Plaintiffs, Giovanni Aromino and Asamarina Aromino, commenced this action against the defendants, Robert Van Tassel and Sean P. O'Sullivan, as escrow agent, alleging that the defendants failed to return a deposit given toward the purchase of a house at 554 Darlington Avenue, Staten Island, New York. The action was commenced in Supreme Court, Richmond County (Index #100609/07) and transferred to Civil Court pursuant to CPLR §325(d). The matter was scheduled for a jury trial.^[FN1] After conferencing the case with the parties, the court determined that there were several issues in the litigation which were questions of law to be decided by a judge and not questions of fact for a jury to determine. The court concluded that the rulings on the questions of law would be dispositive of many of the matters in dispute and would not be appropriate for a jury to determine.

I. CHRONOLOGY

At some point in June 2006 the plaintiffs and defendant Van Tassell entered into a written [*2]contract for the purchase of home to be constructed at 554 Darlington Avenue. The court does not know on what date the contract was made because the document is undated. Apparently there is a local rule in Richmond County requiring that no real estate contract is to be dated-especially if litigation is going to be involved.^[FN2] Not dating the contract is a particularly dangerous practice, because there are several paragraphs of this document, and the typical real estate contract, where the rights and obligations of the parties are calculated from the date of the agreement. As will be obvious below, it also must be concluded that neither counsel bothered reading this contract.^[FN3]

The purchase price of the premises was $785,000.00. Plaintiffs posted a deposit of $35,000.00 at the time of contract. Pursuant to the terms of the agreement, defendant O'Sullivan, counsel for the seller, was to hold the $35,000.00 in his attorney's trust account. The closing of title was contingent on the plaintiffs procuring a mortgage commitment in the amount of $628,000.00 and paying an additional $122,000.00 in good funds at the closing.

Paragraph 3 of the contract initially had a closing date of "on or about July 30, 2006." The July 30, 2006 date was deleted and "August 15, 2006" was handwritten in as the new "on or about" date for closing of title. It should be noted that neither this nor any other handwritten alterations to the contract were initialed by the parties.

On a visit to the site in June or July 2006, the plaintiffs discovered certain structural problems with the premises including water in the basement and an improper pitch to the yard. Plaintiffs hired Coull Building Inspections Inc., to conduct a structural inspection of the premises. The inspection was conducted and Coull issued a report dated July 20, 2006. A copy of the report was forwarded to defendant O'Sullivan on July 24, 2006 by plaintiffs counsel, the Strazzullo Law Firm with a notation that Strazzullo would call O'Sullivan the next day to discuss the contents of the report.

By letter dated July 31, 2006, defendant O'Sullivan notified counsel for plaintiffs that the builder intended to remedy all of the issues raised in the Coull structural report. The letter concluded: "We previously faxed a final certificate of occupancy to you. We will be in touch to schedule a closing."

No other correspondence has been provided to the court until a letter dated September 15, 2006 was sent by defendant O'Sullivan to Strazzullo by facsimile and certified mail.

The letter contained the following: [*3]

Please take notice, that we are hereby declaring TIME OF THE ESSENCE, and setting a CLOSING DATE of September 29, 2006, at 84 New Dorp Plaza, Ste 206, Staten Island, New York 10306, at 10AM.

The contract provides for a closing date of August 15, 2006. Thirty days has [sic] lapsed since said date. To date the buyer has failed to schedule a closing of title. Furthermore, I have been unable to reach you by telephone despite numerous attempts. Your client is now in breach.

Pursuant to the contract the foregoing constitutes a material breach.

Accordingly, in the event title does not close at the aforementioned time, your client will be deemed to be default under the terms of the contract and my client will seek other such remedies as dictated by the contract.

TIME IS OF THE ESSENCE.

By letter dated September 18, 2006, Strazzullo, notified O'Sullivan by facsimile and FedEx as to the following:

I am in receipt of your letter dated September 15, 2006 declaring time to be of the essence. That letter is hereby REJECTED IN ITS ENTIRETY.

I request that the down payment deposit be returned to my client due to the structural damages and the poor condition of the home being transferred. The contract states that the property is new a construction home and clearly it is not.

As of the present time, we will not appear on said date at your office to close title.

If you should have any questions, please feel free to contact me at the above number. Thank you.

This was followed by an undated letter from O'Sullivan to Strazzullo reiterating that the seller had corrected all of the items in the structural report and offering to have the property reinspected by the engineer.

On October 5, 2006, O'Sullivan sent another letter to Strazzullo stating:

By letter dated September 15, 2006 sent to your office, a closing date was set for September 29, 2006 at 10:00 am [sic], to be held at 84 New Dorp Plaza, Staten Island, NY 10306.

You and your client failed to show.

Your client is currently in default of the contract for the above-referenced transaction. Therefore, under paragraph 8 of the contract of sale, we hereby give written notice of said default and give until November 8, 2006, which exceeds the 30 days listed in paragraph 8. If your client fail [sic] to cure said default, my clients [sic] intend to deem the contract cancelled and retain as and for liquidated damages, all sums paid by Purchaser and will pursue other rights under the contract and law.

Please contact my office to address any desire your client has to cure the default.

Then on November 6, 2006 O'Sullivan sent the following letter to Strazzullo.

This letter is to confirm that based upon all correspondence sent to your office prior to this letter as escrow agent, I will release the downpayment to the seller at 4PM, Tuesday, November 7, 2006.

The final piece of correspondence provided to the court is dated November 13, 2006 from O'Sullivan to Strazzullo.

As per all prior communication [sic] from my office, and your failure to file any action on this matter, as escrow agent I have released the funds held on deposit to the seller as noted in the contract.

The transaction did not close with the Arominos as the purchasers. By deed dated February 8, 2007 the property was conveyed to Carol Abramo for a purchase price of $766,233.12 (which may include the State and City transfer taxes).^[FN4] [*5]

II. CONTRACT TERMS

It is conceded by the parties that the original contract did not contain a "time of the essence" clause, nor did it provide for the plaintiffs to have an independent structural inspection.

As noted above, Paragraph 3 of the contract set an "on or about" closing date of August 15, 2006, "or at another date agreed to by the Seller and Purchasers." The paragraph went on to provide:

The Seller shall be entitled to a reasonable adjournment of title as set forth in Paragraph 23 of the Agreement in the event of delay by reason of weather conditions, strikes, labor or material shortages, or delays in inspections and reports thereon, or other requirements. If the Purchaser is not ready to close title at that date and time fixed, any adjournment exceeding seven (7) days granted at the request of the Purchaser shall be upon the condition that....The seven day adjournment was amended by hand to "thirty days."

This change was not initialed by any of the parties. None of the conditions for a Purchase to obtain a closing set forth in this paragraph are relevant to the issues of this litigation.

Paragraph 8 of the contract is labeled, "Purchaser's Default." It states:

If Purchaser fails to appear and close title in accordance with this contract on the date and at the time and place set for Closing or if Purchaser fails to observe or perform any other thing to be observed or performed by Purchaser under this contract, Seller may send Purchaser a written notice of default giving Purchaser thirty (30) days from the date of such notice to cure any such default.

Upon Purchaser's failure to cure such default within such thirty (30) day period this contract shall, at Seller's option be deemed cancelled and Seller shall have the right to retain as and for liquidated damages, all sums paid by Purchaser to Seller on account of the purchase price to a maximum of ten (10%) percent of the purchase price plus all additional sums paid and/or payable by Purchaser for all extra work and extra items ordered by Purchaser, together with all interest credited thereon, if any, which total amount Purchaser acknowledges to be fair and reasonable. If the deposits made by the buyer equals less than 10% of the purchase price, then the seller's liability shall be limited [*6]to 10% of the purchase price.^[FN5]

THE NOTICE OF DEFAULT SHALL BE DEEMED NOTICE TO THE PURCHASER BY THE ESCROW AGENT OF THE ESCROW AGENT'S INTENT TO RELEASE THE FUNDS BEING HELD IN ESCROW ON BEHALF OF THE PURCHASER PURSUANT TO THE DISPUTE RESOLUTION PROVISIONS OF THE ATTORNEY GENERAL'S ESCROW REGULATIONS DESCRIBED IN PARAGRAPH 26 OF THIS PURCHASE AGREEMENT. TIME IS OF THE ESSENCE FOR THE PURCHASER TO CURE SUCH DEFAULT WITHIN SUCH THIRTY (30) DAY PERIOD.^[FN6]

Upon cancellation of this Contract for Purchaser's failure to timely cure any such default, Seller shall be released and discharged of all further liability and obligations to Purchaser under this contract. Thereafter the home and/or lot may be sold or disposed of as though this Contract had never existed and without any accounting to Purchaser for the proceeds of any subsequent sale. The foregoing remedy shall be in addition to any and all other remedies available to Seller under this Contract or at law for any default by Purchaser under this Contract.

Paragraph 16 of the contract is entitled: "Construction of Home by Seller; Incomplete Home at Time of Closing." It provides:

The Seller agrees, at its own cost and expense to erect and complete the aforementioned Home in accordance with the requirements as to materials and workmanship of the City of New York and further agrees that when completed, the same will be in substantial accordance with the plans as filed by the Building [sic] Department. The issuance of a permanent Certificate of Occupancy shall mean that the Home is substantially complete, in which event the Purchaser agrees to accept a letter agreement from the Seller wherein the Seller shall agree to complete all unfinished items within one hundred-twenty (120) days from the date of closing of title, weather permitting. Any such incomplete items shall not constitute an objection to closing provided Seller executes and delivers to Purchaser, a letter agreement in accordance with the foregoing. In the event a permanent Certificate of Occupancy is not issued as of the date of closing of a Home, Seller will obtain the permanent Certificate of Occupancy within two (2) years of the closing.^[FN7]

Purchaser shall permit Seller, its agents, servants and/or employees to enter upon the Premises and shall provide reasonable access thereto subsequent to closing to complete any incomplete items. In the event Seller is required to make any repair or complete any item of work to be performed by Seller after closing, the limit of Sellers [sic] liability shall be to make said repair and/or to complete such item. This Paragraph shall survive delivery of the deed.

Paragraph 17 is labeled "Completion of Construction-Purchasers [sic] Inspection and states:

Purchaser shall accept title (without abatement in or credit against the purchase price or provision for escrow) notwithstanding that the construction of minor details of the Home, the landscaped areas, parking spaces or driveway have not been completed. Purchaser will inspect his Home with a representative of Seller during normal business hours approximately three (3) days prior to the closing date and will sign and deliver to Seller on or before closing date a Pre-Title Inspection Statement, acknowledging the condition of his Home. Receipt of the executed Pre-Title Inspection Statement shall be a condition precedent to closing.

Paragraph 23 is designated "Delay in Closing, Purchaser's Option to Cancel." It contains the following language:

In the event the Seller shall be unable to convey title to the Home within nine (9) months of the proposed date of delivery of title set forth herein, and except for delays due to strikes, acts of God, wars, lookouts [sic], military operations, national emergencies, installation of public utilities, governmental restrictions preventing Seller from obtaining necessary labor or supplies and/or materials, or any court orders prohibiting Seller from commencing and/or completing construction of the Home in which event the period shall be extended to twelve months, and except for Purchaser's default the Purchaser shall have the option to cancel this agreement, and to have the down payment advanced by him returned to the Purchaser with interest, if any. Purchaser shall notify the Seller in writing of its intention to exercise such option no later than thirty (30) days after the nine (9) or twelve (12) month period, whichever is applicable. Failure to notify Seller shall be deemed a waiver of this provision, and Purchaser shall continue to be bound by the terms of this Agreement. In the event Purchaser elects to cancel this Agreement in accordance herewith, Purchaser shall execute and deliver a General Release form supplied by Seller prior to Seller's return of the down payment, and Purchaser shall have no further rights or causes of action against Seller, in the event Seller shall be unable to convey title to the Home within twenty-four (24) months of the proposed date of delivery through no fault of the Purchaser, this Purchase Agreement shall be deemed null and void and Seller shall return all monies being held in escrow within thirty (30) days thereafter. Upon return of said monies both parties shall be released from all further liability hereunder.

Paragraph 24 of the contract sets forth the manner in which the parties are to give notice to each other. It states: [*8]

Any notice to be given hereunder shall be in writing and sent by certified mail, return receipt requested to the parties at the address above given, or at such address as either party may hereunder designate to the other in writing, or to their respective attorneys.

The issue of how purchasers' deposit is to be treated is set forth in paragraph 27 and not paragraph 26 as previously referenced. It provides:

Trust Funds. All deposits, downpayments or advances towards the purchase price made by purchasers prior to closing shall be held in a segregated escrow account held by LAW OFFICE OF SEAN P. O'SULLIVAN, 84 New Dorp Plaza, ste 206, Staten Island, New York, 10306, pursuant to the provisions of Sections 352-h and 352-e(2-b) of the New York State General Business Law and the escrow regulations promulgated thereunder by the Department of Law of the State of New York as disclosed in Section VI of the Offering Plan, [sic] Said funds shall be held in an Interest-on-Lawyers Account pursuant to Judiciary Law Section 497 in an account entitled "LAW OFFICE OF SEAN P. O'SULLIVAN, Attorney Escrow Account (IOLA)" at SI Bank & Trust, 1630 Richmond Road, Staten Island, New York 10304. Pursuant to Judiciary Law, Section 497, all interest earned in the IOLA account will be paid to the State of New York. All instruments shall be made payable to or endorsed to the order of Law Office of Sean P. O'Sullivan, as Escrow Agent. The deposit by the escrow agent of Purchaser's downpayment into the escrow account shall not be deemed acceptance of the Purchase Agreement. The Purchase Agreement shall only be deemed accepted when countersigned by the Seller or his authorized agent. At Closing, the downpayment shall be paid to the Seller upon consummation of the closing and execution of this Purchase Agreement shall be deemed a writing by both Seller and Purchaser authorizing the escrow [sic] Agent to release said funds to Seller at closing.^[FN8]

It is conceded by both parties that the original contract was not a "time of the essence" agreement. The initial closing date was an "on or about date" and a review of the contract terms indicates that there were numerous clauses entitling one or both of the parties to substantial delays in setting a closing date as well as adjournments of any scheduled closing date. Case law holds that "time of the essence" may be made in two ways. The first is by mutual agreement, such as the contract provision making "time of the essence." The second permits one party to unilaterally make "time of the essence" provided certain criteria are met. These include the [*9]closing date set forth in the contract having passed, the setting of the closing on a particular date and giving the opposing party a reasonable time within which to close. [Rivera-Ramos v Welsh, 10 Misc 3d 1071 (A) (2006)]. The notice must also indicate that the failure to perform by the designated date will be considered a default [ Nehamdi v Davis, 63 AD3d 1125 (2009)].

The contract had an "on or about date" of August 15, 2006 and although no closing was scheduled, once that date passed the seller by letter dated September 15, 2006 set a "time of the essence" closing date of September 29, 2006. A notice making "time of the essence" must be clear, distinct and unequivocal and the notice must fix a reasonable time for the party to perform Baltic v Rossi, 289 AD2d 430 (2001); Savitsky v Sukenih, 240 AD2d 557 (1997)]. The letter from O'Sullivan to Strazzullo is clear, distinct and unequivocal. It fixed a closing date at a specific time and place and gave the purchasers a reasonable time to perform, two weeks. It notifies the purchasers that their failure to appear for a closing on September 29, 2006 will be a default under the terms of the contract and that the seller will seek to enforce his remedies as set forth in that agreement.

It is agreed that the plaintiffs-purchasers did not appear for the "time of the essence" closing on September 29, 2006. The court will deal with the issue of whether the defendant-seller properly established his ability to close elsewhere in this decision.

In spite of having issued a letter which properly made "time of the essence" seller's counsel did not send any correspondence to the plaintiff's counsel until October 5, 2006 when seller gave the purchasers an additional thirty-days, until November 8, 2006, to cure their default and close. Seller cited paragraph 8 of the contract as requiring his giving the purchasers thirty-days to cure their default. The contents of this October 5, 2006 letter in effect negated the "time of the essence" demand.

As set forth above, paragraph 8 provides that if the purchaser fails to appear and close title on the date set forth for closing, "Seller may send Purchaser a written notice giving Purchaser thirty (30) days from the date of such notice to cure any such default" [emphasis added]. Although the language of the paragraph does not mandate such an interpretation, and in the law "may" is usually found to be a permissive in its implication absent a showing that another interpretation was meant by the parties, seller elected to treat the word "may" as meaning "shall" or "must" thereby requiring the seller to give the purchasers an opportunity to cure their default.

This cure letter, issued six days after the alleged "time of the essence" closing was scheduled, gave the purchasers thirty-four days to appear for the closing. It also asserts a position which negates the intention of the "time of the essence" letter because it states: "If your client fail [sic] to cure said default, my clients [sic] intend to deem the contract cancelled and retain as and for liquidated damages, all sums paid by Purchaser and will pursue other rights under the contract and law." Seller is withdrawing its previous declaration of the purchaser being in default and the contract breached, by stating that the client has not yet "deemed" that the contract has been canceled and seller only "intends" to cancel the contract. [*10]

Further negating the "time of the essence" is the fact that O'Sullivan sent the letter on October 5, 2006 to Strazzullo offering purchasers the opportunity to cure their default especially after having received a letter from Strazzullo dated September 18, 2006 rejecting the "time of the essence" closing and demanding a return of the deposit. Although this letter does not specifically state that the purchasers are canceling the contract, it makes an unequivocal demand for the return of the deposit. Based on this letter, seller could have claimed an anticipatory breach as of the date of receipt of the Strazzullo letter and sought to assert and enforce seller's contract rights at that point and in any case, after the "time of the essence" closing date. There was no need to grant the purchasers an opportunity to cure in view of the fact there does not appear to be any evidence that the purchasers were interested in performing the contract.

The final action negating the "time of the essence" demand, is the fact that O'Sullivan in the October 5, 2006 letter gave the purchasers until November 8, 2006 to cure, yet on November 7, 2006 O'Sullivan released the escrow deposit to the seller. This was one day prior to the cure date. Even if giving the purchasers a date by which to cure their default was not required by the contract, once seller unilaterally afforded the purchasers the opportunity to do so O'Sullivan was required to wait until after November 8, 2006 to release the money; assuming he had a right to do so.

B. Has the Seller Established He was Ready, Willing and Able to Close?

In addition to properly setting a "time of the essence" closing, the party seeking to enforce that clause must establish that he or she is "ready, willing and able" to close having fulfilled all of that party's obligations under the terms of the contract. Seller has to establish at a minimum that it has cleared any and all objections to title raised in the title report; seller has to produce the deed, a bargain and sale deed with covenants against grantor's acts, as well as all necessary forms to be completed and filed along with the deed in order to transfer title; and seller has to actually appear at the time and place for closing and then memorialize the events and the purchasers' default in appearing. There is no evidence that the seller did any of these things. An experienced real estate attorney in order to prove his or her client's ability to close will hire a stenographer to be present at the closing and make a record of his or her client's attendance at the scheduled time and place with the required documents all completed and marked as an exhibit by the stenographer. The record in this case is completely devoid of any evidence that the seller complied. There is only the bald, unsubstantiated statement from seller's counsel that seller was in compliance. That is insufficient to establish performance by the seller. There is no indication that an independent person from the title insurance company or abstract company was present at the scheduled closing date or even notified of that date. In fact, the abstract company Grant Island Abstract, LLC initially designated in the contract may be operating out of the same office as O'Sullivan, 84 New Dorp Plaza, Suite 206. It should also be noted that Island Capital Services, LLC, also operates out of 84 New Dorp Plaza, Suite 206 and according to paragraph 6 of the contract had the right to pre-approve the purchesers for any mortgage. This entity uses the same fax number as O'Sullivan.

C. Was O'Sullivan Authorized to Release the Escrow? [*11]

Based on the court's findings set forth above, O'Sullivan was not permitted to release the downpayment to his client. Assuming however, that he either did properly make "time of the essence" and that he believed he was acting lawfully and in good faith, could O'Sullivan release the escrow? The answer is an unequivocal "NO."

First, paragraph 27 setting forth how the deposit would be treated states: "At Closing, the downpayment shall be paid to Seller upon consummation of the closing...." The closing never took place. The contract, which was drafted by seller's attorney, could have provided for release of the deposit upon a default by either party to the non-defaulting party, yet it did not. Because the seller drafted the contract, it must be construed against the seller.

Second, for some totally incomprehensible reason, seller's attorney drafted paragraph 27 as if this were a contract subject to General Business Law Article 23-A, the statute commonly referred to as the Martin Act. As noted in the footnote in reference to that paragraph, there is no evidence that the property in question is subject to that law. In fact, paragraph 7 of the contract referring to the existence of a "home owners [sic] association" has been deleted from the agreement. Referance to the non-exisiting offering plan was not deleted from paragraphs 12 & 33. The only explanation would seem to be that seller's attorney either cut and pasted this contract from another one in his computer or he adopted a contract drafted by some other practitioner without fully comprehending the significance of the paragraph.

The above being said, seller's counsel voluntarily subjected himself to the requirements promulgated by the New York State Department of Law. These regulations are found in New York Code, Rules and Regulations (13 NYCRR §22.3). Prior to releasing any monies held in escrow, O'Sullivan had to comply with the procedure set forth in that regulation. The rules provide (13 NYCRR §22.3(k)(2)(vii)):

(b)The escrow agent shall hold the funds in escrow until otherwise directed in:

(1) a writing signed by both sponsor and purchaser;

(2) a determination of the Attorney General pursuant to subparagraph (vii) of this paragraph;

(3) a judgment or order of a court of competent jurisdiction, or until released pursuant to clause (d) of this subparagraph....

(d) If there is no written agreement between the parties to release the escrowed funds, the escrow agent shall not pay funds to the sponsor until the escrow agent has given the purchaser written notice of not fewer than 10 business days. Thereafter, the funds may be paid to the sponsor unless the purchaser has already made application to the Department of Law pursuant to the dispute resolution provisions contained in these regulations and has so notified the escrow agent in accordance with such provisions.

Having subjected himself to these regulations, what options were open to O'Sullivan? There was no writing signed by both the "sponsor" or in this case the seller and the purchaser directing him to release the escrow. In fact, O'Sullivan was aware by the September 18, 2006 letter that the purchasers were seeking return of the monies to them. Therefore subparagraph (d) [*12]was not an option either.

There was no determination by the Attorney General, and in light of the fact that the contract was not subject to the regulations of the Attorney General, it is unlikely that making such a determination would be accepted by that agency nor that such an agency could legally make such a determination because the contract dealt with real property which was outside the scope of its statutory authority.

This left as the only avenue available to O'Sullivan the seeking of a determination from a court of competent jurisdiction. This is further spelled out in 13 NYCRR §22.3 (k)(2)(viii) the section establishes how disputes in regard to escrow monies are to be resolved. It sets forth how to proceed when the Attorney General is involved-which is not the case here, but also outlines procedures to be followed if the Attorney General denies an application for relief.

Subparagraph (e) states:

If the application seeking release of funds is denied, the escrow agent shall continue to hold the deposit and interest earned thereon until:

(1) both the sponsor and purchaser direct payment to a specified party in accordance with a written direction signed by both the sponsor and purchaser;

(2) a judgment or order of a court of competent jurisdiction is served on the escrow agent; or

(3) the escrow agent deposits the disputed amount into court.

Subparagraph (f) goes on to provide:

In no event shall the escrow agent release funds in dispute, other than a payment of funds into court, until such dispute is finally resolved by determination of the Attorney General, by order or judgment of a court of competent jurisdiction or by written agreement of the sponsor and the purchaser.

No matter how the facts of this case are analyzed, once O'Sullivan voluntarily subjected himself to the Department of Law rules, he had no authority to release the money. Even without the rules, once the purchasers, made a demand for the release of the money, as the escrow agent he could not release the money unless he had the written consent of the parties or a court order. Because no action was pending between the parties until the plaintiffs commenced this litigation in Supreme Court in January 2008, O'Sullivan had to either keep the money is his trust account or pay it into court by bringing a stakeholder action. He did neither.

In 2006, the actions of counsel were subject to the Code of Professional Responsibility, specifically DR 9-102. There are ethics opinions holding that when an attorney such as O'Sullivan, releases the deposit money while aware of a conflicting claim, he does so at his peril. It should be noted that the legislature has shown concern about this issue and in at least two separate sections of the General Business Law, Articles 36-C and 37, set forth procedures for protecting deposits made by the purchasers of residential real estate. [*13]

D. Did the Plaintiffs-Purchasers Have a Right to Cancel the Contract?

On September 18, 2006, after receipt of the "time of the essence" letter from O'Sullivan, Strazzullo rejected "time of the essence" and demanded the refund of the contract deposit. Strazzullo asserted that purchasers were doing this "due to the structural damages and the poor condition of the home being transferred. The contract states that the property is a new construction home and clearly it is not."

The facts of the case indicate that in spite of Strazzullo's contention, the property was new construction. The final or permanent certificate of occupancy was issued in July 2006. Buildings Department records show that the initial filings were made in 2005 for construction of this home. This is all a matter of public record and should Strazzullo or his clients have questioned this representation they should either have not signed the contract or checked the Buildings Department records so as to satisfy any doubts they may have had. They had constructive notice of the facts regarding the building of this house. There is no factual basis to support this allegation.

It should also be noted that because this is "new construction" it is not subject to Article 14 of the Real Property Law, the Property Condition Disclosure in the Sale of Residential Real Property Act (PCDA)-another "clue" to Strazzullo that this is new construction and not a "resale" (RPL §461 & 463) If he believed it was not new construction then Strazzullo should have negotiated either completion of the disclosure form by the seller or a $500.00 credit at closing (RPL §465). He did neither.

The more important basis for purchasers seeking the refund of their deposit is the alleged structural defects discovered by Coull Building Inspections. This report is dated July 20, 2006, apparently after the parties executed the undated contract of sale. It should be noted that the contract did not give the purchasers a right to have a structural inspection nor did it make the agreement subject to a structural inspection. In fact, the common practice in Richmond County is for a potential purchaser to have a structural report prior to signing a contract in regard to the resale of a home. Although not prohibited, to seek one in the case of new construction is highly unusual. Had the purchasers been concerned about the structural integrity of the house, their counsel could have either negotiated having the structural inspection done before the contract was signed, or as a clause permitting cancellation of the contract after signing based on items in the structural report. Counsel for the purchasers did neither.

Before getting into an analysis of the Coull report, the court must note that as of December 31, 2005, six months before the undated contract was signed, the legislature passed legislation requiring that all home inspectors be licensed (Real Property Law Article 12-B, Home Inspection Professional Licensing). The report from William Coull fails to indicate that either he or the business was in fact properly licensed. No license number is disclosed any where in the document. In fact, disclosure of this information is required by the statute "on every home inspection report and in all advertising" (RPL §444-g). The court therefore cannot give any credence to the contents of that report. Counsel for purchasers, as an attorney, should have been [*14]aware of this licensing requirement and either had his client hire a properly licensed person or corrected the defect in the report if in fact Coull was licensed at the time. For the court to give credence to the contents of a report issued by an unlicensed inspector, would seriously undercut the intent of the statute. This issue is further complicated by the fact that William Coull is now deceased making it impossible to cross-examine him as to the contents of the report.

Irrespective of the contents of the Coull report, a review of the contract between the parties discloses that the plaintiffs have no right to cancel the contract. The sole contractual basis for the purchasers to cancel the contract is set forth in paragraph 23. It is limited to situations where the seller is unable to convey "title" to the home, which is not the situation in this case, or if there are construction delays. In either case, the purchasers cannot cancel the contract without giving the seller nine months to cure any title defects and twelve months for any construction related delays. Neither of these contingencies exist. Even if the court were to accept the problems raised in the Coull report as legitimate, seller alleges that all of these issues were resolved prior to the setting of the "time of the essence" closing date and that a final certificate of occupancy had been issued on July 25, 2006 indicating that the premises was constructed in accordance with all municipal building codes.

The fact that both sides were represented by counsel and that there are alterations to the contract some by hand establishes that the terms of the agreement were negotiated by and between the parties. If concerned about conditions of the premises or retaining a right to cancel the contract for reasons other than those set forth in the agreement, it appears that purchasers had ample opportunity to do so.

At best, if the items in the Coull report had not been addressed, the purchasers were required to close, place those items on the "Pre-Title Inspection Statement" and give the seller one hundred-twenty days to complete those items (contract paragraphs 16 & 17). These paragraphs specify that these construction related items are not the basis for canceling the contract and limit the seller's liability to the making of the repair or completing the item. Purchasers were required to close. They could not cancel the contract for the items mentioned in the Coull report. In the worst case scenario, if seller failed to correct those items, purchasers would have a claim for money damages against the seller.

Also, this contract provided the purchasers with a limited warranty which is an addendum to and incorporated into the contract of sale ^[FN9]. This warranty is required by General Business Law Article 36-B. If Strazzullo believed that the premises was not "new construction," then why did he have his clients sign a contract with the warranty included? The warranty would be triggered either by the date of closing of title or the date of occupancy by the purchasers, whichever is later. If seller failed to correct the items raised in the Coull report and, assuming they are all [*15]covered items, purchasers' redress was to file a claim under the limited warranty. The seller would either have to repair the defects or reimburse the purchasers for the cost of doing the same.

Ironically, there is a "punch list" for 554 Darlington Avenue attached to the limited warranty. It is of course "undated" and signed by Peggy Power from Neuhaus Realty, the licensed real estate broker selling the houses. There is no way of determining if this is a "punch list" prepared for the Aromino's or if it was for the Durante's who may have had a prior contract for the premises. In any case, none of the "punch list" items reflect the issues raised in the Coull report.

A review of the agreement leads to the conclusion that there was no legal basis for the purchasers to cancel the contract. The letter from Strazzullo dated September 18, 2006 was an unauthorized breach of the agreement entitling the seller to enforce his contract rights.

E. Did the Seller Properly Cancel the Contract?

The notice provision of the agreement (paragraph 24) required all notices to either the parties or their counsel to be made by certified mail, return receipt requested.

Of the correspondence provided by the parties to the court it appears that O'Sullivan followed the requirements of the contract in that all but one of his letters indicates that it was sent by certified mail return receipt requested to Strazzullo. Most of the O'Sullivan letters were also sent by other means such a facsimile or overnight delivery. Although O'Sullivan's correspondence says it is being sent by certified mail return receipt requested, the body of the letters do not indicate a certified receipt number nor has O'Sullivan attached the "green" receipt card as an exhibit.

As stated above, all but one of the O'Sullivan letters indicate mailing as required by the contract except for the letter dated November 6, 2006 informing Strazzullo that O'Sullivan is releasing the down payment at "4PM , Thursday, November 7, 2006" which is a day earlier than he said he would in the October 5, 2006 correspondence. So not only did O'Sullivan issue the check in violation of the contract requirements but he failed to notify Strazzullo of that fact in the manner set forth in the contract.

Of greater import to plaintiffs' allegations in this case is whether their counsel properly followed the notice requirements of the contract because they are alleging that they terminated the contract. There is no indication that any of Strazzullo's letters to O'Sullivan were sent in accordance with the notice provisions of the contract. The Coull report was faxed on July 24, 2006 and the rejection of "time of the essence" letter dated September 18, 2006 was sent by fax and Federal Express: neither method is sanctioned by the contract. This being the case, it must be concluded that the purchasers failed to properly cancel the contract. The fact that defendant's counsel may have actually received the notice would only matter if defendant accepted the cancellation and not if defendant sought to treat the contract as still being in effect. [*16]

CONCLUSION:

There are no triable issues to bring before a jury. Under the terms of the agreement, Purchasers had no right to cancel the contract on the grounds they asserted. Further, counsel for plaintiffs failed to give notice of cancellation by the means set forth in the contract. Plaintiffs' counsel did not send any notice concerning the alleged unsatisfactory conditions nor raise the issue until after the defendant sought to make "time of the essence." Purchasers breached the contract and not the defendant Van Tassel. Based on the foregoing, there is no cause of action against the seller-defendant Van Tassel. Van Tassel as a matter of law was entitled to have the deposit paid to him as liquidated damages.

Van Tassel has asserted a counterclaim pursuant to paragraph 8 seeking as damages up to 10% of the purchase price or $78,500.00. There is no showing that seller incurred any damages even approaching that amount, as such, to enforce that clause would amount to assessing a penalty against the purchasers. Courts do not enforce liquidated damage clauses when, as here, they amount to a penalty. Sellers' counterclaim is dismissed in regards to seeking an additional $43,500.00.

Although not properly articulated in the purchasers' complaint, there is a separate claim against defendant O'Sullivan. The complaint seeks to lump together Van Tassel and O'Sullivan in a single breach of contract cause of action. In effect, plaintiffs' inarticulate pleading alleged that Van Tassel failed to deliver the house as contracted for, a claim this court finds without basis. There does exist a separate cause of action against O'Sullivan for breaching his duty as the escrow agent under the contract and improperly releasing the monies to Van Tassel. The escrow agent under this and all similarly drafted real estate contract is a fiduciary subject to certain higher standards of care.

There is no question that O'Sullivan failed to adhere to his contractual duty to act as an impartial escrow agent. In fact, he drafted a contract in which he subjected himself to the strictures of the Department of Law in regard to the handling of trust funds and then ignored those very requirements and utterly breached those rules and regulations.

The question remains if a private right of action exists against O'Sullivan under the Martin Act or, is the Martin Act not applicable because the underlying transaction-the subject matter of the contract- is not a covered activity under the statute. General Business Law §352- i deems any violation of GBL §352-h and the Rules of the Attorney General to be a "fraudulent practice." It would seem that even though the transaction itself is not covered, O'Sullivan voluntarily subjected himself to these rules and regulations. Therefore any such violation creates a presumption of a fraudulent practice which O'Sullivan may be entitled to rebut at trial. Interestingly, the Martin Act only provides for injunctive relief in the case of fraudulent practices obtainable in Supreme Court. No private right of action exists for damages.

Even if O'Sullivan had not subjected himself to the Department of Law requirements, he would still be precluded from releasing the escrow deposit because he was notified by Strazzullo that the purchasers were seeking a refund of the money. As the escrow agent, he was precluded [*17]from releasing the money without a written agreement of the parties or a court order. The course he should have followed was paying the money into court.

By subjecting himself to the Martin Act, and failing to adhere to its terms, O'Sullivan has committed a "fraudulent practice." But because there is no private right of action provided under the statute, and plaintiffs are not entitled to any damages under the terms of the contract as they were in default, plaintiffs cannot have a trial on the issue of what damages, if any, they have suffered as a result of O'Sullivan's breach of his fiduciary duty. There appears to be no legal remedy available to plaintiffs in the court system against O'Sullivan for his unauthorized actions.

The foregoing constitutes the decision and order of the court.

Staten Island, NYHON. PHILIP S. STRANIERE

Judge, Civil Court