Pesa v. Yoma Development Group, Inc., 18 N.Y.3d 527 (2012)

In a breach of contract action for the sale of real property where the seller has allegedly repudiated the contract, the buyer must prove they were ready, willing, and able to close the transaction to recover damages.

Summary

This case addresses the requirements for a buyer to recover damages when a seller allegedly breaches a real estate contract. The New York Court of Appeals held that a buyer seeking damages for a seller’s repudiation must demonstrate that they were ready, willing, and able to complete the purchase. The Court reasoned that damages are only recoverable if they were actually caused by the breach and that requiring the buyer to prove their ability to perform places the burden on the party with easier access to relevant evidence. The Court also found that the seller’s transfer of the property to an affiliated entity did not automatically constitute repudiation, creating a factual issue requiring further examination.

Facts

Yoma Development Group, Inc. (seller) entered into three separate contracts to sell properties to Mario Pesa and other plaintiffs (buyers). The seller planned to build three-family dwellings on each property. The contracts specified a purchase price and required the seller to deliver certificates of occupancy or “appropriate sign-offs.” Each contract contained a mortgage contingency clause allowing either party to cancel if the buyer didn’t obtain a mortgage commitment within 60 days. The seller transferred the properties to Southpoint, Inc., an affiliated corporation, over three years after the contracts were signed. Subsequently, the seller attempted to cancel the contracts, citing the buyers’ failure to obtain mortgage commitments. The buyers then sued for specific performance and damages.

Procedural History

The Supreme Court granted summary judgment to the buyers on liability, finding the seller anticipatorily breached the contracts by transferring title. The Appellate Division affirmed, holding that a buyer seeking damages for anticipatory breach need not prove they were ready, willing, and able to close. The Court of Appeals granted the seller leave to appeal.

Issue(s)

1. Whether a buyer seeking damages for a seller’s breach of a real estate contract must prove they were ready, willing, and able to close the transaction.
2. Whether the seller’s transfer of the properties to an affiliated corporation constituted a repudiation of the contracts as a matter of law.

Holding

1. Yes, because damages for breach of contract are only recoverable if caused by the breach, and the buyer is in a better position to demonstrate their ability to perform.
2. No, because the transfer between affiliated entities does not, by itself, make it impossible for the seller to close the transaction, and therefore does not automatically constitute repudiation.

Court’s Reasoning

The Court of Appeals reversed the lower courts, holding that a buyer seeking damages for a seller’s repudiation of a real estate contract must prove they were ready, willing, and able to close. The court cited treatises and cases from other jurisdictions to support this rule, aligning with the Third and Fourth Departments’ stance. The court reasoned that the “ready, willing, and able” requirement is supported by common sense, as damages are only recoverable if the breach caused them. The burden of proof is placed on the buyers because they can more readily produce evidence of their own intentions and resources. The Court distinguished American List Corp. v. U.S. News & World Report, noting that this case involved a long-term contract where proving future financial condition would have been unduly burdensome.

The court also found that the transfer of the properties to Southpoint, Inc., an affiliated corporation, did not automatically constitute repudiation. The court explained that such transfers could be done for various reasons and did not necessarily indicate an unwillingness to perform the contract. While there was evidence suggesting the transfer was inconsistent with the contract, the court determined that conflicting affidavits created a factual issue requiring further examination. The court quoted Deforest Radio Tel. & Tel. Co. v Triangle Radio Supply Co., stating, “Where one party to a contract repudiates it and refuses to perform, the other party by reason of such repudiation is excused from further performance, or the ceremony of a futile tender. He must be ready, willing and able to perform, and this is all the law requires”.

The court affirmed the denial of the seller’s cross-motion for summary judgment because the record did not conclusively prove that the buyers were not ready, willing, and able to close, nor that the Southpoint transfer was not a repudiation. The court also noted that the buyers’ claim that their failure to get mortgage commitments resulted from the seller’s non-performance remained an open issue, citing Arc Elec. Constr. Co. v Fuller Co., “ ‘(T)he defendant cannot rely on (a) condition precedent . . . where the non-performance of the condition was caused or consented to by itself’ ”.