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Contract Merged with the Deed and Any Rights Afforded Purchaser by the Uniform Vendor and Purchaser Risk Act Were Extinguished Upon Transfer of Title

After transfer of title, the purchaser alleged that the property had been damaged between the execution of the purchase contract and the transfer of title. The Third Department determined summary judgment was properly awarded the seller. The property was sold “as is” and the contract did not survive the transfer of title.  Any rights granted purchaser under the Uniform Vendor and Purchaser Risk Act (UVPRA), which allows for rescission in some cases, were extinguished upon the transfer of title:

Unless a land sale contract expressly provides otherwise, a vendor bears the risk of loss until legal title or possession has been transferred to the purchaser … . However, a contract for the sale of real property merges with the deed and, as a result, the terms of the contract do not survive transfer of title unless the parties clearly specify otherwise … . Here, the terms and conditions of the auction provided that the sale would be governed by the Uniform Vendor and Purchaser Risk Act (hereinafter UVPRA), which provides a purchaser with the right to rescind the sale contract or recover money paid toward the purchase price under certain circumstances (see General Obligations Law § 5-1311 [1] [a]). However, there was no indication that plaintiff’s rights under the UVPRA would survive transfer of title. In fact, the terms and conditions provided that the property would be sold “as is” and that a purchaser would not have recourse against defendant for any defects stemming from the sale. Therefore, any rights that plaintiff may have asserted under the UVPRA were extinguished when title was transferred to plaintiff. Burkins & Foley Trucking & Stor., Inc. v County of Albany, 2015 NY Slip Op 05252, 3rd Dept 6-18-15

 

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Questions of Fact Remained About Whether the Seller Was “Ready, Willing and Able to Close” and Whether the Seller Had Breached the Implied Covenant of Good Faith and Fair Dealing—Supreme Court Should Not Have Granted Summary Judgment to Seller

The First Department, in a full-fledged opinion by Justice Acosta, determined that summary judgment, entitling the seller of shares of a cooperative allocated to a penthouse to keep the plaintiff-buyer’s $2.75 million deposit, should not have been granted. During the course of purchase negotiations a dispute arose about whether a terrace was exclusively for the use of the occupants of the penthouse or whether it was a common area which could be used by other residents. Supreme Court held the issue had been resolved in the plaintiff-buyer’s favor. But the First Department held that the proof did not demonstrate the issue had been fully resolved such that the plaintiff could be sure of an exclusive right to the use of the terrace. Because the proof did not demonstrate the issue had been fully resolved, there were questions of fact whether the seller was “ready, willing and able to close” on the time-of-the-essence closing date and whether the plaintiff had a good reason not to attend the closing.  The First Department also found there were questions of fact about whether the seller had breached the implied covenant of good faith and fair dealing by trying the force the closing irrespective of whether the cooperative might later take steps to interfere with the plaintiff’s exclusive use of the terrace:

Without the [cooperative’s] Board’s affirmative and unequivocal acknowledgment that the shareholders have no right to traverse the terrace, and that it would not take future action to revoke plaintiff’s exclusive right to use that space, plaintiff lacked adequate assurances that his right of exclusivity (and the market value of the apartment) would remain undisturbed if he consummated the sale … .

The [seller] has not shown that plaintiff was given these assurances and, consequently, it failed to demonstrate its ability to close … . Moreover, absent a showing that plaintiff received unequivocal assurances that the Coop would not interfere with his right of exclusivity going forward, the [seller] cannot show that plaintiff lacked a lawful excuse to abstain from attending the closing … . Pastor v DeGaetano, 2015 NY Slip Op 03307, 1st Dept 4-21-15

 

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Contract Action Barred by Statute of Frauds Did Not Preclude Action Based Upon Quantum Meruit

The Third Department noted that a contract cause of action which is barred by the statute of frauds (re: the conveyance of real property) did not preclude an action based upon quantum meruit:

We agree with Supreme Court that plaintiff’s claim for breach of contract, based on an alleged oral agreement to convey real property, is barred by the statute of frauds (see General Obligations Law § 5-703 [1]…). The statute of frauds does not, however, preclude “quasi-contractual recovery for the reasonable value of services rendered” … . Accepting as true the allegations in plaintiff’s complaint, they adequately set forth a cognizable claim for quantum meruit based on the alleged performance of services by plaintiff and her expectation of payment from defendant … . Inasmuch as the quantum meruit cause of action is subject to a six-year statute of limitations, however, plaintiff’s claims are barred to the extent that they allege the performance of services prior to April 25, 2007, which is six years from the commencement of the action … . Rauch v Ciardullo, 2015 NY Slip Op 02823, 3rd Dept 4-2-15

 

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Merger Doctrine and “As Is” Clause Did Not Bar Suit/Fraud-Based Causes of Action Did Not Duplicate Breach of Contract Cause of Action

The First Department, in a full-fledged opinion by Justice Mazzarelli, over a dissent, determined, in the context of a motion to dismiss for failure to state a cause of action, the merger doctrine did not apply to a contract for the sale of an apartment building, the fraud and fraudulent misrepresentations causes of action were not duplicative of the breach of contract cause of action (which was time-barred), and sufficient allegations for piercing the corporate veil had been pled.  The opinion is detailed because of the complicated facts and cannot fairly be summarized here.  With respect to the merger doctrine and the fraud-based causes of action, the court wrote:

The merger doctrine in a real estate transaction provides that once the deed is delivered, its terms are all that survive and the purchaser is barred from prosecuting any claims arising out of the contract … . The only exception to this rule is where the parties clearly intended that the particular provision of the contract supporting the claim would survive the delivery of the deed … . Further, an “as is” clause in a contract to sell real property will ordinarily bar a claim for breach of contract … . Plaintiff argues that the merger doctrine does not apply here because of the latent nature of the defects at issue. It further contends that its allegations of deceptive behavior on Seller’s part to mask the true condition of the building render the “as is” clause inoperable.

Although plaintiff cites trial court opinions identifying a latency exception to the merger doctrine, the concept has not been adopted by any of the Appellate Divisions or by the Court of Appeals … , and we are not adopting it here. Nevertheless, the merger doctrine is inapplicable in this case. Although the crux of the action is undoubtedly that plaintiff took title to a seriously defective building, the specific allegations in the complaint are that Seller breached the contract by failing to abide by those provisions designed to permit plaintiff to gain a true understanding of the condition of the property. …[E]ach of those representations was explicitly intended by the parties not to merge into the deed.

Further, since the breach of contract cause of action is addressed to these representations, and not to the condition of the building itself, the presence of the “as is” clause is no bar to the claim. Additionally, while the “as is” clause states that Seller has made no representations as to “any other matter or thing affecting or relating to the property,” it carries the caveat that this is “except as specifically set forth to the contrary in this agreement” (emphasis omitted). Thus, the three specific representations which plaintiff alleges were breached trump the “as is” clause. To the extent that plaintiff asserts fraud claims not directly related to the three surviving representations, the merger doctrine still does not apply (West 90th Owners Corp. v Schlechter, 137 AD2d 456, 459 [1st Dept 1988] [“fraud is a recognized exception to the merger doctrine”). * * *

Where “allegations of intentional fraud, though parallel in many respects to the breach of contract claim, include claims of fraudulent misrepresentations made by defendants which induced them to enter into the contract and close on the property, they are not merely redundant of the breach of contract claim . . . [and a] fraud cause of action is sustainable” … . TIAA Global Invs., LLC v One Astoria Sq. LLC, 2015 NY Slip Op 01768, 1st Dept 3-3-15

 

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Plaintiff Breached Contract By Not Being Ready on the Time-of-the-Essence Date and Was Therefore Not Entitled to a Return of the Downpayment/Plaintiff’s “Tortious-Interference-with-Contract” Cause of Action Against Brokers Dismissed Because Sellers Did Not Breach the Contract

In finding plaintiff was not entitled to return of her downpayment because she was not ready to close on the “time-of-the-essence” date, the Second Department explained the relevant analytical criteria, as well as the elements of a tortious interference with contract cause of action:

The sellers established, prima facie, that they were ready, willing, and able to perform on the time-of-the-essence closing date, and that the plaintiff lacked a lawful excuse for her failure to close … . In opposition, the plaintiff failed to raise a triable issue of fact … . Accordingly, the sellers established that they did not breach the contract and that the plaintiff was not entitled to the return of her down payment … . …

The plaintiff alleged that the brokers tortiously interfered with the contract between the plaintiff and the sellers. The elements of a cause of action for tortious interference with contract are (1) a valid contract between the plaintiff and a third party; (2) the defendant’s knowledge of that contract; (3) the defendant’s intentional procurement of the third party’s breach of that contract; and (4) damages … . Here, the brokers established their prima facie entitlement to judgment as a matter of law by submitting evidence demonstrating that the third-party, i.e., the sellers, did not breach the contract; rather, the plaintiff breached the contract when she did not appear on the time-of-the-essence closing date. In opposition, the plaintiff failed to raise a triable issue of fact. Iacono v Pilavas, 2015 NY Slip Op 01418, 2nd Dept 2-18-15

 

Purchaser of Real Property, Who Is Aware of a Pending Lawsuit Involving the Property When the Purchase Is Made, Is Bound By the Outcome of the Lawsuit

The Second Department noted that a purchaser of real property who is aware of a pending lawsuit involving the property is bound by the outcome of that suit:

A purchaser of real property who has actual knowledge of a pending lawsuit with respect to the property is bound by the consequences of that lawsuit …, except in circumstances not relevant in this case … . DeMaio v Capozello, 2015 NY Slip Op 00719, 2nd Dept 1-28-15

 

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Only Out-of-Pocket Damages Allowed in Fraud Action (Re: a Real Estate Purchase Agreement)

The Third Department affirmed a judgment in favor of the plaintiffs stemming in large part from the fraudulent representation (re: a property information sheet) that a septic system, which failed, was “new.” The court noted the out-of-pocket rule for damages based upon fraud (lost profits/rents, etc. not recoverable):

[D]efendants’ realtor prepared a property information sheet — to be given to prospective buyers — bearing the notation, “Septic system totally new — le[a]ch field totally replaced — new 5000 gallon holding tank,” as well as the general qualification that “all information [was] deemed reliable but not guaranteed.” …[P]laintiffs … entered into a purchase and sale contract for the property. The contract, which reflected a purchase price of $545,000 and indicated that the buildings on the premises would be sold “as is,” also contained a waivable septic system contingency. Plaintiffs ultimately did not avail themselves of this contingency–a decision purportedly based, in part, upon plaintiffs’ belief that the property contained a new septic system. * * *

…[T]he case law makes clear that where, as here, a cause of action for fraud has been asserted, “[t]he true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong or what is known as the ‘out-of-pocket’ rule. . . . Damages are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they might have gained. Under the out-of-pocket rule, there can be no recovery of profits which would have been realized in the absence of fraud” … . Revell v Guido, 2015 NY Slip Op 00411, 3rd Dept 1-15-15

 

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Supreme Court Properly Considered Documentary Evidence Re: a Motion to Dismiss for Failure to State a Cause of Action Pursuant to CPLR 3211(a)(7)—Limited Role of Such Evidence in this Context Clarified/Criteria for Specific Performance of a Real Estate Contract Explained

The Fourth Department, in a full-fledged opinion by Justice Whalen, clarified how a motion to dismiss for failure to state a cause of action (CPLR 3211(a)(7)) should be handled when documentary evidence is submitted by the defendant.  The case involved a real estate transaction which initially fell through when plaintiff was unable to finance it.  Years later, when plaintiff finally was able to obtain financing, it sought specific performance of the original contract. Documents tracing the history of the communications between plaintiff and defendant were submitted with the motion to dismiss.  Supreme Court considered the documents and dismissed the complaint.  The Fourth Department affirmed. In addition to an extensive discussion of the use of documentary evidence submitted in support of (and in opposition to) a motion to dismiss pursuant to CPLR 3211(a)(7), the Fourth Department explained the criteria for specific performance of a real estate contract and the role of a “time is of the essence” demand (which was not made here):

CPLR 3211 (a) (7) authorizes the summary dismissal of a complaint for failure to “state” a cause of action. Historically, “[a] motion to dismiss for failure to state a cause of action . . . was[] limited to the face of the complaint” (Rovello, 40 NY2d at 638 [Wachtler, J., dissenting]), but the Legislature enlarged the scope of facial sufficiency motions by enacting subdivision (c) of CPLR 3211, which permits “trial court[s to] use affidavits in its consideration of a pleading motion to dismiss” (id. at 635 …). The Court in Rovello held that the plain text of CPLR 3211 (c) “leaves this question,” i.e., the admissibility of affidavits on a motion pursuant to CPLR 3211 (a) (7), “free from doubt” (id. at 635). The 1st Department recently explained that Rovello’s reference to “affidavits” is merely shorthand for “evidentiary submissions” … .

As noted in Rovello, however, CPLR 3211 does not specify “what effect shall be given the contents of affidavits submitted on a motion to dismiss when the motion has not been converted to a motion for summary judgment” (id.). The Court noted that “[m]odern pleading rules are designed to focus attention on whether the pleader has a cause of action rather than on whether he has properly stated one’ ” and held that evidentiary submissions may only be considered for a “limited purpose” in assessing the facial sufficiency of a civil complaint (id. at 636). This “limited purpose,” Rovello explained, is two-fold. On the one hand, “affidavits submitted by the defendant [as movant] will seldom if ever warrant the relief” sought under CPLR 3211 (a) (7) “unless too the affidavits establish conclusively that plaintiff has no cause of action” (id. [emphasis added]). On the other hand, the nonmoving party may “freely” submit evidentiary materials “to preserve inartfully pleaded, but potentially meritorious, claims” (id. at 635).

The “limited purpose” to be accorded evidentiary submissions on a motion to dismiss has been consistently reiterated by the Court of Appeals since Rovello … . Indeed, in Guggenheimer v Ginzburg (43 NY2d 268, 275), the Ct. of Appeals noted that “dismissal should . . . eventuate” only when the defendant’s evidentiary affidavits “show[] that a material fact as claimed by the pleader to be one is not a fact at all and . . . that no significant dispute exists regarding it” … . * * *

We therefore conclude that the court properly considered defendant’s evidentiary submissions in evaluating the motion to dismiss at bar. Liberty Affordable Hous Inc v Maple Ct Apts, 2015 NY Slip Op 0003, 4th Dept 1-2-15

 

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Privatization of a Mitchell-Lama Cooperative Housing Corporation Is Not a Taxable Conveyance Subject to the Real Property Transfer Tax

The Court of Appeals, in a full-fledged opinion by Judge Abdus-Salaam, determined that the reconstitution of a cooperative housing corporation [Trump Village], changing from a Mitchell-Lama corporation pursuant to the Private Housing Finance Law [PHFL] to a corporation pursuant to the Business Corporation Law, was not a conveyance of real property subject to the Real Property Transfer Tax [RPTT]. The NYC Department of Finance characterized the change as a taxable conveyance and was seeking over $21,000,000 in tax and penalties.  The Court of Appeals held that the amendment to the certificate of incorporation did not create a new corporation and that the amended certificate did not constitute a deed:

In support of their position that the privatization of Trump Village is a taxable event, defendants argue that an amendment to a certificate of incorporation is a “deed.” Defendants also assert that Trump Village is a new corporation and that there was actually a conveyance of real property to a different corporation, with Trump Village being both the grantor and grantee. However, defendants’ construction of the RPTT cannot be reconciled with the plain language of the statute. Furthermore, even if there were any ambiguities regarding the application of the RPTT to this situation, “doubts concerning [a taxing statute’s] scope and application are to be resolved in favor of the taxpayer”… . Thus, we reject defendants’ strained interpretation of section 11-2102(a) of the Administrative Code of the City of New York. …

Trump Village …, is the same corporation that was named in the original certificate of incorporation. The Business Corporation Law distinguishes between amending a certificate of incorporation (§ 801 et seq.) and formation of a corporation (§ 401 et seq.). Section 801 (14) provides that a certificate of incorporation may be amended “to strike out, change or add any provision . . . relating to the business of the corporation, its affairs, its right or powers . . . .”…

The PHFL provides that a Mitchell-Lama corporation “may be voluntarily dissolved” and “[t]hat upon dissolution, title to the project may be conveyed in fee to the owner or owners of its capital stock or to any corporation designated by it or them for that purpose, or the company may be reconstituted pursuant to appropriate laws relating to the formation and conduct of corporations”(PHFL § 35 [3][emphasis added]). Accordingly, there are two options for the process of privatization, and plaintiff chose the second option – – reconstitution through amendment of its certificate of incorporation [FN1]. Defendants posit that the legislature intended the word “reconstitute” to mean the same thing as “reincorporate.” However, as long ago as 1857, it was recognized that reincorporation “cannot be deemed the formation of a new corporation, but should be regarded as the continuation of the existing one”… . Trump Vil Section 3 v City of New York, 2014 NY Slip Op 08788, CtApp 12-17-14

 

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Complaint Against Highest Bidder on Real Property Which Subsequently Refused to Execute the Contract of Sale Properly Dismissed—No Agreement Which Satisfied the Statute of Frauds and No Part Performance

The Third Department affirmed Supreme Court’s dismissal of the complaint seeking specific performance of a real estate contract or damages for breach of contract.  Defendant executed and delivered the bidding package and the required down payment, bid on the property on line and was the highest bidder.  When the contract of sale was delivered to the defendant, the defendant refused to execute it.  Supreme Court dismissed the complaint because there was no agreement which satisfied the statute of frauds and there was no part performance.  The court explained the relevant analytical criteria:

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The statute of frauds provides, as relevant here, that a contract for the sale of real property “is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged” (General Obligations Law § 5-703 [2]). To satisfy that statute, the memorandum “must designate all parties, identify and describe the subject matter and state all of the essential terms of a complete agreement” … . The memorandum is not required to be contained in one document; separate “signed and unsigned writings [can] be read together, provided that they clearly refer to the same subject matter or transaction,” contain all of the essential terms of a binding contract …, and the “unsigned writing [was] prepared by the party to be charged” .. . At least one document signed by the party to be charged must “establish[] a contractual relationship between the parties,” with the unsigned documents referring on their face to the same transaction … . * * *

A contract may be enforced, despite failing to comply with the statute of frauds, “in cases of part performance” (General Obligations Law § 5-703 [4]). When analyzing part performance for potential invocation of equitable principles, courts should only consider the actions and detrimental reliance of the party seeking enforcement of the contract … . Additionally, the conduct must be “unequivocally referable” to the alleged agreement … . Post Hill LLC v E Tetz & Sons Inc, 2014 NY Slip Op 08089, 3rd Dept 11-20-14

 

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