Contract Law – New York Appellate Digest

DEFENDANT HAD SUFFICIENT CONTACTS WITH NEW YORK TO ALLOW THIS BREACH OF CONTRACT ACTION TO BE BROUGHT IN NEW YORK (FIRST DEPT).

The First Department, reversing Supreme Court, determined defendant, which issued preferred stock to plaintiff, had sufficient contacts with New York to bring the breach of contract action in New York:

Pursuant to the certificates of designation governing the preferred stock issued by defendant to plaintiff, defendant was required to provide dividends to a paying agent, which then provided the funds to a depository to pay the preferred stockholders. To facilitate dividend distributions, defendant designated entities located in New York as the paying agent and the depository. Further, defendant’s agreements with each of the depositories required the depository to maintain facilities in New York City. Defendant also contracted with multiple underwriters based in New York to sell the preferred stock. * * *

… [The] New York-based contacts are sufficiently related to plaintiff’s underlying breach of contract claim because “at least one element [of the cause of action] arises from the New York contacts” … . Defendant allegedly breached its duty under the certificates of designation not to sell stock to its affiliates “unless full cumulative dividends on the [preferred stock] . . . have been paid.” Defendant’s alleged breach consisted of not only its agreement to sell stock to one of its affiliates but also its failure to make full cumulative dividend payments to the preferred stockholders before completing the sale. … [D]efendant’s failure to make dividend payments, which necessarily would have been sent to its paying agent in New York, sufficiently connects defendant’s contacts with New York to the breach of contract cause of action … . Katz v Navios Mar. Holdings, Inc., 2026 NY Slip Op 03731, First Dept 6-11-26

Practice Point: Consult this decision for insight into when a defendant’s contacts with New York are sufficient to support a breach of contract action.brought in New York.

June 11, 2026

Civil Procedure, Contract Law, Municipal Law, Village Law

HERE THE VILLAGE SOUGHT TO ANNUL THE CITY’S IMPOSITION OF HIGHER SEWER CHARGES; THE CITY INTERPOSED SEVERAL COUNTERCLAIMS THAT WERE BASED ON THEORIES NOT INCLUDED IN THE CITY’S EARLIER NOTICE OF CLAIM WHICH ALLEGED ONLY BREACH OF CONTRACT; BECAUSE THE COUNTERCLAIMS RAISED THEORIES NOT ENCOMPASSED BY THE CITY’S EARLIER NOTICE OF CLAIM, THEY WERE DISMISSED (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined all of the city’s counterclaims against the village should have been dismissed for failure to meet the “notice of claim” requirements. The village commenced this hybrid CPLR article 78 and declaratory judgment action seeking to annul the city’s determination to charge a higher rate for sewer services than had been charged under the parties “longtime agreement.” The city interposed counterclaims based on theories not encompassed by the city’s notice of claim. All the counterclaims should have been dismissed on that ground:

“CPLR 9802 sets forth the procedure by which certain actions against villages may be maintained” … . “In addition to providing for the maintenance of contract actions against villages, the statute also provides, in pertinent part, that ‘no other action shall be maintained against [a] village unless the same shall be commenced within one year after the cause of action therefor shall have accrued, nor unless a notice of claim shall have been made and served in compliance with [General Municipal Law § 50-e]’ ” …). Consequently, “[i]t is a condition precedent to, and indeed an essential element of, any cause of action . . . against a village that the [claimant] have served upon the village a notice of claim setting forth, inter alia, the nature of the claim and the items of damage or injuries claimed to have been sustained” … . “A claimant need not state a precise cause of action in haec verba in a notice of claim . . . , but a claimant may not raise in the [pleading] causes of action or legal theories that were not directly or indirectly mentioned in the notice of claim and that change the nature of the earlier claim or assert a new one” … . Furthermore, “the requirements of notice of claim statutes[, including CPLR 9802,] apply to the filing of counterclaims” … . “[T]he notice of claim requirements of CPLR 9802 [also] apply to . . . causes of action [or claims] for declaratory relief” … .

Here, the notice of claim was premised exclusively on the theory that the City was entitled to monetary damages and a declaratory judgment based on the Village’s alleged breach of the parties’ agreement. Conversely, the City’s first counterclaim seeks a declaration that the agreement had actually expired before the breach alleged in the notice of claim, and the third counterclaim seeks monetary damages for debt allegedly incurred by the Village after the purported expiration of the agreement. The fourth and fifth counterclaims for quantum meruit and unjust enrichment, respectively, are also premised on legal theories other than breach of contract. We thus conclude that those counterclaims improperly raise claims or legal theories “that were not directly or indirectly mentioned in the notice of claim and that change the nature of the earlier claim[s] or assert . . . new one[s]” … . Village of Allegany v City of Olean, 2026 NY Slip Op 03555, Fourth Dept 6-5-26

Practice Point: A condition precedent to an action against a village is the filing of a notice of claim. The condition applies to counterclaims and requests for declaratory judgments. Here the city’s earlier notice of claim against the village was based solely on an alleged breach of contract. The subsequent counterclaims raised by the city in response to the village’s Article 78 proceeding were based on theories not encompassed by the city’s earlier notice of claim and were dismissed on that ground.

June 5, 2026

Contract Law, Debtor-Creditor

A CONTRACT WHICH ALLOWS A PARTY “SOLE DISCRETION” TO ASSIGN A LOAN IS CONSTRAINED BY THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING; HERE IT WAS ALLEGED THE ASSIGNMENT WAS PART OF A “BACKROOM DEAL” TO EXCLUDE PLAINTIFF FROM A DEVELOPMENT PROJECT AND BENEFIT FROM A RESULTING WINDFALL; THE BREACH OF THE IMPLIED COVENANT CAUSE OF ACTION WAS REINSTATED BY THE COURT OF APPEALS (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Wilson, over a three-judge partial dissent, reversing (modifying) thee Appellate Division, determined the cause of action alleging breach of the implied covenant of good faith and fair dealing should not have been dismissed. The complex facts of the case center around loans and contracts to develop a luxury residential tower. Under the Pledge Agreement at issue the defendant, Apollo, had “sole discretion” to assign a “junior mezzanine loan.” The majority concluded that the “sole discretion” did not override the implied covenant of good faith and fair dealing. Plaintiff alleged the assignment of the loan to “Spruce” was part of a “backroom deal” to push plaintiff out of the project’s capital structure and benefit from a resulting windfall:

We concur with the prevailing view among the Appellate Division departments—that a party’s “sole discretion” with respect to a right does not exculpate that party from complying with the implied covenant with respect to that right. Although “parties to a contract are basically free to make whatever agreement they wish, no matter how unwise it might appear to a third party . . . [t]here exists an unavoidable tension between the concept of freedom to contract . . . and the equally fundamental belief that an enlightened society must to some extent protect its members from the potentially harsh effects of an unchecked free market system” … . In light of those competing interests, “rightly or wrongly, society has chosen to intervene in various ways in the dealings between private parties,” for example by “mandating the express or implicit inclusion of certain substantive or procedural provisions in various types of contracts” … . Indeed, one of those implicit substantive provisions is the implied covenant, which has the primary purpose of ensuring that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract,” when that conduct is “inconsistent with the other terms of the contractual relationship,” and yet not negotiated for in advance … .

This doctrine is even more important “where a contract contemplates the exercise of discretion,” or in other words awards one party the freedom to act in ways the contract may not directly foresee … . Accordingly, the implied covenant obligates the party with discretion act in good faith, and “not [] arbitrarily or irrationally,” when “exercising that discretion” … . A promisor’s discretion may not be used to violate a promise that “a reasonable person in the position of the promisee would be justified in understanding w[as] included” … . 111 W. 57th Inv. LLC v 111 W57 Mezz Inv. LLC, 2026 NY Slip Op 03376, CtApp 5-28-26

Practice Point: A contract provision allowing a party “sole discretion” to take certain actions is constrained by the implied covenant of good faith and fair dealing. i.e., a party cannot exercise discretion in a way that frustrates another party’s rights under the contract.

May 28, 2026

Civil Procedure, Contract Law, Judges, Landlord-Tenant

THE JUDGE SHOULD NOT HAVE, SUA SPONTE, TERMINATED THE LEASE BASED ON ALLEGED NONPAYMENT; AND THE JUDGE SHOULD NOT HAVE ISSUED A PRELIMINARY INJUNCTION WHICH GRANTED PLAINTIFF THE ULTIMATE RELIEF SOUGHT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the judge should not have, sua sponte, terminated the lease and should not have issued a preliminary injunction. Plaintiff alleged defendant breached the lease and sought to enjoin defendant from using the land pending the outcome of the litigation:

The Supreme Court erred in, sua sponte, declaring that the Lease Agreement terminated due to the defendant’s nonpayment of rent … . There was no motion for summary judgment before the court, and the court did not afford the parties notice of any intention to deem the plaintiff’s motion, inter alia, for leave to amend the complaint, as one, among other things, for summary judgment … .

… [A] preliminary injunction may not issue unless the moving party demonstrates a probability of success on the merits, a danger of irreparable injury in the absence of an injunction, and a balance of equities in that party’s favor … . The purpose of a preliminary injunction is to maintain the status quo pending a final determination in the action or proceeding … and “not to determine the ultimate rights of the parties” … . “[A]bsent extraordinary circumstances, a preliminary injunction will not issue where to do so would grant the movant the ultimate relief to which he or she would be entitled in a final judgment” … .

Here, the plaintiff “failed to demonstrate that the circumstances were of such an extraordinary nature to justify th[e] relief that was granted pending the resolution of the action” … . County of Nassau v NY Youth Sports Network, Inc., 2026 NY Slip Op 03289, Second Dept 5-27-26

Practice Point: The appellate courts do not like “sua sponte” actions by a judge. Here the judge terminated the lease based on nonpayment in the absence of any motion requesting that relief.

Practice Point: A preliminary injunction which grants the ultimate relief sought by the plaintiff should only rarely be issued. Here the circumstances did not justify such extraordinary relief.

May 27, 2026

Agency, Contract Law, Corporation Law, Foreclosure

DEFENDANT CORPORATION IN THIS FORECLOSURE ACTION RAISED A QUESTION OF FACT ABOUT WHETHER THE PERSON WHO SIGNED THE LOAN DOCUMENTS ON BEHALF OF THE CORPORATION HAD THE APPARENT AUTHORITY TO DO SO; PLAINTIFF CANNOT RELY SOLELY ON THE PURPORTED AGENT’S ASSERTIONS OF AUTHORITY, BUT RATHER MUST MAKE A REASONABLE INQUIRY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the defendant corporation in this foreclosure action raised a question of fact whether Wing Fung Chau had apparent authority to sign the loan documents on behalf of the corporation at the time of the closing:

“One who deals with an agent does so at his [or her] peril, and must make the necessary effort to discover the actual scope of authority” … . “Essential to the creation of apparent authority are words or conduct of the principal, communicated to a third party, that give rise to the appearance and belief that the agent possesses authority to enter into a transaction. The agent cannot by his [or her] own acts imbue himself [or herself] with apparent authority” … . “‘It is axiomatic that apparent authority must be based on the actions or statements of the principal'” … . “[T]he existence of apparent authority depends upon a factual showing that the third party relied upon the misrepresentations of the agent because of some misleading conduct on the part of the principal—not the agent” … . “A third party cannot rely on the alleged agent’s own action and statements, since apparent authority cannot be based upon the agent’s acts” … . Furthermore, the third party “may rely on an appearance of authority only to the extent that such reliance is reasonable” … .

Here, the corporation submitted, among other things, affidavits from its president and secretary/vice president, as well as a shareholder agreement dated December 15, 2017, and the corporation’s bylaws, which demonstrated that Wing Fung Chau held no corporate office and did not have the authority to execute the consolidated note and mortgage on behalf of the corporation, and that the corporation had not communicated to the plaintiff, as a third party, words or conduct that gave rise to the appearance and reasonable belief that Wing Fung Chau possessed authority to execute the consolidated note and mortgage on behalf of the corporation … . While the plaintiff relied on the purported bylaws it received from Wing Fung Chau that identified him as the sole shareholder of the corporation and the loan documents he signed that identified him as the president, the plaintiff produced no evidence that it took any further steps to assure itself that Wing Fung Chau had the authority to enter into the loan transaction … . Thus, the record showed only that any authority of Wing Fung Chau’s arose from his own acts, by which he could not “imbue himself with apparent authority” … . “This is especially true where, as here, the [plaintiff] failed to conduct a reasonable inquiry into the scope of [Wing Fung Chau’s] alleged authority” … . BP3 Capital, LLC v 5120 Realty Corp., 2026 NY Slip Op 03286, Second Dept 5-27-26

Practice Point: Here there is a question of fact whether the person who signed the loan documents on behalf of the corporation had the apparent authority to do so. One who deals with a purported agent must make an effort to learn the scope of the purported agent’s authority and cannot rely solely on the purported agent’s assertions.

May 27, 2026

Contract Law, Fraud

A MISREPRESENTATION OF PRESENT FACT, UNLIKE A MISREPRESENTATION OF FUTURE INTENT TO PERFORM UNDER A CONTRACT, WILL SUPPORT A FRAUDULENT INDUCEMENT CAUSE OF ACTION WHICH IS NOT DUPLICATIVE OF THE RELATED BREACH OF CONTRACT CAUSE OF ACTION (FIRST DEPT).

The First Department, reversing Supreme Court, determined the fraudulent inducement cause of action should not have been dismissed as duplicative of the breach of contract cause of action. The fraudulent inducement claim was based on an assertion of present fact. i.e., that the judgment debtor had sufficient capital to close on the property:

We reject defendants’ argument that the fraudulent inducement cause of action is duplicative of the breach of contract cause of action. “[A] misrepresentation of present fact, unlike a misrepresentation of future intent to perform under the contract, is collateral to the contract, even though it may have induced the plaintiff to sign it, and therefore involves a separate breach of duty” … . The alleged representations … that the judgment debtor had sufficient capital to close on the property were representations of present fact, not future intent to perform.

Similarly, we reject defendants’ argument that plaintiff seeks identical damages under the fraudulent inducement cause of action and the breach of contract cause of action. Under the circumstances of this case, at this early procedural stage plaintiff is entitled to maintain the fraudulent inducement claim in the alternative to the breach of contract claim … . This conclusion is especially true because the remedy available to plaintiff for fraudulent inducement under the “out-of-pocket rule” is not lost profits but rather “the actual pecuniary loss sustained as the direct result of the wrong” … . CSN Realty Corp. v Moussaieff, 2026 NY Slip Op 03228, First Deptt 5-21-26

Practice Point: Here the misrepresentation that the judgment debtor had sufficient funds to close was a misrepresentation of present fact which supported a fraudulent inducement cause of action distinct from the breach of contract cause of action.

May 21, 2026

Contract Law, Education-School Law, Municipal Law

THE GENERAL MUNICIPAL LAW CANNOT BE INTERPRETED TO ALLOW THE COMPETITIVE BIDDING PROCESS FOR PUBLIC WORKS TO BE CIRCUMVENTED BY “PIGGYBACKING” A NEW PUBLIC WORKS PROJECT ON A PRIOR PUBLIC WORKS PROJECT AWARDED AFTER COMPETITIVE BIDDING (THIRD DEPT).

The Third Department, in a full-fledged opinion by Justice Ceresia, determined that the General Municipal Law could not be interpreted to circumvent the competitive bidding process for public works contracts. Here the school district, after a competitive bidding process, had hired Smith Site Development for the replacement of a sewer line and a parking lot at the district’s high school. The district sought to hire Smith again for the heating, ventilation and air conditioning renovations and classroom construction at an elementary school. The district unsuccessfully argued that the General Municipal Law allowed the elementary-school work to be “piggybacked” on the prior sewer-and-parking-lot-contract and thereby avoid the competitive bidding process:

In determining whether General Municipal Law § 103 (16) provides a limited exception to General Municipal Law § 103 (1), or, as the district argues, a broader alternative to that general rule, we begin by observing that while subsection (1) specifically references public works contracts, subsection (16) does not. Although the Legislature could have explicitly identified public works contracts as being subject to the piggybacking provision of subsection (16), it chose not to do so. Instead, by its plain language, subsection (16) permits piggybacking only in a specific set of circumstances that is, when it comes to purchasing certain specified items (“apparatus, materials, equipment or supplies”) or arranging for services related to those specific items (General Municipal Law § 103 [16]). This statutory structure signifies that piggybacking applies only in certain limited circumstances, and we agree with Supreme Court that the omission of language referencing public works contracts from the piggybacking provision suggests that the Legislature did not intend to allow them to be exempt from competitive bidding … . Matter of Daniel J. Lynch, Inc. v Board of Educ. of the Me.-Endwell Cent. Sch. Dist., 2026 NY Slip Op 03209, Third Dept 5-21-26

May 21, 2026

Contract Law, Evidence, Landlord-Tenant, Negligence

TENANTS AND THE PROPERTY MANAGER COULD BE LIABLE FOR INJURY CAUSED BY FURNITURE BLOWN OFF A 12TH STORY TERRACE BY WIND (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined the plaintiff’s actions against the property manager and tenants should not have been dismissed. Plaintiff alleged she was injured by a heavy wooden lounge chair that was blown off a 12th story apartment terrace:

In this personal injury action, plaintiff seeks damages for injuries that she allegedly sustained when a heavy wooden lounge chair struck her after it was blown off the terrace of a 12th floor apartment in Manhattan. The building was owned by 15 Union Square West and managed by BHS; the apartment itself was owned by GR Realty and was rented to the tenant defendants.

Supreme Court should not have dismissed the complaint as against the tenant defendants and BHS. There are issues of fact as to whether the tenant defendants, who owe a common-law duty of reasonable care to maintain the premises in a reasonably safe condition independent of any obligation that might be imposed by their lease, had constructive notice of the potentially hazardous condition created by the unsecured lounge chair … . Although the lease stated that tenant defendants were not permitted to change the location of any furniture in the apartment, there were occasions when GR Realty granted tenant requests to move furniture. The record also presents evidence that the tenant defendants used the terrace during their occupancy, and issues of fact exist as to whether the risk posed by this furniture was visible and apparent during this period.

Similarly, there are issues of fact as to whether BHS, which managed the property, had constructive notice of the potentially hazardous condition and exercised control over the use of the terraces yet failed to take sufficient precautions in order to prevent or remedy a hazardous condition … . There is evidence in the record that BHS had previously been involved in notifying owners of potential hazards posed by windy conditions, and in fact had helped owners to secure furniture or bring it inside during bad weather…. . Sen v GR Realty Holdings LLC, 2026 NY Slip Op 02947, First Dept 5-12-26

Practice Point: Consult this decision for insight into the various theories of liability triggered by injury caused by furniture which was blown off a 12th story apartment terrace.

May 12, 2026

Contract Law, Family Law, Judges

ALL PARTIES AGREE THE TWO SURROGACY AGREEMENTS ARE UNENFORCEABLE; MATTER REMITTED FOR A HEARING TO DETERMINE PARENTAGE BASED ON THE INTENT OF THE PARTIES AND THE BEST INTERESTS OF THE CHILDREN (FOURTH DEPT).

The Fourth Department, reversing (modifying) Family Court, determined that both surrogacy agreements were unenforceable and the parentage determination should not have been made without a hearing on the intent of the parties and the best interests of the children:

… [T]here is no real dispute that neither surrogacy agreement meets the material requirements of Family Court Act article 5-C. The original surrogacy agreement is unenforceable because it was not signed by Robert (see Family Ct Act § 581-403 [a] [1]; [d]; see also § 581-402 [b] [3]). The second agreement is unenforceable because it was not executed prior to “the commencement of medical procedures in furtherance of embryo transfer” (§ 581-403 [b]). Thus, the court was required to determine parentage “based on the intent of the parties, taking into account the best interests of the child[ren]” (§ 581-407).

… [A]ll three parties to the second surrogacy agreement—Mary, Robert and the Surrogate—agree that their intent was for Mary and Robert to be the children’s parents, and none of them contemplated anyone else becoming a parent. … [O]n this record the court failed to give due consideration to the best interests of the children as required by the statute (see Family Ct Act § 581-407; see also § 581-701 …). We therefore reverse the … judgment of parentage, and we remit the matter to Family Court to hold an immediate hearing at which the court, in making its parentage determination, must consider evidence of the intent of the parties, taking into account evidence pertaining to the best interests of the children. Matter of Baby A. (Mary B.L.–Robert A.L.), 2026 NY Slip Op 02759, Fourth Dept 5-1-26

Practice Point: Consult this decision for insight into how a court should handle determining parentage where the surrogacy agreements are unenforceable.

May 1, 2026

Civil Procedure, Contract Law, Fraud

IN THIS BREACH OF CONTRACT ACTION BROUGHT BY PLAINTIFF DONALD J TRUMP AGAINST MARY L TRUMP, DEFENDANT WAS ENTITLED TO DISCOVERY RELEVANT TO HER AFFIRMATIVE DEFENSE (FIRST DEPT).

The First Department, reversing Supreme Court, determined defendant’s discovery requests were relevant to her “fraudulent inducement” affirmative defense and should have been granted:

Plaintiff commenced this action against defendant for breach of the confidentiality provisions of a 2001 settlement agreement. In her answer, defendant asserted the affirmative defense of fraudulent inducement. Specifically, she alleged that she relied upon the valuation of certain assets set forth in the parties’ 2001 settlement agreement, and that those valuations were false. Defendant’s motion to compel seeks discovery of materials related to the valuations provided in the settlement agreement. Plaintiff bears the burden of establishing that the discovery sought by defendant, which relates to an affirmative defense of fraudulent inducement that plaintiff has not otherwise challenged in this action, is improper … .

Supreme Court improvidently exercised its discretion in denying defendant’s motion. CPLR 3101(a) directs “full disclosure of all matter material and necessary in the prosecution or defense of an action,” and is to be “interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening issues and reducing delay and prolixity” … . These principles entitle defendant to the requested discovery material to establish her affirmative defense … . Trump v Trump, 2026 NY Slip Op 02735, First Dept 4-30-26

Practice Point: Here in this breach of contract action, defendant was entitled to discovery relevant to her “fraudulent inducement” affirmative defense.

April 30, 2026