Grace v. Nappa, 46 N.Y.2d 560 (1979)

When a real property contract specifies that time is of the essence and requires the seller to provide a mortgage estoppel certificate, the buyer is entitled to strict compliance with that term, and failure to provide the certificate constitutes a material breach entitling the buyer to rescind the contract and recover their down payment.

Summary

Grace contracted to buy property from Nappa, paying a $52,500 down payment. The contract required Nappa to furnish a recordable mortgage estoppel certificate establishing the mortgage balance, with time being of the essence. Nappa failed to obtain the certificate by the closing date and offered alternative proof, which Grace rejected. Grace refused to extend the closing, and the deal fell apart. Grace sued to recover the down payment. The Court of Appeals held that Nappa’s failure to provide the required estoppel certificate was a material breach, entitling Grace to rescind the contract and recover the down payment. The court emphasized the importance of enforcing the contract as written when time is of the essence.

Facts

Oliver Grace (plaintiff-buyer) entered a contract to purchase real property from defendant Nappa (defendant-seller), paying $52,500 down with $333,981.50 due at closing.

The contract specified that Grace would take the premises subject to an existing mortgage of $138,518.49.

Nappa was obligated to produce a mortgage estoppel certificate, recordable and executed by the mortgagee, certifying the unpaid principal, interest, maturity date, and interest rate.

The contract explicitly stated that time was “of the essence” for both parties.

Nappa failed to obtain the estoppel certificate by the agreed-upon closing date.

Nappa attempted to prove the mortgage balance via canceled checks and an amortization schedule, which Grace rejected.

Nappa provided a letter from the mortgagee indicating the mortgage might not be in good standing, further fueling Grace’s refusal.

Nappa then offered to satisfy the existing mortgage and take back a purchase-money mortgage, but did not actually pay off the mortgage.

Grace refused any alternatives to the estoppel certificate and considered the matter ended, seeking to renegotiate the contract.

Procedural History

Special Term initially granted summary judgment to Grace, but the Appellate Division reversed.

After a trial, the Supreme Court ruled for Grace, dismissing Nappa’s counterclaim for specific performance.

The Appellate Division reversed again, dismissing Grace’s action and remitting for trial on the counterclaim.

The Appellate Division granted leave to appeal to the Court of Appeals and certified the question of whether its order was properly made.

Issue(s)

Whether the defendant sufficiently complied with a contractual provision requiring him to furnish a recordable mortgage “estoppel certificate” to establish the outstanding balance of a mortgage encumbering the subject real property, when time was of the essence.

Holding

No, because when a real property contract contains a time is of the essence clause, the parties must strictly comply with all material terms of the contract, including the delivery of a mortgage estoppel certificate as specified in the contract; failure to do so constitutes a material breach entitling the buyer to rescission.

Court’s Reasoning

The Court of Appeals emphasized that parties are free to tailor their contracts and that courts should enforce the bargain struck absent fraud or equitable considerations. Because the contract explicitly stated that time was of the essence, strict compliance with all material terms was required.

The court found that the requirement for a mortgage estoppel certificate was a material term. The court cited Oppenheimer v. Humphreys, where a similar requirement was deemed essential to ensure clear record title and prevent future litigation.

The Court found that Nappa’s failure to provide the estoppel certificate constituted a material breach, entitling Grace to rescind the contract and recover the down payment and title search costs.

The court highlighted the importance of the estoppel certificate given the mortgagee’s letter stating the mortgage might not be in good standing, creating a reasonable likelihood of future litigation, which a buyer should not be forced to assume. As the Court stated, a “vendee has the right to a title that will enable him to hold his land in peace, and to be reasonably sure that no flaw or doubt will arise to affect its marketable quality and value.”

The Court reasoned that, because the seller never tendered substitute performance or demanded that the buyer close, the buyer was not in default. The Court declined to rule on whether actual performance of the substitute proposals would have been adequate.