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Breach of Contract and Home Purchase Agreements

Breach of Contract and Home Purchase Agreements

The Supreme Court of New York County recently heard a motion in the case of Danna v. Smyser. The case boiled down to a relatively simple and common factual situation. The buyer and seller of a home entered into a purchase agreement, with a deposit paid. The buyer, unable to obtain financing as specified in the contract, wanted a refund of the deposit. The seller refused to return it, alleging lack of good faith. How should a court rule on this issue? What evidentiary and contractual issues control? We shall examine them in greater detail below.

Background of the Case

On June 8, 2012, the plaintiff Danna and the defendant Smyser entered into a contract or purchase agreement for the sale of an approximately million dollar co-op condominium unit in Manhattan, NY. Danna sought to sell the unit to Smyser. Defendants put a 10% down payment of $132,500 into escrow (escrow is essentially the payment to a trusted third party who holds the money until the transaction is complete, providing various incentives for both parties to complete the deal).

One of the defendant’s obligations under the purchase agreement was known as the mortgage financing contingency provision. This provision became the central issue in the dispute.

On April 18, 2013, plaintiffs filed the instant action for declaratory judgment, ie for the escrow to pay them the 10% deposit. They alleged, essentially, that defendant had not complied with its contractual obligations in good faith, by not attempting to obtain the requisite financing. (Note it is not the actual failure to get financing that’s at issue, it is the allegation that defendant did not even attempt to get it, or acted in some bad-faith way such as hypothetically submitting defective loan applications, which amounted to breach of contract). The defendants filed for summary judgment, which is the motion before the court.

Analysis

The court had to wade through a good deal of evidence, in the form of affidavits and letters. Defendant submitted that it had attempted to get financing from First Meridian, but that this attempt had been rejected. As evidence, defendant submitted a letter from a First Meridian official saying that none of the banks he represented would provide the requisite loan to defendant.

However, Plaintiff asserted that the Meridian letter was not good enough. The contract required defendant to make a full and complete attempt to obtain the financing, including supplying all required information, fees, etc to the bank. Plaintiff stated that prior to the filing of the lawsuit, when defendant requested a refund, plaintiff had requested copies of the full and complete loan application to Meridian, which defendant had not provided.

The implication was that although defendant had obtained proof of a technical rejection by the bank of the loan application, defendant had not provided documentation of a good-faith and complete loan application which was required by the contract.

The court seemed to agree with the plaintiff. It stated that plaintiff had raised an issue of fact, thus defendant’s motion to dismiss was not appropriate. In other words, the court felt that a close examination of the evidence (in this case the key piece of evidence would be the full loan application that defendant allegedly never disclosed to plaintiff) would be necessary to determine the right outcome.

If you have questions about breach of contract, please don’t hesitate to contact our officefor a consultation.

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