| Mehlman v 592-600 Union Ave. Corp. |
| 2007 NY Slip Op 09911 [46 AD3d 338] |
| December 18, 2007 |
| Appellate Division, First Department |
| Mark Mehlman, Respondent, v 592-600 Union AvenueCorp., Appellant. |
—[*1] Rivkin Radler LLP, Uniondale (Merril S. Biscone of counsel), for respondent.
Order, Supreme Court, Bronx County (Howard R. Silver, J.), entered on or about January 17,2007, which granted plaintiff's motion for summary judgment on its first cause of action forspecific performance, unanimously reversed, on the law, without costs, the motion denied, and,upon a search of the record, summary judgment granted to defendant dismissing the complaint.The Clerk is directed to enter judgment accordingly. Appeal from order, same court and Justice,entered September 15, 2006, which denied defendant's motion to strike plaintiff's jury demand,and order, same court (Lucy Billings, J.), entered January 23, 2006, which, to the extent appealedfrom, denied defendant's cross motion for summary judgment based on lack of standing,unanimously dismissed as academic, without costs.
On or about March 5, 2002, defendant seller entered into a contract to sell the propertylocated at 592-596 Union Avenue in Bronx, New York, to plaintiff buyer, identified in thecontract as "nominee for a Limited Liability company to be formed." The agreed-upon purchaseprice was $1,897,632.90, with a closing scheduled for May 2002 and an outside closing date ofOctober 7, 2002.
Upon execution of the contract, buyer ordered a title report which revealed three judgmentsagainst seller amounting to more than $675,000. The title report further reflected an outstandingmortgage on the property in the sum of $550,000. Seller attempted to cure the outstandingjudgments, but was able to eliminate only the largest one of approximately $450,000, leaving twojudgments totaling over $200,000. Seller received at least two adjournments of the closing toresolve these title issues, and, in a July 26, 2002 letter from seller's counsel to buyer, indicated areadiness to close, now that a title insurance representative had agreed to "a two-year escrow for[the] two judgments against the [p]remises." However, the judgments were not paid prior to theclosing date.
On September 10, 2002, seller wrote to buyer advising him that it had already expended thecontractually required sum to eliminate the judgments against the property, and that pursuant tosection 13.02 of the contract, buyer was required to exercise one of two options: either cancel thecontract and receive a refund of its down payment and reimbursement of title costs or take the[*2]property subject to the title defects, with a modest credit. Byletter dated September 24, 2002, buyer "rejected" seller's letter in its entirety and unilaterally set aclosing date of October 7, 2002, with time being of the essence against seller. Buyer's counselargued that seller's July 26, 2002 letter, which acknowledged the title company's agreement to anescrow arrangement for the two unpaid judgments, had effectively amended the contract of saleto constitute seller's agreement to set up the escrow and close by August 2002.
On October 7, 2002, buyer's counsel appeared at the designated closing place and made aformal record that buyer was ready, willing and able to close the purchase that day, and that hewas in possession of three checks totaling the required payments under the contract. The checkswere identified by buyer's counsel as "bank or certified checks," but were not shown to seller'scounsel or principal, who were also present. Seller's counsel refused to close, invoking section13.02 of the contract, which, according to seller, gave buyer a choice of either terminating thecontract or taking the property subject to the title defects. No closing occurred.
In October 2002, buyer commenced the instant action against seller seeking specificperformance of the contract of sale and damages associated with the seller's failure to close.Seller answered and counterclaimed for an order declaring that it was entitled to retain buyer'sdown payment. Subsequently, both parties moved for summary judgment, which the courtdenied, finding triable issues as to the correct interpretation of the contract.
Following discovery, buyer moved to amend the complaint to add a cause of action forbreach of contract based on seller's failure to properly cancel the contract pursuant to paragraph 7of the contract rider, which provided that notwithstanding any inconsistent provision in thecontract, seller "shall be responsible to pay monetary liens, fines, interest, and penalties inliquidated damages arising out of the violations noted or issued against the premises on or beforethe closing date, provided, however, that seller's liability with respect thereto shall not exceed$10,000.00 in the aggregate." Paragraph 7 further provided that if the aggregate amount of liens,fines, and penalties exceeded $10,000.00, seller could either pay such higher amount or cancelthe contract by written notice to purchaser. Buyer argues that in light of seller's admitted failureto satisfy all liens prior to closing, seller should have canceled the contract pursuant to paragraph7, and that, having failed to do so, its refusal to close constituted a default which, according toparagraph 8 of the rider, authorized the remedy of specific performance.
Seller did not oppose buyer's motion to amend, but instead cross-moved for summaryjudgment on the grounds that buyer lacked standing to sue and that buyer was not ready, willingand able to purchase the property since the checks presented at closing did not comply with theterms of the contract. In the first order appealed, entered January 23, 2006, the motion courtgranted buyer's unopposed motion to amend, but denied seller's cross motion for summaryjudgment. The court found that buyer had standing to sue, and that because seller's principal didnot observe the checks at closing, there was insufficient evidence to establish as a matter of lawthat buyer was not ready, willing and able to purchase the property. The court further ruled thatseller may have waived any objection to the form of payment by not objecting earlier, and,alternatively, that seller's reliance on section 13.02 as its excuse for nonperformance may haveconstituted an anticipatory breach, thereby obviating buyer's obligation to prove its readiness topurchase.
Seller then moved to strike buyer's jury demand. In the second order appealed, enteredSeptember 15, 2006, the court denied seller's motion to strike, finding that buyer's claim fordamages for breach of contract justified a jury trial.[*3]
Finally, in June 2006, buyer again moved for summaryjudgment on its cause of action for specific performance based on seller's failure to properlycancel the contract pursuant to paragraph 7 of the rider. Buyer argued that paragraph 7 controlledover any conflicting provision, such as section 13.02, and that paragraph 7 required seller toeither pay all "liens, fines, interest, and penalties" or cancel the contract, and in this case sellerdid neither.
Seller opposed the motion, arguing that buyer's reliance on paragraph 7 of the rider wasmisplaced, since that paragraph was limited to "liens, fines, interest, and penalties" that arose outof violations issued by government authorities, and had no application to judgments held byprivate parties. Seller also reiterated its argument that buyer lacked standing to sue.
In the third order appealed, entered January 17, 2007, the court granted buyer's motion forsummary judgment on its claim for specific performance, apparently on the basis that seller failedto properly cancel the contract pursuant to paragraph 7 of the rider and therefore was in breach ofthe contract by refusing to close on October 7, 2007.
On appeal, seller argues that the motion court misinterpreted the contract by holding thatparagraph 7 of the rider superseded section 13.02. Seller contends that its inability to satisfy thejudgments prior to closing justified its invocation of section 13.02 and gave buyer the choice toeither cancel the contract or accept the property with the title defects, and that by not choosingeither course, buyer breached the contract. Seller alternatively argues that even if its invocation ofsection 13.02 or refusal to close could be seen as an anticipatory breach, buyer still would not beentitled to specific performance, due to its inability to demonstrate that it was ready, willing andable to close. As we agree with both arguments, we reverse and dismiss the complaint.
In support of its argument that it acted in conformity with the terms of the contract, sellerrelies on section 13.02, which provides, in pertinent part: "If the Seller shall be unable to conveytitle to the Premises at the Closing in accordance with the provisions of this contract. . . Purchaser, nevertheless, may elect to accept such title as Seller may be able toconvey with a credit against the monies payable at the Closing equal to the reasonably estimatedcost to cure the same (up to the Maximum Expense described below) but without any other creditor liability on the part of the Seller. If Purchaser shall not so elect, Purchaser may terminate thiscontract and the sole liability of the Seller shall be to refund the Downpayment to Purchaser andto reimburse Purchaser for the net cost of title examination . . . . Upon such refundand reimbursement, this contract shall be null and void and the parties hereto shall be relieved ofall further obligations and liability other than any arising under Section 14. Seller shall not berequired to bring any action or proceeding or to incur any expense in excess of the MaximumExpense specified in Schedule D (or if none is so specified, the Maximum Expense shall beone-half of one percent of the Purchase Price) to cure any title defect or to enable Seller tootherwise comply with the provisions of this contract."
As may be seen from the above, seller was perfectly within its rights in invoking section13.02 once it determined that it had expended the "Maximum Expense" amount designated in thecontract. The Maximum Expense amount established seller's maximum liability for attempting toeliminate title defects prior to closing, and once that maximum was met, section 13.02 expresslylimited buyer's remedies to two options: cancel the sale and receive a refund of down paymentand title costs or take the property subject to the title defects, with a maximum credit of theMaximum Expense amount, which in this case the parties agree was .5% of the purchase price,or $9,844.16. Buyer elected neither of these remedies, but instead unilaterally set a time-[*4]of-the-essence closing and demanded that seller bear the burden ofestablishing escrow accounts for the two outstanding judgments. Given that section 13.02expressly limits seller's liability to the Maximum Expense amount "without any other credit orliability on the part of the Seller," buyer's insistence that seller establish escrow accounts forthese judgments was itself a breach of the agreement.
"When a contract for the sale of real property contains a clause specifically setting forth theremedies available to the buyer if the seller is unable to satisfy a stated condition, fundamentalrules of contract construction and enforcement require that we limit the buyer to the remedies forwhich it provided in the sale contract" (101123 LLC v Solis Realty LLC, 23 AD3d 107, 108 [2005]). In101123 LLC, which also involved a contract for the sale of a building, the parties'contract expressly limited the buyer's remedies in the event the seller was unable to deliver thepremises free of tenants to taking the property as is or rescinding the contract, and furtherprecluded specific performance unless the seller willfully defaulted. When the seller did notremove a tenant and invoked the contract provision, the buyer sued for specific performance.This Court affirmed the dismissal of the complaint after trial, ruling that the contract must beenforced as written to "limit the buyer to the remedies that were specifically delineated in the salecontract" (id. at 112). The same result is required here.
The motion court erred in finding that paragraph 7 of the rider superseded section 13.02. Theclear and unambiguous language of paragraph 7 demonstrates that it is only applicable to "liens,fines, interest, and penalties . . . arising out of the violations noted or issued againstthe Premises on or before the Closing Date." We reject buyer's argument that theabove-mentioned liens or penalties would include a judgment against seller obtained by a privateparty. Such interpretation would render the phrase "arising out of the violations noted or issuedagainst the Premises" meaningless.
In short, because seller acted within its rights pursuant to section 13.02 of the contract, it isbuyer, not seller, who breached the contract by failing to cancel the contract or take the propertysubject to the judgments (101123 LLC at 112; Maxton Bldrs. v Lo Galbo, 68NY2d 373, 378 [1986] [buyer bargained for limited right to cancel and failure to properlyexercise it constituted a breach]). Accordingly, buyer's breach renders its complaint deficient as amatter of law, and, upon a search of the record, we grant summary judgment to seller dismissingthe complaint. In light of this holding, it is unnecessary to reach seller's additional argumentsconcerning buyer's alleged lack of standing and invalid tender. Concur—Sullivan, J.P.,Nardelli, Williams, Gonzalez and Catterson, JJ.