Attorney disapproval of contract deemed proper

Did an attorney properly disapprove a purchase and sale contract between his clients, the sellers, and the buyer, with no bad faith on the part of the sellers?

This was one of the issues before New York State Supreme Court Judge Thomas Stander in David Pelusio v. Keath Chen and Jiuan Chen. The plaintiff/buyer filed a motion for summary judgment, directing the sellers to comply with the terms and conditions of the purchase and sale contract, after the sellers' attorney disapproved the contract agreement. The defendants/sellers submitted a cross motion for an order dismissing the buyer's complaint, granting them summary judgment and their request for an order canceling the lis pendens placed on the property in question.

Judge Stander reviewed the contract and the facts of the case before granting the sellers' motion for summary judgment. The judge also granted the motion for an order canceling the notice of pendency. Based on the evidence, the judge found that the sellers' attorney properly disapproved the contract with no bad faith on the part of the sellers.

The Facts

The parties entered into a purchase and sale contract for residential property on April 2, 2003. The defendants-sellers, Keath and Jiuan Chen, were to turn over property located on Thackery Road in the Town of Brighton to the plaintiff-buyer, David Pelusio.

The contract contained contingencies and stated that either the buyer or the sellers could cancel the contract by written notice if any of the contingencies were not satisfied. The contract also required attorney approval for both parties. The buyer waived the attorney approval contingency.

Under the terms of the attorney approval contingency the contract was subject to written approval of both parties' attorneys within five calendar days.

Specifically, it stated, If either attorney (1) does not provide written approval within the approved period or (ii) makes written objection of or conditionally approves ... the contract within the approval period and the objection is not cured by written approval by both attorneys and all of the parties within the approval period, then (A) either buyer or seller may cancel this contract by written notice to the other and any deposit shall be returned to the buyer or (B) the approving attorney may notify the other party ... in writing that no approval has been received and that the noticed party has five calendar days ... from receipt of the notice (grace period) to provide written attorney approval or disapproval of the contract. The approving attorney shall provide to the noticed party ... a copy of the approving attorney's approval letter, whether conditional or not, along with the written notice of the grace period...

On April 7, 2003, Michael Santariello, the attorney for the sellers, sent a letter to the buyer stating, on behalf of my client, I hereby 'disapprove the contract.' The buyer's attorney responded by letter, dated April 7, 2003, asserting that the refusal to approve the contract was arbitrary and without any legal basis for justification.

The buyer commenced an action for specific performance on April 11, 2003 and a notice of pendency was filed. The sellers filed an answer and counterclaim on April 22, 2003. Specifically, the answer stated, pursuant to paragraph 4(c) of the contract, if there is no attorney approval within the approval period, then either party may cancel (consider this cancellation notice in case there was any lingering doubt.)

The buyer filed a motion for summary judgment, dismissing the sellers' answer and counterclaim and directing the sellers to convey to the buyer good and marketable title to the property in question, complying with the terms and conditions of the purchase and sale contract.

The sellers filed a cross-motion seeking an order dismissing the plaintiff's complaint; granting their motion for summary judgment against the plaintiff; granting them an order canceling the lis pendens placed on the property or in the alternative, allowing the lis pendens to be modified to allow the sale of the property with an escrow or undertaking posting a sum the court determines just and proper.

Court Ruling

In order to render a decision, Judge Stander reviewed the precise language of the contract. First, he turned to the attorney approval contingency.

In a real estate transaction when an attorney disapproves the contract, such disapproval terminates the parties rights under the agreement (McKenna v. Case, 123 AD2d 517 [4th Dept. 1986]), wrote Judge Stander in the decision for the court. The contract herein is 'subject to the written approval of attorneys for the buyer and seller? The purchase and sale agreement was never approved by counsel to the sellers. Under the applicable legal principles, the contract never became binding and enforceable, Pepitone v. Sofia, 203 AD2d 981 (4th Dept. 1994).

The judge turned to the cancellation notice. The buyer asserts that even though the sellers' attorney sent a letter not approving the contract, the seller never cancelled the contract as required.