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Saewitz v. Epstein
6 F.Supp. 151 (N.D.N.Y. 1998)
McAvoy, Chief District Judge:
This action arises from two contract disputes between plaintiffs and
defendants involving a lease and an option to purchase defendants' real property located
in Woodstock, New York (the "property").
Plaintiffs, the lessees and optionees, commenced the present action in
New York Supreme Court, Ulster County, seeking, inter alia, the return of the following:
(1) $30,000 paid to the defendants as consideration for an option to purchase the
property; (2) $7,600 for costs incurred to survey the property; (3) $1,200 for costs
incurred for a title examination; (4) $5,000 for legal fees (5) $4,000 representing the
security deposit for the lease of the property; (6) $24,000 in rental payments; and (7)
$4,511.54 for costs incurred to repair damage to the property caused by a winter storm.
Defendants removed the action to this Court
pursuant to 28 U.S.C. §§ 1441 and 1446. This Court has jurisdiction under 28 U.S.C. §
1332. In their Answer, defendants contest all of plaintiffs' claims. Defendants also
assert a counterclaim for unpaid rent of $23,006 due under the lease and other expenses.
A two-day bench trial commenced in
Binghamton, New York on December 22, 1997. At the close of plaintiffs' proof, the
defendants moved pursuant to FED. R. CIV. P. 50 for judgment as a matter of law on a
number of plaintiffs' claims. The Court granted defendants' motion with respect to
plaintiffs' claims of defamation and prima facie tort. Defendants' motion was otherwise
denied.
The Court now makes the following findings
of fact and conclusions of law.
I. FINDINGS OF FACT
(A) The Option Agreement and the Lease Agreement
1. Defendants are owners of approximately 93 acres of real property
located in Woodstock, New York.
2. On November 24, 1994, plaintiffs and defendants entered into a
written agreement (the "Option Agreement") whereby the defendants granted the
plaintiffs an option to purchase the property.
3. Pursuant to the terms of the Option Agreement, plaintiffs paid to
defendants the sum of thirty thousand dollars ($30,000) as consideration for the option.
4. Pursuant to paragraph 2 of the Option Agreement, the $30,000 option
consideration was non-refundable unless (a) the defendants failed to deliver marketable
title to the property, and/or (b) the defendants' defaulted.
5. Pursuant to paragraph 6 of the Option Agreement, plaintiffs could
exercise the option by giving written notice to the defendants, signed by the plaintiffs
or their authorized agent, on or before August 15, 1995.
6. Pursuant to paragraph 7 of the Option Agreement, Title to the
property had to close on or before November 23, 1995.
7. Pursuant to paragraph 13 of the Option Agreement, the defendants
agreed to give and the plaintiffs agreed to accept such marketable title as The Title
Service Company, Fair Street, Kingston, New York, agent for Fidelity National Title
Company, would approve and insure, at standard rates, free and clear of all liens and
encumbrances, except as otherwise provided in the Option Agreement.
8. On November 24, 1994 and simultaneous with the execution of the
Option Agreement, the plaintiffs entered into a Lease Agreement with the defendants for
the one-year lease of the property.
9. Pursuant to the terms of the Lease Agreement, the plaintiffs were to
pay rent of $4000 per month, payable on the first day of each month for the length of the
lease term, with aggregate lease payments of $48,000.
10. Pursuant to paragraph 33(a) and (b) of the Lease Agreement, the
plaintiffs were required to pay for all repairs during the lease term, with the exception
of structural repairs and replacements and repairs caused by acts of god.
(B) The Winter Storm
11. Plaintiff took occupancy of the property under the lease in the end
of November 1994.
12. On or about December 24, 1994, a storm swept across the property.
The storm caused exterior damage to the property. Specifically, various trees were felled,
with one large tree leaning on the house; a gutter was shorn of the edge of the roof;
shingles from the roof and the roof peak were damaged; an exterior stone window box and
table were destroyed; several exterior lights were broken; and the tennis net was
destroyed. Additionally, the storm felled several electrical poles causing the loss of
electricity to the main residence.
13. The storm did not cause any interior damage to either the main or
guest houses.
14. Within two days of the storm, electricity was restored through
temporary means by connecting electrical cables to the guest house and running them along
the surface of the property to the main house. Defendants also made arrangements for the
removal of the large trees which had been felled, including the one tree leaning against
the house. Small debris also was removed from the property at this time.
15. On December 26, 1996, defendants visited the property to determine
the extent of the storm damage.
16. At this time, plaintiffs and defendants agreed that plaintiffs
would make arrangements to hire an electrician from Miami to repair the electrical
service, provided that plaintiffs' electrician submitted work estimates prior to
commencing any repair work.
17. While repairing the electricity, the Miami electrician punctured an
underground gas line.
(C) The Rose Easement
18. Richard Riseley represented plaintiffs in connection with the
negotiation and execution of the Option Agreement and the Lease Agreement.
19. In early April of 1995, plaintiffs had the property surveyed by
Robert Hall. Hall notified Riseley that an easement had been established over the property
as a result of a lawsuit between defendants and Harrison and Eva Rose (the "Rose
easement"). At no time had either defendants or their lawyer revealed the existence
of the Rose easement to Riseley.
20. Prior to the execution of the Option Agreement, plaintiffs had the
Title Service Company conduct a title search of the property. The title search, however,
did not reveal the Rose easement.
21. After the surveyor notified Riseley of the Rose easement, Riseley
immediately telephoned defendants' lawyer, Gerry Wapner. Wapner acknowledged to
Riseley that his law firm had represented defendants in the Rose litigation.
22. Upon learning of the existence of the Rose easement from Riseley,
Mr. Saewitiz "blew-up." Defendants had not previously disclosed the existence of
the Rose easement to plaintiffs. Further, the Rose easement is not open and notorious. Mr.
Epstein's testimony that he disclosed the Rose easement to Mr. Saewitz during an ATV ride
across the property prior to the execution of the Option Agreement is not credible.
23. Approximately two weeks later, Riseley wrote a letter to Wapner
regarding the Rose easement. Wapner responded by the same, explaining that Mr. Epstein had
told him that the Rose easement had been disclosed to Mr. Saewitz prior to the execution
of the agreements.
24. After receiving Wapner's letter, Riseley telephoned Wapner sometime
during the end of April or early May of 1995. Riseley asked Wapner specifically to explain
the defendants' position with respect to the Rose easement. Wapner told Riseley
that, after speaking with the defendants, it was the defendants' position that if
plaintiffs exercised their option to purchase the property, they would take subject to the
Rose easement. Wapner also told Riseley that the option consideration was non-refundable.
At no time did defendants offer to cure the Rose easement.
25. Thereafter, Riseley contacted the Title Insurance Company. The
Title Insurance Company refused to insure the property free and clear of the Rose
easement.
26. On May 22, 1995, after consulting with plaintiffs, Riseley wrote a
letter to Wapner informing him that plaintiffs were terminating the Option Agreement and
requesting the return of the $30,000 option consideration plus reimbursement for the costs
of the survey, title examination and legal fees, as defendants had failed to disclose a
material fact within their knowledge.
(D) The Events of May 19, 1995
27. On or about May 19, 1995, plaintiffs began loading their furniture
and other belongings on the property into a U-Haul truck, a pickup truck and plaintiffs'
car. Plaintiffs were in the process of transporting these items back to their home in
Miami, Florida. Robert Hart, a friend of the plaintiffs, was present at the property and
was assisting with the moving.
28. As plaintiffs were loading their furniture and other belongings
into the vehicles, a police officer arrived at the property. The police had received a
complaint from defendants that the plaintiffs were stealing items from the property. After
Riseley faxed a copy of the lease to the police department, the police officer left the
property.
29. Plaintiffs resumed loading the vehicles. Shortly thereafter,
defendant Mr. Epstein arrived at the property. Mr. Epstein was very upset and
confused. Plaintiffs had not notified him that they were moving their furniture and other
belongings to Florida. Mr. Epstein feared that plaintiffs might be stealing his property.
A confrontation ensued with Mr. Epstein uttering several obscenities. Mr. Epstein also
attempted to enter the home to determine if his property had been removed. Defendants
[sic? Plaintiffs?] prevented him from entering, and told him several times to leave the
property. Defendants also called the police, who returned to the property. After an hour
or so, Mr. Epstein left the property.
30. Plaintiffs left the property on either May 19 or 20, 1995.
Plaintiffs took with them all of their furniture, belongings and other property. Nothing
of plaintiffs was left behind, and they never returned to the property.
31. Shortly after arriving in Miami, plaintiffs terminated the lease.
II. CONCLUSIONS OF LAW
(A) The Option Agreement
Plaintiffs advance two theories to support their claims for recovery of
the $30,000 paid as consideration for the Option Agreement and other related expenses.
Their first theory is that defendants anticipatorily
breached the Option Agreement by taking an untenable position with respect to the Rose
easement. Plaintiffs' second theory is that defendants misrepresented the existence of the
Rose easement, thereby entitling them to rescind the Option Agreement.
(i) Anticipatory Repudiation
Turning to plaintiffs' claim of anticipatory breach, paragraph two of
the Option Agreement provides that the option consideration is non-refundable unless (a)
the defendants fail to deliver marketable title to the premises in accordance with the
[Option] Agreement, and/or (b) the defendants default under the Option Agreement. Further,
paragraph 13 of the Option Agreement states that:
the [defendants] shall give and the [plaintiffs] shall receive such marketable title as the title Service Company . . . will approve and insure, at standard rates, free and clear of all liens and encumbrances except as otherwise provided in this Agreement.
In early April of 1995, a survey of the property disclosed the
existence of the Rose easement. The Rose easement had not been previously disclosed to
either plaintiffs or their attorney. Upon learning of the Rose easement, the Title Service
Company refused to insure the defendants' property free and clear. Thereafter, in response
to inquiries by plaintiffs' lawyer regarding the Rose easement, defendants' lawyer stated
that if plaintiffs exercised their option to purchase the Rose easement, they would take
subject thereto.
According to plaintiffs, this statement constituted an anticipatory
breach of the Option Agreement because defendants' position was untenable under the terms
of the Lease Agreement. Though admittedly plaintiffs did not attempt to exercise the
option, plaintiffs maintain that exercise was unnecessary in light of defendants'
anticipatory repudiation.
It is firmly established that one who wrongfully renounces an
obligation in contract should not be heard to complain when he is immediately sued by the
non-breaching party. See, e.g., Hochster v. De La Tour, 118 Eng. Rep. 922 (Queen's Bench
1853). 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. Resort to this doctrine is at the election of the
non-breaching party. 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 E. 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.
The doctrine of anticipatory breach, however, is a doctrine of limited
application; it is ordinarily restricted to bilateral contracts embodying some mutual or
interdependent obligations and conditions. The
doctrine generally has not been recognized with respect to unilateral contracts.
This limitation is traditionally justified by relying on the idea "that the
reason for holding an anticipatory repudiation to be a breach of contract is that
otherwise the injured party must himself continue to be ready to perform on his own part.
. . . [However, where] the injured party never had any performance to render on his part,
or, having such a performance, has already fully performed it, it would not be necessary
for his protection to give him an immediate action for damages for the anticipatory
breach." 4 ARTHUR L. CORBIN, CORBIN ON CONTRACTS §
962 (1951) (explaining and then criticizing this limitation).
In the present case, the contract at issue
is an unexercised option contract. Simply put, an option contract is an enforceable
promise not to revoke an offer. Before being exercised, the option contract is a
unilateral contract. Upon exercise, it becomes a bilateral contract. The optionee has the
choice whether to exercise the option; if he does, each party is required to perform their
obligations under the resulting bilateral contract.
The threshold issue is thus whether, under New York law, the doctrine
of anticipatory repudiation applies to an unexercised option contract. A review of the
case law reveals that this issue has not been directly addressed by the New York courts. As a federal court sitting in diversity, this Court must therefore
strive to predict how the highest court of New York would answer this question.
As a general matter, New York courts have recognized application of the
doctrine of anticipatory breach to contracts for personal services and contracts for the
sale of goods and land. Conversely, New York courts have rejected application of the
doctrine to contracts for the payment of money only in exchange for consideration
previously executed (e.g., contracts such as promissory notes and insurance policies).
Admittedly, an unexercised option contract to purchase real property does not fall
neatly into any of the above scenarios; it is instead more of a hybrid, as an option
contract is a unilateral obligation until exercised, becoming bilateral only if exercised
by the optionee.
It should be recognized, however, that the actual exercise of an option
contract by the optionee is the performance of a condition precedent to the optionor's
duty to perform. 4 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 264 (1951). Thus, recognizing
the application of the doctrine of anticipatory repudiation in the context of an
unexercised option contract, thereby excusing the optionee from his ceremonious
performance of this condition, accords with the doctrine's purpose. To hold otherwise
would be antithetic to the doctrine's goal of eliminating unnecessary economic waste and
inefficient outlays of resources.
Having determined that the doctrine of anticipatory repudiation applies
to the option contract at issue, the Court finds that plaintiffs' claim of anticipatory
repudiation must nonetheless fail. Assuming, without deciding, that the defendants
unequivocally repudiated the option contract by taking the position that the plaintiffs
would take subject to the Rose easement should they exercise their option to purchase the
property, plaintiffs have failed to demonstrate, as they must, that they were ready,
willing and able to perform their part of the bargain.
First, Mr. Saewitz testified in deposition that he could not answer
whether he would have been willing to purchase the property upon learning that the Title
Service Company would not insure the property free and clear of the Rose easement. Second,
plaintiffs' conduct in May 1995 of returning to Florida and terminating the lease belie
any interest they may have expressed in exercising the option. Third, paragraph 6 of the
Option Agreement permitted exercise of the option only if there were no material uncured
defaults under the Lease Agreement. However, by May 22, 1995, the date plaintiffs
rescinded the Option Agreement, plaintiffs had committed a material default under the
lease by vacating the premises. Thus, plaintiff had no ability to exercise the option
contract even had they elected to do so.
Accordingly, because plaintiffs have failed to show that they were
ready, willing and able to perform under the option contract, their claim of anticipatory
repudiation must fail.
(ii) Rescission by Fraud
Plaintiffs next assert that they are entitled to rescind the option
contract on the grounds of fraud and misrepresentation because defendants represented in
paragraph 13(c)(3) of the Option Agreement that no judgments encumbered the premises,
when, in fact, the Rose easement encumbered the property.
"False statements and misrepresentations as to the existence of .
. . encumbrances . . . constitute actionable fraud . . . ."
Here, there is no dispute that defendants had knowledge of the
judicially-created Rose easement. It also is not disputed that the law firm representing
defendants in the present case also represented defendants in the state court action
resulting in the establishment of the Rose easement. Notwithstanding, neither defendants
nor their lawyer ever disclosed the existence of the Rose easement to either plaintiff or
their lawyer. Rather, plaintiffs did not discover the existence of the Rose easement until
they had a survey done of the property in the spring of 1995.
Defendants counter that even if a misrepresentation had been made, the
misrepresentation was not material because the easement covered less than 1 percent of the
property. This assertion, however, overlooks the testimony of Mrs. Saewitz, who testified
that the attraction of the property was its privacy and seclusion. Thus, the existence of
the Rose easement was material.
In light of defendants' misrepresentation with regard to the existence
of the Rose easement, plaintiffs are entitled to rescind the option contract and recover
the $30,000 paid as consideration for the option. Additionally, plaintiffs are
entitled to recover $5,950 in expenses, which includes the costs of a title examination
($1,200), property survey ($3,750) and legal fees ($1,000).
[Editorial Note: The balance of the opinion is not relevant to
contract issues we have under consideration, except, to a limited extent, issues of
contract interpretation. Nonetheless, it is an interesting read. It is
instructive on some points of property law and on the difficulties of proving what one
alleges, and it reveals the picayune detail that the court must address because of the
unabated animosity of the parties.]
(B) The Lease Agreement
(1) Plaintiffs' Claims
(i) Recovery of $24,000 in Rental Payments
In support of their claim for recovery of $24,000 in rental payments,
plaintiffs argue that they were constructively evicted from the property as defendants
breached the covenant of quiet enjoyment in the lease (1) by failing to repair the
property following the winter storm, and (2) as a result of the May 19, 1995 incident.
The "covenant of quiet enjoyment insulates the tenant against acts
or omissions on the part of the landlord . . . which interfere with the tenant's right to
the use and enjoyment of the premises for the contemplated purposes." To
establish a claim for breach of the covenant of quiet enjoyment, a plaintiff must have
been actually or constructively evicted.
In this case, with respect to the damage caused by the winter storm,
the evidence at trial clearly established that defendants timely commenced repair of all
damaged items. Thus, contrary to plaintiffs' assertion, the damage from the winter storm
did not substantially interfere with plaintiffs' beneficial enjoyment of the property such
as to constitute a constructive eviction. Furthermore, plaintiffs have not proved,
as they must, that they terminated the lease because of defendants' alleged failure to
make proper storm repairs.
With respect to the May 19, 1995 incident involving Mr. Epstein's visit
to the property during plaintiffs' unannounced move from the premises, Mr. Epstein's
conduct was not so grossly insulting or threatening to constitute a constructive eviction
and breach of the covenant of quiet enjoyment.
In short, the evidence is completely lacking that defendants deprived
plaintiffs or their quiet enjoyment of the property as a result of either a failure to
repair damages caused by the winter storm or as a result of the May 19, 1995 incident, or
both. As such, plaintiffs' claims for return of rental payments is denied.
(ii) Recovery for Repairs to Property as a result Of the Winter Storm
Plaintiffs also seek recovery from defendants of $4,511.43 allegedly
expended on electrical installation and other repairs caused by the winter storm.
The terms of the Lease Agreement obligated defendants to make all
repairs necessitated by acts of god. Thus, defendants had the burden to repair all
property damage caused by the winter storm. Notwithstanding, plaintiffs apparently desired
to utilize the services of their own electrician, and therefore requested the defendants'
permission to hire an electrician from Miami and be reimbursed by defendants for their
out-of-pocket expenses. Defendants consented to plaintiffs' request during a visit to the
property on December 26, 1994, provided that the plaintiffs submitted estimates for the
electrician's work prior to the
commencement of any repairs.
Taking each expense in turn, plaintiffs first seek recovery for labor
costs of $350 allegedly incurred to repair the electricity on December 23-24, 1994.
Problematically for plaintiffs, the winter storm did not occur until December 23, 1994,
and the evidence at trial established that plaintiffs' electrician did not begin
electrical repair until December 27, 1994. Defendants also did not authorize plaintiffs to
utilize their electrician until they visited the property on December 26, 1994. Thus, the
$350 in labor costs is not recoverable.
Similarly, plaintiffs seek the recovery of $308 for their electrician's
plane ticket dated December 24, 1994. However, defendants did not authorize
plaintiffs to utilize their electrician until several days later. Thus, plaintiffs were
not authorized to incur this expense.
Plaintiffs also seek recovery of $114.59 allegedly paid to Heritage
Energy for the repair of a punctured gas line. However, there is no evidence that
plaintiffs ever paid this bill; in fact, the evidence at trial demonstrated that the bill
was actually paid by defendants.
With respect to plaintiffs' claims for recovery of supplies purchased
from Ulster Electric for $1,500.77 and $342.89, plaintiffs have failed to establish that
these amounts were incurred in connection with the repair of the property. Thus, these
expenses are not recoverable.
Plaintiffs also seek recovery of $1,200 in labor costs for electrical
installation completed by the Miami electrician from December 25 to December 30, 1994. As
noted above, however, the evidence at trial indicated that the Miami electrician did not
begin work until December 27, 1994. Plaintiffs have, moreover, failed to substantiate
these labor costs in any manner. Defendants, in fact, made several requests to plaintiffs
to substantiate their expenses, which they never did. Plaintiffs further provided no
evidence that an estimate for the electrician's work was ever provided to defendants prior
to the plaintiffs' electrician commencing the repair work. As such, plaintiffs may not
recover for $1,200 in claimed labor costs.
With respect to the remaining claimed expenses, the plaintiffs provided
sufficient proof at trial that these expenses were incurred in connection with property
repair caused by the winter storm. Accordingly, plaintiffs are entitled to reimbursement
from defendants for these expenses in the total amount of $695.29.
(iii) Recovery of Security Deposit
Plaintiffs also seek recovery of their $4,000 security deposit, which
defendants admittedly have not returned. However, because plaintiffs breached their
obligations under the lease, this amount must be applied to offset defendants' damages.
(2) Defendants' Counterclaims
(i) Recovery for Unpaid Rent Due under the Lease
Defendants' first counterclaim is for unpaid rent due under the lease
of $23,006. Because plaintiffs breached their lease by vacating the property, terminating
the lease, and ceasing to make rental payments due thereunder for the remaining months of
June, July, August, September, October and November, defendants are entitled to recovery
of this amount.
(ii) Recovery for Maintenance Costs
Defendants next seek recovery for maintenance and utility costs of
$5,214.52, which plaintiffs allegedly never paid.
By the terms of the Lease Agreement, plaintiffs were obligated to bear
the costs of all repairs to the property, excluding damages to the property from acts of
god. In addition, plaintiffs were obligated to pay for all ground care of the property.
The lease specifically noted that ground care and handyman services currently were being
furnished by A.J. Rose, a nearby neighbor, and that plaintiff must continue to maintain
the grounds in appropriate condition either by utilizing the services of A.J. Rose or by
using plaintiffs own employers or agents.
Defendants have submitted invoices and evidence of corresponding
payments to A.J. Rose in the amount of $2,466.25 for work done by Rose during the lease
term. However, the work invoices submitted by A.J. Rose do not always distinguish between
work done with respect to storm damage repair, which defendants were obligated to pay, and
other repair work, which plaintiffs were obligated to pay. Indeed, at trial, Mr. Epstein
testified that Rose participated in property repair following the winter storm.
After review, the Court finds that defendants have adequately
substantiated repairs to the property which plaintiffs were obligated to pay for in the
amount of $2,122.25. This amount reflects consequential damages flowing from the breach
insofar as defendants paid Rose to make periodic house checks of the vacated property.
Defendants have failed to establish their entitlement to reimbursement for the balance.
Turning to defendants' remaining claims, defendants have sufficiently
established that they paid $653.74 to Central Hudson, $153.54 to NYNEX, and $1,940.00 to
Art Daley for pool maintenance, all of which plaintiffs were obligated to pay pursuant to
the Lease Agreement. Accordingly, defendants may recover the additional amount of
$2,747.28 from plaintiffs.
(iii) Recovery for Repair of Ruptured Gas Line
Defendants next seek recovery of $114.59 paid to Heritage Energy for
repair of a gas line which plaintiffs' electrician ruptured. Defendants may recover this
sum as the figure reflects damage to the property caused by the negligence of plaintiffs'
electrician, who was not authorized to commence these repairs.
(iv) Recovery for Repair of Carpet
Defendants next seek recovery of $265.71 for carpet cleaning. Under the
terms of the Lease Agreement, however, plaintiffs are not required to pay for ordinary
wear to furnishings. As defendants have offered no evidence that the carpet cleaning was
necessitated by reason other than ordinary wear, their request for recovery is denied.
(v) Recovery for Repair of a Pump
Lastly, defendants seek recovery for the repair of a pump. However, as
defendants have failed to establish how the pump was damaged (i.e., whether by the winter
storm or otherwise), or whether the pump was covered by defendants' insurance, their claim
must be denied.
III. CONCLUSION
Based on the above findings of fact and conclusions of law, judgment
should be entered for plaintiffs in the amount of $12,655.17.
IT IS SO ORDERED.