Torres v. D'Alesso

OPINION OF THE COURT Saxe, J.P. When both parties to a real estate sales contract have executed and delivered to the other party a completely integrated written contract containing the specific language that any prior oral agreements or representations are merged into the writing, and that “neither party reifies] upon any statement made by anyone else that is not set forth in this contract,” such a contract may not be avoided by a claim of a prior orally-agreed-upon condition precedent to the effectiveness of the contract. The rule that the parties to a written contract may orally agree to a condition precedent to the effectiveness of the contract, so that a party must be permitted to prove by parol evidence a claim that the contract never became effective because the condition precedent never occurred (see Hicks v Bush, 10 NY2d 488, 491 [1962]), is not applicable under circumstances such as — 48 — those presented here. Even if the rule were applicable here, the purported condition would be unenforceable because it contradicts terms of the writing. And, the words used to create the condition lack the “clear language showing that the parties intended to make it a condition” (Unigard Sec. Ins. Co. v North Riv. Ins. Co., 79 NY2d 576, 581 [1992]) that is necessary to validly create a condition precedent to the effectiveness of the contract. Defendant buyer executed a written contract to purchase real property on Fire Island from plaintiff seller. With the signed contract, the buyer turned over to the individual third-party defendant, the seller’s attorney, a contract down payment check for $120,000. However, the buyer alleges that the terms of the parties’ contract were modified by an oral agreement he made with the seller’s attorney at the time he turned over the signed contract and down payment check, under which the attorney allegedly agreed not to deposit the buyer’s down payment check “until further notice” while the buyer awaited word on whether his application for a home equity line of credit was granted. The written contract as negotiated by the parties consisted of a modified standard form contract for the sale of residential real estate, with a rider. In the contract’s final form, the parties deleted from the standard form its entire mortgage financing contingency provision, so that the final agreement contained nothing that conditioned the buyer’s obligations on his ability to obtain financing. Indeed, rider paragraph 45 contained a specific representation that the buyer had sufficient assets to complete the purchase. Additionally, rider paragraph 39 dealt with the possibility of a check being returned, giving the seller the option of deeming the contract void ab initio “in the event any check being delivered herewith fails of collection,” and if the seller so notified the buyer, giving the buyer 48 hours to replace the bounced check with certified funds. Also important here is the language of the written contract’s merger clause, in paragraph 28. It provides that “[a] 11 prior understandings, agreements, representations and warranties, oral or written, between Seller and Purchaser are merged in this contract; it completely expresses their full agreement and has been entered into after full investigation, neither party relying upon any statement made by anyone else that is not set forth in this contract.” It goes on to provide that “[n] either this contract nor any provi — 49 — sion thereof may be waived, changed or cancelled except in writing.” On October 31, 2007, with the consent of the buyer’s attorney, who declined to be present, the seller’s attorney met with the buyer to receive the contract executed by the buyer and his down payment check. The seller’s attorney disputes the buyer’s claim as to exactly what was said at that meeting. According to the attorney, when the buyer gave him the executed contract and check, the buyer asked him not to deposit the check until Monday November 5, 2007, on which date he could deposit it unless he heard otherwise. In response, the attorney says, he told the buyer that it was his practice not to deposit a down payment check until he received the fully countersigned contract from the seller, and that he would not be receiving the fully executed contract before November 5th, so the down payment would not be deposited before then; as to any other problems or questions, he advised the buyer to speak to his own attorney. According to the buyer, he informed the seller’s attorney that he was waiting to hear within the next week on his application for a home equity line of credit, and that he “ ‘did not have money in [his] account’ to make good the deposit check, and asked if he [the seller’s attorney] could hold the check without depositing same until he heard further from me,” and “[the seller’s attorney] responded that he ‘will not submit the check until I hear from you.’ ” The buyer then signed the contract and gave the seller’s attorney the check based on this assurance. A friend of the buyer’s who accompanied him to the attorney’s office concurs with the buyer’s version of the events. The seller’s attorney sent the contract to his client for signature. While awaiting the return of the contract from his client, the seller’s attorney received three calls from the buyer’s attorney, who inquired about when the fully executed contract would be received and requested immediate delivery of it upon receipt. He also ordered a title report. On November 12, 2007, the seller’s attorney received the executed contract from the seller, deposited the down payment check in the escrow account, and delivered a copy of the fully executed contract to the buyer by fax and by mail, with a letter indicating that the check had been deposited in the escrow account. On November 19, 2007, the buyer’s attorney faxed a letter to the seller’s attorney stating, “Our client has advised us that he will not be proceeding with the above transaction.” On the same day, the seller’s attorney was also informed by the bank — 50 — that the down payment check had been returned for insufficient funds. The seller’s attorney sent a letter to the buyer’s attorney requesting a certified replacement check for $120,000 plus a certified check for $15 to cover the bounced check fee charged by the bank. The buyer sent the seller a check for $15, but never sent a replacement check for the down payment. This action followed, in which the seller, as plaintiff, sought a money judgment in the amount of $120,000 representing liquidated damages for the buyer’s breach of contract. The court granted the seller’s motion for summary judgment. The buyer contends that the court should have denied the seller’s motion for summary judgment because a dispute exists as to whether the allegedly agreed-upon oral condition was part of the contract, which, if resolved in the buyer’s favor, would render the parties’ written agreement unenforceable because the condition never occurred. We reject this contention and affirm the grant of summary judgment in the seller’s favor. In taking the position that the signed written contract was not enforceable in view of the new condition that the seller’s attorney allegedly agreed to upon accepting the contract executed by the buyer and the down payment check, the buyer relies on Gutowski v Louie (193 Misc 2d 465 [2002]). Gutowski is a New York County Supreme Court decision involving a signed contract and deposit check sent to a seller’s attorney along with a letter requesting that the check be held in escrow and not deposited until the buyer was in possession of fully executed contracts; the court held that a question of fact was presented as to whether an enforceable contract was created before the buyer’s receipt of the fully executed contracts (see id. at 467). Gutowski does not fully support the buyer’s position here, since the court’s analysis in that case did not address whether the act requested in that buyer’s letter — waiting to deposit the buyer’s check until the contracts were fully executed — materially altered the terms of the written contract, so as to require the court to consider whether such a modification was permissible. However, rejection of the cases cited by the buyer does not dispose of the appeal, because the dissent expands on the buyer’s argument. Relying on the rule that parties to a written contract may, by oral agreement, create a condition precedent to the effectiveness of the written contract, the dissent asserts that the buyer’s claim is sufficient to preclude summary judgment because he is entitled to demonstrate, by parol evidence, that an — 51 — orally-agreed-upon condition precedent never occurred and that the contract therefore never became effective. The rule relied on by the dissent, that “[p]arol testimony is admissible to prove a condition precedent to the legal effectiveness of a written agreement, if the condition does not contradict the express terms of such written agreement” (Hicks v Bush, 10 NY2d 488, 491 [1962], supra [citations omitted]), is one of long standing; in Ware v Allen (128 US 590, 596 [1888]), the United States Supreme Court discussed “that class of cases, well recognized in the law, by which an instrument ... is made to depend, as to its going into operation, upon events to occur or to be ascertained thereafter.” In our view, however, that rule may not properly be applied to a real estate sales contract like that under consideration here, that is, a fully executed real estate sales contract containing a broad merger clause, especially when the merger clause specifies that “[n]either party reifies] upon any statement made by anyone else that is not set forth in this contract.” Initially, we observe that treating real estate contracts differently from other kinds of contracts is supported by ancient common law of this State; indeed, the Court of Appeals clearly stated in 1894 that a party who delivers a signed written contract to the other party may not claim that an oral condition was added at the time of delivery, precluding its effectiveness or enforcement (Blewitt v Boorum, 142 NY 357 [1894]). As articulated by the Court of Appeals in Blewitt, the delivery of the signed contract to the other party itself renders the claimed condition unavailable: “The rule in this state regarding deeds conveying real estate, or an interest therein, or agreements for the sale thereof, is that a delivery cannot be made to the grantee or other party thereto conditionally or as is said in escrow, and when delivered to a party the delivery operates at once and the condition is unavailable” (id. at 363, citing Gilbert v North Am. Fire Ins. Co., 23 Wend 43 [1840], Worrall v Munn, 5 NY 229 [1851], Braman v Bingham, 26 NY 483 [1863] and Wallace v Berdell, 97 NY 13, 25 [1884]). This rule also precludes adding oral conditions to a signed writ — 52 — ten real estate sales contract when its delivery was to the other party’s agent (see Worrall v Munn, 5 NY at 238).1 Precluding a buyer such as defendant from undermining a signed and delivered contract by the means attempted here, the alleged imposition of an oral condition, also comports with fundamental principles of law. First, the statute of frauds’ requirement that real estate sales contracts be in writing (General Obligations Law § 5-703) reflects important policy concerns. Real estate transactions are required to be in writing to ensure clarity and certainty, and to avoid fraud (see Villano v G & C Homes, 46 AD2d 907, 907 [1974]). Unlike other types of business transactions, real estate sales contracts are drawn up and executed only after all terms have been negotiated and finalized and the writing is complete. Any conditions precedent are normally included in those written terms, such as mortgage contingency clauses found in standard form real estate contracts making the deal contingent on the buyer’s obtaining the contemplated mortgage loan. The writing is expected to represent the final version of the parties’ agreement. While exceptions to the requirement of a writing exist, they are limited and inapplicable here. If we permit interference with enforcement of a written and fully executed real estate sales contract based on a claimed oral condition precedent to its effectiveness, the need for certainty and finality at the heart of the statute of frauds is undermined. Cases in the tradition of Hicks v Bush (10 NY2d 488 [1962], supra), in which parties have been allowed to prove claimed oral conditions precedent to the effectiveness of a contract, have most frequently involved an underlying contract that was not required to be in writing, or circumstances in which there was no particular reason to object to part of the agreement being oral while the rest was written. Hicks v Bush itself, for example, involved a claimed breach of a written contract providing for a merger of the various parties’ corporate interests into one holding company. The cases cited in Hicks v Bush similarly involved agreements that need not be in writing (see Saltzman v Barson, 239 NY 332 [1925]; Grannis v Stevens, 216 NY 583 [1916]; Rey — 53 — nolds v Robinson, 110 NY 654 [1888]; Fadex Foreign Trading Corp. v Crown Steel Corp., 297 NY 903 [1948]). In such matters, it is perfectly appropriate to enforce an oral condition precedent to a written contract. Real estate sales contracts, which are required and expected to be completely set out in a writing, are another matter.2 But, it is not merely because the contract here is for the sale of real estate that we decline to permit the buyer to avoid enforcement of a complete and final contract, signed and delivered, by the assertion of an oral condition to the effectiveness of the contract. It is also important that, like real estate sales contracts generally, the parties’ written contract contains a broad merger clause, providing that the writing constitutes the parties’ entire agreement and specifying that no prior agreements or representations survive the execution of the writing. Merger clauses are not mere boilerplate. They provide further protection for the interests of certainty and finality. The merger clause in the present case specifies that “[a]ll prior understandings, agreements, representations and warranties, oral or written, between Seller and Purchaser are merged in this contract,” and that the document “completely expresses their full agreement . . . , neither party relying upon any statement made by anyone else that is not set forth in this contract.” Consequently, any claimed prior oral condition or agreement was necessarily extinguished at the moment the written contract became fully executed by both parties. At that point, the buyer could not expect to rely on any previous understanding or oral representation that was not included in the mutually executed written document. We are aware that while the written contract considered in Hicks v Bush did not contain any merger clause by which the parties agreed that the writing represented the entirety of their agreement, there are cases applying the Hicks v Bush rule despite the presence in the writing of a merger clause that would seem to preclude an oral condition. However, we decline to adopt their reasoning, at least in the context of real estate sales contracts. — 54 — For instance, in Tropical Leasing v Fiermonte Chevrolet (80 AD2d 467 [4th Dept 1981]), the defendant car dealership claimed that a standard printed purchase order for a particular car was orally conditioned on the nonacceptance of the car by the customer for whom the car had originally been intended. Like in Hicks v Bush, it was held in Tropical Leasing that the dealership was entitled to establish the existence of the oral condition precedent since the alleged condition did not contradict or negate any term of the purchase order and did not involve the type of condition that would have normally been included in the form purchase order (id. at 469). While the printed purchase order contained a general merger clause, the court ruled that the merger clause had no significance because the writing containing it never came into effect (id.). We also recognize that the same reasoning, rendering merger clauses ineffective on the ground that the writing never became effective, has been employed, albeit rarely, in the context of real estate contracts. For instance, the Second Department, in Procopis v G. P P. Rests. (43 AD2d 974, 975 [1974]), allowed proof of an oral condition precedent to the effectiveness of a written real estate sales contract to be admitted to challenge that contract, despite the inclusion in the writing of a merger clause that provided that “all prior agreements and understandings are ‘merged in this contract.’ ” We find this decision unpersuasive and decline to adopt its reasoning. While this Court’s decision in Mack-Lowe v Picault-Cadet (33 AD3d 504 [2006]) assumed the applicability of the Hicks v Bush rule to real estate sales contracts, notably, the rule’s applicability to the situation was not challenged on appeal. Rather, the focus was on whether the alleged oral condition contradicted the written contract, and whether the alleged condition was one that the parties would be expected to include in the written contract; consequently, our decision was limited to addressing the raised issues. The dissent appropriately relies on such rulings as Procopis and Tropical Leasing (supra) to support the contention that a merger clause cannot be relied on to eliminate an oral condition precedent to the effectiveness of the contract. Nevertheless, notwithstanding these cases, we are unwilling to adopt a rule allowing a party to a fully executed and delivered real estate sales contract lacking any financing contingencies or conditions to evade the effect of a broad merger clause clearly intended to extinguish exactly such a claimed oral condition. Rather, we rely on the same type of reasoning as that articulated in Blewitt v Boorum (142 NY 357 [1894], supra). — 55 — The deal, as documented by the writing, was binding and absolute upon execution of the contract by both parties and delivery to their contractual counterparties, and the buyer could not nullify it with a purported orally created condition precedent to the existence of a binding contract. Ultimately, the claimed oral agreement must be treated as irrelevant here, because its very existence was, in effect, extinguished when the parties delivered the fully executed writing. This is not a situation like that presented in Gutowski (193 Misc 2d 465 [2002], supra), where it was argued that the contract was not created because the signed contract and letter, characterized by the court as the buyer’s offer, was rescinded before the contract became binding upon being countersigned by the seller. We disagree with the dissent’s implication that the lack of any prior case law dealing with the troubling nature of applying the Hicks v Bush rule in the context of real estate sales contracts tends to establish that its application here is not problematic. As to the dissent’s suggestion that any difficulty the rule creates could be avoided by including in such contracts a provision specifying that no conditions precedent exist other than those stated in the agreement, while such language would be easy to include (in fact, meticulous drafters of real estate contracts may hereafter decide to add such language, in an abundance of caution), it should not be necessary. Indeed, it seems safe to assume that form contracts have up to now not included such language because the specialists who drafted them have universally, and properly, believed that claims such as that made here are already covered by merger clause provisions extinguishing “[a] 11 prior understandings, agreements, representations and warranties, oral and written, between Seller and Purchaser.” To require inclusion of the words “oral conditions precedent” in the foregoing provision as the way to prevent such a claim is unnecessarily exacting. Any reasonable person reading the language of the written merger clause as it exists would properly infer that any prior oral conditions were extinguished along with all other oral or written “understandings, agreements, representations and warranties.” As to the absence of any problems with the enforceability of written real estate sales contracts up to now, it can be explained by the careful manner with which such transactions are generally handled by attorneys. It is unusual, not to say sloppy, for one party to meet alone with the attorney for the other party, ostensibly purely to sign the contract and tender the down pay — 56 — ment, only to then propose a new condition to the deal. Standard practice would prevent any such situations, since two attorneys who negotiated a contract would treat such a request as an attempt to orally modify the terms of the negotiated writing, contrary to the writing’s merger clause, and would put a stop to the process of finalizing the deal until they were sure that the writing correctly reflected the exact terms of the parties’ full agreement. It is worth recalling General Obligations Law § 15-301 (1), which provides that “[a] written agreement. . . which contains a provision to the effect that it cannot be changed orally, cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement of the change is sought or by his agent.” Thus, in the face of the written contract’s provision that “[n]either this contract nor any provision thereof may be waived, changed or cancelled except in writing,” the buyer may not be allowed to claim an oral modification to the writing adding a contingency. Where the substance of the claimed orally-agreed-upon condition precedent is of a nature equally suitable to be negotiated and included in the terms of the contract itself, it would amount to nothing less than a manipulation of the court and the law to allow the buyer to avoid that statute and that result by framing the claim not as an oral modification but as a separate oral agreement rendering ineffective the merger clause and the contract containing it. We reject the dissent’s contention that section 15-301 (1) is inapplicable because at the time the alleged oral modification was agreed upon, the contract was not signed by both parties, and therefore an enforceable contract did not yet exist. As soon as the writing was executed by both sides and delivered to the other, section 15-301 (1) took effect, and as of that moment, an executory oral agreement altering the terms of the writing could be of no effect, even if agreed upon earlier. In sum, the contract for the sale of real property that we consider here, which extinguishes all prior understandings, provides that it constitutes the parties’ complete agreement, and specifies that it cannot be modified except in a further writing, precludes the parties from introducing extrinsic evidence to vary the terms of the written contract, or conditioning its effectiveness on some future event. By creating a written contract containing all the terms agreed upon during negotiations, and including a broad merger clause specifically proscribing any — 57 — orally agreed-upon terms, the parties expressed their clear expectation that everything and anything related to their deal for the sale of the real property in question would be encompassed in a writing; that expectation must necessarily include any new agreements limiting the “effectiveness” of the contract. Even if we believed that the parties’ real estate sales contract could be rendered ineffective by an oral condition precedent as long as that condition did not contradict the terms of the writing, we disagree with the dissent that the differences between the written contract and the alleged oral condition are merely “disparities.” The alleged condition does not merely “dealt ] with a matter on which the written agreement ... is silent” (Hicks v Bush, 10 NY2d at 492). Rather, we conclude that the alleged oral condition precedent contradicts terms of the written contract, precluding application of the rule of Hicks v Bush in any event. The effect of the alleged oral condition is that the seller’s attorney would, for an undefined period, hold the down payment check without depositing it until the buyer notified him that a home equity line of credit had been obtained and the check would clear. This purported agreement is contrary to the written contract’s provisions directing the seller’s attorney to place the down payment in a specified escrow account, describing the down payment as made by “good check,” giving only the seller the option to choose to void the contract in the event a check fails of collection, and representing that the buyer had sufficient assets to complete the purchase. It is also arguable that leaving open the question of whether the contract will be effective contradicts the provision in paragraph 15 definitively scheduling the closing for November 30, 2007 and making time of the essence. Additionally, the alleged condition creates a financing contingency in a contract in which the need for such a provision was rejected. Finally, the language the buyer says he used to elicit the agreement of the seller’s lawyer was too precatory to successfully create a condition precedent. “To make a provision in a contract a condition precedent, it must appear from the contract itself that the parties intended the provision so to operate” (22 NY Jur 2d, Contracts § 262). “[A] contractual duty ordinarily will not be construed as a condition precedent absent clear language showing that the parties intended to make it a condition” (Unigard Sec. Ins. Co. v North Riv. Ins. Co., 79 NY2d 576, 581 [1992]). “[F]or such a condition to exist it must be apparent from the contract itself that this was the intention of the par — 58 — ties” (Manning v Michaels, 149 AD2d 897, 898 [1989]). Here, the buyer stated that after he informed the seller’s attorney that he was waiting to hear within the next week on his application for a home equity line of credit, he told the seller’s attorney that he “ ‘did not have money in [his] account’ to make good the deposit check, and asked if he [the seller’s attorney] could hold the check without depositing same until he heard further from me,” and that “[the seller’s attorney] responded that he ‘will not submit the check until I hear from you.’ ” The buyer mentioned nothing about conditioning the enforcement or effectiveness of the contract. Even a writing containing the same language would at best be ambiguous, and “the law does not favor a construction which creates a condition precedent (Lui v Park Ridge at Terryville Assn., 196 AD2d 579, 582 [1993]). Contrary to the dissent’s assertion, a request to hold a check, rather than depositing it, until further notice does not by itself “[p]lainly” demonstrate the parties’ intent to have the fully signed and delivered written contract not become effective unless further steps are taken. If we are to allow a buyer to an otherwise enforceable, all-cash real estate contract to undermine the enforceability of that contract with an oral condition precedent, we should at least require that oral statement to unambiguously establish that it created a condition to the contract. The buyer here was not without options. Rather than insisting on personally visiting the office of the seller’s attorney to immediately sign the contract and deliver the down payment check, if he did not yet have the funds for the down payment, he could have — and should have — postponed signing and handing over the contract and down payment until his contractual representations that he had the funds and could provide the required “good check” were true. Of course, if he had done that, neither party would have been bound, and the seller could have attempted to find another buyer; instead, the buyer took steps calculated to bind the seller to the negotiated contract terms while seeking to leave himself a right to avoid the contract entirely. The dissent’s suggestion that the buyer may have been the victim of dishonesty at the hands of the seller’s attorney, and that it is just such dishonesty that the Hicks v Bush rule was created to combat, turns this situation on its head. Avoiding dishonesty is exactly why we insist that such contracts be entirely in writing. Indeed, it is the buyer’s effort to see the seller’s attorney without his own attorney that is suspect here. It was he — 59 — who attempted to bind the seller while leaving himself unbound by the contract. In conclusion, the buyer’s attempt to avoid the fully executed and delivered contract by operation of a claimed condition precedent must fail for several reasons. The rule permitting claims of oral conditions precedent to the effectiveness of a written contract is not applicable to real estate sales contracts such as this; even if the rule were applicable, the purported condition would be unenforceable because it contradicts terms of the writing; and even if there were no contradictions, the words purportedly used by the buyer lack the type of “clear language” necessary to show the parties’ intent to create a condition precedent. Once the viability of the claimed oral condition precedent is rejected, the buyer has no viable defense to the seller’s prima facie case of entitlement to judgment in the amount of the down payment represented by the bounced check (see Texter v Trotta, 48 AD3d 455 [2008]). This disposition of the seller’s motion for summary judgment obviates the need for the seller’s attorney to be called as a witness and renders moot the issue of a potential conflict of interest. In any event, since the attorney’s testimony would not be prejudicial to his client, there is no conflict of interest warranting disqualification (see Rules of Professional Conduct [22 NYCRR 1200.0] rule 3.7 [b] [1]). The court properly declined to impose sanctions against the buyer and his attorney. Accordingly, the order of the Supreme Court, New York County (Edward H. Lehner, J.), entered November 3, 2008, which, inter alia, granted plaintiffs motion for summary judgment, dismissed the counterclaim and third-party complaint, directed entry of judgment against defendant in the principal amount of $120,000, denied defendant’s motion to disqualify third-party defendants as attorneys for plaintiff, denied third-party defendants’ motion for summary judgment on their counterclaims and for sanctions against defendant and his counsel, and dismissed said counterclaims, should be affirmed, without costs. Footnotes [1] Frantz v Gatto (274 App Div 1003 [1948]), in which the Second Department allowed a claim that a condition was imposed upon the delivery of a signed real estate contract, is inapposite, since the claimed conditional delivery was not made either to the other party or to the other party’s agent; rather, it was to someone who “was acting for both respondent and appellant,” whom the court characterized as “a person who is not a party to the agreement.” [2] The case of Mitchill v Lath (247 NY 377 [1928]), which the dissent discusses at length, concerned an uncontested enforceable written real estate sales contract and a claimed separate, oral agreement by the sellers to remove an ice house from the property opposite that which they sold. The sellers’ failure to perform the claimed oral agreement was not said to render the written contract ineffective.