Was Seller Entitled to Keep Contract Deposit?
The seller of a cooperative apartment unit alleged that the buyer anticipatorily breached the contract of sale by refusing to proceed with her own “time of the essence” closing. And claimed that he was entitled to keep the down payment. Litigation ensued.
On July 12, 2019, Hector Cruz, as seller, and Tabitha Williams, as buyer, signed a contract for the purchase of the apartment for $280,000.00. The contract required Williams to make a down payment of $28,000 –which was paid by check and was being held in escrow by Cruz’ counsel for the transaction, Ryan J. Walsh.
The contract required Williams to apply for a mortgage loan of $224,000 for a term of 30 years or less within five (5) busines days of July 12, 2019 and called for a closing date to be scheduled on or about 60 days from July 12, 2019 — or September 10, 2019. Cruz alleged that, on August 2, 2019, Willimas obtained a mortgage commitment for a loan amount of $224,000.00, with an expiration date of October 31, 2019.
As of September 10, 2019, Williams had not yet received approval to purchase the apartment from the cooperative’s board. On September 21, 2019, the board approved the sale of the apartment to Williams. On October 8, 2019, Williams served a notice on Cruz scheduling a closing date of October 28, 2019, at 1:00PM. The notice indicated that “time is of the essence” and stated that Williams was “ready, willing and able to close.”
On October 28, 2019, Cruz received approval from the cooperative’s board to close, and, in an affidavit, alleged that he was “ready, willing, and able to close and sell the [a]partment shares to [Williams} on October 28, 2019.” And stated that he was then notified that Williams and her attorneys refused to proceed with the October 28, 2019 closing. Walsh stated that he was informed by Williams’ attorney, Elena Makau, that Williams’ mortgage commitment would be deemed stale as of October 22, 2019. Walsh asserted that the statement was “not true” and “directly contradicted” by the prior notice and mortgage commitment letter, stating that the commitment did not expire until October 31, 2019.
Walsh stated that, on October 28, 2019, they received approval from the cooperative board to close, and Walsh “attempted to schedule the closing,” but Makau and Williams refused to close. Walsh stated that his firm was never served with a notice of cancellation, as required by the contract. Cruz was ready, willing, and able to close on October 28, 2019.
Walsh stated that, on October 31, 2019, his firm received an email from Makau producing a loan estimate from Quicken Loans and demanding that Cruz pay $5,600 for Williams’s mortgage extension fees. An email from Williams’ mortgage broker, however, confirmed that only $1,400 of that amount was for commitment extension fees. The remaining fees were for Williams’ rate lock extension and imposed due to her reduced credit score.
In an affidavit, Cruz stated that, despite those refusals, he hoped to sell the apartment to Williams and, in good faith, he agreed to pay for the mortgage commitment extension fee of $1,400. However, Walsh alleged that Makau continued the improper demand of $5,600.00.
On November 13, 2019, Makau advised that Williams’ mortgage financing had expired and demanded a refund of the down payment. Makau threatened legal action if the down payment was not returned by November 18, 2019. Despite William’s breach, Cruz still sought to honor the contract and reschedule the closing.
On November 19, 2019, Walsh served Williams with a notice scheduling the closing for December 6, 2019, stating “time is of the essence.” Williams and Makau, however, refused to close, threatening litigation if the down payment was not returned.
Cruz and Walsh alleged that they were ready, willing, and able to close on December 6, 2019. Williams and Makau refused to proceed. Walsh stated that, on December 13, 2019, his firm served a notice on Makau declaring Williams to be in breach of the contract and declaring the down payment as forfeited. Litigation ensued after the parties could not agree on a resolution. And Cruz moved for summary judgment.
Cruz alleged that he was entitled to summary judgment because Williams anticipatorily breached the contract by refusing to go forward on the closing date of October 28, 2019. And alleged that the contract unambiguously stated that Williams became obligated to purchase and close on the contract upon obtaining a mortgage commitment. Williams set a “time of the essence” closing date, which mandated that both parties close on October 28, 2019. Williams demanded a closing date of October 22, 2019 due to the mortgage commitment expiring, but that was false as the mortgage did not expire until October 31, 2019. Cruz claimed that Williams unilaterally refused to close with no reasonable justification. And he was entitled to keep the down payment.
Cruz also argued that Williams breached the contract by failing to attend the second closing date of December 6, 2019. And asserted that he was not responsible for payment the mortgage commitment “extension fees” that were improperly demanded. And Cruz further alleged that Williams contractually waived the right to terminate the contract by failing to serve a notice of cancellation upon him prior to the scheduled closing date.
As alternative relief, Cruz argued that Williams’ claims for unjust enrichment and conversion were precluded by the existence of the contract and therefore they must be dismissed. Cruz also argued that Williams had no legal basis for the recovery of legal fees and therefore those claims must be dismissed. Cruz further argued that Williams’ demand for recovery of consequential and punitive damages was without merit. Finally, Cruz contended that Williams’ boilerplate affirmative defenses should be dismissed with prejudice.
In opposition to the motion, Williams submitted an affirmation from her current counsel, and affirmation from Makau, and multiple email exhibits. Her counsel stated that Cruz, not Williams, refused to close on October 28, 2019. On September 21, 2019, Williams’ attorney Makau sent an email to Walsh stating that she had been approved by the co-op and was cleared to close, and inquiring about a closing date. On October 3, 2019, Makau sent another email to Walsh, stating that the afternoon of October 17 was available. An email that same day from the real estate broker indicated that the closing apparently needed “to be coordinated with the seller’s next purchase.”
On October 9, 2019, Cruz’ office sent an email stating that he was “NOT” ready to close yet, and that Cruz “[was] purchasing another unit in the same building.” Makau thereafter sent an email stating that there was no indication that the closing was contingent upon the seller’s purchase. On October 11, 2019, Williams herself sent an email informing that her loan commitment expired “today” and she was still waiting on a closing date from the seller. That same date, the real estate broker stated that the seller had not agreed to cover the buyer’s extension costs and, on October 15, 2019, the lender sent an email stating that the rate would expire on “10/28.” On October 16, 2019, Makau sent an email stating that Williams “MUST close by 10/28/19, or her financing will be ended.” That email also noted that the contract was not contingent upon the seller’s purchase of a different property and further stated that the seller had not responded to any request to set a closing date.
On October 17, 2019, Makau sent another email to Cruz’ attorney confirming that Williams was ready, willing, and able to close. That email also indicated that if the transaction did not close by 10/22/2019, the mortgage application would be deemed stale and there would no longer be a mortgage commitment. The email now stated that the closing was to occur by October 22, 2019, or the transaction would be deemed canceled. The email proposed closing dates of October 18, 21, or 22. The next day, Makau sent another email to Cruz’ counsel, noting that she received no response to her prior email. The email reiterated the October 22, 2019 closing deadline and stated “[i]f there is no closing by 10/22/19, this transaction will be cancelled.”
On November 5, 2019, Makau sent another email to Cruz’ attorney informing that Williams incurred additional processing fees due to Cruz’ refusal to timely close. The lack of response from Cruz required Williams to purchase multiple extensions. Makau indicated that if Cruz was willing to pay those fees, totaling $5,600.00, then Williams could restart her mortgage financing application. More emails were exchanged and, on November 22 and 23, 2019, Makau sent an email noting that Williams’ mortgage financing had expired and would not be renewed without the payment of mortgage commitment extension costs; Williams was unable to pay the costs ($6,000.00+);and Cruz had refused to absorb them.
On December 3, 2019, Makau sent an email to Cruz’s counsel rejecting his “time of the essence” letter, since Williams was without a mortgage and unable to purchase the unit. That letter requested immediate return of Williams’ down payment. Cruz’s counsel sent an email stating Cruz had “offered $3,000 to help offset your client’s expenses” and “the contract cannot be cancelled due to the buyer paying extension fees and the loan is still active.” In response, Makau stated that the loan was not active and there was no financing. The cancellation of the loan was confirmed in follow-up emails.
Williams contended that “there [were] material facts in dispute that should defeat [Cruz’] application” and discovery had not yet begun. Williams further alleged “[t]here [was] no dispute that [Williams] added a condition precedent to closing that was not contained in the contract of sale.”
In reply, Cruz contended that Williams’ modification of the October 28, 2019 closing date to October 22, 2019, and threat to cancel the contract, constituted an anticipatory breach of contract which negated Cruz’ further obligations to perform under the contract. Cruz further argued that Williams refused to accept subsequent offers to pay a portion of her mortgage extension fees, and Williams’s subsequent emails refusing to close on December 6, 2019, constituted premature terminations of the contract and an anticipatory breach. Cruz thus argued that he was entitled to keep Williams’ down payment as of either October 28 or December 2019.
When a contract does not specify that time is of the essence, one party may subsequently give notice to that effect provided that such notice is clear, distinct and unequivocal and fixes a reasonable time within which to perform. Such notice may be effected by a letter from one of the party’s attorneys. What constitutes a “reasonable time” to perform depends on the circumstances of the particular cases, including 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. Once it has been declared that time is of the essence, it is of the essence for both parties, and both are as entitled to enforce the provision. However, even after time has been made of the essence, a party’s right to timely performance may still be waived. Where a seller seeks to hold a purchaser in breach of contract, the seller must establish that he or she was ready, willing, and able to perform on the time-of-the-essence closing date, and that the purchaser failed to demonstrate a lawful excuse for its failure to close.
In this case, Cruz submitted evidence that he received a notice from Willimas scheduling a time-of-essence closing date of October 28, 2019. Cruz alleges that he was ready, willing, and able to go forward on that date, but Williams refused to go forward. However, Cruz’ moving papers and Williams’ opposition contain email exchanges indicating that, on October 17, 2019, Williams’ counsel set a new “time-of-essence” closing date of on or before October 22, 2019, alleging that the if the transaction did not go forward by that date, the mortgage application would be deemed stale and there would no longer be a mortgage commitment. That notice further stated that the transaction would be deemed cancelled if the closing did not occur on October 22, 2019.
While Cruz contended that the reason for moving up the closing date was unfounded—as the mortgage commitment would not actually expire on October 22, 2019—Cruz did not voice any objection to the advanced closing date. Instead, Cruz’ counsel chose to remain silent and simply did not respond to any of Williams’ counsel’s emails concerning the new October 22, 2019 date. Under the circumstances it could be deemed that, regardless of whether the notice to Cruz was reasonable, Cruz acquiesced, as a matter of law, in the reasonableness of the closing date– and waived his right to performance on the later, October 28 date. On that record, there were issues of fact as to whether Williams’ notice moving the closing date to on or before October 22, 2019 was reasonable under the circumstances. There were also issues of fact as to whether Williams subsequently waived Cruz’ default and elected to continue to perform under the contract, by seeking to come to an arrangement for Cruz to pay Williams’ mortgage commitment extension costs.
If Cruz was indeed in default by failing to perform on October 22, Williams had no further duty to entertain Cruz’ later closing date of December 5, 2019. And Cruz’ alleged failure to comply with notice of cancellation provisions prior to that December 2019 subsequent closing date would be irrelevant. Those issues of fact precluded summary judgment on Cruz’ claims for breach of contract against Williams.