Maxson Builders, Inc. v. Lo Galbo

New York Court of Appeals · 1986 · Contracts

ContractsReal estate contractsDown paymentsDefaultCancellation noticereal estate contractdown paymentdefaulting vendee

Facts

Defendants contracted to buy a newly constructed house from plaintiff for $210,000 and gave a $21,000 check as a down payment to be held in escrow. A rider gave defendants the right to cancel by written notice within three days if real estate taxes exceeded $3,500 based on a full assessment, and the assessment did exceed that amount. Defendants' attorney gave oral notice within three days and mailed written notice on the third day, but plaintiff's attorney did not receive the writing until after the three-day period; defendants also stopped payment on the check. Plaintiff later sold the house to another buyer for the same price, though it paid a $12,000 broker's fee in that transaction.

Issue

Whether defendants effectively exercised their contractual right to cancel when written notice was mailed within the contractual period but not received until after it expired. If not, whether plaintiff seller was entitled to recover the entire down payment rather than being limited to actual damages.

Rule

When a contract requires written notice to be given within a specified time, the notice is ineffective unless the writing is actually received within that time. In New York, a vendee who defaults on a real estate contract without lawful excuse cannot recover the down payment, and the vendor may retain a traditional 10% down payment upon the vendee's default.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Buffalo, New York, Elena Cruz signed a contract to buy a townhouse from Harbor Glen Homes, LLC. A rider gave Elena the right to cancel if the annual sewer assessment exceeded a stated amount, but only by written notice to the seller within four days of signing; Elena emailed and mailed a letter on day four, but Harbor Glen did not receive either until day six.

If Elena refuses to close, which is the strongest argument for Harbor Glen?

Explanation. The majority rule is that when a contract requires written notice within a specified time, the notice is ineffective unless the writing is actually received within that time. Timely sending is not enough. Because Harbor Glen did not receive the writing within the contractual period, Elena did not effectively exercise the limited cancellation right and her refusal to close would be an unexcused breach. (Derived from Maxson Builders, Inc. v. Lo Galbo (1986).)