COOPERATIVE APARTMENT SELLER IS ENTITLED TO LIQUIDATED DAMAGES
Defendant buyer had contracted to purchase the plaintiff's cooperative apartment rights for $1,050,000.00. The contract required the buyer to make a $105,000 deposit to be held in escrow. It also provided that in the event of his default, the plaintiff's sole remedy was to retain the deposit as liquidated damages. The closing was scheduled to occur "on or before September 24, 2001". Since the buyers were not interviewed by the cooperative by that date, the closing did not then occur. On September 2nd defendants were interviewed by two members of the cooperative board which approved the purchase by the buyers on the following day.
On October 3, 2001 the buyers sent a letter to their lawyer which was also forwarded to the sellers in which they stated that they decided not to proceed with the purchase of the cooperative unit. The only reason ascribed by defendants for the cancellation was that the cooperative approval process had been delayed over the summer. The next day plaintiff sent a letter to defendant's counsel stating that "the reason set forth in your October 3rd letter for attempting to cancel the sale are insufficient and I therefore demand that you immediately send me forthwith the full amount of the contract deposit, plus accrued interest. In the complaint, the plaintiff sought a declaration that she was entitled to have the contract deposit paid to her and in their counterclaims the defendant buyer sought a declaration that he was entitled to the return of the deposit.
In light of the repudiation of the contract by the buyer, there was no need for the seller to arrange a closing since defendants "had canceled the contract, there was no necessity for the vendee to tender performance, as a vain act is not required." The buyers offered no valid excuse for their cancellation. Thus, the defendants were in breach of the contract. The major issue before the court was whether, because of such breach, the plaintiff seller was entitled to recover the full 10% contract deposit. "For more than a century, it has been well-settled in this State that a vendee (purchaser) who defaults on a real estate contract without lawful excuse cannot recover the downpayment." However, a contract for the sale of an interest in a cooperative apartment "in realty, a sale of securities in the cooperative corporation", is governed by the Uniform Commercial Code. Prior court decisions have held that a contract for both the sale of stock in a cooperative corporation and the assignment of the proprietary lease does not "create a new classification of real estate" and "that the shares of a cooperative stock relative to the proprietary lease are goods within Article 2 of the Uniform Commercial Code, and the rights of the parties with respect to the deposit are therefore governed by Section 2-718 of the Code." The pertinent provisions of the UCC provide that the parties may agree to a liquidated damage amount "but only at an amount which is reasonable in light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy".
It has been the longstanding tradition of the 2nd Department to uphold the 10% liquidated damage provision in a contract for the sale of a cooperative apartment when finding that the defaulting buyer fails to show "that the amount fixed as liquidated damages was so unreasonably large as to constitute a penalty." Under the circumstances presented, there was no basis to find that the 10% liquidated damages was unreasonable and it was therefore to be enforced; the plaintiff seller was granted summary judgment declaring that she was entitled to receive the $105,000 deposit from the escrowee.
Amato v. Hird, Supreme Court, New York County
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