Opinion
03-CV-0656E(F)
December 9, 2003
MEMORANDUM and ORDER
This decision may be cited in whole or in any part.
On July 22, 2003 Bankruptcy Judge Michael J. Kaplan issued an order (1) denying a motion by Colleen Burns seeking the return of a $45,000 deposit that she had paid to the bankruptcy trustee, Edward R. Illardo, Esq. ("the Trustee"), for the purchase of commercial real estate partially owned by the debtor and (2) granting a motion by various bankruptcy trustees seeking to retain Burns' deposit. On August 29, 2003 Colleen Burns appealed to this Court. Oral argument was heard and this matter was submitted November 21. For the reasons set forth below, the Bankruptcy Court's decision will be reversed, Burns' motion will be granted, and the trustees' motion will be denied.
This Court reviews the Bankruptcy Court's legal conclusions de novo and its findings of fact for clear error. Gulf States Exploration Co. v. Manville Forest Prods. (In re Manville Forest Prods.), 896 F.2d 1384, 1388 (2d Cir. 1990) (citing F.R.Bankr.P. 8013).
The parties concede that Judge Kaplan's Order involved a legal conclusion and that de novo review is appropriate.
Debtor Clarence F. Swyers and his sons ("the Sellers") own a commercial property located at 3385 Orchard Park Road, Orchard Park, N.Y. ("the Property"). The Sellers sold the Property to Burns, who signed an Agreement of Sale and Purchase of the Property on June 29, 2001. Burns made a $45,000 deposit towards the $450,000 purchase price. After executing the Agreement, the Sellers encountered various issues while attempting to clear title to the Property and were consequently not in a position to close the transaction until September of 2002. The Sellers periodically informed Burns' counsel of the progress being made in clearing title. On August 27, 2002 the Trustee sent a letter requesting a closing date to Burns' counsel. On September 25, 2002 the Trustee sent the fully executed Agreement to Burns' counsel. In a letter dated October 22, 2002, Burns advised the Sellers that she was electing to terminate the agreement under a cancellation clause contained in paragraph 9 of the Agreement. Burns requested but was denied the return of her deposit. Burns subsequently filed a motion seeking the return of her deposit. Various trustees in the Swyers bankruptcy proceeding cross-moved seeking forfeiture of the deposit. Judge Kaplan ruled that Burns violated the Agreement by failing to exercise the Agreement's cancellation clause in a "reasonable time." Burns appealed to this Court.
Burns' offer was accepted over an offer of $423,000 from a West Herr Ford subsidiary.
Due to a separate bankruptcy proceeding, approval for the sale of John Swyers' interest in the Property was not available until around September of 2002.
Paragraph 9 of the Agreement provides in relevant part that
"In the event that the Closing does not take place by October 1, 2001, Purchaser may notify the Seller that she does not want to close and her deposit shall be refunded and this Agreement shall be of no force and effect." Agreement ¶ 9.
Paragraph 17 of the Agreement further provides in relevant part that
"No supplement, modification or amendment hereof shall be binding unless executed in writing by all the parties. No waiver of any of the provisions hereof shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver." Agreement ¶ 17.
As discussed below, the Bankruptcy Court erred by finding that the cancellation clause had to be exercised in a "reasonable time."
Applying "the principle that clear, complete writings should generally be enforced according to their terms," this Court will enforce the Agreement according to its terms because it is clear and complete. W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 160-161 (1990). In W.W.W. Assocs., the court enforced the exercise of a cancellation clause that stated "in the event such litigation is not concluded, by or before 6-1-87 either party shall have the right to cancel this contract whereupon the down payment shall be returned and there shall be no further rights hereunder." Id. The cancellation clause in paragraph 9 of the Agreement is very similar in operation to the cancellation clause construed in W.W.W. Assocs. — with the exception that the present cancellation clause is unilateral in favor of Burns. Indeed, the clause gave Burns absolute discretion to cancel the Agreement after October 1, 2001. W.W.W. Assocs., at 160-163. Consequently, W.W.W. Assocs. governs and this Court finds that the Agreement is clear and unambiguous — making it unnecessary to go beyond its terms. The Bankruptcy Court thus erred in interpreting the Agreement as containing a "reasonable" end date where the Agreement itself provided no end date for Burns' right of cancellation.
Grace v. Nappa, 46 N.Y.2d 560, 565 (1979) ("Generally, parties to the sale of real property, like signatories of any agreement, are free to tailor their contract to meet their particular needs and to include or exclude those provisions which they choose. Absent some indicia of fraud or other circumstances warranting equitable intervention, it is the duty of a court to enforce rather than reform the bargain struck.") (citations omitted).
Nonetheless, unilateral termination clauses are enforceable. Niagara Mohawk Power v. Graver Tank Mfg., 470 F. Supp. 1308, 1316 (N.D.N.Y. 1979). Furthermore, the Agreement in this case was the product of negotiations between sophisticated business people in a real estate transaction — which further supports a finding that the contract ought to be enforced as written in order to promote certainty amongst commercial transactions. See W.W.W. Assocs., at 163; Wallace v. 600 Partners Co., 86 N.Y.2d 543, 548 (1995).
Lieu v. Goller Place Corp., 192 A.D.2d 634, 634 (2d Dep't 1993) (holding that the "contract gave the plaintiff purchasers an unconditional option to cancel the contract if the seller, which was in the process of constructing the subject condominium unit, could not perform by September 15, 1989"
— regardless of the fact that "plaintiffs took certain steps towards closing on the contract after September 15, 1989"). Consequently, the trustees' contention that Burns gave no notice of her intent to invoke the cancellation clause is irrelevant because she was not required to do so. Ibid. (citing Tendler v. Lazar, 141 A.D.2d 717 (2d Dep't 1988)).
But see Tendler, supra note 7 at 718. Tendler involved a mortgage contingency clause that provided that if no mortgage was obtained by May 31, 1987, the contract would be "deemed null and void at the option of either party" and the down payment would be returned. The court noted that "[p]ursuant to the contract, [buyers] had the absolute right, at their option, to a return of their down payment as of May 31, 1987, since no mortgage commitment had yet been obtained." Id. at 719. The court held that the buyers' failure to immediately cancel the contract on May 31, 1987 in conjunction with their subsequent actions towards performing the contract did not support a finding that the buyers forfeited their right of cancellation. Id. at 720. Furthermore, like the Agreement here, the Tendler contract "contained no requirement that the plaintiffs' option to cancel pursuant to the mortgage contingency clause be exercised by any particular time." Ibid. Although the court assumed arguendo that the option had to be exercised within a "reasonable time" — and found that it was so exercised — such was not the holding. But see Combs v. Lewis, 2003 WL 22744565, at *1 (1st Dep't 2003) ("Where no specific deadline is provided in a mortgage contingency clause, a reasonable time for cancellation thereunder is implied [citing Tendler]."). Cases involving mortgage contingency clauses, however, are distinguishable to the extent that they involve the less sophisticated negotiations that typically accompany residential real estate transactions — as opposed to the subject Agreement drafted by sophisticated businesspeople. More importantly, this case is governed by W.W.W. Assocs. as noted above.
See W.W.W. Assocs., at 160-163; see also Maxton Builders, Inc. v. LoGalbo, 68 N.Y.2d 373, 377-378 (1986) (enforcing cancellation clause in a real estate sales contract according to its terms and declining to apply a "reasonable notice" standard). The Bankruptcy Court's reliance on 22 N.Y. Jur.2d § 279 was misplaced. Section 279 concerns the time for performance, not the time for exercising an express cancellation clause. More importantly, section 279 provides a default rule to be applied where a contract is silent. The Agreement, however, was not silent — it provided Burns an express unrestricted right to cancel at any time after October 1, 2001. In other words, absent the cancellation clause, section 279 would have permitted either party to cancel the contract if performance was not forthcoming in a "reasonable" amount of time. See e.g., Petrizzo v. Pinks, 154 A.D.2d 521, 521 (2d Dep't 1989).
In arguing in support of affirming Judge Kaplan's ruling, the trustees contended that there was no "time is of the essence" clause. Such, however, is irrelevant because October 1, 2001 was not a scheduled closing date (or "law day"). Rather, it was the day after which Burns had an absolute right to cancel the Agreement. Consequently, much of the trustees' brief is irrelevant because the cases cited therein did not involve cancellation clauses. The trustees' equitable arguments must also be rejected because any detrimental reliance was not reasonable in light of the cancellation clause in paragraph 9 of the Agreement as well as paragraph 17 — which required waivers to be in writing. If the Sellers wanted assurance that the deal would close after October 1, 2001, then they should have obtained a written waiver of the cancellation clause. They did not; an equitable remedy would thus be inappropriate.
Paragraph 9 provided that the "Closing shall occur on or about 30 days after the entry of a *** final Order approving this Agreement."
The trustees' attempted distinguishment of W.W.W. Assocs. is unavailing. The trustees contended that, unlike the Agreement, the contract in W.W.W. Assocs. contained "a specific date on which the contract was terminable if a specific event did not occur." Appellee's Br., at 18. This is incorrect. The Agreement clearly contains a specific date on and after which it was terminable if the closing had not occurred by that date.
See Greenbaum v. Weinstein, 131 A.D.2d 430, 431-433 (2d Dep't 1987) (rejecting buyer's claim that seller was equitably estopped from exercising cancellation clause based on seller's assurances that he would not cancel because buyer's reliance was not reasonable in light of the contract provision that required any changes to the contract to be in writing).
See Greenbaum, supra note 12, at 431-433.
Accordingly, it is hereby ORDERED that Judge Kaplan's Order dated July 22, 2003 is reversed, that Burns' motion is granted, that the trustees' motion is denied and that the Trustee shall return Burns' deposit in full within thirty days of the filing of this Order.