First Department Holds Buyer is not Entitled to the Return of her Down Payment on Real Estate Contract Because the Written Agreements Establish a Defense “Founded Upon Documentary Evidence” Pursuant to CPLR 3211(a)(1)
Print Article- Posted on: Oct 29 2021
By Jonathan H. Freiberger
Defaults by a party to a real estate contract, whether a purchaser or a seller, are a fruitful source of litigation. Among other remedies available to an individual or entity aggrieved by a real estate contract default is specific performance, an issue discussed in this Blog’s article entitled: “Specific Performance (That’s What I Want) – Would be a Terrible Song Title.” Briefly stated, because of the judicially recognized “unique” nature of real property, specific performance is frequently an appropriate remedy because monetary damages can be deemed insufficient to make a litigant whole when title to the subject property is not conveyed. See, e.g., Alba v. Kaufmann, 27 A.D.3d 816, 818 (3rd Dep’t 2006) (citation omitted) (“As to the remedy plaintiffs [buyers] seek, the case law reveals that ‘the equitable remedy of specific performance is routinely awarded in contract actions involving real property, on the premise that each parcel of real property is unique.’”); EMF General Contracting Corp. v. Bisbee, 6 A.D.3d 45, 52 (1st Dep’t 2004) (same).
Many times, however, a seller, when faced with a breach by the buyer, is content to retain the down payment as the remedy for the buyer’s breach. An aggrieved seller may also sue for damages if, for example, the property is subsequently sold for a lower price than agreed to by the purchaser under the defaulted contract. The law is established that “[w]here a purchaser defaults under an agreement to purchase real property, the seller may retain the down payment paid upon the execution of the agreement.” Orea v. D’Auria, 160 A.D.2d 694, 695 (2nd Dep’t 1990) (citations omitted). See also, Maxton Builders, Inc. v. Lo Galbo, 68 N.Y.2d 373, 378 (1986) (“For more than a century it has been well settled in this State that a vendee who defaults on a real estate contract without lawful excuse, cannot recover the down payment.”)
Such was the case in Jennings v. Silfen, a case decided by the Appellate Division, First Department on October 28, 2021. The Plaintiff in Jennings entered into a contract to purchase from defendant sellers a cooperative apartment. When purchaser could not close in the time frame set forth in the initial contract, the parties agreed to an amendment pursuant to which “plaintiff [purchaser] agreed that in exchange for additional time to close on the purchase, she would cover defendants’ carrying costs and would waive any right to recovery of the down payment if she did not close on the sale by the agreed-to date.”
After plaintiff failed to close in the timeframe set forth in the amendment to the contract, plaintiff requested the return of her down payment and defendant refused. Plaintiff commenced Jennings, seeking, inter alia, the return of the down payment. Defendant sellers moved to dismiss the complaint pursuant to CPLR 3211(a)(1) because they had a defense “founded upon documentary evidence”. [Eds. Note: this Blog has addressed motions to dismiss pursuant to CPLR 3211 (a)(1) [here], [here], [here], [here] and [here].] In support of their motion, defendant sellers “submitted a signed copy of the contract of sale, which contains all the material terms, and the amendment to the contract, [which provided as previously indicated].”
In unanimously reversing supreme court, the First Department found that the “documentary evidence conclusively establishes a defense to the complaint” because “[p]laintiff’s failure to close by the agreed-to date constitutes a default under the purchase agreement and the amendment thereto, and the default entitles defendants to retain the down payment as liquidated damages pursuant to paragraph 13.1 of the purchase agreement and paragraph 5 of the amendment.” (Citations omitted.)
The Court also concluded that plaintiff’s claim that defendants were unjustly enriched by their retention of the down payment failed due to the existence of a written contract. (Citations omitted.) Finally, the Court held that an “appeal to equity is equally unavailing, since the law is established that a vendee who defaults on a real estate contract without lawful excuse cannot recover his or her down payment.”
Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.
This article is for informational purposes and is not intended to be and should not be taken as legal advice.
