In Pesa v. Yoma Development Group, Inc., No. 3, NYLJ 1202541875877, at *1 (NY Ct. of App., Decided February 9, 2012), New York State's highest court, the New York Court of Appeals, held that a real estate buyer must be 'ready, willing and able' to close on the purchase of real estate in order to claim damages from a seller that has repudiated the contract of sale. In doing so, the Court of Appeals resolved a split in authority among the lower appellate courts.
The Court's decision puts the burden of proof on the non-repudiating buyer to show their readiness, willingness and ability to perform in order to claim damages, indicating that this is supported by common sense (and consistent with leading treatises on contract law). The Court did not set forth any specific criteria or requirements for a showing of being ready, willing and able, indicating that this should be a question of fact for courts to consider (and who better to produce evidence in support of this than the buyer who "can more readily produce evidence of their own intentions and resources"?).
In this case, the Defendant, Yoma Development Group, Inc. (the seller), agreed in three separate contracts to sell three properties, on each of which the seller was to build a three-family dwelling. One of the properties was to be sold to all four of the plaintiffs (the buyers), another to three of them, and a third to plaintiff Mario Pesa only. Each contract specified a purchase price, and a down payment to be held in escrow pending the closing. Closing was conditioned on seller's delivery of certificates of occupancy or "appropriate sign-offs" to show that certificates of occupancy would be forthcoming for the buildings once constructed. Each contract contained a mortgage contingency clause, providing that if the buyer did not obtain a mortgage commitment within sixty days from the date of the contract, either the buyer or the seller "may cancel this contract by giving Notice to other party."
The contracts were signed and apparently nothing happened for more than three years thereafter; the dwellings were not built and the mortgage commitments were not obtained. The seller claimed that once sixty days had passed it was free to terminate the contracts at any time under the mortgage contingency clause, but it did not claim to have exercised that right until four years later (in the interim, the seller transferred the properties to a corporation affiliated with the seller). The buyers claimed that the seller had no right to terminate because the seller's failure to build the houses and to obtain certificates of occupancy or appropriate sign-offs made getting mortgage commitments impossible. Further, the buyers claimed that the transfer of the properties to seller's affiliate constituted repudiation by the seller of its obligations under the contracts.
The Court held that the transfer of the properties to seller's affiliate, in and of itself, was not a repudiation of the contracts (i.e., "the transfer of the properties from one entity to another did not, of itself, make it impossible for the seller to close the transaction, or prove that it was unwilling to do so"). The properties could later have been transferred back to seller or to the buyers directly. In general, the Court found that a transfer between affiliates ("which may be done for any number of innocent reasons") is not necessarily a repudiation.
It was noted by the Court that there was significant evidence to support a finding that the seller affiliate transfer was inconsistent with performance under the contracts, however, the record did not show conclusively that the transfer constituted a repudiation by seller. Neither did the record show that the buyers were not ready, willing and able to close. The foregoing issues were found to be questions of fact to be resolved by the trial court.
Ultimately, this case allocates the burden of proof to buyers claiming damages from a repudiating seller to show "that they would and could have closed the transaction if the seller had proceeded to a closing as the contract required." This is consistent with the burden of proof for buyers seeking specific performance under a contract of sale. As a result, real estate buyers should take care to document their steps toward closing, including their financial condition and wherewithal to close, in the event that the need arises to prove that they were "ready, willing and able."