Plaintiffs^[FN1] brought suit against the defendant Bank of East Asia (USA), now known as Industrial and Commercial Bank of China (USA) ("Bank"), claiming damages for the Bank's refusal to close upon a Commitment for purchase and construction financing of a project located at 55Eckford Street in Brooklyn, New York. Plaintiffs never actually acquired title to the real property upon which the mixed use structure was to be built because the transfer of title was [*2]conditioned upon plaintiffs' obtaining a mortgage commitment in the sum of $9.9 million to cover the cost of constructing the building. Nonetheless, defendant Bank did entertain plaintiffs' application and did issue a Commitment. However, not satisfied that plaintiffs had met its demands regarding due diligence and appraisal requirements, the Bank ultimately notified plaintiffs that the Commitment had lapsed according to its terms. Following denial of defendant's motion for summary judgment dismissing the complaint, upon the grounds that numerous issues of fact had been raised, it was determined that the trial should be bifurcated and a bench trial was held beginning on December 10, 2012, and concluding on January 10, 2013, as to liability only. The Court is now in receipt of the parties' post-trial briefs addressed to that issue.

In denying defendant's motion for summary judgment dismissing the complaint, this Court found questions of fact arising out of defendant's preemptive notice that the Bank's Commitment had expired when the Bank had, itself, failed to timely obtain an appraisal that had been paid for by plaintiffs and was a necessary prerequisite to closing the loan. The notice indicated that the Bank had failed to complete needed due diligence because it had learned of plaintiffs' intention to use the community facility area of the building as a daycare center only after the Commitment had been signed. Noting that this representation was belied by the information supplied in the original application package, the Court found the reason given "pretextual" and that the hold placed on the appraisal, pending receipt of approved architectural plans inclusive of the daycare facility, potentially a breach of the covenant of good faith and fair dealing, notwithstanding the terms of the Commitment that gave defendant unfettered discretion to "accept, approve or disapprove plaintiffs' submissions". An alternative reason given for termination of the Commitment by the Bank was the "adverse change in the real estate market" which "alone" purportedly would permit termination of the Commitment. The Court takes judicial notice that the value of real estate took a dramatic and unprecedented downturn in 2008 following the demise of Lehman Brothers investment bank on September 15, 2008; however, the Bank had induced plaintiffs' reliance upon its Commitment and was not free to unilaterally withdraw its Commitment merely because it was no longer a good business arrangement for the Bank, if the plaintiffs had performed in good faith.

The evidence adduced at trial established, however, contrary to plaintiffs' contentions, that it was plaintiffs who failed to perform under the terms of their commitment and no evidence supports the claim that the Bank breached the covenant of good faith and fair dealing inherent in the contract. Although the Bank admittedly failed to close on five of the seven construction loans pending during the relevant period, and did not close any construction loan after August, reasonable explanations were offered to justify the failure to close in each case, particularly in the instant case. In fact, the Court concludes that defendant Bank made extraordinary accommodations to plaintiffs in its efforts to close the loan. Moreover, it was revealed at trial that plaintiffs had not disclosed information which might have warranted the Bank's withdrawal of its Commitment even prior to the expiration date.

On June 16, 2008, plaintiffs submitted a "Transaction Package", essentially a loan application ("Application"), through a mortgage broker, together with a $15,000 Good Faith [*3]Deposit to cover the costs of the appraisal. The Application contained the representation in an "Executive Summary", that the plaintiffs had "contracted with a new architect to reconfigure the commercial space and the basement for a day care center" and were "close to signing a lease with an experienced day care center for the entire commercial space at 44 dollars a sq. foot", which was significantly above the going rate of $25 to $32 per square foot. This representation deviated from the previously Department of Buildings (DOB)- approved plan which had been created for the existing owner of the property, Blue Diamond Development LLC, showing a 16-story mixed use condominium consisting of 26 residential units and three floors of "community facility" space, depicted as a "vanilla box". It is unclear whether this plan was supplied to defendant prior to delivery to the Bank's appraiser, Guy Engelman, on or about October 6, but it is undisputed that no revised plan describing the day care center was ever prepared. Mr. Engelman testified that he was unaware of plaintiffs' intended use of the space for a daycare center at the time he received the previously-approved set of plans, which did not indicate a daycare center.^[FN2] Engelman testified that he was subsequently advised by the borrowers, "Aaron or Judah", on or about October 8, that they did not yet have plans but were "working with an architect", identified as Walter Maffei, on plans for the day care center. No such plans were ever produced, notwithstanding representations to the Bank that such plans would be imminently forthcoming. Maffei testified that he had done some "quick free-lance sketches" of the daycare area, but that they had been discarded and were not submitted to the Bank or its appraiser. He stated that he had been instructed to wait for the "go-ahead" before beginning any final drawings, which would be costly, and was never directed to prepare such drawings. Plaintiff Septimus acknowledged that Brian Law, the Loan Officer at the Bank primarily responsible for processing the Application, had demanded architectural renderings for the daycare center in September, but both Septimus and Gertz testified that they intended to provide such plans only after the loan closed.

Following the Bank's internal credit analysis, which recommended granting the Application, and approval by all necessary parties, on August 15, a Commitment letter (Commitment) was issued containing numerous conditions to be met by plaintiffs, including the payment of a non-refundable commitment fee of $99,750, to be paid upon execution by plaintiffs not later than August 29. The Commitment expressly stated that it would expire at 5 p.m. Eastern Standard Time on August 29, 2008, if the Bank had not received a fully executed copy of the Commitment letter together with the non-refundable Commitment Fee of $99,750. It further stated: "Moreover, our offer will expire if the Loan does not close before October 24, 2008". Plaintiffs did not submit the executed copy of the Commitment until August 27, despite their contentions of urgency in obtaining an appraisal, and did not pay the Commitment Fee. When Brian Law notified plaintiffs' broker that the Commitment letter would not be valid without payment of the Commitment Fee and would be terminated, plaintiffs negotiated payment of only $50,000 of the fee in mid September, with the balance to be paid at closing. Ultimately, [*4]plaintiffs paid only $25,000 on September 15 and another $25,000 on September 29.

Plaintiffs had failed to comply with a threshold requirement of the Bank Commitment, but the Bank accepted their non-compliance and, even prior to receiving the balance of the Commitment Fee, ordered the appraisal on September 22, including the caveat: "This report is due by NOON on October 13, 2008 or earlier. Timing is critical and your stated due date has been a material factor in our decision to hire you"(Plaintiff's Ex. 25). The appraisal Engagement Letter set forth in great detail the Bank's expectations that the appraisal would conform to the requirements of the Federal Deposit Insurance Corporation, Uniform Standards of Professional Appraisal Practice (USPAP), the Appraisal Institute Code of Ethics and Title XI of the Federal Financial Institution Reform, Recovery and Enforcement Act (FIRREA), and directed that market value be determined using all three methods, the Sales Comparison Approach, the Income Capitalization Approach and the Cost Approach, that were to be reconciled to a final valuation. The intent of the borrower was described as 3 commercial units, 26 residential units and 18 parking spaces. No mention was made of the intended daycare center or any other community facility. A new 7-story frame already occupied the site. The client was identified as the Bank, which would ultimately determine the sufficiency of the report and be relying upon it in determining whether loan to value would justify the loan. There is no merit to plaintiff's argument that the Bank was without authority to "override" the appraiser's judgment.

Although it became apparent in the course of trial that plaintiffs were only marginally committed to the project and were seeking to avoid incurring any cost prior to closing the loan (their purchase of the property was still in negotiation with the existing mortgagee with respect to assignment of the mortgage that was already in default )^[FN3], plaintiffs argued that the Bank had made unreasonable demands for plans, in bad faith, to avoid closing on the loan. Plaintiffs contended that they would not be able to obtain approval of a plan for the daycare area until a certificate of occupancy was obtained following completion of construction, but that they had a lease with an experienced daycare provider who would ensure that the daycare center would be in compliance with applicable rules and regulations. It was revealed at trial, however, that the tenant, Two By Two Childcare, LLC, which was formed on February 19, 2008, had no prior record of operation, and was 75% owned by plaintiff Septimus, who had drafted the lease and set the rent. The Bank only learned at trial that the lease, which had been proffered in support of plaintiffs' application, was not an arms' length transaction. Although it was stipulated at trial that the rent specified could be paid by Two By Two, the lease itself was incomplete, was lacking critical addenda, and appears to have been contrived for submission to the Bank.

Moreover, the testimony of plaintiffs' own architect, Walter Maffei, did not support their contention that the depiction of the daycare center as a plain vanilla box was sufficient to ensure approval because a daycare center fell within the permissible described use of the space as a [*5]community facility. Maffei, who was experienced in designing daycare centers, testified that, although the daycare center would be a use permitted as of right under the Zoning Resolution, and final approval of a plan by the Department of Buildings could only be obtained following construction, both the Administrative Building Code and the Health Code contain specific requirements for a daycare facility, such as room size, number of toilets, means of egress and fire alarms, which would affect the cost of construction. Maffei further testified that a pre-construction review of plans by the Health Department could be obtained that would informally assure acceptance of the proposed plan following construction. Thus it was demonstrated that the insistence of the Bank's Head of Credit, Kitty Sin, that a plan for the daycare center be provided to its appraiser in order to obtain an accurate and reliable appraisal of the costs of the project, was not unreasonable.

The Bank's appraiser, Guy Engelman, a licensed assistant appraiser with the firm First American Appraisal, LLC, which had been retained by the Bank, was assigned to perform the appraisal of 55 Eckford, under the supervision of Joseph Lombardi, who did not testify at trial although his instruction appears to have been critical to Engelman's decision to advise the Bank regarding the need for plans for the daycare center in order to complete the appraisal. Upon receiving the assignment, Engelman contacted plaintiff borrower Gertz to set up a site inspection to take place on or about October 2. In an e-mail to Shlome Goldstein, plaintiffs' mortgage broker, dated September 29, Engelman instructed that, in order to complete the appraisal, he would require "Architectural Plans or at least the architect's zoning analysis", a budget showing hard and soft costs, details with respect to the residential units, including the condominium offering plan, and "Details on the commercial spaces and parking". At this time, Engelman did not know of the intended daycare center and was apparently relying on the information contained in the Engagement Letter as to the intended occupancy. On October 6 at 10:31 A.M., Engelman advised the Bank's Christina So that he was in receipt of the necessary information to complete the appraisal and would have it by the end of the week. However, by e-mail on October 8, 2008, at 2:15 P.M., Engelman advised So:

"The developers of 55 Eckford are planning to use the cellar, first

and second floors of the building as a day care center. They do not

have plans yet for the space and said they are now working with an

architect on plans for this portion. So we can make the extraordinary

assumption they will get approvals from the Department of Health for

a day car [sic] center with the square footage proposed but I wanted

to check with you first. The values would then be based on the plans

they have now for the residential portion and for 12,590 square feet

of community space, rather than three separate commercial units as

what was initially planned. Please let me know how you would like

us to proceed." (Pl's Ex 27).

In response to this inquiry, So advised Engelman to hold the report until all the architectural plans had been received. Kitty Sin testified that she had instituted the hold because [*6]she had determined, in consultation with Donald Lai, the head of Business Development,^[FN4] that the plans for the entire building, inclusive of the daycare center, were necessary to a proper appraisal consistent with USPAP and other professional requirements, and that she could not accept a report that was premised on an "extraordinary assumption". Engelman testified that the characterization "extraordinary assumption" is a term of art. The USPAP requires that any extraordinary assumption be identified in the appraisal, that the appraiser have a reasonable basis for the assumption and that the use of the assumption results in a credible analysis. If an extraordinary assumption is subsequently determined to be false, the value of the property may be altered, thus rendering the appraisal inaccurate. The USPAP expressly provides: "When appraising proposed improvements, an appraiser must examine and have available for future examination, plans, specifications, or other documentation sufficient to identify the extent and character of the proposed improvements" (Standards Rule 1-2(e), Comment on (i)-(v)). As Sin testified, the problem highlighted in Engelman's e-mail regarding the change in use and the lack of plans for the amended use as a day care facility created a serious impediment to an accurate appraisal upon which the Bank could base its assessment of loan to value so as to justify funding the loan.

By e-mail to plaintiffs' brokers on October 9, Law advised that the appraiser required the "architect plan for the daycare spaces in order to evaluate the property value" as the value would "be distorted without the appropriate plan". On October 10, 2008, by e-mail at 4:49 P.M. to So, copied to Lai, Engelman reiterated that the appraisal could be performed based upon the existing approved plans, with an alternative valuation for the modified use, "rooted in the assumption that all the necessary approvals. . .will be obtained by the owners" (premised, according to Engelman, upon plaintiffs' own assurances that this would be so), if an architect's letter outlining the proposed changes to the plans were supplied. Engelman also indicated that the fee for this increased scope of work would be an additional $1,000. On October 13, Architect Maffei provided a letter stating that the day care center would be a permitted use under the Zoning Resolution, but did not specify any changes in the plan, merely reiterating that the existing plans were approved for a medical office on the first floor and offices and a gym on the second floor.

On October 15, by e-mail, Engelman advised So that he had received an architect's letter and a proposed lease for the day care center and inquired whether he should proceed with the appraisal, to which Donald Lai responded that the proposed lease would "change the financial structure of the construction project from the original proposal" and that the hold should continue until "proper approval for the plans as a day care center" could be obtained. It is noted that both Sin and Lai insisted that the submission of the lease for the daycare facility somehow changed the circumstances by committing plaintiffs to a use, and attendant cost, that had not previously been anticipated. However, the Commitment indicates that the "permitted use of funds" included the construction of three floors of community facility space, which would include use as a [*7]daycare facility. Defendant's contention that it was unaware of the proposed use is impeached by the documentary evidence, but the right of the Bank to demand architectural plans for such use, even if unapproved (Sin testified that she would not require approval of the plans prior to construction, but insisted that a reliable assessment of the cost of construction required a review of an architectural plan describing such use), is clearly stated in the Commitment. Sin, who had hired the appraiser and was actually the individual responsible for determining the sufficiency of the information provided in support of plaintiffs' application, acknowledged that she had no experience with day care facilities. She testified that she would rely upon an engineer's evaluation, based upon the appraisal, to ultimately determine whether to fund the loan. While Ms. Sin's and Mr. Lai's insistence upon "approval" of the daycare center was unreasonable because final approval was impossible to obtain prior to construction, this difficulty was not made clear until October 24 at 5:44 P. M, when Gertz explained the process to Law in his e-mail. The Court therefore attributes the insistence on approved plans to a lack of understanding, rather than an intent to thwart plaintiffs' rights under the Commitment. In any event, the inability to obtain Department of Health approval would not preclude DOB review and approval. Ultimately, the instinct to delay action pending receipt and review of architectural plans was justified.

The totality of the evidence establishes that the request for plans was not an arbitrary or contrived demand intended to subvert plaintiffs' contractual rights, but is supported by the professional standards for a competent appraisal. Although the evidence established that final "approval" of plans for the daycare center could not be obtained prior to construction, and such demand could not be satisfied ( whether Lai and Sin knew it or not), the lease provides that "Lessor" is required to perform work specified in "Exhibit B", which is not attached to the lease. Thus, the requirement that the appraiser be provided with plans for examination was entirely appropriate since the costs of construction would surely be affected. As Sin further explained, she was concerned with the "rental fallback" consequences to valuation if the residential units did not sell and had to be rented, as well as the obligation to provide a daycare facility under the provisions of an offering plan that, if construction was not completed and/or the mortgage was defaulted, might place a burden on the Bank. All of these factors were legitimate concerns of the Bank.

As Sin indicated, an engineer was enlisted to review the plaintiffs' submissions. Gerard Tener, the Bank's engineer, advised plaintiffs' broker, Steve Goldstein, by e-mail sent at 1:52 P.M. on October 24, that the 2005 plans he had provided to him that day had not been examined by the Department of Buildings and had not been filed, precluding him from taking any action without further instruction from the lender. Tener reported to Law on October 24, the expiration date of the Commitment, that there were "possible difficulties and/or other complications" presented by plaintiffs' application. Mr. Tener erroneously represented to Law that the plans he had were "self-certified", rather than fully reviewed and approved by the Department of Buildings, and that there was a risk that they might be audited and found to be deficient during construction. Unfortunately, this was not accurate, as the plans had been fully examined and approved. In addition, consistent with Maffei's testimony, Tener recommended that a review of construction documents for the daycare facility be requested from the Department of Health for compliance with its regulations, thus corroborating the need for architectural plans for the daycare center as a condition to completion of the appraisal and final approval of the loan. At [*8]3:03 P.M. the same day, Law advised Tener that Goldstein had provided evidence of the plans' approval from the DOB website, asking him to confirm. Tener's opinion letter was provided to plaintiff Gertz by Law on October 24 at 3:09 P.M. In reply, at 5:44 P.M. on that date, Gertz assured Law of his intentions to build in conformity with Department of Health regulations, representing that his "Architect/Designer", an expert in daycare centers, "had been instructed to prepare the necessary construction documents" for review by the Department of Health, and further giving assurance that the plans supplied had been audited by the DOB.

By letter dated November 3, 2008, signed by Lai, and forwarded to Gertz and Septimus by e-mail dated November 4, plaintiffs were advised that the Commitment had expired due to the plaintiffs' failure to comply with their obligations as specified in the Commitment and the resultant inability of the Bank to complete the necessary due diligence. The regulatory concerns related to the intended daycare facility were cited, but the letter also cautioned that other problems may have been revealed in the course of due diligence that would have precluded the Bank from closing on the loan. In the ten days between expiration of the Commitment and the date the Bank finally notified plaintiffs of such expiration, no plans for the daycare center were provided and there was no evidence presented that such plans were ever prepared. Nor did plaintiffs seek an extension of the Commitment. Upon receipt of this communication, by letter dated November 4, 2008, plaintiffs' attorney advised Law that his clients had been seeking a closing date for two weeks and were prepared to close "immediately", threatening to commence an action for specific performance if no date was set within two weeks.

Plaintiffs' case is premised upon their contention that defendant's demand for plans for the daycare center as a pre-condition to completing the appraisal needed to close the loan was not made in good faith because their appraiser had represented that the appraisal could be completed with the information available to him. As Lai wrote in his letter of November 4, there may have been other issues that could have arisen in the course of the Bank's due diligence that would have prevented the closing, and the Commitment contains a list of 27 items that the plaintiffs were required to submit,^[FN5] in form satisfactory to the Bank, in order for the Bank to complete its due diligence, but the primary issue to be determined by the Court is whether the Bank's refusal to proceed with the appraisal, and to accept the "extraordinary assumption" suggested by Engelman, constituted a breach of the covenant of good faith and fair dealing by deliberately depriving plaintiffs of the benefit of the Commitment without justification.

Plaintiffs argue that the Bank did not have discretion to "override" the independent judgment of the appraiser. This contention is absolutely unfounded. The Engagement Letter sent by the Bank specifically provided that the Bank was the client and set forth detailed requirements [*9]for the appraisal report, including compliance with USPAP and FDIC Guidelines, promulgated by the Office of the Comptroller of the Currency (OCC)(12 CFR §34.44), the Board of Governors of the Federal Reserve System (FRB)(12 CFR §225.64), the Federal Deposit Insurance Corporation (FDIC)(12 CFR §323.4) and the Office of Thrift Supervision (OTS)(12 CFR §564.4), all federal agencies charged with regulating the banking industry, to provide guidance regarding prudent appraisal and evaluation of real estate-related financial transactions. The Guidelines prescribe rules designed to protect banks from profligate lending practices that might jeopardize the financial stability of the banking institution. FDIC Interagency Guidelines, upon which plaintiffs rely, expressly state that "[u]nder the agencies' appraisal regulations, the appraiser must be selected and engaged directly by the institution or its agent. The appraiser's client is the institution, not the borrower" (FDIC FIL-74-94, 1994 WL833171 at*3). Engelman acknowledged that it would be the Bank that ultimately determined the sufficiency of the appraisal, as Sin also testified. Engelman also admitted that he had no expertise regarding the licensing of a daycare center and was prepared to rely upon plaintiffs' representations without further investigation. Sin admitted having had no prior experience financing a daycare center, explaining that she would rely upon the evaluation of the engineer who had indicated the need for plans. It is clear that, notwithstanding the fact that plaintiffs were required to deposit $15,000 against the cost of the appraisal, the appraisal was for the benefit of the Bank and was necessary to its determination of loan to value of the proposed project and, ultimately, to whether the proposed project could be completed with the funding available. The Bank's insistence on plans, given the concerns expressed by its own consultants, was a rational and proper business judgment well within its authority under the terms of the Commitment.

Plaintiffs further argue that neither USPAP, nor the Commitment, required that plans for the daycare center be provided. Initially, it is noted that the Commitment required, inter alia, that Borrower deliver," in form and substance satisfactory to the Bank at its discretion", "approval of construction project by related government agencies" and the breakdown of construction by trade detailing hard and soft costs "including submission of plans and specification". Thus, plaintiffs were contractually obligated to provide accurate current approved plans. While defendant was not free to arbitrarily exercise discretion in an unreasonable manner so as to violate the covenant of good faith and fair dealing inherent in all contracts, "[t]he duty of good faith and fair dealing . . .is not without limits, and no obligation can be implied that would be inconsistent with other terms of the contractual relationship'" (Dalton v Educational Testing Service, 87 NY2D 384, 389 [1995], quoting Murphy v American Home Prods. Corp, 58 NY2d 293, 304[1983]).

Furthermore, while plaintiffs dispute that USPAP requires that plans be available to support an appraisal, USPAP Standards Rule 1-2(e), Comment on (i)-(v) does require that "(w)hen appraising proposed improvements, an appraiser must examine and have available for future examination, plans, specifications, or other documentation sufficient to identify the extent and character of the proposed improvement".^[FN6] There is no evidence that the document prepared [*10]by Dr. Frieda Spivak generally describing the proposed daycare facility, and which plaintiffs suggest would constitute "other documentation", was ever supplied to Engleman, Tener or the Bank. Moreover, under USPAP, an extraordinary assumption is permissible only if credible and supported by a reasonable basis. Since Engleman, by his own admission, had no knowledge of the rules applicable to a daycare center, he cannot be said to have had a reasonable basis for the extraordinary assumption he was asking the Bank to accept. Contrary to plaintiffs' argument, their submissions did not comport with USPAP standards for a competent, professional appraisal and Sin and Lai's skepticism was clearly justified .

Plaintiffs take issue with communications had between Lai and Sin regarding the need for plans for the daycare center as violating FDIC Interagency Guidelines for Real Estate Appraisals requiring that, "[b]ecause the appraisal and evaluation process is an integral component of the credit underwriting process [Sin's role], it should be isolated from influence by the institution's loan production process [Law and Lai's role]" (FDIC Guidelines at *3). However, a complete reading of this provision indicates that it is the evaluator or appraiser of the property who should have no interest in the property or the transaction; there is no absolute prohibition against communication among bank officials who have different responsibilities within the institution. Defendant demonstrated that it had adhered to the governing regulation by retaining an independent appraiser, selected by the underwriting department completely independently of the Business Development Department. While Sin may have conferred with Lai regarding the appraiser's need for plans, perhaps seeking information regarding plaintiffs' intentions, there is no evidence that Lai sought to influence Sin's exercise of independent judgment. In any event, this regulation is clearly intended, not for the benefit of the prospective borrower, but to protect the Bank from making an unwarranted loan based upon an unreliable evaluation by an interested loan officer.

Plaintiffs contend that the Bank's request for the daycare plan was pretextual because such demand was purportedly made only belatedly after they had provided the lease at Law's request on October 13. However, Exhibit 28 in evidence is an e-mail from Law to plaintiffs' mortgage brokers Goldstein and Denburg, dated October 9, 2008 at 9:42 A. M., advising "[t]he appraiser needs the architect plan for the daycare spaces in order to evaluate the property value. Please note that the value will be distorted without the appropriate plan." While Septimus testified that he was not aware of this communication, he also testified that he relied upon the brokers as plaintiffs' liaison with the Bank. Furthermore, an exchange of e-mails between Law and Goldstein and Denburg between July 17 and July 25, in which Law questions the budget numbers submitted in support of plaintiffs' application as inconsistent with the proposed plan, concludes with the caveat that the numbers should be reviewed with plaintiffs for accuracy as the budget was "very important" and would be relied upon in the appraisal and engineer's budget report.^[FN7] On July 25, Law noted "there is a difference between the architect plan and your [*11]worksheet" inquiring, " [d]o they have a new plan ?" Law cautioned, "I need the exact footage and layout for each floor (Gross & Net)in order to complete my proposal" (Exhibit 20 in Evidence, emphasis in original). Thus, the need for plans for the daycare center was expressed to plaintiffs' agents well in advance of the expiration of the Commitment.

It is apparent that plaintiffs expended considerable effort and funds in preparing the proposed project and will sustain a significant loss. Like defendant, the Court wonders why they did not remedy the insufficiency in their submissions within the ten days allowed to them following expiration of the Commitment, when they were unequivocally aware of the need to submit a plan for the daycare and even represented that they would do so. Plaintiffs' misplaced reliance upon their brokers cannot transfer to the Bank the cost of their error. The e-mail of October 9 gave sufficient notice of the Bank's reasonable request so as to enable plaintiffs to meet the demand prior to expiration of the Commitment. Their failure to respond prior to the expiration date, and for ten days thereafter, notwithstanding their representations to the Bank of the intent to supply the plan, caused the Bank to conclude that plaintiffs would not comply with their reasonable requirements and that it should enforce the expiration date set forth in the Commitment.

A commitment proffered by a lender and accepted by the prospective borrower is an enforceable contract, subject to the performance of any conditions precedent, such as submission of required documentation (Transit Management, LLC v Watson Industries, Inc., 23 AD3d 1152, 1154 [4th Dept 2005]). It is well-settled that a party may not demand the performance of a condition precedent when that party has caused the nonperformance and "[a] failure on the part of the party demanding performance to do the preliminary work required in order to enable the other party to complete its obligations within the time limit operates as a waiver of the time provision in the contract" (Fifty States Management Corp v Niagara Permanent Savings & Loan Assn, 58 AD2d 177, 181 [4th Dept 1977]). Plaintiffs rely on this principal in seeking damages for defendant's failure to close the loan.^[FN8]However, in this case, it was plaintiffs' failure to provide the daycare plans necessary to complete the appraisal that prevented the Bank from completing its due diligence.

In order to prevail upon a claim for breach of contract, the plaintiff must prove its own performance, as well as defendant's failure to perform (Brualdi v Iberia, S.A., 79 AD3d 959, 960 [2d Dept 2010]). Plaintiffs failed to provide credible evidence to meet this burden. There is, [*12]moreover, substantial evidence that the Bank did extend plaintiffs' time to provide the daycare plan beyond the contractual expiration date and that, notwithstanding his inaccuracy in asserting that the Bank had not been advised of the daycare use until weeks after the Commitment had been issued,^[FN9] Mr. Lai's representation was true, that the Bank was still "looking to close the deal" in spite of the adverse change in the real estate market at the time. Lai testified that he would have sought a further extension of the Commitment if the plans had been provided and the appraisal could have been completed.

The Commitment unequivocally stated the Bank's offer would expire if the loan did not close before October 24, 2008. In a commercial contract of the nature of that at bar, such a statement implicitly indicates that time is of the essence and the deadline will be enforceable (Reddy vRatnam, 95 AD3d 982, 983 [2d Dept 2012]). Moreover, "bad faith requires an extraordinary showing of a disingenuous or dishonest failure to carry out a contract" (Gordon v Nationwide Mutual Ins. Co, 30 NY2d 427, 437 [1972]). The Court finds no credible indication that the Bank's decision to declare, ten days after the date set forth in the contract, that the Commitment had expired, was motivated by a bad faith purpose to avoid funding the loan.^[FN10]

Rather, the Court finds that the Bank performed in conformity with reasonable banking principles and regulatory rules to protect itself from potential loss and that further scrutiny of the Bank's decision is unwarranted in light of the business judgment rule (see 40 West 67th Street v Pullman, 100 NY2d 147, 153 [2003] (court should defer to good faith decisions made in business settings). The Bank's decision was justified under the circumstances and was honestly made in order to promote the legitimate interests of the Bank (see Auerbach v Bennett, 47 NY2d 619, 629 [*13][1979]). Had plaintiffs provided a plan for the daycare center, as they promised to do on the very day the Commitment expired, they might well have avoided the unfortunate losses they have sustained. Why they did not do so remains a mystery.

Having failed to sustain their burden to prove their own performance of the conditions of the Commitment, or to establish any bad faith on the part of defendant Bank constituting a breach of the covenant of good faith and fair dealing, their complaint must be dismissed, except that, whereas the appraisal was not performed, the $15,000 refundable Good Faith Deposit remitted to the Bank to cover its actual expenses in processing the Application, shall be returned to plaintiffs, with interest from November 4, 2008.

This constitutes the decision, order, and judgment of the court.

E N T E R,

J. S. C.