If contract allows, buyer can cancel / LJWorld.com

Archive for Friday, July 10, 2009

By David W. Myers

July 10, 2009

Q: We made an offer to purchase a house, and included a contingency that would allow our attorney to cancel the deal within three business days upon her review of the contract. The sellers accepted. We then had second-thoughts about buying the home over the weekend, so we called our attorney on Monday morning and told her to cancel. Nonetheless, the sellers are now suing us for breach of contract and are trying to force us to buy the house that we no longer want. What can we do?

A:You probably don’t have to worry much about losing the lawsuit, thanks to a key ruling that was made last year by a court in New York that favored the buyers in a case remarkably similar to the one you face.

The case (Moran v. Erk, N.Y. Court of Appeals, 2008) can be cited — or should be researched — by would-be buyers in all 50 states as part of their defense against such claims. The Erks had agreed to purchase a home for $505,000 and included a contingency that allowed the attorney for either party to cancel the sale within three business days after the offer was accepted.

The Erks decided to void the agreement, and their lawyer canceled it within the required time frame. The sellers eventually sold the home for a lot less than the Erks had offered, but sued to recover the difference between the amount the Erks had originally agreed to pay and the price the property sold for later.

Though the attorney-review clause did not require either lawyer to provide a specific reason to cancel the transaction, the sellers claimed that the provision was limited by an “implied covenant” of good faith and fair dealing — which they said required the lawyer for the Erks to provide a legitimate reason for canceling the sale. The lawyer for the Erks hadn’t provided such a reason.

The case then went to the New York Court of Appeals, which instead decided in favor of the Erks and reversed the earlier rulings. It boiled down to the conclusion that there was nothing in the attorney-review clause that required the Erks’ lawyer to disclose the reason why they decided to void the sales contract.

You obviously need to consult with a good real estate attorney of your own to combat the lawsuit that has been filed against you, if you haven’t already done so. Make sure that the lawyer is familiar with the ruling in the recent New York case, and ask the judge to reimburse you for legal expenses and other court costs if the lawsuit eventually makes it to trial.