New York Court of Appeals - 502 N.E.2d 184, 68 N.Y.2d 373
In Maxton Builders, Inc. v. Lo Galbo (1986), the highest state court in New York dealt with a breach of a real estate contract case.
The Defendant (Richard and Cynthia Lo Galbo) contracted to purchase a home from the Plaintiff (Maxton Builders, Inc.), but if the real estate taxes exceeded $3,500, the buyers would retain an option to cancel. When the taxes came out greater than the specified amount, the Lo Galbos attempted to cancel, but Maxton Builders wanted to recover the down payment received from the Lo Galbos since the cancellation was not received before the bargained for deadline.
The court looked at whether the seller, Maxton Builders, was allowed to keep the down payment after the buyers, Richard and Cynthia Lo Galbo, canceled the contract. The buyers argued that they had the right to cancel due to the property's tax assessment, but the court found that they didn't follow the contract's guidelines for canceling.
This case is important because it demonstrates how courts interpret and enforce real estate contracts, and apply the concept of liquidated damages to prevent unfair situations when a contract is broken. Additionally, it highlights the courts' adherence to longstanding precedents and the upholding of contractual rights and obligations. The ruling reestablished the importance of the Lawrence v. Miller rule.
The plaintiff sold a house to the defendants, who cancelled the contract and stopped payment on the down payment check. The court granted summary judgment to the plaintiff for the down payment amount, citing precedent that a vendee cannot recover their down payment if there is willful default or repudiation of the contract. The defendants argued that they had properly exercised their right to cancel the contract according to the rider, but the court found their cancellation ineffective due to noncompliance with the contract's three-day period. The court only granted summary judgment for the down payment amount, and not for additional financial losses claimed by the plaintiff. The longstanding rule in New York denies a defaulting buyer the recovery of the down payment, even though this rule has been criticized for being out of harmony with the general principle of actual damages. Critics advocate for the "modern rule," which allows the defaulting party to recover for part performance in excess of actual damages, but places the burden of proof on them to show the net benefit conferred. The Uniform Commercial Code (UCC) also permits recovery for part performance, but the recovery of down payments on real estate contracts remains an anomaly, and the burden of proof is on the defaulting party to show that the amount retained by the other party was greater than the injury suffered by the breach.
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