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SECOND DEPARTMENT DETERMINES THAT POTENTIAL REAL ESTATE BUYER IS NOT ENTITLED TO SPECIFIC PERFORMANCE BECAUSE THERE WAS NO ENFORCABLE CONTRACT

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  • Posted on: Oct 11 2019

Specific Performance is an equitable remedy used to compel a party to perform under a contract.  McGinnis v. Cowhey, 24 A.D.3d 629 (2nd Dep’t 2005).  Specific Performance is frequently used to enforce a party’s rights under real estate contracts.  In EMF General Contracting Corp. v. Bisbee, 6 A.D.3d 45 (2004), the First Department set forth the elements of a specific performance claim:

The elements of a cause of action for specific performance of a contract are that the plaintiff substantially performed its contractual obligations and was willing and able to perform its remaining obligations, that defendant was able to convey the property, and that there was no adequate remedy at law.

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Generally, 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, 774 N.Y.S.2d at 44 (citations omitted).

The Second Department, in Utica Builders, LLC v. Collins (October 9, 2019), affirmed Supreme Court’s dismissal of a complaint in which the plaintiff, a potential purchaser of real property, sought specific performance of a contract of the sale.

As a result of the Utica parties’ negotiations for a purchase/sale of real property in Brooklyn, the plaintiff sent defendant a purchase proposal in which it offered to purchase the property for $590,000 and delivered a $29,500 deposit.  In response, the defendant forwarded to the plaintiff an unexecuted contract of sale that, among other things, was consistent with plaintiff’s price terms and which provided that the property was being sold “as is.”  The plaintiff, in turn, returned to defendant executed contracts and an additional deposit check in the amount of $29,000.  Plaintiff, however, included on the contract executed by it, handwritten amendments in the form of representations by the defendant that the property was improved with a legal two-family dwelling.  Defendant’s attorney returned to plaintiff fully executed contracts after modifying plaintiff’s changes from “two family” to “one family.”

Despite defendant’s attempts to schedule a closing, plaintiff refused to close without “a certificate of occupancy designating the premises as a two-family dwelling or a letter of no objection to that effect.”  Plaintiff advised that without proof that the property could be used as a legal two-family dwelling, plaintiff would deem the contract cancelled and seek the return of the $59,000 deposit.  Subsequently, defendant declared a default and indicated that plaintiff could cure by closing on or before June 8, 2015.  In response, the plaintiff urged that the parties did not have a binding contract and sought the return of the deposit.  In correspondence between the parties on June 2, 2015, defendant continued to argue that the parties had a binding contract and the plaintiff again demanded the return of its deposit.

Almost a year later, in May of 2016, plaintiff commenced an action for specific performance.  Supreme Court granted defendant’s motion for summary judgment dismissing the complaint, finding that the parties “never entered into an enforceable contract for the sale of the subject property” and the Second Department affirmed.

The Second Department found that the parties never had a “meeting of the minds” as to material terms of the purchase/sale contract and that “specific performance may be awarded only where there is a valid existing contract for which to compel performance.”  (Citations omitted.)

The Second Department’s decision was based on the fact that the:

… documentary evidence established that the parties were never truly in agreement with respect to all material terms, because the plaintiff did not intend to pay the proposed contract price for a one-family dwelling, and the defendant could not or would not represent that the subject property was a legal two-family dwelling. The plaintiff’s signing of the proposed contract did not create a binding agreement between the parties, as the plaintiff’s acceptance was conditioned on material changes to the contract and, thus, constituted a counteroffer, which the defendant did not accept. Because the parties never came to a meeting of the minds regarding essential terms of the agreement, there was no binding and enforceable contract between the parties.

(Citations omitted.)

In Utica, while the Court determined that the remedy of specific performance is unavailable absent an enforceable contract, it should be noted that there was a lengthy delay before plaintiff commenced its action for specific performance.  Because specific performance is an equitable remedy, the “available defenses include serious unfairness, undue hardship, and laches, or unreasonable prejudicial delay.”  EMF, 6 A.D.3d at 52 (citations omitted).  In this regard, specific performance will not be granted where speculation related delay is a factor.  Thus, “where it is established that the buyer has made excuses in order to delay closing on the contract, with an actual purpose of waiting to see whether to enforce the contract depending upon whether the market value of the subject property increases or decreases, the courts will not grant specific performance.”  EMF, 6 A.D.3d at 53 (citations omitted).

While it is not suggested that the delay present in Utica would have vitiated plaintiff’s claim for specific performance had there been an enforceable contract between the parties, it is important to consider the impact of the delay in exercising one’s rights to, inter alia, this equitable remedy.

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