New York Law Review

Tag: real estate contract

  • Pesa v. Yoma Development Group, Inc., 18 N.Y.3d 527 (2012): Establishing Readiness, Willingness, and Ability to Perform in Real Estate Contract Breach

    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’ ”.

  • Voorheesville Rod & Gun Club, Inc. v. E.W. Tompkins Co., Inc., 70 N.Y.2d 984 (1988): Marketable Title and Subdivision Regulations

    Voorheesville Rod & Gun Club, Inc. v. E.W. Tompkins Co., Inc., 70 N.Y.2d 984 (1988)

    A title is not rendered unmarketable merely because the sale of a portion of a parcel violates subdivision regulations, where the contract does not require the seller to obtain subdivision approval and the regulations pertain to the use, not the ownership, of the land.

    Summary

    Voorheesville Rod & Gun Club contracted to buy a portion of Tompkins Co.’s land. The contract made the sale subject to zoning laws but didn’t require Tompkins to obtain subdivision approval. The Club later demanded Tompkins obtain this approval, arguing its absence made the title unmarketable. Tompkins refused, canceled the contract when the Club didn’t close, and returned the deposit. The Club sued for specific performance. The Court of Appeals held that while the subdivision regulations applied to the sale, Tompkins’ failure to obtain approval did not render the title unmarketable because the contract didn’t mandate it and zoning laws affect land use, not title ownership.

    Facts

    On January 15, 1986, Voorheesville Rod & Gun Club, Inc. (plaintiff) contracted to purchase a portion of E.W. Tompkins Company, Inc.’s (defendant) property for $38,000. The property consisted of 24.534 acres of undeveloped land intended for recreational use, and the contract specified conveyance by warranty deed, subject to covenants, conditions, restrictions, easements, zoning, and environmental protection laws, provided these didn’t render the title unmarketable.
    Prior to the closing date, the Club requested Tompkins comply with the Village of Voorheesville’s subdivision regulations. Tompkins didn’t comply, issued a time-of-the-essence notice, and canceled the contract when the Club failed to close, returning the $5,000 deposit.
    The Club then claimed the cancellation was unacceptable due to Tompkins’ failure to obtain subdivision approval, which allegedly rendered the title unmarketable and prevented their financing bank from closing.

    Procedural History

    The Club sued for specific performance or damages. Supreme Court ordered specific performance, directing Tompkins to seek subdivision approval. The Appellate Division affirmed, stating that the sale was subject to subdivision regulations, and Tompkins’ refusal rendered the title unmarketable.
    After subdivision approval was obtained, the Supreme Court directed Tompkins to transfer the property. All causes of action were discontinued except the Club’s claim for specific performance. The Court of Appeals granted Tompkins leave to appeal, reviewing the prior Appellate Division order.

    Issue(s)

    1. Whether the Village of Voorheesville’s subdivision regulations apply to a conveyance of a portion of land intended to remain undeveloped.
    2. Whether the seller’s failure to seek subdivision approval before the transfer renders the title unmarketable, absent a contractual obligation to do so.

    Holding

    1. Yes, because the Village’s subdivision regulations define “subdivision” as the division of land into two or more lots, and the proposed transaction involved the division of land, regardless of the intent to develop it.
    2. No, because the contract did not require the seller to obtain subdivision approval, and existing zoning regulations affecting land use, as opposed to title ownership, generally do not render a title unmarketable.

    Court’s Reasoning

    The Court reasoned that the Village’s subdivision regulations applied because the transaction constituted a subdivision as defined in the regulations. The regulations required subdivision approval whenever any subdivision of land is proposed, regardless of whether development is intended. The Court rejected the seller’s argument that approval was only required when a building permit would be sought, noting this would limit the regulations’ broader policy of orderly development.
    Regarding marketability of title, the Court emphasized that the contract was silent on the issue of subdivision approval. Paragraph 4 of the contract stated that the property would be conveyed subject to zoning and environmental protection laws, provided that this did not render the title unmarketable.
    The Court stated: “where a person agrees to purchase real estate, which, at the time, is restricted by laws or ordinances, he will be deemed to have entered into the contract subject to the same [and] [h]e cannot thereafter be heard to object to taking the title because of such restrictions”.
    Marketability of title concerns impairments on the right to unencumbered ownership and possession, not legal public regulation of the use of property. A zoning ordinance existing at the time of the contract, which regulates only the use of the property, is generally not an encumbrance making the title unmarketable, citing Lincoln Trust Co. v Williams Bldg. Corp., 229 NY 313, 318.
    Because the seller did not warrant or represent that it would obtain subdivision approval, the buyer agreed to purchase the property subject to the zoning laws. The Court declined to expand the conditions that render title unmarketable, suggesting instead that parties include specific provisions addressing the duty to obtain subdivision approval in their contracts.

  • Scheck v. Burger King Corp., 75 N.Y.2d 1031 (1990): Objective Manifestation of Intent to Contract Required

    75 N.Y.2d 1031 (1990)

    A binding contract requires an objective manifestation of intent by all parties to enter into the agreement.

    Summary

    Scheck, the plaintiff, sued Burger King for specific performance of a real estate contract. The defendant, Burger King, argued that no binding agreement existed. The trial court dismissed the complaint, and the Appellate Division affirmed. The New York Court of Appeals affirmed, holding that no objective manifestation of intent to enter into a contract existed because Burger King’s president signed the contract with the understanding that it wouldn’t be delivered until further review, and the plaintiff was informed of issues with the contract’s approval.

    Facts

    Plaintiff and defendant, both not-for-profit corporations, engaged in negotiations for the sale of property owned by the defendant to the plaintiff, who was the lessee. After extensive negotiations, a final draft of the contract was presented to the defendant’s president, Yochman, just before a special membership meeting. The plaintiff had already signed the contract. Defendant’s attorney asked Yochman to sign before the meeting but assured him the contract would not be delivered until further review. Yochman signed, and the plaintiff’s attorney was informed of the signing but also warned of “trouble” and “bad news” regarding the contract’s approval.

    Procedural History

    The plaintiff sued for specific performance after the defendant failed to return the signed contract and stated that no binding agreement had been reached. The trial court dismissed the complaint. The Appellate Division affirmed the dismissal, and the plaintiff appealed to the New York Court of Appeals.

    Issue(s)

    Whether the circumstances surrounding the signing of the contract demonstrated the requisite objective manifestation of intent by both parties to enter into a binding contract for the sale of real property.

    Holding

    No, because the circumstances surrounding the signing of the contract did not demonstrate the requisite objective manifestation of intent by both parties to enter into a binding contract.

    Court’s Reasoning

    The Court of Appeals affirmed the dismissal of the complaint, emphasizing that a contract requires an objective manifestation of intent to be bound. The court relied on the principle articulated in Brown Bros. Elec. Contrs. v Beam Constr. Corp., 41 NY2d 397, 399-400 and Arnold v Gramercy Co., 15 AD2d 762, affd 12 NY2d 687. The court highlighted several key facts: (1) the defendant’s president signed the contract with the understanding that it wouldn’t be delivered until further review; (2) the plaintiff’s attorney was informed contemporaneously about issues with the contract’s approval; and (3) strenuous objections were voiced at the membership meeting after the signing. Because the signed contract was never returned to the plaintiff’s attorney and the deposit was returned, no objective manifestation of intent to be bound existed. The court reasoned that these circumstances, taken together, indicated a lack of mutual assent to the contract’s terms. The court did not find any dissenting or concurring opinions in the provided text.

  • 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.”

  • Madison Investments, Inc. v. Cohoes Industrial Terminal, Inc., 64 N.Y.2d 579 (1985): Effect of Anticipatory Breach on Showing Ability to Perform

    Madison Investments, Inc. v. Cohoes Industrial Terminal, Inc., 64 N.Y.2d 579 (1985)

    Even after a seller’s anticipatory breach of a contract for the sale of real property, the purchaser must still demonstrate that it was ready, willing, and able to perform its obligations under the contract on the closing date to be entitled to specific performance.

    Summary

    Madison Investments, Inc. (plaintiff) sought specific performance of a real estate contract after Cohoes Industrial Terminal, Inc. (defendant) anticipatorily breached the agreement. Although the anticipatory breach relieved the plaintiff of tendering performance, the court held that the plaintiff still had to prove it was ready and able to perform on the original closing date to be awarded specific performance. The plaintiff’s failure to demonstrate its financial capacity to purchase the property on the scheduled date, despite having secured a financing commitment much later, precluded the remedy of specific performance.

    Facts

    The plaintiff and defendant entered into a contract for the sale of real property. The defendant anticipatorily breached the contract before the scheduled closing date. The plaintiff then sued seeking specific performance of the contract, claiming the defendant’s breach excused its need to demonstrate readiness and ability to perform. The plaintiff admitted lacking sufficient funds of its own but claimed it secured a financing commitment from another party. This commitment, however, was obtained nearly a year after the originally scheduled closing date.

    Procedural History

    The Appellate Division found that specific performance was inappropriate. The New York Court of Appeals reviewed the Appellate Division’s order. The Court of Appeals affirmed the Appellate Division’s decision, holding that the plaintiff failed to adequately demonstrate its ability to perform on the closing date.

    Issue(s)

    Whether a purchaser seeking specific performance of a real estate contract, after the seller’s anticipatory breach, must still demonstrate that it was ready, willing, and able to perform its obligations under the contract on the originally scheduled closing date.

    Holding

    Yes, because the purchaser seeking specific performance, even after an anticipatory breach by the seller, must still demonstrate that it was ready, willing, and able to perform its obligations under the contract on the originally scheduled closing date to be entitled to specific performance.

    Court’s Reasoning

    The Court of Appeals relied on the established principle that a party seeking specific performance must demonstrate that it was ready, willing, and able to perform its obligations under the contract. The court acknowledged that the defendant’s anticipatory breach relieved the plaintiff of the obligation to actually tender performance on the closing date. However, it emphasized that this did not eliminate the plaintiff’s burden of proving its capacity to perform had the breach not occurred. The court cited Stawski v. Epstein, 67 AD2d 681, and Friederang v. Aldo Co., 199 App Div 127, for this proposition.

    The court found the plaintiff’s evidence of ability to perform inadequate. The financing commitment obtained from another person was secured nearly a year after the anticipated closing date. The plaintiff presented no other evidence demonstrating its capacity to purchase the property on the relevant date. The Court stated, “Though defendant seller’s anticipatory breach of contract relieved plaintiff purchaser of its obligation to tender performance, this did not discharge plaintiff’s obligation to show that it was ready and able to perform its own contractual undertakings on the closing date, in order to secure specific performance.”

    Because the case was tried on stipulated facts and deposition testimony with no allegations of trial errors, the Court found no reason for a further hearing on the issue of the plaintiff’s ability to perform. The plaintiff had its opportunity to prove its ability to perform and failed to do so.