Why a Nassau Court Forced a Seller to Return a Buyer's Downpayment

In Worldco Petroleum NY Corp. v. Keshtgar, a fascinating case that was reported on in today's New York Law Journal, a Nassau County judge ordered the defendant, a seller of a gas station franchise, to return the plaintiff purchaser's 10% downpayment when the deal fell through.

"Why is that significant?" you ask.

Because the judge issued this order notwithstanding that the contract had a provision stating that the seller could retain the down payment as liquidated damages "upon a default by the purchaser of any obligation, promise, representation, warranty or covenant contained within the contract."

And in this case, the plaintiff apparently breached the agreement.

So how did he manage to recoup his downpayment?

Because a condition precedent to the sale of the gas station franchise was the defendant's insistence that the plaintiff undergo training on how to run the gas station properly. And, based upon the court's review of the evidence, it found that the defendant had this requirement, but on the other hand, frustrated the plaintiff's ability to fulfill this criteria of the agreement, which rendered the contract a nullity.

Consequently, the court held, the plaintiff was entitled to a return of his downpayment.