Chateau D'If Corp. v. City of New York

• Decision Date: 18 April 1996
• Parties: CHATEAU D'IF CORP., Plaintiff-Respondent, v. The CITY OF NEW YORK, Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 252

641 N.Y.S.2d 252

219 A.D.2d 205

CHATEAU D'IF CORP., Plaintiff-Respondent, v. The CITY OF NEW YORK, Defendant-Appellant.

Supreme Court, Appellate Division,

First Department.

April 18, 1996.

Charles E. Dorkey III, of counsel, New York City (Edward J. Henderson, on the brief, Haythe & Curley, attorneys) for plaintiff-respondent.

Ronald E. Sternberg, of counsel (Leonard Koerner and Debra Hochman, on the brief, Paul A. Crotty, Corporation Counsel of New York City, attorney) for defendant-appellant.

Before SULLIVAN, J.P., and ELLERIN, NARDELLI and WILLIAMS, JJ.

SULLIVAN, Justice Presiding.

The City of New York appeals from the grant of summary judgment directing the return to plaintiff, a contract vendee, of its $1.3 million down payment under a contract for the sale of real property. The City also seeks, pursuant to CPLR 5517(b), review of an order denying its motion for reargument of the summary judgment motion and its request for dismissal of the complaint.

The basic facts of this case are straightforward and undisputed. As plaintiff states the case, after "successfully bidding on a parcel of real estate offered up at public auction by [the City]" and paying a deposit of $1.3 million towards the $13 million purchase price, it "defaulted at closing". The City declared plaintiff in default and retained its $1.3 million deposit. The terms and conditions of sale in the public auction brochure provided: "If the Deputy Commissioner places the Purchaser in default, the City shall retain all moneys paid on account of the purchase as partial liquidated damages and the City may sell the property as hereinafter provided in paragraph 23." Paragraph 23 provides that the City may, "at its option, ... resell the property if the Purchaser shall fail to comply with the terms of sale, and such Purchaser shall, in addition to forfeiting any deposits made on account thereof, be held liable for any deficiency which may result from such resale." The City subsequently offered the property for sale at public auction, which brought a high bid of $7.259 million. The sale did not take place, however, and the City continues to hold the property, using it as a shelter for homeless women.

Plaintiff thereafter, on the basis of an officially unreported case, Todt Hill Homes, Inc. v. City of New York (Sup Ct NY Co, DeGrasse, J., Index # 45735/89, dec. 4/14/90), commenced the instant action to recover the down payment retained by the City. In Todt Hill, which involved a partial liquidated damages clause identical to the one at issue here, the court, recognizing that the partial liquidated damages clause "permits the City both to retain the bidder's deposit and to sue to recover contract damages," held that the clause "imposes an unauthorized penalty" upon a defaulting purchaser and found it unenforceable as a matter of law. ¹

The City counterclaimed for contract damages arising out of plaintiff's default. Plaintiff thereafter moved for summary judgment on its $1.3 million claim and for dismissal of the City's counterclaims for failure to state a cause of action inasmuch as the damages sought are not provided for or contemplated by the public auction brochure. The City conceded the applicability of Todt Hill and the unenforceability of the partial liquidated damages clause but argued that it was entitled to maintain an action for the recovery of contract damages. Relying on Todt Hill, and the City's concession that the partial liquidated damages clause is unenforceable, the motion court awarded plaintiff summary judgment as to its $1.3 million deposit and directed its return, but, finding the City's claims legally cognizable, denied the motion for dismissal of the counterclaims.

Plaintiff moved to reargue the latter aspect of the court's determination and the City cross-moved to reargue plaintiff's summary judgment motion, seeking dismissal of the complaint on the ground that well established law in New York barred a defaulting vendee of real property from recovering its down payment (see, Maxton Bldrs. v. Lo Galbo, 68 N.Y.2d 373, 509 N.Y.S.2d 507, 502 N.E.2d 184). The court denied reargument to both parties. The City appeals from the judgment entered on the order granting summary judgment. That appeal does not bring up for review the subsequent order (see CPLR 5517[b] ), which, contrary to the City's argument, did not implicitly grant but, rather, unequivocally denied reargument. As such, it is not appealable. We reverse the grant of summary judgment in plaintiff's favor and dismiss the complaint.

Plaintiff argues that it is entitled, as a matter of law, to a refund of its deposit because the City's partial liquidated damages clause is, according to Todt Hill, supra, "an unenforceable penalty". Despite the City's concession on the original motion based on the unenforceability of the partial liquidated damages clause, plaintiff is not entitled to a refund of its deposit.

"For more than a century it has been well settled in this State that a vendee who defaults on a real estate contract without lawful excuse, cannot recover the down payment." (Maxton Bldrs. v. Lo Galbo, supra, 68 N.Y.2d at 378, 509 N.Y.S.2d 507, 502 N.E.2d 184, citing Lawrence v. Miller, 86 N.Y. 131.) In Lawrence, a vendee's assignee sought to recover his assignor's $2,000 deposit under a real estate contract after the vendee's breach of the contract. In holding for the vendor because of the breach, the court stated, "[I]t is never permitted either at law or in equity, for one to recover back money paid on an executory contract that he had refused or neglected to perform. * * * To allow a recovery of this money would be to sustain an action by a party on his own breach of his own contract, which the law does not allow. When we once declare in this case that the vendor has done all that the law asked of him, we also declare that the vendee has not so done on his part. And then to maintain this action would be to declare that a party may violate his agreement, and made an infraction of it by himself a cause of action. That would be ill doctrine." (86 N.Y., at 139-140.) The court further rejected the "specious view * * * that the [vendor] is entitled to no more than he has actually been damaged." (Id., at 140.)

The Court of Appeals revisited the Lawrence issue one hundred years later in Maxton Bldrs., supra, 68 N.Y.2d 373, 509 N.Y.S.2d 507, 502 N.E.2d 184, where a contract vendor for the sale of realty sued to recover the proceeds of a check given as a down payment on the contract by the vendees, who cancelled the contract and stopped payment on the check, and rejected the vendees' argument that, assuming a breach on their part, the vendor's recovery is limited to actual damages. Noting that "a court should not depart from its prior holdings 'unless impelled by "the most cogent reasons" ' " (68 N.Y.2d at 381, 509 N.Y.S.2d 507, 502 N.E.2d 184, quoting Baker v. Lorillard, 4 N.Y. 257, 261) and finding none, the court held: "Except in cases where there is a real risk of overreaching, there should be no need for the courts to relieve the parties of the consequences of...