Blogs

Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: March 8, 2016

Mortgage Contingency Clause Was Not a Condition Precedent to Purchase Obligation

On March 3, 2016, the First Department issued a decision in Shi v. Alexandratos, 2016 NY Slip Op. 01560, holding that a mortgage contingency clause was not a condition precedent to the obligation to purchase property.

In Shi, the residential real estate sale contract entered into between plaintiff and the defendants provided that, if the plaintiff did not obtain a mortgage loan commitment by a certain date, the plaintiff had the right to cancel the contract “by giving Notice to Seller within 5 business days after the Commitment Date.” The plaintiff failed to get a mortgage commitment, but also failed timely to cancel the contract or close on the purchase. When the plaintiff sued for the return of his down payment, the trial court entered judgment for the defendants. The First Department affirmed, explaining:

It is undisputed that plaintiff failed to give the [defendants] notice of cancellation within five business days after the date on which the extension period he had requested and been granted expired. Plaintiff’s argument that the mortgage contingency clauses of the contract constituted a condition precedent to his purchase of the [defendants’] house is belied by the contract language and by plaintiff’s own conduct in requesting an extension of the mortgage contingency date before the initial 60-day “Commitment Date” term expired.

Plaintiff’s equitable restitution cause of action is barred by the existence of the contract of sale.

(Internal quotations and citations omitted). The decisions shows the danger of making assumptions regarding the effect of standard provisions in a contract. Notwithstanding that mortgage contingency clauses may usually act as conditions precedent, the wording of this clause did not.

View posts