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LIQUIDATED DAMAGES CLAUSE IN SEPARATION AGREEMENT CONSTITUTED AN UNENFORCEABLE PENALTY.

The Second Department determined the liquidated damages clause in a separation agreement constituted an unenforceable penalty. The clause provided that, upon a breach of any of the terms, child support would increase from $1500 per month to over $5000:

“[P]arties to an agreement may provide for the payment of liquidated damages upon its breach, and such damages will be upheld if (1) the amount fixed is a reasonable measure of the probable actual loss in the event of breach, and (2) the actual loss suffered is difficult to determine precisely. However, if the liquidated damages do not bear a reasonable proportion to the loss actually sustained by a breach, they will constitute an unenforceable penalty” … .

Here, the parties entered into a separation agreement … which was incorporated but not merged into the judgment of divorce. In relevant part, the agreement provided that … the defendant would pay $1,500 per month in child support until the date of the sale of the marital residence, and $5,076.29 per month thereafter. However, if at any time prior to the sale of the marital residence, the defendant was not in compliance with “all of the terms” of the agreement, then his child support obligation would be increased to $5,076.29 per month.

Contrary to the plaintiff's contention, the Supreme Court correctly determined that the subject provision, as drafted, constituted an unenforceable penalty clause … . Fitzpatrick v Fitzpatrick, 2016 NY Slip Op 04018, 2nd Dept 5-25-16

FAMILY LAW (LIQUIDATED DAMAGES CLAUSE IN SEPARATION AGREEMENT CONSTITUTED AN UNENFORCEABLE PENALTY)/CONTRACT LAW (LIQUIDATED DAMAGES CLAUSE IN SEPARATION AGREEMENT CONSTITUTED AN UNENFORCEABLE PENALTY)/DAMAGES  (LIQUIDATED DAMAGES CLAUSE IN SEPARATION AGREEMENT CONSTITUTED AN UNENFORCEABLE PENALTY)

ASSUMPTION OF RISK DOCTRINE NO LONGER APPLIES TO ANY ACTIONS OTHER THAN THOSE STEMMING FROM ATHLETIC AND RECREATIONAL ACTIVITIES.

The Second Department noted that the doctrine of assumption of the risk no longer applies in any context other than athletic or recreational activities. Defendant attempted to apply the doctrine to a breach of contract action:

The defendant moved for summary judgment dismissing the amended complaint insofar as asserted against her. Relying on Turcotte v Fell (68 NY2d 432), she contended that the plaintiff, by agreeing to enter into the joint annuity contract, necessarily assumed the risk of pecuniary injury. The Supreme Court denied the motion.

The defense of assumption of risk was abolished in 1975 with the adoption of CPLR 1411 … . Nevertheless, the Court of Appeals has explained “that a limited vestige of the assumption of the risk doctrine—referred to as primary’ assumption of the risk—survived the enactment of CPLR 1411 as a defense to tort recovery in cases involving certain types of athletic or recreational activities” … .

Here, as the allegations in the amended complaint have nothing to do with athletic or recreational activities contemplated by the primary assumption of risk doctrine … , it follows that the defendant’s reliance on Turcotte v Fell (68 NY2d 432) is misplaced, and her purported assumption of risk defense is barred by CPLR 1411. Ballow v Lincoln Fin. Corp., 2016 NY Slip Op 04009, 2nd Dept 5-25-16

 

CONTRACT LAW (ASSUMPTION OF RISK DOCTRINE NO LONGER APPLIES TO ANY ACTIONS OTHER THAN THOSE STEMMING FROM ATHLETIC AND RECREATIONAL ACTIVITIES)/ASSUMPTION OF THE RISK (ASSUMPTION OF RISK DOCTRINE NO LONGER APPLIES TO ANY ACTIONS OTHER THAN THOSE STEMMING FROM ATHLETIC AND RECREATIONAL ACTIVITIES)

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CORRESPONDENCE ESTABLISHED AN ENFORCEABLE SETTLEMENT AGREEMENT.

The Second Department determined a letter from counsel, together with other correspondence, established an enforceable settlement agreement of a real property dispute:

CPLR 2104 governs the enforceability of settlement agreements … . Pursuant to CPLR 2104, a settlement agreement is binding upon a party if it is in a writing subscribed either by the party or by his or her attorney. To be enforceable, a settlement agreement must set forth all material terms, and there must be clear mutual accord between the parties … .

Here, the material terms of the settlement agreement were set forth in a letter by the plaintiff's then attorney, who had apparent authority to settle the case on her behalf based on the plaintiff's actions … . The exchange of correspondence between the attorneys for the parties, in conjunction with the defendants' completion of the tasks demanded in the settlement without any objection by the plaintiff, was sufficient to constitute an enforceable settlement agreement between the parties … . Martin v Harrington, 2016 NY Slip Op 04027, 2nd Dept 5-25-16

CIVIL PROCEDURE (CORRESPONDENCE ESTABLISHED AN ENFORCEABLE SETTLEMENT AGREEMENT)/CONTRACT LAW (CORRESPONDENCE ESTABLISHED AN ENFORCEABLE SETTLEMENT AGREEMENT)

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RELEASE APPLICABLE TO INSTITUTION DID NOT APPLY TO A PRIVATE ATTENDING PHYSICIAN AT THE INSTITUTION.

The First Department, applying contract interpretation principles to a release, determined the release, narrowly interpreted by its precise terms, applied to the Cabrini Center for Nursing and Rehabilitation, but did not apply to a private attending physician (Nicolescu) at Cabrini:

Assuming arguendo that defendant Nicolescu, a private attending physician at Cabrini, could be considered a “staff” member of Cabrini, the release is unambiguously limited only to “causes of action” that plaintiffs had against Cabrini, and does not release any other tortfeasors not expressly named therein from liability for causes of action asserted against them (General Obligations Law § 15-108[a]…). Interpreting the release as urged by defendant Nicolescu to release him from liability for causes of action asserted against him individually would return to the common law rule in effect before enactment of General Obligations Law § 15-108(a), when general releases were “a trap for the average man who quite reasonably assumes that settling his claim with one person does not have any effect on his rights against others with whom he did not deal” … . Linn v New York Downtown Hosp., 2016 NY Slip Op 03992, 1st Dept 5-24-16

NEGLIGENCE (RELEASE APPLICABLE TO INSTITUTION DID NOT APPLY TO A PRIVATE ATTENDING PHYSICIAN AT THE INSTITUTION)/GENERAL OBLIGATIONS LAW (RELEASE APPLICABLE TO INSTITUTION DID NOT APPLY TO A PRIVATE ATTENDING PHYSICIAN AT THE INSTITUTION)/CONTRACT LAW (RELEASE APPLICABLE TO INSTITUTION DID NOT APPLY TO A PRIVATE ATTENDING PHYSICIAN AT THE INSTITUTION) RELEASES (RELEASE APPLICABLE TO INSTITUTION DID NOT APPLY TO A PRIVATE ATTENDING PHYSICIAN AT THE INSTITUTION)

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PURCHASER OF UNSOLD SHARES IN A COOPERATIVE BOUND BY A STIPULATION TO WHICH PURCHASER WAS NOT A PARTY; STIPULATION RESTRICTED THE NUMBER OF BOARD MEMBERS WHO COULD BE ELECTED BY HOLDERS OF UNSOLD SHARES.

The First Department, in a full-fledged opinion by Justice Acosta, determined a purchaser of a cooperative apartment, Johnson, was bound by a pre-existing stipulation to which Johnson was not a party. The stipulation required that the holders of unsold shares in the cooperative (HUS) could elect no more than two of the five directors. Unsold shares are held by investors who do not live in the apartments:

The [relevant] documents, including Johnson’s express agreement to take subject to the provisions of the proprietary lease, which incorporated the stipulation, make clear that he was an HUS and was bound by the stipulation’s provisions, including the election restriction … .

[The holder of the unsold shares] should not be permitted to frustrate its obligations under the offering plan or stipulation by transferring its shares to puppet entities to syphon votes away from resident shareholder candidates in order to control the board well beyond the period contemplated by the Attorney General … . Indeed, there is no question that the sole purpose of [the] assign[ment of] 600 shares to Johnson just four days before the … board election was to avoid the provision that prohibited holders of unsold shares from electing more than two directors. Matter of Tiemann Place Realty, LLC v 55 Tiemann Owners Corp., 2016 NY Slip Op 04007, 1st Dept 5-24-16

CONTRACT LAW (COOPERATIVE APARTMENTS, PURCHASER OF UNSOLD SHARES IN A COOPERATIVE BOUND BY A STIPULATION TO WHICH PURCHASER WAS NOT A PARTY; STIPULATION RESTRICTED THE NUMBER OF BOARD MEMBERS WHO COULD BE ELECTED BY HOLDERS OF UNSOLD SHARES)/CORPORATION LAW (COOPERATIVE APARTMENTS, PURCHASER OF UNSOLD SHARES IN A COOPERATIVE BOUND BY A STIPULATION TO WHICH PURCHASER WAS NOT A PARTY; STIPULATION RESTRICTED THE NUMBER OF BOARD MEMBERS WHO COULD BE ELECTED BY HOLDERS OF UNSOLD SHARES)/COOPERATIVES (COOPERATIVE APARTMENTS, PURCHASER OF UNSOLD SHARES IN A COOPERATIVE BOUND BY A STIPULATION TO WHICH PURCHASER WAS NOT A PARTY; STIPULATION RESTRICTED THE NUMBER OF BOARD MEMBERS WHO COULD BE ELECTED BY HOLDERS OF UNSOLD SHARES)

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ERROR TO IMPOSE PRE-JUDGMENT INTEREST AT THE STATUTORY RATE WHEN CONTRACT PROVIDED THAT THE INTEREST-BEARING DOWNPAYMENT WAS THE EXCLUSIVE REMEDY FOR BREACH.

The First Department determined the down payment bearing interest at the rate agreed to in the (real estate) contract was the exclusive remedy. The court should not have awarded interest at the statutory rate:

The contract's terms, requiring that the down payment be placed in an interest-bearing account, so that the party entitled to the down payment would receive compensation for the deprivation of its use of the money in the form of accrued interest, were sufficiently clear to establish that interest paid at the statutory rate was not contemplated by the parties at the time the contract was formed and that the amount escrowed, including interest earned, should be the exclusive remedy to the wronged party … . Ithilien Realty Corp. v 176 Ludlow, LLC, 2016 NY Slip Op 04002, 1st Dept 5-24-16

CIVIL PROCEDURE (ERROR TO IMPOSE PRE-JUDGMENT INTEREST AT THE STATUTORY RATE WHEN CONTRACT PROVIDED THAT THE INTEREST-BEARING DOWNPAYMENT WAS THE EXCLUSIVE REMEDY FOR BREACH)/CONTRACT LAW (ERROR TO IMPOSE PRE-JUDGMENT INTEREST AT THE STATUTORY RATE WHEN CONTRACT PROVIDED THAT THE INTEREST-BEARING DOWNPAYMENT WAS THE EXCLUSIVE REMEDY FOR BREACH)/REAL ESTATE (ERROR TO IMPOSE PRE-JUDGMENT INTEREST AT THE STATUTORY RATE WHEN CONTRACT PROVIDED THAT THE INTEREST-BEARING DOWNPAYMENT WAS THE EXCLUSIVE REMEDY FOR BREACH)

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FAILURE TO STRICTLY COMPLY WITH CONDITION-PRECEDENT NOTICE PROVISIONS IN THE CONSTRUCTION CONTRACT PRECLUDED RECOVERY FOR DELAY DAMAGES.

The Second Department, reversing Supreme Court, determined plaintiff was not entitled to [construction] delay damages because plaintiff did not strictly comply with the delay-notice requirements spelled out in the contract as a condition precedent:

“Where a construction contract contains a condition precedent-type notice provision setting forth the consequences of a failure to strictly comply,' strict compliance will be required”… . Express conditions precedent “must be literally performed; substantial performance will not suffice,” and “[f]ailure to strictly comply with such provisions generally constitutes a waiver of a claim” … .

Here, article 11 of the primary contract between the defendant and the City, which is incorporated into the subcontract, contains such a condition-precedent type notice provision. Article 11.1.2 requires a contractor claiming to be sustaining delay damages to submit, “within forty-five (45) Days from the time such damages are first incurred, and every thirty (30) Days thereafter for as long as such damages are incurred, verified statements of the details and amounts of such damages, together with documentary evidence of such damages.” Moreover, pursuant to article 11.2, a failure “to strictly comply with the requirements of Article . . . 11.1.2 shall be deemed a conclusive waiver by the Contractor of any and all claims for damages for delay arising from such condition.”

The letters and emails relied upon by the Supreme Court and the plaintiff did not strictly comply with the contractual notice requirement, since they did not contain verified statements of the amount of delay damages allegedly sustained by the plaintiff and were unsupported by documentary evidence … . Schindler El. Corp. v Tully Constr. Co., Inc., 2016 NY Slip Op 03868, 2nd Dept 5-18-16

CONTRACT LAW (FAILURE TO STRICTLY COMPLY WITH CONDITION-PRECEDENT NOTICE PROVISIONS IN THE CONSTRUCTION CONTRACT PRECLUDED RECOVERY FOR DELAY DAMAGES)/LABOR-CONSTRUCTION LAW (FAILURE TO STRICTLY COMPLY WITH CONDITION-PRECEDENT NOTICE PROVISIONS IN THE CONSTRUCTION CONTRACT PRECLUDED RECOVERY FOR DELAY DAMAGES)/CONSTRUCTION CONTRACTS (DELAY DAMAGES, FAILURE TO STRICTLY COMPLY WITH CONDITION-PRECEDENT NOTICE PROVISIONS IN THE CONSTRUCTION CONTRACT PRECLUDED RECOVERY FOR DELAY DAMAGES)/DELAY DAMAGES (CONSTRUCTION CONTRACTS, FAILURE TO STRICTLY COMPLY WITH CONDITION-PRECEDENT NOTICE PROVISIONS IN THE CONSTRUCTION CONTRACT PRECLUDED RECOVERY FOR DELAY DAMAGES)/CONDITIONS PRECEDENT (CONSTRUCTION CONTRACTS, FAILURE TO STRICTLY COMPLY WITH CONDITION-PRECEDENT NOTICE PROVISIONS IN THE CONSTRUCTION CONTRACT PRECLUDED RECOVERY FOR DELAY DAMAGES)

DOCTRINE OF DEFINITENESS WAS PROPERLY NOT APPLIED, DOLLAR-AMOUNT OF THE FEE AT ISSUE COULD BE DETERMINED BY INDUSTRY PRACTICE.

The First Department, in a full-fledged opinion by Justice Manzanet-Daniels, determined the “doctrine of definiteness” should not be applied to an agreement in which the specific dollar-amount of a fee for financial advisory services, called a transaction fee, was not spelled out.  The contract stated only that the transaction fee would be “consistent with investment banking industry practice for transactions of comparable complexity, level of analysis and size.” Because the fee was ultimately determined by a method accepted in the investment banking industry, the fee was not rendered unenforceable by the “doctrine of definiteness:”

The doctrine of definiteness “assures that courts will not impose contractual obligations when the parties did not intend to conclude a binding agreement” … . It is to be sparingly used, as a “last resort,” and only when an agreement “cannot be rendered reasonably certain by reference to an extrinsic standard that makes its meaning clear” … . The Court of Appeals has cautioned that if applied with too “heavy [a] hand,” the doctrine may negate the reasonable expectations of the parties in entering into the contract … .

The “Transaction Fee” provision explicitly references the type of “commercial practice, or trade usage” New York courts routinely rely upon to render a price term sufficiently definite … . The fee [is] enforceable inasmuch as it may be ascertained from public price indices and industry practice … .

Where, as here, the record demonstrates that sophisticated parties intended to be bound by an agreement, the doctrine of definiteness should not be used to defeat the bargain of the parties … . Cowen & Co., LLC v Fiserv, Inc., 2016 NY Slip Op 03840, 1st Dept 5-17-16

CONTRACT LAW (DOCTRINE OF DEFINITENESS WAS PROPERLY NOT APPLIED, DOLLAR-AMOUNT OF THE FEE AT ISSUE COULD BE DETERMINED BY INDUSTRY PRACTICE)/DOCTRINE OF DEFINITENESS (CONTRACT LAW, DOCTRINE OF DEFINITENESS WAS PROPERLY NOT APPLIED, DOLLAR-AMOUNT OF THE FEE AT ISSUE COULD BE DETERMINED BY INDUSTRY PRACTICE)

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QUESTION OF FACT WHETHER PLAINTIFF EMPLOYEE WAS TERMINATED (NOT A VIOLATION OF THE AT WILL CONTRACT) OR WHETHER DEFENDANT EMPLOYER VIOLATED THE NO ORAL MODIFICATION CLAUSE.

The First Department, over an extensive two-justice dissent, reversing (modifying) Supreme Court, determined plaintiff employee should not have been granted summary judgment against defendant employer in this action alleging breach of an employment contract.  Although the contract was deemed to have created an at will employment arrangement, Supreme Court held that the “no oral modification” clause was violated when defendant employer modified plaintiff's duties without a written agreement signed by the plaintiff. The First Department found that there was a question of fact whether plaintiff was terminated (not prohibited by the contract), or whether the contract was modified without a written agreement (prohibited by the contract):

“[A]bsent an agreement establishing a fixed duration, an employment relationship is presumed to be a hiring at will, terminable at any time by either party” ,,, . The presumption can be rebutted by evidence of a limitation on the employer's right to discharge the employee at will … .

The inclusion of the no oral modification clause in the employment agreement does not, in and of itself, suffice to rebut the at-will presumption. While the clause precluded the modification of “any provision” of the agreement without a writing signed by the party against whom enforcement was sought, there is no express provision in the agreement that precluded defendant from terminating plaintiff without cause. However, as Supreme Court found, the no oral modification clause is an enforceable contract term even if the employment was at will  … . * * *

Nevertheless, while the court correctly found that the no oral modification clause was enforceable and barred defendant from unilaterally altering the terms of plaintiff's employment agreement without a writing, issues of fact exist that preclude the granting of summary judgment in plaintiff's favor. These include whether or not defendant terminated plaintiff's employment or merely modified it when it removed plaintiff as president … .  Gootee v Global Credit Servs., LLC, 2016 NY Slip Op 03984, 1st Dept 5-19-16

CONTRACT LAW (QUESTION OF FACT WHETHER PLAINTIFF EMPLOYEE WAS TERMINATED [NOT A VIOLATION OF THE AT WILL CONTRACT] OR WHETHER DEFENDANT EMPLOYER VIOLATED THE NO ORAL MODIFICATION CLAUSE)/EMPLOYMENT LAW (QUESTION OF FACT WHETHER PLAINTIFF EMPLOYEE WAS TERMINATED [NOT A VIOLATION OF THE AT WILL CONTRACT] OR WHETHER DEFENDANT EMPLOYER VIOLATED THE NO ORAL MODIFICATION CLAUSE)/AT WILL EMPLOYMENT (QUESTION OF FACT WHETHER PLAINTIFF EMPLOYEE WAS TERMINATED [NOT A VIOLATION OF THE AT WILL CONTRACT] OR WHETHER DEFENDANT EMPLOYER VIOLATED THE NO ORAL MODIFICATION CLAUSE)

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QUESTIONS OF FACT WHETHER TENANT ENTITLED TO RESCIND LEASE BECAUSE CERTIFICATE OF OCCUPANCY PROHIBITED TENANT’S USE OF THE PROPERTY FOR COMMERCIAL PURPOSES.

The First Department, in a full-fledged opinion by Justice Tom, reversing Supreme Court, determined questions of fact precluded the granting of landlord's cross-motion for summary judgment dismissing plaintiff-tenant's rescission action (alleging impossibility, fraud, misrepresentation and frustration of purpose). By the terms of the lease the tenant was prohibited from any use of the premises which violated the certificate of occupancy (CO). The lease required tenant to use the premises solely for a commercial purpose (executive recruiting firm). However the CO required that the premises be used solely as residential property. The First Department distinguished the line of cases which enforced leases where the only objection to the lease was a problem with the CO:

… [T]here are issues of fact as to whether plaintiff's cause of action for rescission can be proved. While the purpose of the lease was for the space to be used as an office and plaintiff is in fact prohibited from any other use, the lease also prohibits plaintiff from using the premises in violation of the CO, and the CO itself prohibits commercial use of the space. Therefore, plaintiff properly raises the excuse of impossibility of performance as its ability to perform under the lease was destroyed by law … . Absent defendants' willingness to alter the CO it was impossible for plaintiff to perform its obligations under the lease, and the evidence raises an issue of fact as to whether defendants were willing to cooperate in this regard. * * *

… [T]here is an issue of fact as to whether the lease should be terminated on the ground of frustration of purpose. In order to invoke this defense, “the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense”… . Jack Kelly Partners LLC v Zegelstein, 2016 NY Slip Op 03820, 1st Dept 5-12-16

LANDLORD-TENANT (QUESTIONS OF FACT WHETHER TENANT ENTITLED TO RESCIND LEASE BECAUSE CERTIFICATE OF OCCUPANCY PROHIBITED USE OF THE PROPERTY FOR COMMERCIAL PURPOSES)/CONTRACT LAW (LEASES, QUESTIONS OF FACT WHETHER TENANT ENTITLED TO RESCIND LEASE BECAUSE CERTIFICATE OF OCCUPANCY PROHIBITED USE OF THE PROPERTY FOR COMMERCIAL PURPOSES)/RESCISSION (LEASES, QUESTIONS OF FACT WHETHER TENANT ENTITLED TO RESCIND LEASE BECAUSE CERTIFICATE OF OCCUPANCY PROHIBITED USE OF THE PROPERTY FOR COMMERCIAL PURPOSES)

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