Cipriano v. Glen Cove Lodge #1458, 1 N.Y.3d 53 (2003)

A grantor of a right of first refusal breaches the agreement by failing to offer the holder the opportunity to purchase the property on the same terms as a third-party offer, even if the holder is aware of the potential sale.

Summary

This case concerns a dispute between a property buyer (Cipriano), a seller (Glen Cove Lodge), and the holder of a right of first refusal (Buffa). The Lodge contracted to sell property to Cipriano without first offering it to Buffa, who held a right of first refusal. Cipriano sued for specific performance, and Buffa cross-claimed for specific performance of his right. The Court of Appeals held that the Lodge breached its contract with Buffa by failing to offer him the property, but neither specific performance nor damages were warranted given Buffa’s actions. The Court also held that Cipriano was entitled to the return of his down payment because the Lodge failed to provide marketable title and frustrated Cipriano’s efforts to resolve the title issue.

Facts

In 1955, Buffa sold land to the Lodge, retaining a “first option to repurchase” the property at fair market value. The Lodge repeatedly honored this right in the past when presented with offers. In 1997, the Lodge negotiated a sale to Cipriano for $550,000 but did not inform Buffa or make the contract contingent on Buffa waiving his right. Cipriano knew of Buffa’s right but was led to believe it was waived. Buffa informed the Lodge of his intention to exercise his right and requested a copy of the contract, which the Lodge ignored. The Lodge later informed Cipriano of Buffa’s claim but refused to take action to resolve it. Cipriano attempted to negotiate with Buffa to buy out his right. The Lodge attempted to cancel the contract with Cipriano, returning his down payment, which Cipriano rejected.

Procedural History

Cipriano sued the Lodge and Buffa for specific performance and damages. Buffa cross-claimed against the Lodge for specific performance of his right of first refusal. The Supreme Court dismissed Cipriano’s claim and Buffa’s cross-claim and granted summary judgment to the Lodge. The Appellate Division modified, upholding the dismissal of Cipriano’s and Buffa’s claims but issuing a declaration allowing the Lodge to keep the down payment. The Court of Appeals granted leave to appeal.

Issue(s)

1. Whether the Lodge breached its contractual obligation to Buffa by failing to offer him the opportunity to exercise his right of first refusal before contracting to sell the property to Cipriano.

2. Whether Buffa is entitled to specific performance or damages as a result of the Lodge’s breach.

3. Whether the Lodge was entitled to retain Cipriano’s down payment after failing to deliver marketable title.

Holding

1. Yes, because a right of first refusal requires the grantor to offer the property to the rightholder before selling to a third party.

2. No, because specific performance is inappropriate when there is no binding contract, and damages are not warranted as Buffa suffered no appreciable injury.

3. No, because the Lodge failed to provide marketable title and frustrated Cipriano’s efforts to resolve the title issue.

Court’s Reasoning

The Court reasoned that a right of first refusal obligates the grantor to offer the property to the rightholder before selling it to another party. The Lodge’s failure to provide Buffa with a copy of the contract with Cipriano and an opportunity to match the offer constituted a breach. The Court cited LIN Broadcasting Corp. v Metromedia, Inc., 74 NY2d 54 (1989), stating, “‘[t]he effect of a right of first refusal… is to bind the party who desires to sell not to sell without first giving the other party the opportunity to purchase the property at the price specified.’” Although a breach occurred, specific performance was deemed inappropriate because Buffa’s intent to purchase was uncertain. Damages were also denied because Buffa retained his right of first refusal, thus suffering no appreciable injury. As for Cipriano’s down payment, the Court found that the Lodge had misrepresented Buffa’s willingness to waive his right and then hindered Cipriano’s attempts to clear the title. The Court noted that Cipriano had a