Merritt Hill Vineyards v. Windy Heights Vineyard, Inc., 61 N.Y.2d 106 (1984)

A contractual condition is an event that must occur before performance is due, while a promise is a manifestation of intent to act or refrain from acting; failure to fulfill a condition excuses the other party’s performance but does not create liability for damages unless it is also an independent promise.

Summary

Merritt Hill Vineyards contracted to buy a controlling stock interest in Windy Heights Vineyard but refused to close when Windy Heights failed to provide a title insurance policy and mortgage confirmation as required by the contract. Merritt Hill sued for the return of its deposit and consequential damages. The New York Court of Appeals held that the requirements were conditions precedent to Merritt Hill’s obligation to close, not promises by Windy Heights. Therefore, Windy Heights’ failure to meet these conditions excused Merritt Hill’s performance and justified the return of the deposit, but did not entitle Merritt Hill to consequential damages because there was no independent promise to provide those documents.

Facts

In September 1981, Merritt Hill Vineyards (plaintiff) agreed to purchase a majority stock interest in Windy Heights Vineyard (defendant). The agreement stipulated that the sale was subject to certain “conditions precedent,” including Windy Heights providing a satisfactory title insurance policy and confirmation from Farmers Home Administration regarding existing mortgages by the time of closing. At the April 1982 closing, Windy Heights had not obtained the required policy or confirmation, leading Merritt Hill to refuse to close and demand the return of its $15,000 deposit.

Procedural History

Merritt Hill sued Windy Heights for return of the deposit and consequential damages. Special Term denied Merritt Hill’s motion for summary judgment on both claims. The Appellate Division reversed, granting summary judgment to Merritt Hill for the deposit but, searching the record, granted summary judgment to Windy Heights dismissing the claim for consequential damages. Both parties appealed.

Issue(s)

1. Whether the Appellate Division could grant summary judgment to a non-appealing party (Windy Heights) on the consequential damages claim.
2. Whether Windy Heights’ failure to provide the title insurance policy and mortgage confirmation entitled Merritt Hill to consequential damages in addition to the return of the deposit.

Holding

1. Yes, because CPLR 3212(b) allows the Appellate Division to grant summary judgment to a non-moving party if it appears that such party is entitled to judgment as a matter of law, and the Appellate Division has original jurisdiction to entertain and decide the underlying motion.
2. No, because the undertaking to produce the policy and mortgage confirmation was a condition of Merritt Hill’s obligation to perform, not a promise by Windy Heights to provide those items; therefore, failure to fulfill the condition excused Merritt Hill’s performance but did not constitute a breach subjecting Windy Heights to liability for consequential damages.

Court’s Reasoning

The Court of Appeals affirmed the Appellate Division’s order. Addressing the procedural issue, the Court held that the Appellate Division had the authority under CPLR 3212(b) to grant summary judgment to Windy Heights, even without a cross-appeal. The court distinguished its own limited jurisdiction from that of the Appellate Division, which, as a division of the Supreme Court, shares the power to search the record and award summary judgment even to a non-moving party. The court emphasized that summary judgment is an effective means for resolving disputes that present only questions of law.

On the merits, the court distinguished between a contractual condition and a promise, citing the Restatement (Second) of Contracts. The court stated, “A promise is ‘a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.’ (Restatement, Contracts 2d, § 2, subd [1].) A condition, by comparison, is ‘an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.’ (Restatement, Contracts 2d, § 224.)” The court found that the title insurance policy and mortgage confirmation requirements were conditions precedent to Merritt Hill’s obligation to close, as they were listed under a section titled “Conditions Precedent to Purchaser’s Obligation to Close.” The court noted that there were no “words of promise” employed, and that “[d]efendants’ agreement to sell the stock of the vineyard, not those conditions, was the promise by defendants for which plaintiff’s promise to pay the purchase price was exchanged.”

Therefore, Windy Heights’ failure to fulfill the conditions excused Merritt Hill’s performance (its obligation to close the purchase), entitling Merritt Hill to the return of its deposit. However, because Windy Heights did not independently promise to provide the title insurance policy and mortgage confirmation, its failure was not a breach of contract that would subject it to consequential damages. “While a contracting party’s failure to fulfill a condition excuses performance by the other party whose performance is so conditioned, it is not, without an independent promise to perform the condition, a breach of contract subjecting the nonfulfilling party to liability for damages (Restatement, Contracts 2d, § 225, subds [1], [3]; 3A Corbin, Contracts, § 663; 5 Williston, Contracts [Jaeger-3d ed], § 665).”