…that mistakenly dated a document “2008” instead of “2009”, potentially costing the client $16 million dollars? From the Wall Street Journal:
In the petition, the [condominium] developers plan to ask the state court to review what they call the attorney general’s “arbitrary and capricious” ruling in April, when Andrew Cuomo’s office ordered the return of $16 million in security deposits. Those deposits represent more than $100 million in sales and would amount to one of the largest refunds ever.
The case focuses on sales contracts that said buyers would be entitled to the return of their deposits if at least one sale didn’t close by Sept. 1, 2008. The first closing didn’t occur until February 2009.
The developers have said the date was intended to be Sept. 1, 2009, and that the documents contained a trivial clerical error. Attorneys representing the buyers have argued that the contracts need to be enforced as written.
“There’s an awful lot of money in deposits and we don’t think the process was fair,” Mr. Barnett said. “It was a typo mistake. We don’t think it’s equitable to pay damages well into eight figures.”
Of course, there’s more to this case than meets the eye. The reason why the purchasers seek return of their deposits and concomitant cancellations of their purchases is because the properties purchased have declined precipitously in value since they signed their purchase contracts.
The real question is who will suffer the loss in value: The developers or the purchasers?
Condominiums are typically “pre-sold” before construction. The practice provides a number of benefits for the developers. Aside from providing start-up funds (outside of that infamous “first draw” on the building’s commercial loan), they apportion risk. Signing a contract locks in the price before the condo’s are built. Condo investors often jumped at the chance to get in on the “ground floor” during the real estate boom, purchasing units in condominiums to later flip, using their early purchases as investment vehicles, not unlike purchasers of IPO’s were doing during the internet boom.
The question for the court is a) whether this was indeed a clerical error; and if it was, b) whether it should operate to relieve the purchasers of their obligation to buy and force the return of the deposits.
In ordinary times, if this were a clerical error, and there was more or less conclusive evidence that each side believed the correct date to be Sept. 1, 2009, there would be no question: The contract would be reformed to reflect the true intent of the parties. The “meeting of the minds” that constitutes a contract agreed upon the 2009 date, and so that would be enforced. But there are a few reasons why, even if the 2009 date reflects the actual agreement, i.e., even if it is a clerical error, to hold the developers to the 2008 date.
First, lawyers for the developers undoubtedly prepared the contract, and would not have allowed any amendments or adjustments to it by the condo purchasers, except for details, such as unit purchased, date executed, amount paid, etc. This can thus be seen as a contract of adhesion, where one party enjoys far greater bargaining power than another, and presents a contract for their signature, as is, else nothing. Second, this is a contract for real property. Real property contracts typically must be in writing if they extend for more than a year (obviously the intent of the developers) and courts are very restrictive in allowing extra-contractual evidence to alter the written terms of the contract. It is an exclusionary rule that evidence outside the four corners of the contract, when it concerns real property interests, can’t be considered when enforcing the terms of the contract.
So, the developers might lose. I’m sure a few crocodile tears will be shed if they do. But it wouldn’t so offend justice if they do. All the purchasers/depositors receive is the return of their deposits and the voiding of their obligation to purchase an investment that is now worth less than they had contracted to pay. The developer still has the condominiums he can resell, but at today’s market price. His attempt to transfer the risk of market fluctuations to the purchasers fails.