Buyer’s Refusal to Close with Dissolved Corporation Held a Breach of Contract

Owner of a property entered into a contract for its sale. At the time of the contract, Owner, a corporation, was dissolved by proclamation. The contract had a one-year closing date, time being of the essence, but if there was no closing, Buyer’s downpayment would be returned upon its termination of the contract. If the buyer defaulted, however, it would forfeit its downpayment.

Upon receiving the title report, Buyer learned that Seller had been dissolved, which was marked as an exception on that report. To remedy the issue, language was inserted into the deed “indicating that the transfer was being done to wind up [Seller’s] business.” Upon vacating the residential tenants and putting the commercial tenants on notice that they would have to do the same, Seller notified Buyer that it was ready to close.

Buyer’s new counsel then notified Seller’s that because Seller was not in good standing, and without authority as an entity to enter into the contract, Seller was in default. Buyer demanded the return of its downpayment. Seller’s attorney responded by demanding to close and that if Buyer did not, it would be held in default.

Seller sued, seeking to retain the downpayment and for the expenses incurred in vacating the tenants. Buyer counterclaimed for the return of the downpayment. The lower court found for Seller and against Buyer, who appealed. The Second Department agreed with the lower court, that Seller was permitted, and had the authority to sell the property, as part of its wind-up. “A dissolved corporation may continue to function for the purpose of winding up the affairs of the corporation … .” On appeal, Buyer agreed but argued that its letter should not have been held an anticipatory breach of the contract. Here, too, the Second Department disagreed with Buyer. Once Buyer sent its letter it communicated its clear intent not to close, thus anticipatorily breaching the contract.

Lamarche Food Products, Corp. v. 438 Union, LLC

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