Words Speak Louder than Actions
While actions may speak louder than words in many circumstances, it is not so when it comes to changing the terms of a written contract, ruled a New York appellate court in the case of Regal Realty Services, LLC v. 2590 Frisby LLC, 2009 WL 1324121 (NYAD 1st Dep’t).
2590 Frisby LLC entered into a contract in 2007 to sell real property to Regal Realty Services LLC for a price of $3.050 million, with a down payment of $152,500 to be held in escrow by Frisby’s attorney. The contract required Regal to obtain a written mortgage commitment in the amount of $2,182,500. If Regal was unable to obtain the mortgage, each party at that time had the option to cancel the contract by written notice to the other. In that event, the down payment would be refunded. The contract also provided that its terms could be changed only by written agreement.
Regal’s initial mortgage application was to HSBC and was rejected. The contract was not canceled, however, because Frisby suggested that Regal apply to the current mortgagee for financing. This, too, was unsuccessful. Several months later, the parties re-negotiated the terms of the contract, raising the purchase price to $3,075,000 and adding a payment option in the form of a purchase money note and second mortgage. Regal was able to obtain a mortgage commitment from another bank but rejected it because the amount was too small.
In September, Frisby’s attorney notified Regal that he was in default of the contract and set a time of the essence closing for a month later. In response, Regal’s lawyer wrote back that the contract was terminated and demanded the return of the down payment. At that point, Frisby began this action, seeking to keep the deposit as liquidated damages pursuant to the contract terms. Regal in turn moved for summary judgment, arguing that since both parties worked together to seek a mortgage, this constituted a waiver of the mortgage contingency clause, thus entitling Regal to have his deposit returned.
Court Rulings
With both parties moving for summary judgment, the trial court denied
both, finding issues of fact, including whether Frisby, by its actions,
extended or waived the mortgage contingency clause. Both parties appealed.
The New York appellate court said “There is a fundamental concept that a written agreement, that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.” Further, said the court, “A contract is unambiguous if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the agreement itself, and concerning which there is no reasonable basis for a difference of opinion.” Here, the contract clearly provided that Regal, having been notified of the denial of its financing application, could have canceled the contract or requested an extension. He did neither.
Regal argued that Frisby’s assistance in seeking financing with another lender led Regal to believe that Frisby had waived the terms in the contract. Said the court, “This ignores a vital first step in the analysis; before looking in evidence of what was in the parties’ minds, a court must give due weight to what was in their contract…. Evidence from outside the four corners of an unambiguous document as the parties’ intentions is generally inadmissible to vary the writing. ”Furthermore, the contract specifically provided that it could not be changed or terminated without written agreement executed by both parties.
Real Estate Focus is provided by Somerset’s Real Estate Team for our clients and other interested persons upon request. Since technical information is presented in generalized fashion, no final conclusion on these topics should be made without further review. For additional information on the issues discussed, please contact Michael Fritton, CPA. Whether you are a building owner, building manager, real estate developer, real estate professional or an investor, we hope to provide you with timely information so you may be proactive in making your business decisions.
This article was written by and published herein with the permission from professionals of BDO Seidman, LLP. Alvin Arnold is the editor of the Real Estate Monitor. Somerset is a member of the BDO Seidman Alliance, a nationwide association of independently owned accounting and consulting firms.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
info@somersetcpas.com
.jpg)