Prior Conduct in Adjourning Closings May Preclude Default in Failing to Close

Plaintiff agreed to buy and defendant to sell, three contiguous parcels of property. The parties had set a time of the essence closing date, at which closing, plaintiff did not appear. However, a week before that closing, plaintiff’s attorney informed defendant’s that the lender’s appraisal was pending, and asked to adjourn the closing. Defendant’s counsel did not reply. The day before the closing, the attorneys communicated, but about issues unrelated to the actual closing or the request for an adjournment. On the closing date, seller appeared but buyer did not. Seller declared buyer’s breach and retained the downpayment.

Plaintiff-buyer sued, arguing that based on the parties’ prior practices of adjourning the closing, and defendant’s counsel’s failure to respond, led the buyer to a good faith belief that the time of the essence closing date had been adjourned. Plaintiff also pointed out that title revealed more than $11 million in outstanding mortgages, far exceeding the almost $4 million purchase prices, and that the seller had made no effort address those mortgages prior to the closing date.

The lower court dismissed plaintiff’s case, finding that it was not able to close and had failed to object to the title defects prior to the closing date. With plaintiff-buyer’s default defendant-seller was relieved from performance.

The Second Department reversed. It initially noted that the seller was seeking to keep the downpayment and was therefore required to demonstrate that it was ready, willing, and able to close. So long that the seller could not establish that, “the purchaser is not required to tender performance and attend a closing.” While plaintiff was obligated to announce exceptions to title before closing, the parties’ contract also required the seller to satisfy any open mortgages. While left unsaid by the court, the seller’s inability to demonstrate the capacity to pay off the $11 million in debt (it paid off some of the debt well after the closing date) rendered moot the buyer’s failure to timely raise that objection.

This addressed the seller’s effort to keep the downpayment. As to the buyer’s claim for specific performance, which required it to demonstrate that it was ready, willing, and able to close even if it was the seller that breached, the Court held that while the seller was not required to agree to adjourn the closing date,

“the question here is whether the defendants [seller] had any obligation to respond [to the buyer’s request to adjourn the closing date]. A duty to speak arises where there is a duty of fair dealing between the parties pursuant to a contractual relationship, and failure to speak is inconsistent with “honest dealings” and misleads another. Such a duty may be created by a course of conduct. Here, the plaintiff was a tenant of the defendants; therefore, there was a prior course of conduct not explored on this record, as well as opportunities to speak and actual communication between the parties with respect to this transaction one day prior to the law day. Where there is an opportunity and duty to speak, failure to speak may constitute an assent.

With that, the court sent the case back to the trial court to determine if such assent took place.

It seemed that the buyer was able to elicit the court’s sympathies—something not to be counted on—even as this decision did not end the case. The buyer is still left with the burden on demonstrating the parties’ past practice and good-faith reliance. The case also highlights the pitfalls of failing to communicate with counsel, and not insisting on written confirmation of schedule changes.

533 Park Avenue Realty, LLC v. Park Avenue Building & Roofing Supplies, LLC

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