Arugula, Radicchio & Romaine/Attorneys At Law Lettuce Get Your Deposit Back

Now that I have your attention: Litigation abounds over the right to keep/return the deposit when a real estate transaction fails. Several recent examples follow:

Ward Capital Mgt. LLC v. New Pelham Parkway N. LLC, 2018 NY Slip Op 06797, App. Div. 1st Dept. (October 11, 2018)

Supreme Court granted defendants' motion for summary judgment dismissing the complaint; granted their counterclaims to retain plaintiff's $1 million downpayment; and denied plaintiff's cross-motion for summary judgment.

The Appellate Division, as follows, summarily affirmed:

Defendants made a prima facie showing of their entitlement to judgment as a matter of law. They submitted evidence that the contract of sale between the parties for the sale of four real estate properties clearly stated that "time is of the essence" as to the closing date and that, through an amendment to that contract, the parties scheduled the closing for October 18, 2013. Defendants also provided evidence that all parties appeared at the proposed closing on that date, defendants were ready, willing and able to close, and plaintiff did not have the liquid cash to pay the purchase price...Since the real estate contract provided that the time of closing is of the essence, performance on the specified date was a material element and plaintiff's failure to perform on that date constituted material breach[.]

In opposition, plaintiff failed to raise a triable issue of fact. Plaintiff asserted that it had lawful excuses for its failure to close, since defendants provided a false representation in the sale contract regarding threatened litigation related to two of the properties, there was cloudy title due to a pending foreclosure action, and a third party failed to provide final documentation regarding a $10 million loan to plaintiff to cover part of the purchase price.

First, the sale contract explicitly stated that if a representation was false and had a materially adverse effect on the market value of the property, defendants could monetarily solve the problem and plaintiff would still be required to close. Second, while there was a pending foreclosure action concerning two of the four properties that were the subject of the sale, the plaintiff bank in that action was well aware that the outstanding mortgage amounts, related costs, and attorneys' fees would be paid off in connection with the closing and the bank provided pay-off statements to effectuate the payments. Moreover, the title insurance company agreed to provide insurance without any exceptions. Third, plaintiff warranted in the sale contract that it did not need outside financing to fund the purchase price, plaintiff's obligations thereunder were not contingent on any loan from any third party, and defendants were relying on this representation as a material inducement to enter into the sale contract. In light of this language, the lack of final documentation regarding a $10 million loan to plaintiff was not a lawful excuse.

Funk v. Seligson, Rothman & Rothman, Esqs., 2018 NY Slip Op 06614, App. Div. 1st Dept. (October 4, 2018)

Supreme Court granted summary judgment for return of a downpayment in the amount of $55,180.60.

The Appellate Division summarized the applicable provisions of the contract of sale:

Paragraph 25(d) of the agreement between plaintiffs and Petit states, "If no [mortgage] Commitment is issued by the Institutional Lender on or before the Commitment Date, . . . [plaintiffs] may cancel this contract . . ., provided that . . . [they] ha[ve] complied with all [their] obligations under this paragraph 25." In turn, plaintiffs' obligations under paragraph 25 included making a prompt application to one or more Institutional Lenders, pursuing such application with diligence, and cooperating in good faith with the lender(s).

The notice cancelling the contract:

Plaintiffs' June 9, 2016 notice cancelling the contract merely stated that they had "complied with all their obligations under Paragraph 25." The following day, [defendant's] counsel asked plaintiffs' transactional counsel to provide documentation of their good-faith pursuit of financing.

Found paragraph 25(d) to be ambiguous:

Paragraph 25(d) is ambiguous...On the one hand, it could mean, as plaintiffs contend, that they only have to say they are in compliance. On the other hand, it could also mean, as defendants contend, that plaintiffs have to show they were in compliance; defendants did not have to accept plaintiffs' mere say-so.

And finding issues of fact:

Even if plaintiffs' June 9, 2016 notice were sufficient, there is an issue of fact as to whether plaintiffs withdrew it and agreed to proceed with the transaction if Petit agreed to extend the Commitment Date and closing, which it did. After defendants submitted Diamond's affirmation, detailing her dealings with Mero, plaintiffs failed to submit either an affirmation or an affidavit from him; hence, they are deemed to have admitted the facts in Diamond's affirmation...Moreover, although the contract required plaintiffs' cancellation notice to be in writing, it did not require a withdrawal of the notice to be in writing.

Nevertheless, defendants are not entitled to summary judgment because their own submissions (i.e., some of their exhibits) showed that plaintiffs may have insisted on a new written contract. In other words, it is unclear whether plaintiffs agreed to proceed (a) if Petit postponed the Commitment Date and closing or (b) only if there were a new written agreement. "When parties do not intend to be bound until their agreement is reduced to writing and signed, there is no contract in the interim even if the parties have orally agreed upon all the terms of the proposed contract"...The doctrines of promissory estoppel, equitable estoppel, and part performance do not entitle defendants to summary judgment, either.

An additional issue of fact arises from paragraph 25(a), which states, "[A] commitment conditioned on the Institutional Lender's approval of an appraisal shall not be deemed a Commitment' hereunder until an appraisal is approved (and if that does not occur before the Commitment Date, [plaintiffs] may cancel under paragraph 25 . . . (d) unless the Commitment Date is extended)" (emphasis added). It is undisputed that Petit extended the Commitment Date; however, it did not do so in writing, and the contract requires all modifications to be in writing signed by the party to be charged. However, "a contractual prohibition against oral modification may itself be waived"...and waiver is usually a question of fact[.]

Second Ave. 1355 Realty LLC v. 1355 Second Owner LLC, 2018 NY Slip Op 06191, App. Div. 1st Dept. (September 28, 2018)

Supreme Court granted defendant's motion to dismiss various causes of action.

The First Department, as follows, summarily affirmed:

Plaintiff alleges that defendant 1355 Second Owner LLC...breached the agreement pursuant to which it would purchase from plaintiff a multi-use building in Manhattan. Plaintiff concedes that it failed to meet the condition precedent that it deliver the building "vacant, free of all residential tenancies and occupancies," which would relieve the buyer of its duty to close on the purchase...but argues that the buyer waived the condition precedent.

The documentary evidence conclusively establishes that there was no waiver of the condition precedent...The agreement required that any waiver be express and in writing. The January 6, 2016 letter and January 7, 2016 email written by buyer's counsel on which plaintiff relies do not mention either waiver or the vacancy condition precedent. Indeed, they do not appear to address these issues at all. They focus on a dispute over a different but related provision of the agreement, which obligated plaintiff to use its best efforts to bring about the fulfillment of the condition precedent.

Rodrigues NBA, LLC v. Allied XV, LLC, 2018 NY Slip Op 06129, App. Div. 2nd Dept. (September 19, 2018)

Supreme Court denied plaintiff's motion for summary judgment in an action to recover damages for breach of a contract for the sale of real estate in which the seller sought to retain the $375,000 downpayment.

The Appellate Division summarized the facts:

Although the contract of sale specified a date for the closing, the parties agreed to adjourn the closing to a later date. Eventually, the seller sent the buyer a "time of the essence" letter. The letter, which was dated June 21, 2016, set June 30, 2016, as the closing date. The buyer rejected that closing date, alleging that certain ongoing administrative proceedings involving the subject property violated the terms of the contract of sale. The buyer did not appear at the closing.

The pleadings and prior proceedings:

The seller commenced this action, inter alia, to recover damages for breach of the contract of sale. The seller sought to retain the down payment as liquidated damages as specified in the contract of sale. The buyer interposed an answer with related counterclaims. The buyer sought the return of the down payment, alleging that the seller breached the contract of sale.

The seller moved, among other relief, for summary judgment on the complaint and dismissing the buyer's counterclaims. The buyer opposed the motion. In the order appealed from, the Supreme Court denied those branches of the seller's motion which were for summary judgment on the complaint and dismissing the buyer's counterclaims. The court concluded that the time of the essence letter was a nullity because it did not provide the buyer with a reasonable amount of time in which to act and, in any event, that the seller failed to demonstrate that it was ready, willing, and able to perform on the scheduled date. The seller appeals.

The applicable law:

"When, as here, a contract for the sale of real property does not make time of the essence, the law permits a reasonable time in which to tender performance, regardless of whether the contract designates a specific...