Brief Fact Summary.
Plaintiff and Defendant entered into a written agreement where Plaintiff would purchase a majority stock interest in Defendant’s vineyard and Defendant would retain Plaintiff’s $15,000 deposit as liquidated damages if the sale did not close. Defendant did not obtain the title insurance or provide mortgage confirmation prior to closing as stipulated in the agreement. Plaintiff sued for the return of the deposit and consequential damages after Defendant refused to return Plaintiff’s deposit. The trial court denied summary judgment. The court of appeals reversed as to the cause of action for return of Plaintiff’s deposit, but dismissed on the issue of consequential damages. Both parties appealed.
Synopsis of Rule of Law.
A condition is an event which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.
While a contracting party's failure to fulfill a condition excuses performance by the other party whose performance is so conditioned, it is not, without an independent promise to perform the condition, a breach of contract subjecting the nonfulfilling party to liability for damages.View Full Point of Law
Merritt Hill Vineyards, Inc. (Plaintiff) entered into a written agreement with Windy Heights Vineyards (Defendant) to purchase a majority stock interest in Defendant’s Vineyard. The agreement provided that Defendant would retain Plaintiff’s $15,000 deposit tendered as liquidated damages if the sale did not close, provided that Defendant had obtained a title insurance policy and submitted mortgage confirmation to Plaintiff by the date of closing. At the closing it was revealed that Defendant had not obtained the title insurance policy or provided mortgage confirmation. Plaintiff refused to close and demanded the return of its deposit. When Defendant refused, Plaintiff brought suit for the return of the deposit plus $26,000 in consequential damages. After Special Term denied summary judgment, the appellate division reversed as to the cause of action for return of the deposit of Plaintiff, but dismissed on the issue of consequential damages. Both parties appealed.
Whether a party to a land purchase contract is entitled to the return of the deposit when the other party fails to fulfill a condition precedent to the closing.
Yes. The court of appeals’ ruling is affirmed. A condition is an event which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.
Plaintiff’s right to the return of its deposit or to consequential damages depends upon whether the undertaking to produce the policy and mortgage confirmation is a promise or a condition. A promise is a manifestation of intention to act or refrain from acting in a specified way. A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due. Here, the contract requirements of a title insurance policy and mortgage confirmation were contained in a section of the contract labeled “Conditions Precedent to Purchaser's Obligation to Close” and were expressed as conditions of Plaintiff’s performance rather than as promises by Defendant. Therefore Plaintiff is entitled to the return of its deposit but not to consequential damages, as it did not make an independent promise to secure the insurance policy and provide mortgage confirmation so was not liable for consequential damages.