contract litigation goes against greedy sellers

buyer lost job, then mortgage, then deal (not baby, or case)
These things don’t often get litigated, probably because there is not enough money involved to justify the fees and because people (generally) do the right thing. But a Manhattan coop seller who refused to return a 10% sales deposit after a buyer lost his job just got slammed in court, in an opinion worth reading for the rare review of how the law applies to these situations.

just the facts, Ma’am, just the facts
Trying to keep this simple here:

  • February 2, 2009 : contract signed for $465k, closing to be "on or about" March 23
  • February 17: a typical loan commitment was issued (with an "adverse change" clause permitting the bank to revoke)
  • (date is unclear) buyers submit purchase application to Board
  • March 17: buyer’s counsel email to bank, sellers’ counsel and real estate agents that one buyer had lost his job on March 13
  • March 18: managing agent (not in the loop?) calls buyers’ agent to schedule board interview
  • March 19: bank withdraws loan commitment
  • March 19 (or soon thereafter): Board president directs managing agent to advise buyers to resubmit application when they have financing
  • April 9: sellers’ counsel letter to buyers’ counsel, claiming that buyers were in default on contract
  • May 19: buyers give formal notice of cancellation of contract
  • sellers refuse to return the deposit
  • July 28: sellers close on sale to new buyers for $529,500 [we’ll talk about this later]
  • buyers sue to get their $46,500 deposit back; sellers counterclaim for breach of contract (to keep the deposit), including a claim that buyers acted in bad faith

the law delivers justice
The key legal conclusion reached by Justice Jane Solomon of the Supreme Court, New York County (the trial-level court; not the top appeals court) was that buyers had the right to cancel the contract under a standard contract term regarding the failure by the Board to make a decision by the Closing Date, but the court decision touches on some other interesting contract rights and limitations between buyers and sellers. Here’s the most relevant contract clause:

"If the Corporation has not made a decision on or before the scheduled Closing Date, the Closing shall be adjourned for 30 business days for the purpose of obtaining such consent. If such consent is not given by such adjourned date, either Party may cancel this Contract by Notice, provided that the Corporation’s consent is not issued before such Notice of cancellation is given. If such consent is refused at any time, either Party may cancel this Contract by Notice. In the event of cancellation pursuant to this ¶ 6.3, the Escrowee shall refund the Contract Deposit to Purchaser."

Yes, this is a pretty simple clause, which the Court found easy to apply: with no Board decision by March 23 (the Closing Date), or within 30 business days thereafter, both sides had the right to cancel, with the money going back to buyers. But the sellers were stubborn, and made some noise that the court had to deal with.

bad faith? found some
Sellers’ claimed that buyers acted in bad faith by "attempting to sabotage" the deal, but the Court found that the emails between buyers’ agent and the managing agent (after the managing agent reached out to schedule an interview) merely asked for guidance in the changed circumstances and professed optimism that it would work out.

To the contrary, the Court found that sellers attempted to interfere with the Board, through an email to the Board president claiming that buyers

"want to walk away from the deal, and only the board’s refusal of their application would give them a free pass."

Sellers asked the Board president:

"Please don’t let them walk away, because I don’t have the cash to afford finding another buyer."

The Court was not too impressed with sellers’ counsel ability to recount facts accurately, a view expressed in a pretty dry voice. The lawyer’s assertion in a letter that buyers "refused a Board meeting" was "a view of events at odds with the record"; "the allegations of plaintiffs’ bad faith appear to be inventions to bolster his clients’ position".

when can you keep the deposit?
The Court reviewed the relevant precedent regarding buyer bad faith that can lead to breach of contract (and forfeiture of deposit) in the course of finding that these buyers did not act in bad faith. This kind of activity can be a breach:

  • refusal to supply financial information
  • failure to in timely fashion submit application package to cooperative board
  • refusal to correct contradictory financial information previously submitted

the hammer comes
Again dry, the Court noted that buyers were entitled to something they had not fully fleshed out, so scheduled a conference so that they could get their attorneys’ fees back:

Buyers’ request for attorney’s fees, to which they appear entitled, is not specifically articulated and will be discussed at the conference scheduled below.

It is fair to conclude that the Court was not impressed with sellers’ arguments or ethics. Indeed, why else would the Court have noted what happened after the buyers "canceled" the contract?

Although the apartment apparently was sold to another buyer on July 28, 2009 for $529,500, a gross difference of $64,500, the [sellers] and [counsel] continued to refuse to return the deposit.

That fact is legally irrelevant to the contract issues, but it probably helped the Court figure out who The Bad Guys were in the case, especially given the Court’s description of sellers’ claim to the Board president ("Please don’t let them walk away, because I don’t have the cash to afford finding another buyer") constituted "interference" with the Board.

Another legally irrelevant fact made its way into the Court decision. Note the second sentence, which has absolutely nothing to do with the legal issues, but which hints at some of the "ethics" involved:

On March 13, 2009, plaintiff [husband] lost his job as an auditor with a major firm and was unemployed until July 7, 2009. [Wife], a physician, was pregnant at the time.

You get the feeling that any doubts about buyers attorneys’ fees will be resolved in favor of buyers.

no Tarantino
With that July 29 sale permitted the sellers to play hardball with house money. But instead of being able to keep these buyers’ $45,500 and the $64,500 ‘profit’ from selling it elsewhere, they will end up keeping less of the $64,500 after they pay their own lawyers and the lawyer for these buyers. Truly greedy bastards.

For details about the coop, and its listing history, StreetEasy is your friend. Mine, too: h/t to a StreetEasy reader for linking to this decision.

© Sandy Mattingly 2010



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