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Paula White, Individually and As Executrix of the Estate of Leonard v. Dennis Farrell et al

March 21, 2013

PAULA WHITE, INDIVIDUALLY AND AS EXECUTRIX OF THE ESTATE OF LEONARD WHITE, RESPONDENT,
v.
DENNIS FARRELL ET AL., APPELLANTS.



The opinion of the court was delivered by: Read, J.:

This opinion is uncorrected and subject to revision before publication in the New York Reports.

We are called upon in this appeal to decide the measure of a seller's damages for a buyer's breach of a contract to sell real property. We hold that the measure of damages is the difference, if any, between the contract price and the fair market value of the property at the time of the breach. The price obtained by the seller on a later resale of the property may well bear on damages, depending upon the circumstances. As matters stand in this case, there is conflicting evidence as to the property's fair market value when the buyer defaulted, an issue of fact, which precludes summary judgment.

I.

In May 2004, defendants Dennis and Nancy Farrell decided to sell their lakeside property in Skaneateles, New York. The Farrells originally purchased this land in October 2002 and razed the existing structures -- a seasonal home, guest cottages and a garage -- to build themselves a new single-family, year-round residence as a second home. They resided in New Jersey at the time, but by 2004 the Farrells were considering moving to South Carolina. Because of construction delays, the house in Skaneateles was not completed until March or April 2005; a certificate of occupancy was issued on May 31, 2005, a year after the Farrells first listed the property for sale.

On June 12, 2005, the Farrells' real estate agent, Linda Roche, showed the property to plaintiff Paula White and her now-deceased husband, Leonard. That same day, the Whites signed a contract to buy the property for $1.725 million, the Farrells' asking price, and tendered a $25,000 deposit. The $1.7 million balance was to be paid in cash at a closing to be held "on or about July 10, 2005." The contract, which did not state that time was of the essence, was contingent on a satisfactory home inspection; resolution of a number of construction-related items, including one identified as "drainage finished"; and attorney approval. The Farrells executed the contract on June 13, 2005.

At the time the parties reached this agreement, a drainage system intended to divert surface water away from the house was apparently still under construction on the north side of the property, and the leach field for the raised bed septic system was soggy. On June 15, 2005, Mr. Farrell wrote Ms. Roche to advise that "[i]n response to our buyer [i.e., Mr. White] and his concerns" he was prepared to "fix or credit him to make [the] house as close to what he wants as possible." He mentioned one project that would take 5 or 6 weeks to complete, and identified the steps then being taken to correct "[t]he water between the garage and the house" and "[t]he water in front of the garage." Mr. Farrell added that he lived too far away to hire or monitor contractors, and so would agree to reduce the contract price by $10,000 to cover other items that Mr. White might "choose[] to change or modify like bench tops, locks, painting[,] new front lawn[,] etc." Ms. Roche conveyed this information to the Whites' real estate agent; retained a plumber and septic system expert to investigate and remedy water and drainage problems; and kept the Whites' real estate agent closely apprised of progress.

The house inspection was conducted on June 18, 2005. On June 22, 2005, the Whites' attorney approved the contract, subject to proof of real estate taxes being $30,000 or less, and the parties executed a contract addendum. By the addendum, the Whites removed all contingencies in exchange for the Farrells' promise to complete several enumerated tasks, including finishing the drainage system on the north and south sides of the house, and to provide the $10,000 credit. According to Mr. Farrell, while "it was known" when the addendum was signed "that a portion of the property was wet and/or having drainage issues," the cause of the dampness, which he claimed was not present when he and his wife signed the property condition disclosure statement in May 2004 (see Real Property Law § 462), had yet to be figured out. The addendum did not set any time frame or deadline for completion of the work the Farrells committed to accomplish.

Two weeks later, by letter dated July 7, 2005, the Whites' attorney notified the Farrells' attorney that his clients had "elected to terminate the contract [because] upon closer inspection . . . the drainage situation [might] never be rectified." He indicated they reached this conclusion after Mr. White toured the site that day with his construction consultant. The Farrells' attorney responded by letter dated July 8, 2005, essentially taking the position that the Whites were well-aware when they signed the contract that additional measures needed to be implemented to fix the septic system and deal with surface water runoff. He outlined what had been done to date, and observed that Mr. Farrell considered one of the issues now raised by the Whites -- the supposed necessity for a retaining wall --"nothing more than a fabricated reason to cancel the contract." He closed by saying that Mr. Farrell would be "more than willing" to meet with Mr. White on the premises to review the work completed and address his concerns, but that "[i]f [Mr. White was] unwilling to discuss the 'alleged issues' in a good faith manner, then we will have no alternative but to relist the property for sale and hold your clients responsible for the damages which might result." On July 13, 2005, the Whites' attorney responded that Mr. White had "no intentions of going forward with the contract," and was "extremely upset that the drainage problem was never disclosed, and in fact [the property condition disclosure statement] affirmatively denie[d] any drainage problem" existed.

On October 4, 2005, the Farrells' attorney sent a time-is-of-the-essence letter to the Whites' attorney, stating that Mr. Farrell had "resolved all issues" regarding required septic modifications on his property; declaring the place, time and date (October 24, 2005) of closing; and enclosing the relevant closing documents. The Whites neither responded to this letter nor showed up at the closing. On July 23, 2005, they had signed a contract of purchase and sale for another piece of property on Skaneateles Lake. The Whites closed on this property, for which they paid $1.7 million, on August 24, 2005.

On June 6, 2006, the Whites sued the Farrells to recover their $25,000 down payment, alleging fraudulent inducement, negligent misrepresentation and that the Farrells were not ready, willing and able to close as of the declared closing date in October 2005. In particular, the Whites claimed that they made the offer to purchase and tendered the earnest money in reliance on the Farrells' representation in the property condition disclosure report, attached to the contract, that there were no flooding, drainage or grading problems resulting in standing water on the property. On July 31, 2006, the Farrells answered and counterclaimed for damages for breach of contract.

During discovery, the Farrells' real estate agent, Ms. Roche, was deposed by the Whites' attorney. She testified that she had worked as a broker in the Skaneateles area since 1980; that she would generally be considered an expert regarding the value of properties around the lake; and that real estate appraisers and bankers looked to her when they wanted an accurate estimate of value in the Skaneateles real estate market. When asked a series of questions about fair market value, Ms. Roche opined that $1.725 million was the fair market value of the Farrells' property in May 2004 (when it was first listed), June 2005 (when the contract was signed), July 2005 (when the Whites repudiated the contract), and October 2005 (the date set for conveying title). She added that $1.725 million was also the fair market value of the Farrell's property in the spring and summer of 2006 "because everything still was selling at . . . 1.5 to 3 million in 2006 . . . We were still in a very heated market." Ms. Roche acknowledged that the only offer the Farrells ever received in the $1.725 million "range" was from the Whites.

On January 11, 2007, while this lawsuit was pending, the Farrells accepted a purchase offer of $1,376,550 from a third party, to whom they conveyed the property on March 9, 2007.

On December 14, 2009, the Farrells moved for summary judgment to dismiss the Whites' complaint and award them damages on their counterclaim. They sought $348,450 in actual damages (the difference between the original contract price of $1.725 million agreed to by the Whites and the eventual sale price of $1,376,550), and consequential damages of $217,636.88 (apparently, the sum of mortgage and tax payments made on the property from July 7, 2005 until the closing with the ultimate purchaser on March 9, 2007). The Whites opposed the Farrells' motion and cross-moved for summary judgment to dismiss the counterclaim and compel the Farrells to return the $25,000 deposit.

On February 9, 2010, Supreme Court handed down a bench decision disposing of the parties' motions. The judge concluded that the Whites had breached the contract, and so were not entitled to return of their $25,000 down payment. He adopted as the measure of the Farrells' actual damages the standard stated in Webster v Di Trapano (114 AD2d 698, 699 [3d Dept 1985]) --i.e., "the difference between the contract price and the market value of the real property at the time of the breach." The judge then reasoned that, in view of Ms. Roche's deposition testimony that the property's "market value at the time of the breach was, in fact, the same as the contract price," the buyers (the Whites) had established that the sellers (the Farrells) did not suffer any actual damages on account of the buyers' breach. Additionally, he ruled that the Farrells' claim for consequential damages was "not valid." The Farrells appealed from so much of Supreme Court's subsequent order, entered on June 9, 2010, as determined that they suffered ...


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