Contract Law – New York Appellate Digest

THE AGREEMENT WHICH PROVIDED PLAINTIFF WOULD PAY DEFENDANT ABOUT $38,500 AND PLAINTIFF WOULD BE ENTITLED TO MONTHLY PAYMENTS FROM DEFENDANT’S REVENUE TOTALING ABOUT $52,500 WAS NOT A “LOAN” TO WHICH THE USURY DEFENSE COULD BE APPLIED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the contract between plaintiff and defendant (I Do) in which plaintiff paid defendant about $38,500 in return for monthly payments from defendant’s revenue totally about $52,500 did not constitute a “loan” to which the usury defense would apply:

Unless a principal sum advanced is repayable absolutely, the transaction is not a loan. Usually, courts weigh three factors when determining whether repayment is absolute or contingent: (1) whether there is a reconciliation provision in the agreement; (2) whether the agreement has a finite term; and (3) whether there is any recourse should the merchant declare bankruptcy” … .

… [T]he plaintiff established that the transaction set forth in the agreement was not a loan. The terms of the agreement specifically provided for adjustments to the monthly payments made by I Do to the plaintiff based on changes in I Do’s monthly sales. Concomitantly, as the amount of the monthly payments could change, the term of the agreement was not finite. Moreover, no contractual provision existed establishing that a declaration of bankruptcy would constitute an event of default … . Principis Capital, LLC v I Do, Inc., 2022 NY Slip Op 00203, Second Dept 1-12-22

January 12, 2022/0 Comments/by Bruce Freeman

Contract Law, Negligence

PLAINTIFF TRIPPED AND FELL ON AN UNEVEN MAT WHEN SHE STEPPED OFF THE DEFENDANT’S SKATING RINK; THE ACTION AGAINST THE COMPANY WHICH SOLD AND INSTALLED THE MAT SHOULD HAVE BEEN DISMISSED; THERE WAS NO CONTRACT BETWEEN THE OWNER OF THE SKATING RINK AND THE SELLER/INSTALLER OF THE MAT AND THERE WAS NO EVIDENCE THE SELLER/INSTALLER OF THE MAT LAUNCHED AN INSTRUMENT OF HARM (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined that the action against the company “Classic” which sold and installed a mat used on an entrance ramp for a skating rink should have been dismissed. Plaintiff alleged the mat was uneven with lumpy ice build-ups which caused her to fall after she stepped off the skating rink. Classic had no contractual relationship with the owner of the skating rink, WRO, and there was no evidence Classic “launched an instrument of harm:”

The record shows that WRO purchased the ramp matting from Classic and that Classic installed the matting. Classic owed no duty to plaintiff, and there was no contract between WRO and Classic. Thus, contrary to plaintiff’s argument, Classic has no tort liability based upon Espinal v Melville Snow Contrs. (98 NY2d 136 [2002]), where under certain circumstances, a duty of care to noncontracting third parties may arise out of a contractual obligation. In any event, even if there had been a contractual relationship between WRO and Classic, the record does not raise any triable issue as to whether Classic “launche[d] a force or instrument of harm” … . Samuelsen v Wollman Rink Operations LLC, 2022 NY Slip Op 00149, First Dept 1-11-22

January 11, 2022/0 Comments/by Bruce Freeman

Contract Law

BECAUSE PLAINTIFF ALLEGED THE ORAL CONTRACT WAS ENFORCEABLE EVEN IF THE TRIGGERING EVENT OCCURRED AFTER A YEAR, THE CONTRACT WAS WITHIN THE STATUTE OF FRAUDS AND THEREFORE MUST IN BE WRITING (FIRST DEPT).

The First Department determined the oral contract was within the statute of frauds because it was not susceptible of performance within one year. Plaintiff alleged he was entitled to 50% of the placement fee received by defendant for job candidates he referred to defendant, even if placement was made after a year:

The alleged oral agreement upon which plaintiff sues is within the statute of frauds, since plaintiff contends that when he refers a job candidate to defendant, he is entitled to 50% of the fee defendants receive for placing the candidate, even when the candidate is placed more than a year after plaintiff’s referral (General Obligations Law § 5-701[a][1] … ). As a result, because plaintiff has fully executed the contract while defendant’s obligation continues past a one-year period, the contract is not, by its terms, susceptible of performance within one year, and therefore must be in writing to be enforceable … . Although oral agreements that violate the statute of frauds are enforceable where the party to be charged admits having entered into the contract, defendant never admitted that it agreed to pay plaintiff a fee on placements occurring more than a year after a referral … . Birnbaum v Goldenberg Consulting Group, Inc., 2022 NY Slip Op 00042, First Dept 1-6-22

January 6, 2022/0 Comments/by Bruce Freeman

Contract Law, Uniform Commercial Code

DEFENDANT PROPERLY REJECTED THE MACHINES AS NONCONFORMING GOODS, PLAINTIFF DID NOT CURE THE NONCONFORMITY, AND DEFENDANT WAS ENTITLED TO CONSEQUENTIAL DAMAGES AND LOST PROFITS (SECOND DEPT).

The Second Department determined Supreme Court properly found that defendant had rejected the machines as nonconforming goods, plaintiff did not cure the nonconformity, and defendant was properly awarded consequential damages and lost profits:

… [T]he Supreme Court found … the defendant[] demonstrated that the plaintiff had breached express and implied warranties by showing that the machines which were delivered to [defendant] Expansion did not conform to the descriptions set forth in the invoice. The court determined that Expansion was entitled to damages in the principal sum of $53,298.75 for breach of express and implied warranties, representing the amount of lease payments it made on the machines, as well as damages in the principal sum of $2,852,430 for lost profits resulting from that breach. …

… [T]he evidence established that Expansion rejected the machines with particularity as required by UCC 2-605. …

… [W]hile Expansion’s rejection triggered the plaintiff’s right pursuant to UCC 2-A-513 to cure the alleged nonconformity, the … determination that the plaintiff failed to do so was warranted by the facts. …

… [T]he determination that, at the time the parties entered into the contract, damages for lost profits were within the contemplation of the parties is warranted by the facts. It was foreseeable that a breach on the part of the plaintiff with respect to delivering functioning machines would result in Expansion being unable to manufacture sufficient ammunition to fill existing orders, or to accept new orders, culminating in lost profits … . Mil-Spec Indus. Corp. v Expansion Indus., LLC, 2022 NY Slip Op 00035, Second Dept 1-5-22

January 5, 2022/0 Comments/by Bruce Freeman

Civil Procedure, Contract Law, Utilities

THE CLASS—LONG ISLAND POWER AUTHORITY (LIPA) CUSTOMERS AFFECTED BY POWER OUTAGES CAUSED BY HURRICANE SANDY—SHOULD NOT HAVE BEEN CERTIFIED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the class, Long Island Power Authority (LIPA) customers affected by Hurricane-Sandy power outages, should not have been certified:

The plaintiffs base their claims against LIPA on an allegation that LIPA failed to fulfill its promise, made in 2006, that it would spend $25 million annually on a 20-year “storm hardening” project (i.e., $500 million total) intended to render its electric system more durable and resilient in the face of major storms. …

… [T]o establish liability, the plaintiffs would have to demonstrate that, had LIPA performed storm hardening work consistent with its promise, their outages would have been shortened or avoided. This is, as LIPA argues, a fact-driven inquiry which is both speculative and hopelessly individual since it would require the factfinder to determine not only what should have been completed … , but also to speculate whether that work, had it been performed, would have prevented or shortened individual class members’ outages. * * *

… [T]he Supreme Court should also have denied class certification on the basis that the plaintiffs cannot state a viable cause of action to recover damages for breach of contract … . Matter of Long Is. Power Auth. Hurricane Sandy Litig. v Long Is. Power Auth., 2021 NY Slip Op 07545, Second Dept 12-29-21

December 29, 2021/0 Comments/by Bruce Freeman

Civil Procedure, Contract Law, Conversion, Criminal Law, Fiduciary Duty, Fraud

PLAINTIFF WAS ACQUITTED OF CHARGES STEMMING FROM THE ALLEGED APPROPRIATION OF INSURANCE PROCEEDS DUE OTHER BENEFICIARIES AND THEN SUED TWO INSURANCE COMPANIES; THE CAUSES OF ACTION FOR BREACH OF CONTRACT, CONVERSION AND BREACH OF FIDUCIARY DUTY DID NOT ACCRUE UPON ACQUITTAL AND WERE THERFORE TIME-BARRED (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined the causes of action that did not require plaintiff’s innocence in a criminal matter were time barred. Plaintiff was acquitted of charges stemming from the allegation she appropriated life insurance proceeds which were due to other beneficiaries. Plaintiff then sued two insurance companies alleging breach of contract, breach of fiduciary duty, conversion, and aiding and abetting breach of a fiduciary duty. None of those causes of action accrued upon plaintiff’s acquittal. All were therefore time-barred:

Contrary to … the court’s conclusion, those causes of action did not accrue at the time the criminal proceeding terminated. The termination of a criminal proceeding is relevant for claims for malicious prosecution and legal malpractice arising out of a criminal proceeding … . For those claims, a plaintiff is required to make a showing of innocence, and thus the claims do not accrue until the plaintiff can assert the element of his or her innocence on the criminal charges … . Plaintiff here does not need to assert her innocence on the criminal charges as an element of the causes of action for breach of contract, conversion, and breach of fiduciary duty … . Morrow v Brighthouse Life Ins. Co. of NY, 2021 NY Slip Op 07373, Fourth Dept 12-23-21

December 23, 2021/0 Comments/by Bruce Freeman

Contract Law

RESCISSION IS NOT APPROPRIATE WHERE THE PARTIES CANNOT BE RETURNED TO THE STATUS QUO; A BREACH OF CONTRACT CAUSE OF ACTION MUST BE DISMISSED IF DAMAGES ARE NOT ESTABLISHED (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined defendant’s motion for summary judgment on the counterclaims for rescission and breach of contract should not have been granted. Rescission is only appropriate when the parties to a contract can be returned to the status quo, not the case here. And a breach of contract action must be supported by damages, which were not established here:

A claim for rescission, as opposed to a claim for breach of contract, seeks to ” ‘restore the parties to status quo,’ ” as if the parties had never entered into the contract … . Rescission sounds in equity … , and is appropriate only where, among other things, the status quo can be ” ‘substantially restored’ ” … . In this case, rescission is unavailable because the status quo cannot be substantially restored. Here, “the assimilation of plaintiff’s company [into defendant’s business is] complete,” and events have rendered the status quo practically impossible to recreate … . …

… [T]he court erred in granting judgment to defendant on his two counterclaims for breach of contract. Damages are an element of a claim for breach of contract … and, here, defendant’s counterclaims for breach of contract should have been dismissed upon the court’s determination that defendant failed to establish damages … . Unger v Ganci, 2021 NY Slip Op 07366, Fourth Dept 12-23-21

December 23, 2021/0 Comments/by Bruce Freeman

Civil Procedure, Contract Law, Insurance Law, Negligence

THE SUBROGATION ACTION BY THE INSURER OF THE PROPERTY OWNER IN THIS SLIP AND FALL CASE WAS NOT PRECLUDED BY THE RES JUDICATA DOCTRINE AFTER A GLOBAL SETTLEMENT WITH THE INJURED PARTY (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the subrogation action by plaintiff-insurer of the property owner, 60 LBC, in this slip and fall case was not precluded by the res judicata doctrine:

The court determined that plaintiff is barred by res judicata from pursuing 60 LBC’s [the property owner’s] coverage claim against defendant [the insurer of the landscaping business hired by 60 LBC to remove ice and snow] because it was resolved in the global settlement [with the injured party] reached during mediation. We disagree. Defendant [insurer of the landscaping company] was not a party to the underlying personal injury action or the third-party action, and the release resulting from the settlement of those actions makes no mention of any claims directly against defendant by 60 LBC or anyone else. Nor does the stipulation of discontinuance. The breach of contract claim asserted by 60 LBC against Red Cedar [the landscaping company] in the third-party action is separate and distinct from plaintiff’s breach of contract cause of action against defendant [insurer of the landscaping company] here. Cincinnati Ins. Co. v Acadia Ins. Co., 2021 NY Slip Op 07351, Fourth Dept 12-23-21

December 23, 2021/0 Comments/by Bruce Freeman

Attorneys, Contract Law

DEFENDANT-ATTORNEY DEMONSTRATED THE RETAINER AGREEMENT IN THE DRUNK-DRIVING AND VEHICULAR HOMICIDE CASE WAS NOT PROCEDURALLY UNCONSCIONABLE (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined defendant-attorney’s motion for summary judgment on the “unconscionable retainer agreement” cause of action should have been granted:

… [D]efendant met his initial burden on the motion by establishing that the retainer agreement is not procedurally unconscionable. Plaintiff’s deposition testimony, which defendant submitted in support of the motion, demonstrated that plaintiff had ample opportunity to become fully informed about the retainer agreement and to make a meaningful choice about representation. Plaintiff did not dispute in his deposition that, as defendant averred, defendant previously represented plaintiff in relation to a charge of driving while intoxicated for which a similar fixed-fee retainer agreement was used. Indeed, plaintiff admitted that defendant previously represented him at least once. Defendant’s submissions on the motion also established that the retainer agreement here was not presented to plaintiff until nine days after the drunk-driving incident giving rise to the criminal charges against him and several days after plaintiff had been released from the hospital. By that time, plaintiff had been arraigned on the felony complaint, and therefore was aware of the charges of aggravated vehicular homicide against him for the deaths of two persons. Before signing the retainer agreement, plaintiff’s family had contacted at least one other attorney on plaintiff’s behalf, and plaintiff negotiated terms of the agreement with defendant. Furthermore, although defendant submitted plaintiff’s interrogatory answers in which plaintiff stated that he relied on defendant’s statements that defendant had never had a client go to prison and that he would work on plaintiff’s case “24/7,” plaintiff conceded during his deposition that defendant never guaranteed that he would avoid prison and that plaintiff understood defendant’s statements regarding the amount of time defendant would spend on plaintiff’s case to be hyperbole. Divito v Fiandach, 2021 NY Slip Op 07350, Fourth Dept 12-23-21

December 23, 2021/0 Comments/by Bruce Freeman

Civil Procedure, Contract Law, Family Law

PLAINTIFF SOUGHT ARREARAGES FOR A PORTION OF DEFENDANT’S PENSION UNDER THE TERMS OF THE STIPULATION OF SETTLEMENT WHICH WAS INCORPORATED BUT NOT MERGED INTO THE JUDGMENT OF DIVORCE; THE ACTION WAS THEREFORE IN THE NATURE OF A BREACH OF CONTRACT AND WAS LIMITED BY THE SIX-YEAR STATUTE OF LIMITATIONS (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined the calculation of the arrearages for plaintiff’s potion of defendant’s pension was restricted by the six-year statute of limitations for contact actions. The stipulation of settlement, which is the basis for plaintiff’s right to a portion of the pension, was incorporated, but not merged, into the judgment of divorce such that a breach of the stipulation is a breach of contract:

It is well settled that “[a] stipulation of settlement that is incorporated, but not merged, into the judgment of divorce is a contract subject to the principles of contract construction and interpretation” … , and an action seeking money damages for violation of a separation agreement is subject to the six-year statute of limitations for breach of contract actions … . Contrary to the court’s determination, it is irrelevant that plaintiff sought the arrearages by way of motion rather than by commencement of a plenary action. Although motions to enforce the terms of a stipulation are not subject to the statute of limitations … , in this case plaintiff was seeking arrearages, or money damages, for the amounts that she did not receive because the QDRO was never received by Niagara Mohawk. When a party is seeking arrearages or a money judgment, the statute of limitations applies whether a party commences a plenary action … or, as here, simply moves for that relief … .

Thus, we conclude that plaintiff’s claim is timely only to the extent that she seeks her share of pension payments made within six years prior to her motion filed on July 29, 2019. Mussmacher v Mussmacher, 2021 NY Slip Op 07413, Fourth Dept 12-23-21

December 23, 2021/0 Comments/by Bruce Freeman

THE AGREEMENT WHICH PROVIDED PLAINTIFF WOULD PAY DEFENDANT ABOUT $38,500 AND PLAINTIFF WOULD BE ENTITLED TO MONTHLY PAYMENTS FROM DEFENDANT’S REVENUE TOTALING ABOUT $52,500 WAS NOT A “LOAN” TO WHICH THE USURY DEFENSE COULD BE APPLIED (SECOND DEPT).

BECAUSE PLAINTIFF ALLEGED THE ORAL CONTRACT WAS ENFORCEABLE EVEN IF THE TRIGGERING EVENT OCCURRED AFTER A YEAR, THE CONTRACT WAS WITHIN THE STATUTE OF FRAUDS AND THEREFORE MUST IN BE WRITING (FIRST DEPT).

DEFENDANT PROPERLY REJECTED THE MACHINES AS NONCONFORMING GOODS, PLAINTIFF DID NOT CURE THE NONCONFORMITY, AND DEFENDANT WAS ENTITLED TO CONSEQUENTIAL DAMAGES AND LOST PROFITS (SECOND DEPT).

THE CLASS—LONG ISLAND POWER AUTHORITY (LIPA) CUSTOMERS AFFECTED BY POWER OUTAGES CAUSED BY HURRICANE SANDY—SHOULD NOT HAVE BEEN CERTIFIED (SECOND DEPT).

RESCISSION IS NOT APPROPRIATE WHERE THE PARTIES CANNOT BE RETURNED TO THE STATUS QUO; A BREACH OF CONTRACT CAUSE OF ACTION MUST BE DISMISSED IF DAMAGES ARE NOT ESTABLISHED (FOURTH DEPT).

THE SUBROGATION ACTION BY THE INSURER OF THE PROPERTY OWNER IN THIS SLIP AND FALL CASE WAS NOT PRECLUDED BY THE RES JUDICATA DOCTRINE AFTER A GLOBAL SETTLEMENT WITH THE INJURED PARTY (FOURTH DEPT).

DEFENDANT-ATTORNEY DEMONSTRATED THE RETAINER AGREEMENT IN THE DRUNK-DRIVING AND VEHICULAR HOMICIDE CASE WAS NOT PROCEDURALLY UNCONSCIONABLE (FOURTH DEPT).

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