In re North Broadway Funding Corp.
| Decision Date | 11 September 1980 |
| Docket Number | Bankruptcy No. 77-B-1716. |
| Citation | 6 BR 133 |
| Parties | In re NORTH BROADWAY FUNDING CORP., Bankrupt. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
A. Carlos Cruz, Bayshore, N.Y., for Velasquez & Serrana.
Corwin & Frey, New York City, for Trustee.
DECISION
This litigation arises from a motion for specific performance of a real estate contract, where the trustee, as the seller, refuses to perform due to changes in the mortgage market.
The salient facts are as follows:
North Broadway Funding Corp. (hereafter "bankrupt") was duly adjudged a bankrupt by this Court on November 14, 1978. The bankrupt was in the business of lending money and, in the ordinary course of its business, made loans to individuals. Such loans were secured by first and second mortgages on various parcels of property located in the New York metropolitan area.
Through foreclosure proceedings, the bankrupt became the owner of a one-family house located at 21 Lantern Street, Huntington, New York. In the course of liquidating the bankrupt's estate, the Court issued an order on July 3, 1979, authorizing the trustee, pursuant to § 70(f) of the Bankruptcy Act to sell his right, title and interest in the property to Martin Velasquez and Benjamin Serrano (hereinafter "purchasers") for the sum of $31,000.
The parties entered into a real estate contract of sale dated August 28, 1979, which, by its own terms, was conditioned on the purchasers obtaining an FHA mortgage in the sum of $29,950. A closing date of April 2, 1980, was set. Shortly before this date, the trustee was advised that the transaction could be consummated if he were to pay fifteen points or approximately $4,500 to Vanguard Holding Corporation.
The Court takes notice that points are a fluctuating premium which is determined by the availability of mortgage money in the area. It is dispositively significant that the real estate contract, neither directly nor indirectly, stated that points would have to be paid to Vanguard Holding Corporation in consideration for the granting of the FHA mortgage.
Purchasers contend that they were ready, willing and able to close on the date agreed upon. The trustee, however, refused to proceed and advances the argument that the change in the mortgage market between August 1979 and April 1980 would cause a substantial burden on the estate if it were required to pay the fifteen points. Trustee further asserts that the high rate of points chargeable was not originally contemplated nor provided for in the contract. Consequently, performance should be excused at the option of either party.
Purchasers ask this Court to compel specific performance under the contract of sale.
These facts present to the Court the following issues:
The trustee contends that the parties are no longer able to proceed with the contract as originally contemplated and, therefore, the parties should be excused from their respective contractual obligations.
Contract law recognizes the Doctrine of Frustration of Purpose, the pertinent theory to the trustee's claim, whereby parties to a contract may be excused from further performance if: (1) unusual or unforeseeable events prevent such performance; and (2) where provisions could not have been readily made for what actually occurred. Frenchman & Sweet, Inc. v. Philco Discount Corp., 21 A.D.2d 180, 249 N.Y.S.2d 611, 613 (4th Dept., 1964).
The courts in New York have held that in historically volatile markets, market prices are not, as a general rule, such unusual or unforeseeable events nor the type of contingency that could not have been provided for sufficient to excuse performance of a contract. In Maple Farms, Inc. v. City School District of the City of Elmira, 76 Misc.2d 1080, 352 N.Y.S.2d 784 (Chemung County, 1974), it was held that economic hardship alone was not enough to excuse performance and, therefore, the increase in the price of milk, which was not totally unexpected in view of the past history of milk prices, would not justify terminating the contract. Similarly, in light of the volatility in the mortgage market, the demand for such mortgage money and the availability of such funds with any attendant premiums cannot be argued to be the type of unanticipated contingency that should invoke the Doctrine of Frustration of Purpose.
Further, even if the cost of obtaining a mortgage is unusually high, as in this case, it cannot be said that such an expense renders performance senseless in a commercial context. Therefore, in the event that § 2-615 of the Uniform Commercial Code (McKinney, 1964) could be extended to cover real estate contracts, the unanticipated burden on the obligated party caused by the scarcity of mortgage funds would not be one of such significance that it could be deemed a "basis assumption" which alters the essential nature of performance. See: Official Comment 4, Uniform Commercial Code § 2-615.
In sum, the trustee's contention that the change of circumstances has made it impossible for the parties to proceed as originally contemplated is not supported by case law, nor even a strained interpretation of "commercial impracticability" under the Uniform Commercial Code.
Significantly, the contract is silent with respect to liability of either party for the points involved. Moreover, paragraphs 22 and 23 of the real estate contract in question state:
It is unclear why the trustee failed to allege that the estate is not liable for the points. Certain letters submitted by the moving party suggest that the third-party mortgagee, Vanguard Holding Corp., required the trustee-seller to pay said points. It is also suggested by the letters that the trustee understood this to be his obligation. In a letter dated April 2, 1980, from the buyer's attorney to Vanguard Holding Corp., counsel explained that seller's attorney had told him that they would be unable to close due to points involved and that it was doubtful whether this Court would permit him to pay the amount requested. The Court finds it unnecessary to its ultimate holding to determine whether the trustee's obligation for the points can be read into the contract. It is obliged, however, to assess the propriety of a court in compelling a party to perform under an unambiguous contract that professes to be the entire agreement, where the effect would be to impose a burden that is not embodied in its terms.
A contract should be enforced according to its terms or not at all. This Court...
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