New York Law Review

Tag: Down Payment

  • Maxton Builders, Inc. v. Lo Galbo, 68 N.Y.2d 373 (1986): Vendee’s Right to Recover Down Payment After Default

    Maxton Builders, Inc. v. Lo Galbo, 68 N.Y.2d 373 (1986)

    A vendee who defaults on a real estate contract without lawful excuse cannot recover the down payment, even if the vendor resells the property for an equal or greater price.

    Summary

    Maxton Builders sued the Lo Galbos for breach of contract after they cancelled a contract to purchase a house and stopped payment on their down payment check. The Lo Galbos claimed they validly cancelled due to a tax contingency clause. The New York Court of Appeals affirmed the lower court’s decision in favor of Maxton Builders, holding that the Lo Galbos’ cancellation was ineffective because they did not provide written notice within the contractually specified timeframe. The court also upheld the longstanding New York rule that a defaulting vendee cannot recover their down payment, declining to adopt the modern rule of allowing recovery for part performance exceeding actual damages.

    Facts

    In 1983, the Lo Galbos contracted to buy a house from Maxton Builders for $210,000, providing a $21,000 down payment. The contract included a rider allowing the Lo Galbos to cancel if real estate taxes exceeded $3,500, contingent upon written notice within three days. The day after signing the contract, the Lo Galbos learned that the estimated taxes exceeded $3,500. The Lo Galbos’ attorney orally notified Maxton’s counsel and sent a written cancellation notice via certified mail on Friday, August 5, which was received on August 9. The Lo Galbos also stopped payment on the down payment check. Maxton Builders resold the house for the same price to another buyer, incurring a $12,000 broker’s fee.

    Procedural History

    Maxton Builders sued the Lo Galbos to recover the down payment. Special Term found the cancellation ineffective but denied summary judgment regarding damages, questioning whether the down payment constituted a penalty. The Appellate Division modified, granting summary judgment to Maxton Builders for the full down payment. The Lo Galbos appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether the Lo Galbos effectively exercised their contractual right to cancel the contract, despite failing to provide written notice within the specified three-day period.

    2. Whether Maxton Builders should be limited to recovering actual damages, rather than retaining the entire down payment, when the Lo Galbos defaulted on the real estate contract.

    Holding

    1. No, because when a contract requires written notice within a specified time, the notice is ineffective unless actually received within that time.

    2. No, because New York adheres to the long-standing rule that a vendee who defaults on a real estate contract without lawful excuse cannot recover the down payment.

    Court’s Reasoning

    The court reasoned that the Lo Galbos’ cancellation was ineffective because the written notice was not received within the three-day period as required by the contract. The court cited precedent establishing that written notice requirements necessitate actual receipt within the prescribed time. Regarding the down payment, the court acknowledged criticisms of the traditional rule from Lawrence v. Miller, which allows vendors to retain down payments upon a vendee’s default. However, the court declined to abandon this rule, stating, “where it can reasonably be assumed that settled rules are necessary and necessarily relied upon, stability and adherence to precedent are generally more important than a better or even a ‘correct’ rule of law.” The court emphasized the importance of stability in contractual rights, especially in arm’s-length real estate transactions. It noted that adopting the modern rule, which allows recovery for part performance exceeding actual damages, would likely lead to increased litigation without significantly altering financial outcomes, as damages in real estate sales often approximate the traditional 10% down payment. The court further reasoned that parties dissatisfied with the Lawrence v. Miller rule can negotiate different terms at the bargaining table. The court quoted Baker v. Lorillard, stating a court should not depart from prior holdings “unless impelled by ‘the most cogent reasons.’”

  • Roukis v. Skinner, 493 N.E.2d 592 (N.Y. 1986): Acceptance of Down Payment Return Doesn’t Automatically Waive Contractual Rights

    Roukis v. Skinner, 493 N.E.2d 592 (N.Y. 1986)

    When a seller returns a buyer’s down payment after a contract dispute arises, the buyer’s acceptance of the returned down payment does not automatically constitute an accord and satisfaction that waives their rights under the contract.

    Summary

    George and Marjorie Roukis sued Stanley and Elizabeth Skinner for specific performance of a real estate contract or damages for breach of contract. The Skinners sought summary judgment, arguing that the Roukis’ acceptance of a check refunding their down payment constituted an accord and satisfaction. The New York Court of Appeals reversed the Appellate Division’s decision granting summary judgment, holding that the return of the down payment alone, without clear evidence of an intent to settle the underlying contractual dispute, does not establish an accord and satisfaction, especially when the sellers may have frustrated the buyers’ ability to fulfill a mortgage contingency.

    Facts

    The Roukis agreed to buy the Skinners’ house for $83,575, making an $8,000 down payment. The contract was contingent on the Roukis obtaining an FHA mortgage within 60 days. The contract stated that if the buyer did not receive final approval within 60 days, the seller could cancel the contract and return the down payment, releasing both parties from liability. The Skinners’ attorney sent a letter to the Roukis’ attorney stating that the Skinners were canceling the contract because a firm mortgage commitment had not been obtained within 60 days, enclosing a check for $8,000. The Roukis cashed the check but then sued for specific performance, alleging they were unable to obtain final approval due to the Skinners’ failure to allow necessary repairs to the property.

    Procedural History

    The Supreme Court denied the Skinners’ motion for summary judgment. The Appellate Division reversed, granting the motion and dismissing the complaint, finding that the Roukis’ negotiation of the check constituted an accord and satisfaction. The Roukis appealed to the New York Court of Appeals based on the reversal.

    Issue(s)

    Whether the plaintiff buyers’ acceptance of a check representing a return of their down payment constituted an accord and satisfaction under the circumstances.

    Holding

    No, because the check represented a return of the buyer’s own property and did not clearly communicate an intent to settle the underlying contractual dispute.

    Court’s Reasoning

    The Court of Appeals reasoned that while acceptance of a check can operate as an accord and satisfaction, it requires a clear communication that the check is offered in full settlement of a disputed claim. The letter accompanying the check merely stated the Skinners’ intent to cancel the contract under its terms. However, the Skinners’ right to cancel was itself in dispute because the Roukis alleged the Skinners obstructed their ability to obtain the mortgage. The court emphasized that “the defendants should not be permitted to condition the return of the down payment on the plaintiffs’ relinquishing their rights under the contract of sale. As a rule a condition attached to a check requiring the recipient to surrender contractual rights will not serve as an accord and satisfaction if the check simply represents a return of the recipient’s own property”. Once the Skinners refused to perform the contract, they had no right to retain the down payment, irrespective of whether their refusal was justified. The court noted that parties can mutually agree to cancel a contract, but simply returning the down payment does not accomplish this, as “the check constituted nothing more than a return of the buyer’s own property.”