loans in an amount in excess of that stated in the contract.
The buyer moved for summary judgment on the complaint. By order dated June 30, 2014, the Supreme Court denied the motion. The buyer then moved for leave to renew and submitted new evidence…including additional correspondence between the parties. By order dated December 19, 2014, the court granted renewal and, upon renewal, granted the buyer’s motion for summary judgment on the complaint, concluding, among other things, that there was “no evidence that [the buyer] acted in bad faith when he submitted his mortgage applications.” Thereafter, the court entered a judgment in favor of the buyer and against the seller in the principal sum of $30,000.
Finding and reversing:
However, upon renewal, the Supreme Court erred in determining that the buyer had made a prima facie showing of entitlement to judgment as a matter of law. The correspondence submitted by the buyer on renewal demonstrated, among other things, that the seller agreed to the buyer’s initial request to extend the commitment date but refused to consider his request for a second extension of the commitment date until the buyer provided copies of his loan applications and declinations. Additionally, this new evidence demonstrated that when the buyer sought an extension of the commitment date, he did not advise the seller of the fact that he had already been rejected by more than one lender. Contrary to the buyer’s contention, the evidence demonstrated that the buyer failed to comply with several provisions of the mortgage contingency clause in the contract…and acted in bad faith in obtaining an extension of the commitment date by misleading the seller about the fact that multiple lenders rejected his mortgage loan applications based on his “delinquent credit obligations” and the lenders’ inability to verify his income. All three of the buyer’s successive mortgage loan applications indicate that he applied for a loan in an amount that exceeded the $625,950 amount set forth in the mortgage contingency clause. By applying for a mortgage in an amount greater than that stated in the contract, the buyer breached the contract, as a matter of law…Additionally, the buyer’s own submissions demonstrated that he violated the contract by applying for “FHA” loans even though the mortgage contingency clause provides that the buyer shall apply for a mortgage loan other than an “FHA” mortgage loan. Furthermore, although the buyer knew as of October 15, 2013, that the first of his mortgage loan applications had been denied, he requested an extension of the commitment date the following day without revealing that a prior mortgage application to another lending institution had been rejected…For these reasons, the buyer failed to make a prima facie showing of entitlement to judgment as a matter of law, and his motion for summary judgment on the complaint should have been denied, regardless of the sufficiency of the papers submitted in opposition[.]
And granting summary judgment to defendants:
This Court has the authority to search the record and award summary judgment to a nonmoving party with respect to issues that were the subject of the motion before the Supreme Court…Under the unique and compelling circumstances of this case, and given the wealth of evidence which supports judgment in favor of the defendants, we search the record and award summary judgment to the defendants dismissing the complaint[.]
Markham Gardens, L.P v. 511 9th, LLC, 2016 NY Slip Op 07005 (App. Div. 2nd Dept. October 26, 2016)
Supreme Court denied plaintiff’s motion for summary judgment to recover damages for breach of contract, and an award of attorneys’ fees; and granted the cross-moving defendant’s motion for summary judgment dismissing the amended complaint.
The Second Department summarized the facts:
In October 2006, Vista Developers Corporation…as seller, and the defendant 511 9th, LLC…as purchaser, entered into a purchase agreement pursuant to which Vista agreed to sell to 511 9th negotiable [tax] certificates issued pursuant to Real Property Tax Law § 421-a and Administrative Code of the City of New York § 11-245 for a purchase price of $1,426,000. Thereafter, Vista assigned its interest in the purchase agreement to the plaintiff, and 511 9th assigned its interest to the defendant 511 Property, LLC; however, 511 9th remained liable under the agreement. The purchase agreement contained a liquidated damages clause, which provided that in the event of a breach by the purchaser, the seller was entitled to receive the full purchase price, after which the seller would be required to tender 40% of the purchased amount of negotiable certificates to the purchaser. The purchase agreement also provided that the prevailing party in a proceeding to enforce the provisions of the purchase agreement was entitled to seek from the non-prevailing party reasonable attorney’s fees and disbursements, including court costs.
The prior proceedings in Supreme Court:
The plaintiff subsequently commenced this action, alleging that 511 9th and 511 Property, LLC…as well as the defendant FSA NY Property, LLC…an affiliate of the 511 defendants, had breached the purchase agreement by failing to close. The plaintiff moved for summary judgment on the amended complaint insofar as asserted against the defendants, seeking an award of liquidated damages pursuant to the liquidated damages clause. The plaintiff indicated that it sought the full purchase price, and, upon receipt of payment, the plaintiff would be obligated to tender to the defendants, at its option, either 40% of the certificates or a credit in the amount of $644,000. The plaintiff also sought an award of an attorney’s fee against the defendants. The defendants cross-moved, inter alia, for summary judgment dismissing the amended complaint insofar as asserted against them.
In the order appealed from, the Supreme Court determined that although the 511 defendants’ failure to close constituted a breach of the purchase agreement, the plaintiff could not recover under the liquidated damages clause because it had subsequently sold the certificates to a third party for a higher price than agreed upon in the purchase agreement. Further, the court determined that since the plaintiff did not obtain the award of damages it sought, it was not a prevailing party entitled to an attorney’s fee under the purchase agreement. Therefore, the court denied the plaintiff’s motion, and granted that branch of the defendants’ cross motion which was for summary judgment dismissing the amended complaint insofar as asserted against them[.]
Concluding and reversing:
The plaintiff established its prima facie entitlement to judgment as a matter of law on the amended complaint insofar as asserted against the 511 defendants by demonstrating that it was ready, willing, and able to close the transaction and that the 511 defendants failed to appear at the time and place set by the plaintiff for the closing…In opposition, the defendants failed to raise a triable issue of fact.
And, as to liquidated damages, holding that:
Contrary to the defendants’ contention, they failed to establish that the liquidated damages clause constitutes an unenforceable penalty. “A contractual provision fixing damages in the event of breach will be sustained if the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation…”The burden is on the party seeking to avoid liquidated damages … to show that the stated liquidated damages are, in fact, a penalty”…Thus, the defendants, as the party challenging the liquidated damages clause, “must demonstrate either that damages flowing from a prospective [breach] were readily ascertainable at the time [the parties] entered into their [purchase] agreement, or that the [liquidated damages clause] is conspicuously disproportionate to these foreseeable losses”…The defendants failed to submit any evidence to establish either that actual damages were readily ascertainable at the time the purchase agreement was entered into, or that the liquidated damages were conspicuously disproportionate to foreseeable or probable losses…Further, the fact that, approximately two years after the date of the breach, the plaintiff ultimately sold the certificates to a third party for a higher price than the amount set forth in the purchase agreement does not bar the plaintiff from recovering under the liquidated damages clause[.]
Mezynieski v. Reniak, 2017 NY Slip Op 31050(U) (Sup Ct. Suff. Co. April 13, 2017)
Supreme Court addressed various motions with respect to a $50,000 real estate contract deposit being held in escrow.
The Court summarized the facts:
On or about August 25, 2014, the defendant/purchaser Andrew Reyniak entered into a contract of sale…to purchase residential real property located at 35 Town Line Road, Wainscott, New York, from the plaintiffs/sellers, at a sale price of $2,300,000.00. On or about September 29, 2014, the contract was assigned to defendant 35 Town Line Road, LLC, who was represented by the law firm Twomey Latham Shea Kelley Dubin & Quartatato, LLP[.]
The contract provided at paragraph 8 of the “Second Rider to Contract of Sale”, that prior to closing, the sellers would furnish the purchasers with an updated Certificate of Occupancy…covering all structures existing on the premises. On or about September 25, 2014, the defendants furnished plaintiffs with an updated survey, dated September 8, 2014, with which to obtain the updated CO. Thereafter, the plaintiffs determined that they had never obtained a CO for a swimming pool on the premises. It appears that even though the plaintiffs had previously obtained variance relief for a pool, the pool was constructed too close to the property line in a non-conforming location and in non-compliance with the variance relief and a CO had not been issued by the Town of East Hampton. As a consequence, the parties concluded that a variance was required in order to obtain a CO for the pool.
The parties agreed to proceed to closing, and as an accommodation to the sellers, the purchasers agreed to the establishment of an escrow fund to be held by Twomey Latham to allow sellers to obtain the necessary variance relief and issuance of a CO. In the event such relief was not obtained and a valid CO not issued by January 31, 2015, the defendants would be compensated through a reduction in the purchase price. The Escrow Agreement provided in pertinent part:
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows:
- The Escrow Agent shall retain the sum of One Hundred Fifty Thousand ($150,000) Dollars in escrow from the proceeds of the sale until the Seller has obtained an area variance so that the above-described swimming pool can remain in its current location.
- The Seller shall have until January 31, 2015 to secure said variance.
- In the event the variance is not granted by said date, the Seller agrees to reduce the contract sales price by the sum of One Hundred Thousand (100,000.00) Dollars, and the Escrow Agent is hereby authorized to release to the Purchaser the aforesaid sum.
- In the event the variance is granted by January 31, 2015, the contract sale price shall be as originally set forth in the contract, and the Escrow Agent shall pay to the Seller the full $150,000 being held in escrow pursuant to the terms hereof.
Escrow Agent may, but shall not be obligated to, file a suit in interpleader for declaratory judgment for the purpose of having the respective rights of such claimants adjudicated, or may deposit with a court of competent jurisdiction the Escrow Amount. In the event the Escrow Agent commences such litigation or is named as a defendant, the Seller and Purchaser, jointly and severally, agree to pay all reasonable costs, expenses and attorneys’ fees incurred by Escrow Agent in connection therewith. In the event that Escrow Agent shall deposit the Escrow Amount with such court, Escrow Agent shall be fully released and discharged from any and all duties and obligations hereunder and any litigation against it shall be discontinued.
The subsequent developments:
The plaintiffs were unable to obtain either the variance or CO by January 31, 2015, but contend that they are entitled to the return of the entire escrow amount of $150,000.00. The defendants maintain that the plaintiffs are only entitled to the return of $50,000.00 from the funds held in escrow. The parties unsuccessfully attempted to settle the matter, and in contemplation thereof, the defendants forward a check in the amount of $55,000.00 to the plaintiffs. The plaintiffs did not deposit the proffered check, and it is still held by the plaintiffs’ attorney.
It is undisputed that the plaintiffs failed to obtain or even apply for the variance relief as contemplated by the Escrow Agreement by January 31, 2015, and have failed to obtain a CO for all structures existing on the premises. As an excuse, plaintiffs’ counsel contends that in addition to the variance relief required for the pool, plaintiffs also discovered the need to obtain a building permit and CO for a shed addition to a structure for which approval had not been obtained at the time of construction. On this basis, the plaintiffs decided that there had been a mutual mistake of fact which would provide for rescission of the Escrow Agreement. Plaintiffs then commenced the instant action recovery of all funds retained pursuant to the Escrow Account, as well as a rescission of the Escrow Agreement.
The pending motions:
[P]laintiffs have moved for partial summary judgment seeking a return of $50,000.00, pending the ultimate resolution of this litigation. The defendants have cross moved for summary judgment on their First Counterclaim asserted in the Answer, to enforce the terms of the Escrow Agreement and award them the full amount held in escrow.
Rejected plaintiffs’ contentions:
[T]he plaintiffs are essentially attempting to enforce and recover funds from the very agreement for which they are seeking rescission. However, the principle of judicial estoppel precludes plaintiffs from a asserting a claim for judgment for $50,000.00 based on an agreement which they contend has, or should be rescinded…The plaintiff’s motion for partial summary judgment is denied.
Summarized defendants’ proof:
On the other hand, the defendants have demonstrated their entitlement to summary judgment to enforce the terms of the subject Escrow Agreement. Said agreement was negotiated and signed by all parties, or by their attorneys on behalf of their clients. The agreement clearly provides that to facilitate the closing of title, the amount of $150,000.00 would be set aside in an escrow account until plaintiffs had obtained variance relief for the non-conforming pool on the subject property, or alternatively, the date of January 31, 2015 came and passed without the granting of such variance relief. The record reflects that the variance in question was never obtained, nor did plaintiffs ever file an application for the necessary relief. Plaintiff failed to provide a reasonable excuse for why a variance application for the pool was never filed. Accordingly, under the stated terms of the agreement, the defendants are entitled to receive $100,000.00 of the monies being held in escrow. The subject agreement further provides that the escrow agent defendant shall be entitled to attorney’s fees in the defense of this action, and that issue shall be determined at a future hearing.
The plaintiffs have alleged that the escrow agreement must be rescinded based upon a “mutual mistake”. They assert that the mutual mistake derives from the fact that, in the process of preparing to apply for a variance for the pool, they were notified by the Town of East Hampton that there was a shed addition to a structure on the site that required a CO. However, no proof has been submitted to demonstrate that a variance was required for the shed. Nor is there any indication that plaintiffs took any steps to apply for a building permit or CO for said structure. A “mutual mistake of fact exists if a mutual mistake exists at the time the agreement is entered into and must be substantial.”[.]
At his deposition, Mitchell Mezynieski testified that he was a builder and was aware that any addition on the subject property required a building permit and issuance of a CO to be legalized. He further testified that he was aware of the shed addition on his property, which was also reflected on the survey sent to him in September 2014. Since the purchase/sale contract required the production of a CO for all structures on the property, the plaintiffs were certainly aware that the shed addition was to be included. Plaintiffs’ contention that the task in obtaining a CO was more complicated than originally anticipated is unavailing and belied by the plaintiffs’ admitted experience in construction and the permit process. Even in situations where a party bears the risk of a condition or problem, but moves forward with a deal although he or she has only limited knowledge of the problem, the right to rescind an agreement is waived[.]
In any event, a possible mistake by plaintiffs concerning the legality of the shed would not have been substantial. Even if the shed was shown to have required variance relief, plaintiffs have not demonstrated why that relief could not have also been sought in the application for the pool variance. Instead, plaintiff elected to completely avoid their obligations under the agreement and opted not to file an application for any relief whatsoever. Under these circumstances, there is no evidence to suggest there was a mutual mistake between the parties, or that the mistake claimed by plaintiff was substantial in nature.
Plaintiffs’ assertion that defendants delayed the process by taking two weeks to return an authorization to permit the plaintiffs to file a variance application is without merit, inasmuch as plaintiffs made no attempt to file a variance application at any time after the closing of title. Similarly, plaintiffs’ contention that permitting defendants to retain the escrow deposit would result in a windfall to them is without merit. Defendants closed title and paid more than $2,000,000.00 to the plaintiffs in reliance upon the escrow agreement. The parties consciously determined that plaintiffs’ failure to deliver a variance and CO on or before January 31, 2015, would result in the lowering of the purchase price by $100,000.00. Both parties bargained for and agreed to that term, and the amount to be recouped by defendants does not constitute a windfall.
Weinberger v. Escort, 2017 NY Slip Op 30639(U) (Sup. Ct. K. Co. March 21, 2017)
Supreme Court addressed motions relating to a $495,000 contract of sale in respect of which plaintiff made a $25,000 deposit.
The Court summarized the facts:
The action arises out of a Contract of Sale entered into between the parties herein on the 19th day of July, 2011…for purchase of the premises located at 295 Franklin Avenue, Brooklyn, NY 11205 with Tax Map Designation Block 1941, Lot 001…for the sum of Four Hundred Ninety Five ($495,000.00) Dollars. Paragraph 2 of the Rider to the Contract of Sale provides as follows:
- OBJECTIONS TO TITLE: Purchaser shall furnish to Seller’s attorney a list of objections to title at least ten (10) days prior to closing by delivery of title report, and Seller shall be entitled to a reasonable adjournment for the purpose of removing objections or violations. HOWEVER, IT IS EXPRESSLY AGREED, that notwithstanding any other provisions of the within Contract, Seller shall not be required to perfect any defects in the title and ownership of the within premises, and in such event the sole responsibility of the Seller shall be to return the Contract sum paid herein, together with the net cost of the title examination, and upon the payment of said amounts, the within contract shall be deemed null and void and no further liability shall exist against the Seller with respect to the provisions of this Contract. (Italics not in original, added for emphasis. Terms in capital letters in original).
The parties also modified Paragraph Two of the Rider with hand-written changes which stated as follows:
Except to satisfy voluntary liens, real estate tax and water sewer (Illegible) monies due under NYC Admin Code and as otherwise required in this contract to the contrary. Monies due under NYC Admin Code is limited to $2,500. If same exceeds $2,500 and Seller refuses to pay the excess, Purchaser may cancel the contract and receive back their deposit or close title with seller’s limit of $2,500 liability.
As reflected in the Contract of Sale, the contract sum was Twenty-Five Thousand ($25,000.00) Dollars. The Closing was scheduled to occur approximately sixty days [after] the date the Surrogates Court approved the transfer of the premises by the Estate of Irma Escort. That approval was granted on August 14, 2012. Thereafter, a title report was ordered by plaintiff and that title report was prepared by Infinity Land Services LLC. That report revealed multiple issues, including, inter alia, several judgments, for NY State Tax Warrant equaling $39,251.55, ECB violations and Federal Tax Liens for over $55,980. As a result, unwilling to pay the liens, which they were not required to do pursuant to the Contract of Sale, Defendants canceled the Contract and returned the downpayment to plaintiff along with the net cost of the title search.
The applicable law:
It is uncontested that plaintiff rejected the return of the downpayment and net cost of title search and returned same to counsel for defendants. What neither plaintiff nor his attorney state is that they were willing to take the property subject to the liens. Given that this was a condition of the Rider, in order for plaintiff to make any claim, he would have to show that it was unreasonable for defendants to cancel the contract given his willingness to accept same subject to the liens on the premises without contribution from Seller above the $2,500 liability limit set forth in Paragraph 2 of the Rider.
Defendants-Movants make a prima facie showing that they were within their rights to cancel the Contract. They show that the limits set forth in paragraph 2 of the Rider limit any requirement to clear liens on their part to $2,500. In order for plaintiff to overcome that showing, he would have to show that he offered to take the property even without clearance of the liens. And while plaintiff states he is ready, willing and able to purchase the premises in accordance with the Contract, he makes no showing that he is willing to do so, or ever offered to do so, subject to the liens disclosed by the title search. Thus, plaintiff has not met his burden to overcome the showing made by defendants.
Federico v. Dolitsky, 2016 NY Slip Op 32175(U) (Sup Ct. Suff. Co. August 1, 2016)
Supreme Court addressed a motion and cross-motion relating to a $25,000 real estate contract of sale deposit.
The Court summarized the facts:
On or about May 3, 2010, the plaintiff, as seller, and defendants David Dolitsky and JoAnn Dolitsky, as purchasers, entered into a contract of sale with respect to the residential property located at 33 Madder Lake Circle, Commack, New York, fixing a sale price of $492,300.00. Upon execution of the contract, the Dolitskys delivered a down payment in the amount of $25,000.00, to be held in escrow by the plaintiff’s attorney.
The relevant provisions to the contract of sale:
Section 5 of the rider to the parties’ contract, entitled “Financing,” is a mortgage contingency provision, paragraph 5.1 of which provides that the purchasers’ obligation to purchase the premises is contingent on their obtaining a commitment for a conventional mortgage in an amount no greater than $292,300.00. Paragraph 5.2 requires the purchasers to make a good faith application for the mortgage and to use due diligence in providing the lender with whatever documents or information it may need. Paragraph 5.3.1 acknowledges that the purchasers have provided the seller with a preapproval letter and that the seller has relied on that letter in entering into the contract. Section 5.4 states that in the event that the purchasers’ mortgage application is denied, the purchasers will provide the seller’s attorney notice thereof within five days. Paragraph 5.8 provides that if the purchasers are unable to obtain a mortgage commitment within 45 days, the seller may either cancel the contract or extend the purchasers’ time to obtain a commitment for a period of up to 30 days, at the end of which either party may cancel without any further liability to the other. Paragraph 5.10 states that if the contract is canceled in accordance with the foregoing provisions, the seller is required to refund the down payment except for the sum of $250.00, which is to be retained by the seller’s attorney as consideration for the preparation of the contract.
Section 8 of the rider to the parties’ contract is entitled “Down Payment.” Paragraph 8.1 provides that in the event that any party claims a default under the contract, that party shall provide written notice to the party against whom the default is claimed, which party shall have 10 days to object to the payment of the escrow deposit to the party claiming the default; it also provides that in the event of a dispute between the parties concerning entitlement to the down payment, the down payment shall be preserved until the dispute is resolved. Paragraph 8.3 states that if the purchasers willfully default or willfully fail to carry out any of the provisions of the contract, the seller may cancel the agreement and retain the down payment as partial damages.
The subsequent developments:
It appears that after the parties executed the contract, the Dolitskys applied to defendant Continental Home Loans, Inc. for a mortgage loan in the amount of $292,300.00; that on or about May 25, 2010, they received a notification denying their application on the ground that the appraisal of the property had come in some $70,000 under the sale price; that by letter dated May 25, 2010, the Dolitskys’ attorney advised the plaintiff’s attorney that her clients’ application had been denied, gave notice that the contract was thereby canceled pursuant to section 5 of the rider, and requested a refund of the down payment; that the plaintiff refused the Dolitskys’ request for a refund of the down payment; that the plaintiff subsequently attempted to salvage the transaction, but to no avail; that on or about August 26, 2010, the plaintiff’s attorney notified the Dolitskys’ attorney in writing that the Dolitskys were in default; that on or about September 3, 2010, the Dolitskys’ attorney timely objected to the release of the down payment; and that the plaintiff eventually sold the property to another buyer for a price of $440,000.00[.]
The countervailing claims:
Although the Dolitskys contend that their attorney provided proper and timely notice of the denial of their application and that they rightfully and properly terminated the contract in accordance with its terms, the plaintiff claims that the Dolitskys unilaterally and anticipatorily breached the contract when, upon learning that the property had appraised at only $420,000.00, they advised their lender on May 20, 2010 that they were not going to move forward with the transaction and cut off all communication with their broker. The plaintiff also claims that when she spoke to David Dolitsky by telephone in July 2010 and asked why he had reneged on the contract, he said that his intent had been to purchase the property for his daughter and her fiancé, but that after signing the contract, he had learned that they would not be able to afford the carrying charges, and that the issue was purely financial. The plaintiff contends, therefore, that the Dolitskys committed a willful default under the terms of the contract, entitling her not only to retain the down payment but also to recover all of her actual damages flowing directly from the Dolitskys’ default.
The causes of action alleged in the complaint:
The plaintiff pleads five causes of action in her amended complaint: the first through third against the Dolitskys only, the fourth against all the defendants, and the fifth against defendants Continental Home Loans, Inc. and Consumer Settlement & Abstract Services, LLC only. The first is for breach of contract and is based, in part, on the claim that the Dolitskys specifically requested their lender to issue the “fraudulent” May 25 notification denying their mortgage application after learning that their daughter and her fiancé would not be able to afford the carrying charges on the property. The second is for breach of the implied covenant of good faith and fair dealing and is based on the same allegations relating to the May 25 notification set forth in the first cause of action, as well as on the Dolitskys’ alleged failure to apply in good faith for a mortgage and to provide whatever documents or information was required by their lender. The third is for judgment declaring that the Dolitskys’ various acts and omissions constituted a willful default and willful failure to carry out their obligations under the terms of the parties’ contract. The fourth, sounding in fraud, alleges a conspiracy among the defendants to issue the May 25 notification for the purpose of inducing the plaintiff to refund the down payment. The fifth sounds in tortious interference with contract, premised on the allegations that sometime after May 3, 2010, the Dolitskys advised their lender that they did not intend to honor their obligations under the contract, requested that the lender cease processing their mortgage application, and further requested that the lender issue a fraudulent notification denying the application with the intent that the plaintiff would rely on that notification to her detriment.
Concluding as to the motion:
The Dolitskys’ motion is granted to the extent of dismissing the plaintiff’s second, third, and fourth causes of action against them, as well as so much of the cross claim as is for common-law indemnification. To the extent that the second cause of action is based on the “fraudulent” issuance of the May 25 notification, it is duplicative of the first cause of action…to the extent it is based on the Dolitskys’ alleged failure to apply in good faith for a mortgage and to provide whatever documents or information was required by their lender, it is evident that those promises are expressly included in the parties’ contract, so the fact that the Dolitskys may have breached the implied covenant by failing to honor those promises does not state a cause of action for its breach which is distinct from the cause of action for breach of contract. As to the third cause of action, the court notes that declaratory judgment is an improper vehicle to resolve contractual rights where, as here, the plaintiff already has a full and adequate remedy at law…The fourth cause of action, alleging fraud, is likewise duplicative of the first cause of action—at least as to the Dolitskys—for failure to plead a breach of duty distinct from their contractual duties…in any event, as the plaintiff did not refund the down payment, it does not appear how she may be said to have changed her position in reliance the claimed misrepresentation…As to the cross claim, it appears that because any potential liability on Continental’s part would be premised on its own wrongdoing and would not be purely vicarious, it would not be entitled to common-law indemnification from the Dolitskys[.]
And as to the cross-motion:
The plaintiff’s cross motion is granted to the extent of granting summary judgment on the issue of liability in her favor on the first cause of action. Even assuming, as the Dolitskys claim, that they applied in good faith for a mortgage, that they did not withhold any documents or other information from their lender, that they had no input or control over the appraisal, that they did not request or cause their application to be denied, and that they had every intention of closing the transaction and purchasing the property if the application had been approved, it appears that they “canceled” the contract when they had no right under the contract to do so. Paragraph 5.8 of the rider to the parties’ contract provides only the seller a unilateral right to cancel the contract in the event that the purchasers are unable to obtain a mortgage commitment within 45 days; whatever right the Dolitskys may have had to cancel the contract in such an event would not have accrued for at least another 30 days. Whether they canceled upon the denial of their application, as they claim, or five days prior, as the plaintiff contends, is immaterial—except, perhaps, for the purpose of computing interest on a potential judgment. Either way, the court finds that the Dolitskys willfully defaulted, that their default constituted an anticipatory breach of contract, and that the plaintiff is entitled to an award of damages under paragraph 8.3 of the rider to the parties’ contract, in an amount to be determined at trial.
Gonzalez v. Char & Herzberg, LLP, 2017 NY Slip Op 30473(U) (Civ. Ct. Bx. Co. March 13, 2017)
Civil Court issued a Decision, after trial, in an action seeking the return of a $20,000 real estate contract of sale deposit.
The Court summarized the facts:
Plaintiffs entered into a contract of sale…with the Howard Scheiner, as Executor of the Estate of Murray Scheiner on July 15, 2016 for the purchase of 2308 Seymour Avenue, Bronx, NY 10469…Plaintiffs delivered a $20,000 down payment, with an executed copy of the contract pursuant to a letter from their attorney dated July 18, 2016[.]
The relevant provisions of the contract:
Paragraph 6 of the contract provides in pertinent part:
If for any reason Closing does not occur and either party gives Notice…to Escrowee demanding payment of the downpayment, Escrowee shall give prompt notice to the other party of such demand. If Escrowee does not receive Notice of objection from such other party to the proposed payment within 20 business days after the giving of such Notice, Escrowee is hereby authorized and directed to make such payment. If Escrowee does not receive such Notice of objection within such (20) day period or if for any other reason Escrowee in good faith shall elect not to make such payment, Escrowee shall continue to hold such amount until otherwise directed by Notice from the parties to this contract or a final, nonappealable judgment, order or decree of a court.
Paragraph 8(a) of the contract provides for a mortgage commitment contingency and conditions Plaintiffs’ obligation to purchase on issuance of a written commitment within 45 days, from an Institutional Lender for $495,000 for a term of at least 30 years. It further provides “(t)o the extent a Commitment is conditioned on the sale of Purchaser’s current home, payment of any outstanding debt, no material adverse change in Purchaser’s financial condition or any other customary conditions that may not be met, Purchaser accepts the risk that such conditions may not be met;”.
Paragraph 8(e) provides “(i)f no Commitment is issued by an Institutional Lender on or before the Commitment Date, then, . . . Purchaser may cancel this contract by giving Notice to Seller within 5 business days after the Commitment Date . . .”. Finally, paragraph 8(f) provides that if Purchaser cancels the contract in accordance with said terms the downpayment shall be promptly returned to the Plaintiffs.
The subsequent developments:
Plaintiffs received a Mortgage Loan Commitment from loanDepot.com, LLC dated August 29, 2016…The document listed conditions that had to be met prior to closing and at closing, including that Plaintiffs had to have a contract of sale executed for their current home prior to the closing.
Plaintiffs submitted a “Statement of Credit Denial, Termination or Change” dated September 1, 2016…which provided that Plaintiffs application was denied, because the institution did not”…Grant Credit to Any Applicant on the terms and conditions…” requested and that Plaintiffs were unable to meet the condition for sale of their current residence prior to closing.
On September 2, 2016, Plaintiffs’ counsel notified Defendant that Plaintiffs’ mortgage application had been denied, and requested return of their security deposit…Defendant responded pursuant to a letter dated September 9, 2016, stating the cancellation provision was only contingent upon a commitment letter which had been issued, and advising that they intended to proceed with the scheduled closing on or about September 10, 2016…Plaintiffs’ counsel responded on September 9 that no “firm” commitment has ever been issued and the commitment that was issued had conditions which could not be met. Plaintiffs’ counsel again requested return of the funds or stated legal action would be instituted against Defendant as escrow agent[.]
Further correspondence between counsel ensued. Defendant alleged that the conditions in the original commitment letter could have easily been met, and that Plaintiffs “bad faith” actions resulted in the denial…Defendant set a closing date pursuant to a Time Is of the Essence demand for October 21, 2016…and stated that failure to close would result in retention of the down payment for breach of contract.
Plaintiffs assert that the Subject Premises was ultimately sold to a different buyer in January of 2017 and provided a printout from an internet site purporting to confirm same[.]
Where, as here, a mortgage commitment letter is revoked after issuance Plaintiffs’ right to return of the escrowed down payment turns on whether the commitment revocation and consequent failure of the transaction was attributable to bad faith on the part of the Plaintiffs…There is no evidence of any bad faith on the part of Plaintiffs in the underlying record at inquest.
Based on the foregoing judgment is entered against Defendant in the amount of $20,000.00 plus interest from September 2, 2016, and costs.
Lessons learned: Even where the seller is in breach of the contract, as a condition to demanding return of the downpayment the buyer must often prove that it was ready willing and able to perform; and that the seller was given notice of default and an opportunity to cure, if so required by law or the contract of sale.