Anticipatory repudiation: This principle, known as the doctrine of anticipatory repudiation, provides that when there has been a repudiation of the contract by one party before the time for his performance has arrived, the other party may treat the entire contract as breached and commence suit without delay. 22A N.Y. JUR.2D Contracts § 444 (1996). Resort to this doctrine is at the election of the non-breaching party. See Sven Salen AB v. Jacq. Pierot, Jr., & Sons, Inc., 559 F.Supp. 503, 506 (S.D.N.Y.1983), aff’d, 738 F.2d 419 (2d Cir.1984). However, “there must be a definite and final communication of the intention to forego performance before the anticipated breach may be the subject of legal action. Mere expression of difficulty in tendering the required performance, for example, is not tantamount to a renunciation of the contract.” Rachmani Corp. v. 9 East 96th Street Apartment Corp., 211 A.D.2d 262, 629 N.Y.S.2d 382, 385 (1st Dep’t 1995) (citations omitted). The doctrine of anticipatory breach thus obviates the need for the non-breaching party to postpone suit until the time for performance of the other party has expired.
by Richard A. Klass, Esq.
copyr. 2013 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions. Prior results do not guarantee a similar outcome.
The “Merger” clause: If the contract of sale contains the typical merger clause, which indicates that “all prior understandings and agreements between the parties are merged in this agreement….” this clause will bar any claim that the seller should be held liable for any representations or omissions. See, Chase Manhattan Bank, N.A. v. Edwards, 87 A.D.2d 935, 450 N.Y.S.2d 76, 78 (3d Dept.1982), aff’d 59 N.Y.2d 817, 464 N.Y.S.2d 739, 451 N.E.2d 486 (1983); Dorsey Products Corp. v. United States Rubber Co., 21 A.D.2d 866, 251 N.Y.S.2d 311, 313 (1st Dept.1964), aff’d 16 N.Y.2d 925, 264 N.Y.S.2d 917, 212 N.E.2d 435 (1965).
by Richard A. Klass, Esq.
copyr. 2013 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions. Prior results do not guarantee a similar outcome.
Seller has no duty to disclose: New York law does not impose a duty on a seller of real property to disclose information concerning the property. See, Renkas v. Sweers, 10 Misc.3d 1076(A), 814 N.Y.S.2d 892 (Sup. Ct. Monroe Co), “Active concealment is some conduct, more than mere silence, by the seller that may create a duty to disclose information concerning the property (Gizzi at 881; Bethka v. Jensen, 250 A.D.2d 887,888 [3d Dept.1998] ). To recover damages for active concealment, “the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his responsibilities fixed by the doctrine of caveat emptor” (Jablonski at 485).
Any potential fraud claim to be brought against a seller for failing to disclose a lawsuit involving the property and its circumstances would fail. Facts which are accessible as a matter of public record bar a claim of justifiable reliance necessary to sustain a cause of action for fraud. Grumman Allied Industries, Inc. v. Rohr Industries, Inc., 748 F.2d 729, 737 (2d Cir.1984); Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 184 N.Y.S.2d 599, 603, 157 N.E.2d 597, 601 (1959); Most v. Monti, 91 A.D.2d 606, 456 N.Y.S.2d 427, 428 (2d Dept.1982).
To the extent that there may be “latent” defects in the building, a duty to disclose a latent defect concerning the premises may be based (post-closing and upon later discovery) on the theory that where a buyer is not able to discover the defect in question through ordinary inspection and would not be willing to purchase the property if he or she knew of it, then a contract that is procured without disclosing such a defect is procured by fraud and misrepresentation. See, Young v. Keith, 112 A.D.2d 625, 492 N.Y.S.2d 489 (3d Dep’t 1985); McMillen v. Marzacano, 277 A.D. 977, 100 N.Y.S.2d 240 (1st Dep’t 1950). These allegations would require a high burden of proof.
by Richard A. Klass, Esq.
copyr. 2013 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions. Prior results do not guarantee a similar outcome.
Doctrine of caveat emptor: New York law follows the long-standing tradition in the purchase of real property that a buyer has the duty to satisfy himself of the quality of the bargained-for purchase of the property without trying the seller. See Stambovsky v. Ackley, 169 A.D.2d 254, 572 N.Y.S.2d 672, 675–76 (1st Dept.1991); London v. Courduff, 141 A.D.2d 803, 529 N.Y.S.2d 874, 875 (1st Dept.). Further, the term to purchase the property “AS IS” is a specific contract disclaimer as to the condition of the property to be purchased and thwarts this breach of contract claim (see Mosca v. Kiner, 277 A.D.2d 937,939 [4th Dept.2000]; McManus v. Moise, 262 A.D.2d 370,371 [4th Dept.1999]).
Under the generally accepted doctrine in real estate transaction of caveat emptor or buyer beware, there is no duty upon the seller to disclose any information concerning the property (Caceci v. DiCanio Construction Corp., 72 N.Y.2d 52,57 [1988]).
by Richard A. Klass, Esq.
copyr. 2013 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions. Prior results do not guarantee a similar outcome.
The Rehearsal Onstage (detail), c. 1874, by Edgar Degas (1834–1917).
Mel Brooks’ movie and musical The Producers may have been a fictional story of fraudsters selling more shares in the production of their Broadway show “Springtime for Hitler” than actually existed, but such fraudsters exist in real life, overselling available interests not only in Broadway productions, but in every type of investment, including real estate.
In this modern day The Producers story, a particular real estate broker (we’ll give him the name “Bob”) had a plan. The idea behind this particular investment was simple: purchase a house in Passaic, New Jersey; fix it up; and then resell it for a profit—the classic real estate “ flip. ” This broker solicited a number of investors. Each investor would purchase a membership interest in a limited liability company [LLC]. With the funds provided by the members, the LLC would buy the house. A contractor-partner would be hired to renovate the house. Each investor was promised a certain percentage of the net proceeds from the ultimate sale of the house. Unfortunately, the real estate market tanked, construction costs soared and the investment became a huge loss before construction was ever completed.
New Jersey state court action
One of the investors (we’ll call him “John”) brought a lawsuit in the Superior Court in New Jersey for breach of contract, misappropriation of funds, and fraud. In that case, the judge appointed a special fiscal agent (similar to a court-appointed receiver) to manage the operations of the house, list the house for sale, and take all steps necessary to sell the house and distribute the net proceeds to the LLC’s investors.
Real estate broker files for bankruptcy
Bob filed for personal bankruptcy in the New Jersey Bankruptcy Court to avoid his liability to the investors. John filed a lawsuit (known as an adversary proceeding) against Bob in the New Jersey bankruptcy case to have Bob’s liability in this house-investment-gone-wrong declared “nondischargeable.” (The adversary proceeding here was a mini-lawsuit inside of the bankruptcy case, intended to have the effect that Bob would remain liable to John for the collapse of the real estate deal.) In the adversary proceeding, John alleged that Bob brought too many investors into the deal without telling the other investors. A settlement was reached between John and Bob in the “adversary proceeding” and John negotiated with the bankruptcy trustee to purchase the house directly from the trustee to recoup some of his (John’s) losses.
Another investor (we’ll call her “Sally”) who lost money in the same Passaic real estate deal then sued John (now the owner of the Passaic real estate) in New York City’s Civil Court, claiming that John defrauded Sally by not including her in the buy-out of the house. This is when John sought help from Richard A. Klass, Your Court Street Lawyer. The aim was to have Sally’s lawsuit, brought in New York, dismissed.
Lack of jurisdiction in the New York Civil Court
There is a basic concept involving any court system that a particular court maintains the authority (“jurisdiction”) to make decisions and orders over a particular controversy.
According to New York’s Civil Practice Law and Rules [CPLR] Section 302, New York State courts may exercise jurisdiction over nonresidents under certain circumstances, when the defendant:
Transacts any business within the state or contracts anywhere to supply goods or services in the state; or
Commits a tortious act within the state, except as to a cause of action for defamation of character arising from the act; or
Commits a tortious act without the state causing injury to person or property within the state.
There is a separate rule as to when New York City’s Civil Court may exercise jurisdiction over cases because it is considered a court of “limited” jurisdiction (See Civil Court Act Section 202).
In asking the judge to dismiss the New York Civil Court case, Richard A. Klass argued that any action that could be brought by Sally must be brought in the State of New Jersey, and not in New York. The project-house was located in New Jersey; the LLC was a New Jersey entity; both the New Jersey Superior Court and New Jersey Bankruptcy Court had pending cases involving the house and the LLC; and all of the events transpired in New Jersey. It was urged that New York was the wrong forum for Sally to bring this dispute, citing to Epstein v. Sirivejkul, 48 NY2d 728 [1979]; Irrigation and Industrial Development Corp. v. Indag S.A., 37 NY2d 522 [1975].
The Civil Court judge agreed with the arguments of Richard A. Klass and determined that the New York Civil Court lacked jurisdiction over the case. The judge specifically found that the transaction in dispute occurred in New Jersey and the plaintiff presented no allegations that there was tortious conduct within New York State; also, the fact that there were existing proceedings in New Jersey courts confirmed the conclusion that New Jersey was the proper forum for any dispute. The court then dismissed the plaintiff’s case.
by Richard A. Klass, Esq.
copyr. 2013 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions. Prior results do not guarantee a similar outcome.
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