Pesa v. Yoma Dev. Grp., Inc.

• Decision Date: 09 February 2012
• Citation: 942 N.Y.S.2d 1,2012 N.Y. Slip Op. 00856,18 N.Y.3d 527,965 N.E.2d 228
• Parties: Mario A. PESA et al., Respondents, v. YOMA DEVELOPMENT GROUP, INC., Appellant, et al., Defendants.
• Court: New York Court of Appeals Court of Appeals

18 N.Y.3d 527

2012 N.Y. Slip Op. 00856

942 N.Y.S.2d 1

965 N.E.2d 228

Mario A. PESA et al., Respondents,

v.YOMA DEVELOPMENT GROUP, INC., Appellant, et al., Defendants.

Court of Appeals of New York.

Feb. 9, 2012.

Naidich Wurman Birnbaum & Maday, LLP, Great Neck (Robert P. Johnson of counsel).

Thomas J. Stock & Associates, Mineola (Thomas J. Stock and Victor A. Carr of counsel), for respondents.

OPINION OF THE COURT

SMITH, J.

We hold that, in a case alleging that a seller has repudiated a contract to sell real property, the buyers must prove they were ready, willing and able to close the transaction.

I

Defendant Yoma Development Group, Inc. (the seller) agreed in three separate contracts to sell three properties, on each of which the seller planned to build a three-family dwelling. One of the properties was to be sold to all four of the plaintiffs (the buyers), another to three of them, and a third to plaintiff Mario Pesa only. Each contract specified a purchase price of $430,000 and a $15,000 down payment, to be held in escrow pending the closing. It was a condition to the closing that the seller deliver certificates of occupancy for the dwellings it planned to build, or obtain “appropriate sign-offs” to show that certificates of occupancy would be forthcoming. Each contract also had a mortgage contingency clause, saying that if the buyer did not obtain a mortgage commitment within 60 days from the date of the contract, either the buyer or the seller “may cancel this contract by giving Notice to other party.”

The contracts were signed on March 12, 2003, and specified a closing date of July 1, 2003. It seems from the record, however, that essentially nothing happened for more than three years after the contract was executed. The dwellings were not built and the mortgage commitments were not obtained. The seller now takes the position that, once 60 days had passed, it was free to terminate the contracts at any time under the mortgage contingency clause, but it does not claim to have exercised that right until four years later. The buyers say that the seller had no right to terminate, because the seller's failure to build houses on the properties, and to obtain certificates of occupancy or appropriate sign-offs, made getting mortgage commitments impossible.

On July 10, 2006, the seller transferred the properties to an affiliated corporation, defendant Southpoint, Inc. According to the buyers, this transfer amounted to a repudiation of the seller's obligations under the contracts.

It is not clear from the record when the buyers found out about the Southpoint transfer, but in any event nearly another year of apparent inactivity followed. Then, on June 19, 2007, the seller's lawyer sent three identical letters to the buyers' lawyer, noting that the buyers had not obtained mortgage commitments, saying that the seller “is electing to cancel” the contracts, and returning the buyers' down payments. The buyers immediately brought this lawsuit. They originally sued for specific performance and damages, but the specific performance claim has been dismissed and only the claim for damages is before us.

Both sides moved for summary judgment. The seller argued, among other things, that the buyers could not recover damages because they had failed to show that they were ready, willing and able to close. Supreme Court granted summary judgment in favor of the buyers on the issue of liability, without discussing the “ready, willing and able” issue. It held that the seller had anticipatorily breached the contracts by transferring title to Southpoint. The Appellate Division affirmed. In the view of the Appellate Division, “a purchaser seeking damages for the seller's anticipatory breach of a contract for the sale of real property is not required to establish, as an element of the claim, that it was ready, willing, and able to close,” though such a showing would be required if the buyers were seeking specific performance ( Pesa v. Yoma Dev. Group, Inc., 74 A.D.3d 769, 770, 903 N.Y.S.2d 83 [2d Dept.2010] [citations omitted] ).

After the parties stipulated to the amount of damages, a final judgment was entered in Supreme Court. We granted the seller leave to appeal from that judgment, bringing up for review the earlier, non-final Appellate Division order. We now modify and deny both sides' motions for summary judgment.

II

The main issue before us is whether a buyer in a damages suit like this one must show that it was ready, willing and able to close the transaction—i.e., that but for the seller's repudiation, the transaction could and would have closed. This issue has divided the Appellate Division departments. The Second Department has held, in a number of other cases as well as in this one, that no such showing is required ( e.g. Ehrenpreis v. Klein, 260 A.D.2d 532, 533, 688 N.Y.S.2d 239 [2d Dept.1999]; Karo v. Paine, 55 A.D.3d 679, 680, 865 N.Y.S.2d 654 [2d Dept.2008] ). The Third and Fourth Departments, however, have required a “ready, willing and able” showing ( Madison Invs. v. Cohoes Assoc., 176 A.D.2d 1021, 1022, 574 N.Y.S.2d 980 [3d Dept.1991]; Scull v. Sicoli, 247 A.D.2d 852, 853, 668 N.Y.S.2d 827 [4th Dept.1998] ).

The rule followed by the Third and Fourth Departments is the correct one. It is the rule stated by the leading treatises on contracts (4 Corbin on Contracts § 978, at 924 [1951]; 13 Lord, Williston on Contracts § 39:41 [4th ed.] ), and applied in several federal cases ( Towers Charter & Mar. Corp. v. Cadillac Ins. Co., 894 F.2d 516, 523 [2d Cir.1990] [applying New York law]; United States v. Hon, 17 F.3d 21, 26 [2d Cir.1994] ). Our agreement with that rule is implied by the language we used in De Forest Radio Tel. & Tel. Co. v. Triangle Radio Supply Co., 243 N.Y. 283, 153 N.E. 75 (1926), where we held that, when a contract has been repudiated, the non-repudiating party need not actually tender performance. We said: “Where one party to a contract repudiates it and refuses to perform, the other party by reason of such repudiation is excused from further performance, or the ceremony of a futile tender. He must be ready, willing and able to perform, and this is all the law requires” ( id. at 293, 153 N.E. 75 [emphasis added]; see also Bigler v. Morgan, 77 N.Y. 312, 318 [1879][“The refusal of the defendant to perform ... did not dispense with the necessity of showing that the plaintiff was able, ready and willing to perform”] ).

The rule requiring non-repudiating buyers to show their readiness, willingness and ability to perform is supported by common sense. It is axiomatic that damages for breach of contract are not recoverable where they were not actually caused by the breach—i.e., where the transaction would have failed, and the damage would have been suffered, even if no breach occurred. The real question is one of burden of proof: Should the buyers be required to show they would and could have performed, or should the seller have the burden of showing they would not or could not? Since the buyers can more...