Case brief: template
| Case name: | Maxton Builders, Inc. v. Lo Galbo |
| Court: | Court of Appeals of New York |
| Citation; Date: | 68 N.Y.2d 373 (1986) |
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PROCEDURAL HISTORY |
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| Trial court: | Appeal court (for appeal cases only): | ||
| Plaintiff: | Maxton -- house seller | Appellant: | Lo Galbo - buyer |
| Defendant: | Lo Galbo - buyer | Respondent: | Maxton -- house seller |
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| Facts of the case: | |
| In 1983 the
defendants contracted to purchase a newly constructed house from the plaintiff for $
210,000. At the contract signing on August 3, the defendants gave the plaintiff a check
for $ 21,000 as a down payment to be held in escrow. A handwritten rider, included in the
contract at the defendants' request, provided: "If real estate taxes are in excess of
$ 3,500 based on a full assessment of house sold for $ 210,000.00, buyer shall have the
right to cancel this contract upon written notice to the seller within three days of date
and escrow funds to be returned." The following day defendant Cynthia Lo Galbo and plaintiff's president, Scott Seeman, went to the county tax assessor's office to obtain an estimate of the taxes on the new house. The assessment was in excess of $ 3,500. The defendants' attorney then called the plaintiff's counsel and informed him that the defendants had decided to exercise their option to cancel. He also sent a certified letter to the defendants' attorney informing him in writing of the defendants' decision to cancel. The letter was mailed on Friday August 5 and was received by plaintiff's attorney on August 9. Several days later plaintiff's attorney also received a bank notice that defendants had stopped payment on their check. On September 20, 1983, the plaintiff commenced this action against the defendants to recover the amount of the down payment claiming that the defendants breached the contract when they stopped payment on the check. In their answer the defendants contended that they had properly exercised their right to cancel in accordance with the rider. On December 20, 1983, the plaintiff sold the house to another purchaser for the same amount the defendants had agreed to pay. However this sale, unlike the contract with the defendants, was arranged by a real estate broker who charged the plaintiff a fee of $ 12,000 for finding the new purchaser. |
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| Remedy sought: | |
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| Court opinion (including key issues and arguments): | |
| When the
defendants canceled the contract and stopped payment on the check, the plaintiff sued for
a breach claiming a right to the down payment -- a right traditionally allowed in this
State under the rule set forth in Lawrence v Miller (86 NY 131). The trial court
denied plaintiff's motion for summary judgment holding that a fact question was presented
as to whether recovery of the down payment would constitute a penalty under the
circumstances. The Appellate Division modified and granted summary judgment to the
plaintiff for the amount of the down payment. The defendants appealed claiming there was no breach because they effectively exercised a contractual right to cancel. In the alternative, defendants urge that plaintiff's recovery should be limited to actual damages, and that we should, therefore, reexamine the rule of Lawrence v Miller (supra), which permits a vendor on a real estate contract to retain the down payment when the purchaser willfully defaults. Special Term found that the defendants' cancellation was ineffective primarily because it had not been received by the plaintiff within the three-day period stated in the contract.... The Appellate Division modified and granted summary judgment to the plaintiff for the amount of the down payment. The court agreed with Special Term that there had been a breach but stated: "Where there is a willful default by the vendee or a repudiation of the contract of purchase upon which a down payment has been made, it is settled in this State that the vendee may not recover his down payment even though the vendor resells the premises for a sum equal to or greater than the contract price". (113 AD2d 923, 924.) On this appeal the defendants again urge that their refusal to perform did not constitute a breach because they had reserved and adequately exercised a right to terminate. Although the plaintiff did not receive written notice of termination within three days, as the contract required, the defendants contend that this is not fatal when, as here, the contract does not provide that time is of the essence. The defendants argue that under these circumstances all that is required is reasonable notice and that this requirement was met here when the defendants mailed the notice and gave the plaintiff's attorney actual oral notice within the three-day period. It is settled, however, that when a contract requires that written notice be given within a specified time, the notice is ineffective unless the writing is actually received within the time prescribed. the common law would deny any relief to the defaulting party even when there had been substantial, or nearly complete performance. It was these holdings especially which prompted the criticism calling for reform of the parent rule on the ground that it produced a forfeiture "and the amount of the forfeiture increases as performance proceeds, so that the penalty grows larger as the breach grows smaller." |
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| Disposition of case: | |
| Accordingly, the order of the Appellate Division should be affirmed. | |
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ECONOMIC ANALYSIS OF THE CASE |
| Efficiency/incentive issues discussed in the court opinion: |
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| Other efficiency/incentive issues relevant to the case: |
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| Assessment of the economic consequences of the court decision: |