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Wednesday, February 15, 2012

NY Court: Non-Repudiating Party Must Show Ready, Willing and Able to Perform

NycoaIn a case decided last week, the New York Court of Appeals held that, where a seller has repudiated a contract to sell real property, the buyers must prove they were ready, willing and able to close the transaction.  The holding resolved a conflict among the Appellate Division Departments.

Judge Smith wrote for the unanimous court:

The main issue before us is whether a buyer in a damages suit like this one must show that it was ready, willing and able to close the transaction — i.e., that but for the seller's repudiation, the transaction could and would have closed. This issue has divided the Appellate Division departments. The Second Department has held, in a number of other cases as well as in this one, that no such showing is required (e.g.Ehrenpreis v Klein, 260 AD2d 532, 533 [2d Dept 1999]; Karo v Paine, 55 AD3d 679, 680 [2d Dept 2008]). The Third and Fourth Departments, however, have required a "ready, willing and able" showing (Madison Invs. v Cohoes Assoc., 176 AD2d 1021, 1022 [3d Dept 1991]; Scull v Sicoli, 247 AD2d 852, 853 [4th Dept 1998]).

The rule followed by the Third and Fourth Departments is the correct one. It is the rule stated by the leading treatises on contracts (4 Corbin on Contracts § 978 at 924 [1951]; 13 Williston on Contracts § 39:41 [2011]), and applied in several federal cases (Towers Charter & Marine Corp. v Cadillac Ins. Co., 894 F2d 516, 523 [2d Cir 1990] [applying New York law]; United States v Hon, 17 F3d 21, 26 [2d Cir 1994]). Our agreement with that rule is implied by the language we used in Deforest Radio Tel. & Tel. Co. v Triangle Radio Supply Co. (243 NY 283 [1926]), where we held that, when a contract has been repudiated, the non-repudiating party need not actually tender performance. We said:

"Where one party to a contract repudiates it and refuses to perform, the other party by reason of such repudiation is excused from further performance, or the ceremony of a futile tender. He must be ready, willing and able to perform, and this is all the law requires"

(id. at 293 [emphasis added]; see also Bigler v Morgan, 77 NY 312, 318 [1879] ["The refusal of the defendant to perform . . . did not dispense with the necessity of showing that the plaintiff was able, ready and willing to perform"]).

The rule requiring non-repudiating buyers to show their readiness, willingness and ability to perform is supported by common sense. It is axiomatic that damages for breach of contract are not recoverable where they were not actually caused by the breach — i.e., where the transaction would have failed, and the damage would have been suffered, even if no breach occurred. The real question is one of burden of proof: Should the buyers be required to show they would and could have performed, or should the seller have the burden of showing they would not or could not? Since the buyers can more readily produce evidence of their own intentions and resources, it is reasonable to put the burden on them.

This allocation of the burden of proof is not inconsistent with our decision in American List Corp. v U.S. News & World Report (75 NY2d 38 [1989]). That case involved the repudiation by a magazine of a contract to rent mailing lists from a list supplier "over a 10-year period" (id. at 39). We held that "[t]he nonrepudiating party need not . . . prove its ability to perform the contract in the future" (id. at 44). In context, this meant that the plaintiff would not be forced to meet the perhaps impossible burden of showing what its financial condition would have been for many years to come. No comparable burden falls on the non-repudiating party in a case like this one. These buyers need only show that they would and could have closed the transaction if the seller had proceeded to a closing as the contract required.

Here, the buyers did submit evidence of their financial condition, but that evidence was not conclusive on the issue of their ability to make the purchases. Whether the buyers were ready, willing and able to close therefore presented an issue of fact, and the buyers' motion for summary judgment should have been denied.

I wonder if this really is the approach "supported by common sense."  If Party A repudiates then Party B might stop taking the steps to put itself in a position to be able to perform.  Placing the burden on Party B to show readiness and willingness makes sense, but a showing of ability to perform might raise some problems in light of Party A's repudiation.

Pesa v. Yoma Dev. Group, Inc., 2012 NY Slip Op 00856 (Decided Feb 9, 2012).

[Meredith R. Miller]

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