Scott E. Mollen
Scott E. Mollen ()

Contracts—Landlord’s Attorney Invoked Attorney-Client Privilege and Refused to Answer Whether He Was Authorized to Sign a Settlement Agreement—Attorney May Have Lacked Actual Authority, But He Had Apparent Authority—Agreement Contained Essential Terms Necessary For A Complete Contract for the Sale of Real Property—Where Contract Is Silent to Terms of Financing, Purchaser Obligated to Tender Entire Balance Due At Closing—Seller Usually Bears Risk that Property Value Will Increase or Decrease During Contract Period—Increase In Value During the Contract Period Does Not Create Injustice or Inequity—Laches and Abandonment Arguments Rejected—Specific Performance Premature Since Plaintiff Failed to Substantiate Ability to Close—Tortious Interference With Contract—Conspiracy—Prima Facie Tort

The plaintiff (tenant) had commenced an action “to compel specific performance of a lease option to purchase real property.” The defendant (landlord) had moved for summary judgment. In 2002, the tenant signed a 10-year lease for the property that was to be used as a gas station and convenience store. The lease granted the tenant an option to purchase the property (option). The option provided for an appraisal process to determine the fair market value.

The tenant alleged that in 2006, it served written notices on the landlord of its intent to exercise the option. No additional action was taken pursuant to such notices. In 2008, after certain disputes arose, the landlord commenced a summary proceeding to evict the tenant. The tenant thereafter commenced an action in the Supreme Court to compel a sale of the premises.

In July 2009, the parties met for settlement negotiations. The landlord attended the meeting, accompanied by his attorney (“B”). Following the meeting, on that same day, the tenant’s attorney and the landlord, by “B,” executed a letter agreement (Agreement). The Agreement stated “[t]his binding letter of understanding formalizes the agreement reached earlier today between [tenant] and [landlord], to be followed by a Contract of Sale [contract] incorporating these terms.” The Agreement further provided that the landlord, “will sell, and [tenant] will purchase, the property located at 360 Main Street, Armonk, New York, (the ‘premises’), at the…price of $1,625,000, subject to customary offsets and adjustments at closing.”

The Agreement also stated that, although the parties “will execute a formal Contract…incorporating the terms now agreed upon’…the terms of this…agreement shall be binding…and may be enforceable in the event either party fails or refuses to execute a Contract…, or where otherwise permitted.” Additionally, the Agreement provided that the pending New York Supreme Court action would be marked settled and “B” would discontinue, with prejudice, the pending summary proceeding. The Agreement was signed by the attorneys for both parties. “B’s” signature appeared under a line stating: “Above Terms Acknowledged and Agreed.” “B” had faxed a cover letter transmitting the Agreement to the tenant’s attorney. The cover letter stated: “My client has no problem doing a January 2010 closing which your client seemed to want, so we can go to contract now.”

The parties thereafter filed a “stipulation discontinuing action,” with the New York State Supreme Court. The stipulation was signed by counsel for each party. The parties also discontinued the summary proceeding. In September 2009, “B” wrote to the tenant’s counsel “requesting ‘draft documents (contracts and leases) for our agreed upon settlement.’” “B” stated that “his client was ‘anxious to execute all documents as soon as possible.’” In March 2011, the tenant sent a letter to the landlord which stated his intention to exercise the option and referenced the 2009 “Binding Letter of Understanding.”

In December 2011, a bank commenced a foreclosure action against the landlord. The tenant’s principal thereafter sent the landlord another letter restating “its intention to purchase the property pursuant to the…2009 [Agreement].” On Jan. 31, 2002, the tenant’s lease expired. In February 2012, a company called “Gas Land entered into an agreement with [the landlord] to purchase the property” at a price of $3 million. The landlord thereafter commenced a new proceeding to evict the tenant.

The tenant then commenced the instant action seeking “specific performance of the [Agreement] or, in the alternative, specific performance of the March 2011 attempt to exercise the option….” Gas Land thereafter purchased the bank’s note and mortgage and substituted as the plaintiffin the foreclosure action. The landlord had consented to the foreclosure and agreed to cooperate with Gas Land in the action.

The tenant had also asserted claims against Gas Land for, inter alia, tortious interference with the tenant’s contract with the landlord, “a conspiracy between the defendants to prevent the tenant from purchasing the property” and for “prima facie tort.” The landlord asserted as affirmative defenses, inter alia, that the Agreement violated the statute of frauds (SOF), the tenant is guilty of laches and the Agreement is “uncertain in its terms.”

The landlord had attended the 2009 settlement meeting accompanied by his attorney. However, he testified that “we didn’t come to any conclusion on prices,” he did not recall the figure of $1,625,000 being mentioned during the negotiations and he “largely could not recall the discussions that occurred.” The landlord denied seeing the Agreement and denied that the parties had ever agreed on the terms contained therein. The landlord acknowledged that he had met privately with his lawyer, “B” both before and after the July 2009 settlement meeting.

“B” acknowledged that he signed the Agreement. He testified that “the letter ‘was prepared by [the tenant's attorney] after” the settlement meeting and “summarized what we had discussed at the meeting.” When “B” was asked whether the Agreement “accurately reflects what was discussed at the July 1, 2009 meeting,” “B” answered, “To be honest, I’m not sure.” “B” “invoked the attorney-client privilege and refused to answer when asked whether he was authorized to sign the [Agreement] agreement.” He could not recall why he signed the stipulation discontinuing the prior action.

The tenant testified that the Agreement accurately reflected the deal reached at the 2009 settlement meeting. The tenant asserted that following such meeting, he called the landlord to arrange a date for an environmental study, but the landlord had never responded. He stated that he continued to remind the landlord of his intention to purchase the property, “even mentioning in Christmas cards that he would be exercising the…option….” and “he reiterated his intention to purchase the property whenever he met with, spoke to, or wrote to [the landlord].”

The landlord countered that the Agreement violated the SOF, since “B,” not the landlord himself, had signed the Agreement. The landlord asserted that he never gave “B” “written authority…to sign a document authorizing the sale….” He claimed he did not even see the Agreement before commencement of the subject action and there was no communication from the tenant or its representatives until March 2011, when the tenant attempted to exercise the option. The landlord had submitted its retention agreement with “B,” which described “B’s” actual authority.

The landlord further argued that the Agreement failed to contain “all of the essential terms necessary for a sale of the property” and that the tenant’s own attorneys at a court appearance, had acknowledged that a sale would require “the addition of terms to the contract of sale.” The landlord also asserted that the tenant’s 2006 attempt to exercise the option extinguished it, and “therefore, the [tenant's] attempt to exercise the option in 2011 was a nullity….” The landlord also cited “the doctrines of abandonment, waiver, and laches.”

Gas Land argued that “B” lacked written authority to settle the action, the Agreement failed to include all of the essential terms for a valid and binding contract, plaintiff’s claim was barred by the doctrine of laches and since the tenant lacked a binding contract of sale, Gas Land could not be liable for tortious interference with contract. Gas Land also emphasized that it had not entered into a contract with the landlord until after the tenant’s lease had expired.

The court found that the Agreement was enforceable, that it contained all of the essential terms necessary to form a complete contract for the sale of the property and enforcement of the Agreement was not barred by the doctrines of abandonment or laches. However, the court declined to award specific performance since the tenant had failed to substantiate its ability to close. Moreover, Gas Land had failed to meet its “prima facie burden” for dismissal of the tortious interference claim. The court dismissed the tenant’s conspiracy and prima facie tort claims.

CPLR 2104 provides that “[a]n agreement between parties or their attorneys relating to any matter in an action…is not binding upon a party unless it is in a writing subscribed by him or his attorney.” With certain exceptions, attorneys may bind clients to stipulations of settlement. However, “[w]ithout a grant of authority from the client, an attorney cannot…settle a claim, and settlements negotiated by attorneys without authority from their clients have not been binding.” Stipulations of settlement entered into by attorneys will bind the client “where the attorney has actual authority from the client to settle the claim,” or “where the settlement exceeds the attorney’s actual authority, where the attorney was clothed by the client with apparent authority to enter into the settlement….”

Here, although “B” may have lacked actual authority to settle the prior litigation, the court found that “B” “possessed apparent authority” to settle such litigation. The landlord and “B” had attended the settlement negotiations which contemplated an agreement as to the purchase price for the property. The landlord met with “B,” both before and after the meeting and “B” acknowledged signing the Agreement and “the [tenant's] attorney and principal detrimentally relied upon that authority when the prior action was withdrawn.” The court found that the landlord, by his conduct, had “clothed ['B'] with apparent authority to settle the action” and “it was reasonable for the plaintiff to rely upon ['B''s] authority.”

The court also opined that it was the execution of the Agreement and not the exercise of the option that controlled with respect to the SOF. The landlord’s signature on the lease which contained the option satisfied the SOF, and “the [Agreement] could,…, be viewed simply as an acknowledgment that the option had been exercised rather than a stand-alone contract for the sale of real property….” There was also no basis to set aside the Agreement on the grounds of “fraud, collusion, mistake or accident to relieve it from being bound by the [Agreement]….”

The court further held that the Agreement contained the requisite essential terms for the sale of real property. The Agreement “lists the parties, the property to be conveyed, and lists a specific agreed upon price,…, it contains sufficient terms to satisfy the [SOF]….” Moreover, the Agreement provided that it was to be “binding” and “enforceable” if either party failed or refused to execute a contract of sale.

The court also explained that where a real estate purchase/sale contract “is silent with respect to the terms of financing,” it is assumed that the purchaser will “tender the entire balance due at closing….”

The court also observed that the prior action had been withdrawn with prejudice in reliance upon such Agreement. Furthermore, the omission of a closing date “is not fatal to its enforceability. ‘The law will presume a reasonable closing date, and the failure to close within that time period constitutes a breach’” of the implied covenant of good faith and fair dealing. The law will also “serve to fill in the remaining essential terms, such as ‘the quality of title to be conveyed, and the risk of loss between contract and closing’….” The court did not believe that the tenant’s counsel’s statement that the sale would require additional terms in the contract was to be “a binding admission” that “the [Agreement] lacks sufficient terms.”

Additionally, there was insufficient proof that the tenant had abandoned the Agreement. There was no “affirmative conduct by either party unequivocally conveying an abandonment of the contract.” Rather, the tenant attempted in March 2011, to exercise the option and had again expressed his desire to purchase the property in correspondence in early 2012. The landlord had, if anything, been “silent in the face of the [tenant's] attempts to purchase the property, which conduct does not amount to a ‘mutual’ or ‘positive’ abandonment.” Thus, the court dismissed the affirmative defense of abandonment.

The court also dismissed the landlord’s defense of laches. The landlord had not shown any prejudice, other than finding another buyer who was willing to pay more money and “[an] increase in market value of the property does not in itself create injustice or inequity….” Additionally, “it is the contract vendee who generally bears the risk that the property will increase or decrease in value during the contract period….” Here, the landlord had not demonstrated that the appraised value of the property had increased “from the time that the parties entered into the [Agreement]; rather, it has only shown that a single purchaser is willing to pay more.”

The court found that “[u]nder the circumstances, the [tenant's] delay was not unreasonable.” The tenant was already occupying the premises and paying rent when the parties signed the Agreement and, therefore, “there was clearly no perceived urgency to close so that the plaintiff could enter the premises.” When the parties entered into the Agreement in July 2009, it was the landlord’s attorney who suggested a January 2010 closing date.

The next “documented communication” regarding the sale was the letter from the tenant to the landlord in March 2011, followed by communications in January 2012. “Despite receiving these notices, [the landlord] never attempted to affirmatively repudiate the [Agreement] until the instant action was commenced.” The court opined that the tenant’s delay “was not so unreasonable as to deny it the remedy of specific performance.” Additionally, the tenant’s continual communications put the landlord on notice that the tenant intended to exercise the option. Thus, the court dismissed the landlord’s defense of laches.

However, the court could not determine whether the tenant was entitled to specific performance since the tenant had not demonstrated that it was “ready willing and able to close ‘within a reasonable time.’” The landlord, however, had not established that the tenant lacked the financial ability to close. Thus, neither party was entitled to summary judgment granting specific performance.

Although the court declined to dismiss the tortious interference with contract claim against Gas Land, it dismissed the conspiracy claim, “since New York does not recognize civil conspiracy as an independent tort,” and the prima facie tort claim. Although the landlord “inflicted harm on the [tenant] by attempting to breach the contract,” it could not be said that “[the landlord] did so out of disinterested malevolence….”

Comment: When a real estate market is declining, some purchasers will attempt to “escape” their contractual obligations to close. They may try to renegotiate the price to a lower amount based on some “allegedly material” breach by the seller. In a rising market, some sellers may look to invalidate their sale contracts so that they sell the property to someone else at a higher price or try to renegotiate a higher price with their purchasers.

In the search for the truth, it is sometimes helpful to “follow the money.” Here, the purchaser apparently didn’t “race” to close during the soft 2008-2011 real estate recession and the seller didn’t commence a declaratory judgment action or take other steps to affirmatively cancel the option. At some point, the seller commenced a summary proceeding. Here, the seller’s new purchaser agreed to pay $3 million. Thus, if the option exercise was involved, the seller would receive about $1.4 million above the Agreement price.

Armonk Snack Mart v. Robert Porpora Realty, 52682/2012, NYLJ 1202637580284, at *1 (Sup., WE, Decided Jan. 7, 2014), Connolly, J.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John’s University School of Law.