Decided February 17, 2009.
Defendant Andrew Alege moves for summary judgment dismissing plaintiff's complaint pursuant to CPLR 3212. Plaintiff Grand Avenue Concept Development, LLC cross-moves for summary judgment on it's breach of contract cause of action pursuant to CPLR 3212.
James T. Gerardi, Esq., East Northport, NY, Attorney for Plaintiff.
Ugochukwu Uzoh, Esq., O'keke Associates, PC, Brooklyn, NY, Attorney for Defendant.
This action arises out of a written contract dated April 5, 2006 ("Contract") between Plaintiff Grand Avenue Concept Development, LLC ("Grand Avenue") and Defendant Andrew Alege ("Alege") in which Grand Avenue agreed to sell two vacant lots located at 472-474 Grand Avenue, Brooklyn, NY to Alege for $1,300,000.00. The Contract contained a mortgage contingency clause which provided that the sale of the property was conditioned upon Alege obtaining a written commitment for a mortgage in the amount of $1,040,000.00. At the signing of the Contract on April 5, 2006, Alege provided Grand Avenue with a deposit of $65,000.00 which was held in escrow by Grand Avenue's attorney. Pursuant to the Contract, Grand Avenue was entitled to the payment of the Deposit upon closing or "upon material default on the part of the purchaser." In addition to the real property, the sale included the seller's drawings including mechanical, structural and architectural drawings ("Drawings"), to be filed by Grand Avenue's architect and approved by the Department of Buildings prior to closing. The Contract indicated that the closing was to take place "on or about May 9, 2006" and provided that "[e]ach of the parties hereby authorizes their attorney to agree in writing to any changes in dates and time periods provide [ sic] in this contract."
Alege obtained a commitment letter ("Commitment") dated May 25, 2006 from Empire Capital Partners, LLC ("Empire") for a combined acquisition and construction loan in the amount of $3,200,000.00. In the Commitment, the lender indicated, "[i]t is our understanding that the anticipated close of escrow is June 25, 2006." Alege's attorney forwarded a copy of the Commitment to Grand Avenue's attorney on May 26, 2006. The Commitment required Alege to provide Empire with a signed copy of the approval letter, together with a non-refundable commitment fee of $2500.00, a non-refundable processing fee of $3000.00, and a non-refundable legal fee of $5000.00, within six business days from the date of the Commitment. Alege did not accept Empire's Commitment or provide the requisite fees. On June 23, 2006, the Drawings identified in the Contract were approved by the Department of Buildings and Grand Avenue notified Alege of the same.
It is noted that although the Contract lists the purchaser as "ANDREW ALEGE" and Alege signed the Contract individually, the Commitment lists the borrower as "Andy's Realty Corp" and the guarantor as "Andy Alege."
The attorneys for Grand Avenue and Alege corresponded between June and August of 2006 for the purpose of scheduling the closing. On July 25, 2006, referencing a conversation with Lisa Averyhart, Alege's prior counsel, on July 20, 2006, indicating she would contact Grand Avenue's counsel, Grand Avenue wrote to Alege requesting a prompt closing. Grand Avenue's attorney also indicated that his client was incurring interest costs on a loan as a result of the delay in closing but would allow Alege to delay the closing further if he would make Grand Avenue's mortgage payments. On August 3, 2006, Grand Avenue again wrote to Alege confirming that Grand Avenue had been trying to schedule a closing at least as early as July 20, 2006 and noting that Alege's attorney had left a telephone message on August 3, 2006 stating that Alege was waiting to schedule the closing "pending the lender's completion of its appraisal and approval of the building plans." It is not disputed that between August 3 and 11, 2006, counsel agreed to close on August 15, 2006.
However, after agreeing to the August 15, 2006 closing date, on August 11, Alege's attorney responded to Grand Avenue's August 3 letter by stating that Alege had not received the Drawings until July, but the Drawings were promptly submitted to Alege's "bank in order to get clearance to close" and Alege was "looking to schedule a closing within the next 2 weeks." In response, on August 15, the previously agreed closing date, Grand Avenue's attorney sent a "time of the essence" notice to Alege's attorney setting a closing date of August 23, stating that if Alege refused to close on August 23, 2006, Grand Avenue would "declare [Alege] in default and retain the contract deposit in accordance with the terms of the contract." On August 16, 2006, Alege claims he rejected the time of essence August 23 closing date as unreasonable. When neither Alege nor his attorney appeared on August 23, 2006, a default statement was taken and Grand Avenue's attorney stated on the record that Alege's attorney had contacted him by facsimile stating she would not attend the closing on August 23 and believed a reasonable closing date was "September 31, 2006."
This alleged fax was not submitted in support of either party's motion.
Alege argues that the tentative May 9 closing date set forth in the Contract was firm and binding and that Grand Avenue's failure to obtain Department of Building approval of the Drawings before that date constituted a breach of the Contract which prevented Alege from accepting the Empire Commitment. As a result, the Commitment was withdrawn and cancelled and Alege was unable to obtain the needed financing which would have enabled him to close on August 15. Alege was therefore forced to cancel the August 15 closing. In response, Jorge Concepcion, managing member of Grand Avenue, contends that the "on or about" May 9, 2006 date listed in the Contract "was not a date set in stone" but that when Grand Avenue informed Alege that the Drawings were approved on June 23, 2006 and requested an immediate closing, Alege's attorney took the position that Alege was entitled to thirty days to close. The parties agreed to close within thirty days; no contingency regarding a lender's approval of the Drawings appears to have been mentioned.
Alege moves for summary judgment, the dismissal of Grand Avenue's complaint pursuant to CPLR 3212 (b) and an order compelling Grand Avenue's attorney to release the deposit of $65,000 to Alege. Grand Avenue cross-moves for summary judgment pursuant to CPLR 3212 (b) and an order compelling Grand Avenue's attorney to release the deposit of $65,000 to Grand Avenue. In order to obtain summary judgment, the movant must establish its cause of action or defense sufficiently to warrant a court's directing judgment in its favor as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact ( Zuckerman v City of New York, 49 NY2d 557, 562; CPLR 3212 [b]). Where the proponent of the motion makes a prima facie showing of entitlement to summary judgment, the burden shifts to the party opposing the motion to demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action ( Vermette v Kenworth Truck Co., 68 NY2d 714, 717). The parties' competing contentions are viewed in the light most favorable to the party opposing the motion ( Marine Midland Bank, N.A. v Dino Artie's Automatic Transmission Co., 168 AD2d 610 [2d Dept 1990]).
Both parties acknowledge that the written contract of April 5, 2006 is controlling and provides for closing "on or about" May 9, 2006. Alege claims that the closing could not take place on May 9, 2006 as a result of Grand Avenue's failure to secure the approval of the Drawings from the Department of Buildings prior to this date and that Grand Avenue therefore effectively breached the Contract as of May 9, 2006. Paragraph 17 of the Contract states, "[c]losing shall take place at the offices of seller's attorney . . .on or about May 9, 2006." "When time is not of the essence of a contract for the sale of real property, either party to the contract is entitled to a reasonable adjournment of the designated closing date without the passage of the law day amounting to an incurable contractual default. It is fundamental that time is never of the essence of a contract for the sale of real property unless the contract specifically so provides or special circumstances surrounding its execution so require" ( Tarlo v Robinson, 118 AD2d 561, 565 [2d Dept 1986]; see DeCicco v Staehle, 11 AD3d 425 [2d Dept 2004]; see Savitsky v Sukenik, 240 AD2d 557 [2d Dept 1997]). It is clear from the language of paragraph 17 that time was not of the essence, either party was entitled to a reasonable adjournment of the "on or about May 9, 2006" closing date and it is undisputed that Alege and Grand Avenue agreed to adjourn the closing to August 15 ( see DeCicco, 11 AD3d at 425; see Savitsky, 240 AD2d at 558). Moreover, since Alege's mortgage Commitment is dated May 25, 2006, Alege was himself not ready, willing and able to close on May 9.
Alege also claims that Grand Avenue breached the terms of the warranty in the Contract by misrepresenting a material fact as to the existence of the Drawings at the time of the signing of the Contract. Paragraph 6(a) and Schedule B of the Contract contain the only representations as to the Drawings in the Contract. The language suggests that the Drawings had already been created prior to execution of the Contract but Grand Avenue has not directly disputed Alege's claim that the Drawings had not yet been created at the time the Contract was signed except to annex proof that the Drawings were approved by the Department of Buildings by June 23. Incredibly, at oral argument, Alege's counsel stated that, prior to signing the Contract, Alege never examined the Drawings, upon which he apparently intended to rely in constructing an edifice on the site. In any event, the relevant Contract provisions make no representation as to a specific time at which Grand Avenue was to provide the Drawings other than the statement that they "will be filed by Seller's architect and be approved by the Department of Building prior to closing." Alege's assertion that Grand Avenue breached the Contract by failing to provide the Drawings to Alege prior to the "on or about" closing date listed in the Contract, regardless of the actual closing date scheduled by the parties, is not supported by the clear and unambiguous language of the Contract. Furthermore, Alege's argument that Grand Avenue's failure to provide Alege with the Drawings by the issuance date of the Commitment constituted a breach of the Contract because it resulted in the lender's withdrawal of the Commitment, is also not supported by the terms of the Contract. The plain language of the Contract only required Grand Avenue to file and have the Drawings approved by the Department of Buildings prior to the closing. No mention is made, either in the Contract or in the Empire Commitment, of a requirement for a lender review of the Drawings. Nor has Alege provided any evidence to support the assertion that Empire withdrew the Commitment due to Alege's failure to provide the Drawings at any time. Accordingly, Alege's motion for summary judgment is denied as to the first cause of action for failure to demonstrate prima facie evidence that Grand Avenue breached the Contract by failing to close on May 9, provide Alege with the Drawings prior to the Commitment issuance date, or complete the Drawings prior to the date of the Contract ( see Zuckerman, 49 NY2d at 562; see Vermette, 68 NY2d at 717).
In the complaint, Grand Avenue claims that it complied with the terms of the Contract and Alege breached the Contract by applying for a non-conforming commitment and defaulting on the Contract by failing to close on August 23, 2006.
"[A] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms,' without reference to extrinsic materials outside the four corners of the document" ( Goldman v White Plains Ctr. for Nursing Care, LLC , 11 NY3d 173 , 176, citing Greenfield v Philles Records, 98 NY2d 562, 569). Although Alege received a combined acquisition/construction commitment, this did not constitute a breach of the Contract. Paragraph 31 of the Contract provides as follows:
31. Mortgage Commitment Contingency:
(a) The obligation of Purchaser to purchase under this contract is conditioned upon issuance, on or before 45 days after a fully executed copy of this contract is given to Purchaser or Purchaser's attorney in the manner set forth in paragraph "20" or subparagraph 31(j) (the "Commitment Date"), of a written commitment from an Institutional Lender pursuant to which such Institutional Lender agrees to make a first mortgage loan . . . to Purchaser, at Purchaser's sole cost and expense, of $1,040,000.00 for a term of at least 30 years (or such lesser sum or shorter term as Purchaser shall be willing to accept) at the prevailing fixed or adjustable rate of interest and on other customary commitment terms (the "Commitment"). . . .
(b) . . . Purchaser shall accept a Commitment meeting the terms set forth in subparagraph 31(a) and shall comply with all requirements of such Commitment (or any other commitment accepted by Purchaser). . . .The Second Department has held that a purchaser may breach a real property contract and violate the mortgage contingency clause by applying "for a mortgage in an amount greater than that required in [a] contract" and "they are therefore not entitled to recover the down payment" ( Silva v Celella, 153 AD2d 847, 848 [2d Dept 1989]; see also Post v Mengoni, 198 AD2d 487 [2d Dept 1993]). However, "[w]here a purchaser applies for financing on terms different from those contemplated by the financing contingency clause in the contract of sale, but the transaction fails for reasons unrelated to the financing terms for which the purchaser applied, the financing terms applied for are not deemed to have put the purchaser in breach of his or her obligation to make a good faith effort to obtain financing, and, assuming all other obligations have been fulfilled, the purchaser is entitled to the return of any deposit" ( Gorgoglione v Gillenson , 47 AD3d 472 , 474 [1st Dept 2008]; see Katz v Simon, 216 AD2d 270 [2d Dept 1995]; see Markovitz v Kachian , 28 AD3d 358 [1st Dept 2006]). In this matter, Alege received a commitment sufficient to meet the financing requirements of paragraph 31 of the Contract. Grand Avenue has not demonstrated that the transaction failed because of the amount of money requested by Alege in the loan application. Although Alege received a combined acquisition/construction commitment in an amount greater than that required in the Contract, the transaction at issue failed for reasons unrelated to the financing terms in the Commitment and thus Alege would be entitled to the return of the deposit if Alege had fulfilled all of his other obligations under the Contract ( see Gorgoglione, 47 AD3d at 474; see Katz, 216 AD2d at 271; see Markowitz, 28 AD3d at 358).
Alege is not entitled to the return of the deposit because he waived the right to cancel the Contract and receive a refund of the deposit under the mortgage contingency provision, paragraph 31(g) of the Contract, and subsequently breached the Contract. Pursuant to paragraph 31(a) of the Contract, "[o]nce a Commitment is issued, Purchaser is bound under this contract even if the lender fails or refuses to fund the loan for any reason." It is uncontested that a commitment was issued in this transaction. Although it is not clear that the Commitment was issued within 45 days of receipt of the executed Contract, Alege took no action to terminate the Contract, but represented his intent to perform by providing the Commitment to Grand Avenue which continued to act in reliance on Alege's apparent intent to perform. Alege was therefore bound to the Contract despite the lender's subsequent withdrawal of the Commitment. In applying for the loan application, under Paragraph 31(b) of the Contract, Alege was required to "pay all fees, points and charges required in connection with such application and loan," "pursue such application with diligence," "accept a Commitment meeting the terms set forth in subparagraph 31(a)," and "comply with all requirements of such Commitment (or any other commitment accepted by Purchaser)." The Commitment specifically states:
This conditional approval is valid only if the lender is in receipt of the funds referenced in "Commitment Fee", "Processing Fee", and "Legal Counsel" by no later than six (6) business days from the date of this Conditional approval Letter and the lender is in receipt of a signed, accepted conditional approval by that same date.
In Alege's affidavit in opposition to Grand Avenue's cross-motion for summary judgment, Alege stated that he did not accept the Commitment and it subsequently expired after six days (Affidavit of defendant at 6). Alege argues that he was unable to accept the Commitment since Grand Avenue was not ready, willing or able to convey marketable title within six days of receiving the Commitment. This argument, however, is unavailing as there is no indication that Grand Avenue could not convey a marketable title but merely that the Drawings had not yet been approved. Paragraph 16 of the Contract provides that Alege would recover the deposit in the event that Grand Avenue was unable to convey marketable title and, in contrast to seller's limitation to forfeiture of the deposit as liquidated damages upon purchaser's default, in the event Grand Avenue defaulted, paragraph 9 of the rider to the Contract specifically included remedies at law and equity for Alege, including specific performance. The Contract does not contain any provisions permitting Alege to cancel the Contract if the Drawings were not approved prior to receiving a commitment. Rather, it was Alege's failure to accept the Commitment and pay the commitment, processing, and legal counsel fees within six days of the Commitment, that constituted a breach of the Contract pursuant to the plain and unambiguous language of paragraph 31(b) of the Contract. Accordingly, Alege willfully defaulted on the Contract on June 1, 2006, when he failed to timely accept Empire's offer.
Grand Avenue has established, prima facie, that it performed the Contract in accordance with its terms. When Alege defaulted by failing to schedule a closing, Grand Avenue provided Alege with a clear and distinct time of essence notice, informing him that he would be in default if he did not close by a date certain ( see Tarlo, 118 AD2d at 566 ("When there is an indefinite adjournment, some affirmative act has to be taken by one party before he can claim the other party is in default; that is, one party has to fix a time by which the other must perform, and he must inform the other that if he does not perform by that date, he will be considered in default"); see Cave v Kollar, 296 AD2d 370, 371 [2d Dept 2002]). Accordingly, the burden shifts to Alege to raise a triable issue of fact to defeat the cross-motion for summary judgment ( see Vermette, 68 NY2d at 717).
Alege has failed to raise a triable issue of fact and Grand Avenue's cross-motion for summary judgment as to the first cause of action must be granted. Alege argues that Grand Avenue's time of essence notice of closing was unreasonable and "Alege's lender was in the process of performing an appraisal of the affected property and finalizing Alege's new loan or financing." This argument is ineffective in creating an issue of fact as Alege was already in default on June 1, 2006, when he failed to accept the Commitment, although it appears that Grand Avenue was unaware of this at the time. Furthermore, Grand Avenue's time of essence notice was reasonable. A time of the essence notice must allow for a reasonable time to tender performance and "[w]hat constitutes a reasonable time to perform turns on the facts and circumstances of the case" ( Savitsky, 240 AD2d 558 [2d Dept 1997]; see Zev v Merman, 73 NY2d 781, 783 ("Included within a court's determination of reasonableness are the nature and object of the contract, the previous conduct of the parties, the presence or absence of good faith, the experience of the parties and the possibility of prejudice or hardship to either one, as well as the specific number of days provided for performance"); see also Palmiotto v Mark, 145 AD2d 549 [2d Dept 1988]). Grand Avenue's time of essence notice for August 23, 2006 was reasonable in light of the prior adjournment of the closing to August 15, 2006 at the request of Alege, the written correspondence evidencing Alege's attorney's delayed communication in scheduling the closing, the financial hardship on Grand Avenue due to the mortgage payments incurred as a result of the delayed closing and Alege's lack of good faith in complying with the requirements of the Commitment ( see Zev, 73 NY2d at 783; see Palmiotto, 145 AD2d at 549; see Bardel v Tsoukas, 303 AD2d 344 [2d Dept 2003]). Moreover, although Ms. Averyhart contended that Alege "promptly submitted the plans to his bank in order to get clearance to close" and Alege's present counsel claims "Alege's lender was in the process of performing an appraisal of the affected property and finalizing Alege's new loan or financing," Alege has not provided any evidence of an attempt to obtain an extension of Empire's Commitment, a second loan commitment from another lender, or even the name of an institution to which he applied for a second commitment. On a motion for summary judgment, the opposing party is required to produce evidentiary proof in admissible form sufficient to raise a question of fact to defeat the motion ( Strongback Corp. v N.E.D. Cambridge Ave. Dev. Corp. , 25 AD3d 392 , 393 [1st Dept 2006]). As Grand Avenue has established prima facie that Alege defaulted on the Contract and Alege has failed to raise a triable issue of fact, Grand Avenue's cross-motion for summary judgment as to the first cause of action is granted ( see Vermette, 68 NY2d at 717; see Palmiotto, 145 AD2d at 550; see Bardel, 303 AD2d at 345).
Pursuant to the Contract, Grand Avenue is entitled to liquidated damages in the amount of the deposit. Paragraph 21(b) of the Contract states:
21. (b) If seller is prepared to tender the deed, and other instruments and agreements required by this contract in full compliance with its obligations hereunder and purchaser shall willfully fail or refuse to close as required by the terms of this contract, or if purchaser otherwise willfully defaults hereunder so that seller has the right to refuse to close title, seller shall be entitled to retain the Deposit as liquidated damages.
"Where a liquidated damages provision is deemed enforceable, the measure of damages for a breach will be the sum in the clause, no more, no less" ( Zeer v Azulay , 50 AD3d 781 , 785-786 [2d Dept 2008], internal citation omitted). As the liquidated damages provision in the Contract was a reasonable estimate of damages at the time the parties entered the Contract, and Alege willfully defaulted and willfully failed to close as required by the terms of the Contract, Grand Avenue's cross motion for summary judgment on it's first cause of action for the release of the Contract deposit is granted ( see Zeer, 50 AD3d at 785-786; see Bowery Boy Realty, Inc. v H.S.N. Realty Corp. , 55 AD3d 766 [2d Dept 2008]; see Lake Hills Swim Club, Inc. v Samson Dev. Corp., 213 AD2d 701 [2d Dept 1995]). However, Grand Avenue's cross motion for summary judgment on it's second cause of action for $36,000 of damages in connection with the preparation of the Drawings is denied as Grand Avenue's damages are limited to the sum in the liquidated damages clause of the Contract ( see Zeer, 50 AD3d at 785-786).
The defendant's motion for summary judgment dismissing the complaint is denied as to the first cause of action and granted as to the second cause of action.
The plaintiff's cross-motion for summary judgment on the first cause of action is granted and the plaintiff's attorney, James T. Gerardi, Esq., is ordered to release the contract deposit of $65,000.00, held in escrow, to the plaintiff.
The foregoing constitutes the decision and order of the Court.