Ziehen v. . Smith
2 E.H. Smith 558, 42 N.E. 1080, 148 N.Y. 558 (1896)
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Rule of Law:
In an executory contract for the sale of land, a buyer must tender performance and make a demand for the seller's performance to place the seller in default. The mere existence of a removable lien or encumbrance on the property at the time of closing does not, by itself, constitute an inability to perform on the seller's part that would excuse the buyer's tender.
Facts:
- On August 10, 1892, Ziehen contracted to purchase a country hotel property from Smith for $3,500.
- Ziehen paid a $500 deposit upon signing the contract, with an additional payment due on September 15, 1892, which was the designated day for performance.
- Unbeknownst to either Ziehen or Smith, the property was subject to a $1,500 mortgage from a previous owner.
- Prior to the contract date, on July 21, 1892, an action to foreclose this pre-existing mortgage had been commenced.
- On the performance date of September 15, 1892, this foreclosure action was still pending against the property.
- Ziehen did not offer to pay the amount due on September 15, nor did he demand that Smith convey the property to him.
Procedural Posture:
- Ziehen (plaintiff) sued Smith (defendant) in a New York trial court to recover his down payment and title examination expenses.
- The trial court entered a judgment in favor of the plaintiff, Ziehen.
- The intermediate appellate court affirmed the trial court's judgment.
- Smith (defendant-appellant) appealed the decision to the Court of Appeals of New York, the state's highest court.
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Issue:
Is a buyer in a real estate contract excused from tendering performance on the closing date when a removable mortgage lien exists on the property, of which the seller could potentially clear title?
Opinions:
Majority - O'Brien, J.
No. A buyer is not excused from tendering performance merely because a removable encumbrance exists at the time of closing. In order to recover for a breach of an executory contract, a party must show performance or a tender of performance on his part, unless the other party is actually unable to perform. The court reasoned that the existence of a mortgage which the seller has the power to remove is not equivalent to an inability to perform. It cannot be presumed that if the buyer had tendered payment, the seller would not have used those funds to discharge the lien and convey the clear title required by the contract. The contract is not broken by the mere fact of the existence of a removable encumbrance on the day of performance; the seller is not in default until the buyer's tender of performance and demand for the deed are refused.
Analysis:
This case establishes a critical distinction between a curable and an incurable title defect in the context of real estate contracts. It clarifies that the "inability to perform" exception, which excuses a buyer's tender, applies only when performance is truly impossible, not merely inconvenient or requiring an additional step by the seller. The decision places the onus on the buyer to formally tender performance to test the seller's ability and willingness to clear title at closing. This prevents a buyer from using a removable lien, which could be satisfied with the purchase money, as a pretext to exit a contract without fulfilling their own obligations.
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