Second Department Rejects Buyer’s Cause of Action for Specific Performance
Print Article- Posted on: Aug 11 2023
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. This Blog has previously discussed specific performance. See, e.g., [here], [here], [here] and [here]. [Eds. Note: the background information for this article was taken, in large part, from prior articles.] 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).
While money damages in an action at law may “afford a full and complete remedy” to make a plaintiff whole in the event of a contractual breach, such is not always the case. Le Bel v. Donovan, 96 A.D.3d 415 (1st Dep’t 2012) (citation and internal quotation marks omitted). Frequently, remedies for breach of contract other than monetary damages are necessary to make a party whole. Specific performance is an equitable remedy that requires the breaching party to perform under the contract instead of an award of monetary damages. Accordingly, specific performance “will not be ordered where money damages would be adequate to protect the expectation interests of the injured party,” Sokoloff v. Harriman Estates Development Corp., 96 N.Y.2d 409, 415 (2001) (citations and internal quotation marks omitted), and is appropriate where “‘the subject matter of the particular contract is unique and has no established market value.’” BT Triple Crown Merger Co., Inc. v. Citigroup Global Markets Inc., 19 Misc. 3d 1129, *8 (NOR) (Sup. Ct. N.Y. Co. 2008) (quoting Van Wagner Advert. Corp. v. S&M Enters., 67 N.Y.2d 186, 193 (1986)). “The point at which breach of a contract will be redressable by specific performance thus must lie not in any inherent physical uniqueness of the property but instead the uncertainty of valuing it….” Van Wagner, 67 N.Y.2d at 193. The Sokoloff Court also stated that:
The decision whether or not to award specific performance is one that rests in the sound discretion of the trial court. In determining whether money damages would be an adequate remedy, a trial court must consider, among other factors, the difficulty of proving damages with reasonable certainty and of procuring a suitable substitute performance with a damages award (see, Restatement [Second] of Contracts § 360). Specific performance is an appropriate remedy for a breach of contract concerning goods that “are unique in kind, quality or personal association” where suitable substitutes are unobtainable or unreasonably difficult or inconvenient to procure (see, id., comment c ).
Sokoloff, 96 N.Y.2d at 415.
It is generally accepted 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.” Alba v. Kaufman, 27 A.D.3d 816, 818 (3rd Dep’t 2006) (citations and internal quotation marks omitted).
On July 26, 2023, the Appellate Division, Second Department, decided Herman v. 818 Woodward, LLC, a specific performance case. In Herman, buyer and seller entered into a contract for the purchase/sale of two parcels of property. The contract price was $6,100,000, and buyer made a $450,000 down payment upon the execution of the contract. The contract had an “on or about” sale date of January 10, 2020. Additionally, the contract provided that if buyer breached the contract and failed to cure after notice of the default, seller could terminate the contract and retain the down payment. After 60 days, seller set a “time of the essence” closing date and buyer failed to appear. [Eds. Note: this Blog has discussed “time of the essence” closings [here] and [here].] Seller sent a notice to cure, but buyer failed to do so.
Buyer commenced an action for specific performance. Seller moved to dismiss the complaint and the motion court “in effect, granted the motion to the extent of directing that a closing take place within 30 days and that failure to close within this time frame would result in dismissal of the complaint.” Both parties appealed.
The Second Department modified the decision of the motion court by granting the motion to dismiss without permitting a closing to occur within 30 days. Initially, the Court noted that because the motion court considered “evidentiary material without converting the motion to dismiss to one for summary judgment, [it] must … determine whether the proponent of the pleading has a cause of action, as opposed to whether one was stated.” (Citations omitted.)
After stating the elements of a cause of action for specific performance, the Court noted that “there is no significant dispute as to the relevant facts.” On March 13, 2020, seller sent buyer a letter setting an April 13, 2020, closing date and clearly stating that that “time was of the essence [and] that the buyer’s failure to close on April 13, 2020, would constitute a breach and willful default under the contract, which would entitle the [sellers] to any and all available remedies, including the retention of the down payment as liquidated damages.” The April 13 closing date was rejected by buyer, who indicated that he would, instead, close on April 20, 2020. Thereafter, buyer attempted to reject the April 20, 2020, closing, but subsequently agreed to close remotely on that date due to the COVID-19 pandemic. On April 20, 2020, however, buyer again attempted to reject the April 20 closing due to the pandemic. Nonetheless, seller appeared with a stenographer at a video conference to conduct the closing at which, after waiting five hours, seller’s representative swore under oath that he was “authorized and prepared to sign the deed and other documents to complete the sale.”
Seller sent a notice to cure advising buyer of his default and providing buyer with an opportunity to cure by delivering the balance of the purchase price by May 11, 2020. On April 27, 2020, buyer sent a letter to seller rejecting the notice to cure and claiming that he was not in default. In rejecting buyer’s cause of action for specific performance, the Second Department stated:
Under the circumstances here, the buyer does not have a cause of action for specific performance. Although time was not made of the essence in the contract, the defendants subsequently provided valid notice that time was of the essence insofar as the notice: (1) gave clear, distinct, and unequivocal notice that time was of the essence, (2) gave the buyer a reasonable time in which to act, and (3) informed the buyer that if he did not perform by the designated date, he would be considered in default. What constitutes a reasonable time for performance depends upon the facts and circumstances of the particular case. Although the determination of reasonableness is usually a question of fact, it may become a question of law where, as here, there is no dispute as to the facts. Contrary to the buyer’s contention, he had a reasonable amount of time to perform, where, among other things, he had approximately 62 days to close from the initial closing date. Because he failed to close after the notice to cure was sent, the defendants were entitled, pursuant to the contract, to terminate the contract and retain the down payment as liquidated damages. Further, the parties’ submissions clearly demonstrate that the buyer did not substantially perform his contractual obligations, and was not ready, willing, and able to perform his remaining obligations. His allegations that he remained ready, willing, and able to close and had fulfilled all of his obligations under the contract are bare legal conclusions, which are not presumed to be true. [Citations and internal quotation marks omitted.]
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.
