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FRAUD CAUSE OF ACTION PROPERLY DISMISSED BECAUSE (1) IT WAS DUPLICATIVE OF THE BREACH OF CONTRACT CAUSE OF ACTION AND (2) PLAINTIFF, AS A SOPHISTICATED BUSINESS ENTITY, COULD NOT ARGUE IT RELIED ON ORAL REPRESENTATIONS WHICH CONTRADICTED THE WRITTEN CONTRACT; STRICT REQUIREMENTS FOR ATTACHMENT NOT MET.

The Third Department, affirming Supreme Court, determined plaintiff’s fraud cause of action was properly dismissed because (1) it was duplicative of the breach of contract cause of action, and (2), plaintiff, a sophisticated business entity,  could not be heard to rely upon alleged oral representations which contradicted the written contract.  In addition, the Third Department determined the requirements for attachment pursuant to CPLR 6201 (3) were not met by plaintiff. There was insufficient proof defendant was secreting assets of frustrate a potential judgment:

A cause of action for fraud does not exist where the alleged fraudulent act is premised upon a breach of a contractual obligation … . * * * … [A] sophisticated business entity cannot justifiably rely on oral representations when it thereafter enters into a contract containing terms that directly contradict those oral representations … . Accordingly, plaintiff’s fraud cause of action is subject to dismissal, either as duplicative of the contract cause of action or, in the alternative, based on plaintiff’s own allegations that it relied on oral representations that were contradicted by the terms of the contract that it thereafter entered into. Northeast United Corp. v Lewis, 2016 NY Slip Op 01713, 3rd Dept 3-10-16

CONTRACT LAW (SOPHISTICATED BUSINESS ENTITY CAN NOT ARGUE IT RELIED ON ORAL MISREPRESENTATIONS WHICH CONTRADICTED THE WRITTEN CONTRACT)/FRAUD (FRAUD CAUSE OF ACTION PROPERLY DISMISSED AS DUPLICATIVE OF BREACH OF CONTRACT CAUSE OF ACTION AND BECAUSE PLAINTIFF, A SOPHISTICATED BUSINESS ENTITY, COULD NOT BE HEARID TO HAVE RELIED UPON ORAL MISREPRESENTATIONS WHICH CONTRADICTED THE WRITTEN CONTRACT)/ATTACHMENT (STRICT REQUIREMENTS FOR ATTACHMENT PURSUANT TO CPLR 6201 (3) NOT MET)/CIVIL PROCEDURE (STRICT REQUIREMENTS FOR ATTACHMENT PURSUANT TO CPLR 6201 (3) NOT MET)

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PRINCIPLES OF CONTRACT INTERPRETATION APPLIED TO DETERMINE THE DEDUCTIBLE AMOUNT; SUMMARY JUDGMENT SHOULD HAVE BEEN GRANTED TO THE INSURER.

The Second Department, reversing Supreme Court, determined the defendant insurer’s interpretation of the policy language was correct and plaintiff’s damages claim was below the deductible. Plaintiff’s facility was damaged during Hurricane Sandy. The damage claim was approximately $2.3 million. The question on appeal was whether the policy language supported the insurer’s position that the applicable deductible was 2% of the total value of the property, which amounted to more than $2.3 million. Or whether the policy language supported the insured’s position that the deductible was 2% of the $2.5 million sublimit for flood damage. The court concluded the insured’s interpretation was not viable because it rendered several other policy provisions superfluous: “In sum, there is only one reasonable interpretation of the relevant deductible provision of the policy. That interpretation supports [the insurer’s] contention that the applicable deductible was $2,494,020, and that the claim submitted by [the insured] did not meet the deductible.” Castle Oil Corp. v ACE Am. Ins. Co., 2016 NY Slip Op 01632, 2nd Dept 3-9-16

 

NSURANCE LAW (PRINCIPLES OF CONTRACT INTERPRETATION APPLIED TO DETERMINE DEDUCTIBLE)/CONTRACT LAW (INSURANCE LAW, PRINCIPLES OF CONTRACT INTERPREATION APPLIED TO DETERMINE DEDUCTIBLE)

ALTHOUGH BREACH OF CONTRACT CAUSES OF ACTION WERE PRECLUDED BY THE STATUTE OF FRAUDS, RELATED PROMISSORY ESTOPPEL AND UNJUST ENRICHMENT CAUSES OF ACTION SHOULD HAVE SURVIVED MOTION TO DISMISS.

The First Department, in a full-fledged opinion by Justice Richter, reversing (modifying) Supreme Court, determined that, although the breach of contract allegations were precluded by the statute of frauds, the related causes of action for promissory estoppel and unjust enrichment should not have been dismissed. Plaintiff, Peter, and defendant, Lisa, were both named as beneficiaries in their mother's, Madeline's, will. However, when Peter was in the midst of divorce proceedings, Madeline made Lisa the sole beneficiary because she did not want Peter's wife to claim any assets in her estate should she die before the divorce was final.  Lisa orally agreed to split the estate upon Madeline's death in return for Peter's promise to pay Madeline's estate taxes. Peter paid the estate taxes and Lisa reneged on the deal:

Although the breach of contract causes of action cannot stand, the complaint sufficiently states a claim under the doctrine of promissory estoppel. The elements of a promissory estoppel claim are: (i) a sufficiently clear and unambiguous promise; (ii) reasonable reliance on the promise; and (iii) injury caused by the reliance … . If a contract is barred by the statute of frauds, a promissory estoppel claim is viable in the limited set of circumstances where unconscionable injury results from the reliance placed on the alleged promise … . * * *

The factual allegations of the complaint sufficiently state a cause of action for unjust enrichment with respect to Peter's payment of Madeline's estate taxes and Lisa's life insurance premiums. To establish unjust enrichment, the plaintiff must show that the defendant was enriched, at the plaintiff's expense, and that it is against equity and good conscience to permit the defendant to retain what is sought to be recovered … . Here, the complaint's allegations show that Lisa was enriched at Peter's expense because Peter paid the estate taxes and insurance premiums, despite Lisa's being the sole beneficiary of the will, and that it would be against equity and good conscience to allow Lisa to retain that windfall.

This theory of unjust enrichment is not precluded by the statute of frauds because it is not an attempt to enforce the oral contract but instead seeks to recover the amount by which Lisa was enriched at Peter's expense … . Castellotti v Free, 2016 NY Slip Op 01625, 1st Dept 3-8-16

CONTRACT LAW (ALTHOUGH BREACH OF CONTRACT CAUSES OF ACTION PRECLUDED BY STATUTE OF FRAUDS, RELATED PROMISSORY ESTOPPEL AND UNJUST ENRICHMENT CAUSES OF ACTION SHOULD HAVE SURVIVED MOTION TO DISMISS);/PROMISSORY ESTOPPEL (ALTHOUGH BREACH OF CONTRACT CAUSES OF ACTION PRECLUDED BY STATUTE OF FRAUDS, RELATED PROMISSORY ESTOPPEL AND UNJUST ENRICHMENT CAUSES OF ACTION SHOULD HAVE SURVIVED MOTION TO DISMISS)/UNJUST ENRICHMENT (ALTHOUGH BREACH OF CONTRACT CAUSES OF ACTION PRECLUDED BY STATUTE OF FRAUDS, RELATED PROMISSORY ESTOPPEL AND UNJUST ENRICHMENT CAUSES OF ACTION SHOULD HAVE SURVIVED MOTION TO DISMISS)

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ARCHITECT MAY BE LIABLE FOR BOTH BREACH OF CONTRACT AND NEGLIGENCE.

The First Department, over a dissent, determined an architect, Perkins, could be sued for both breach of contract and negligence in a lawsuit stemming from the settling of a building and other structures in the vicinity of new construction. The court also concluded the plaintiff city, although not mentioned in the contract with the architect, had raised a question of fact whether the city was an intended third-party beneficiary of the contract. With respect to when a professional-party to a contract can be liable in tort, the court wrote:

Perkins, as architect, may be subject to tort liability based on a failure to exercise due care in the performance of its duties. In making this determination, the court is to look at the nature of the injury and whether the plaintiff is merely seeking the benefit of its agreement. Where the plaintiff is merely seeking the benefit of its agreement, it is limited to a contract claim … .

Where, however, “the particular project . . . is so affected with the public interest that the failure to perform competently can have catastrophic consequences,” a professional may be subject to tort liability as well … . Indeed, “[t]his is one of the most significant elements in determining whether the nature of the type of services rendered gives rise to a duty of reasonable care independent of the contract itself” (… citing Sommer v Federal Signal Corp., 79 NY2d 540, 553 [1992]). As the Court explained in Sommer, “[I]t is policy, not the parties' contract, that gives rise to a duty of care” … . The “nature of the injury, the manner in which the injury occurred and the resulting harm” are also considered … .

Here, there is a factual question whether Perkins assumed an independent legal duty as an architect to perform its work in a manner consistent with the generally accepted standard of professional care in its industry. Dormitory Auth. of the State of N.Y. v Samson Constr. Co., 2016 NY Slip Op 01546, 1st Dept 3-3-16

NEGLIGENCE (ARCHITECT MAY BE LIABLE IN TORT AND FOR BREACH OF CONTRACT)/CONTRACT LAW (ARCHITECT MAY BE LIABLE IN TORT AND FOR BREACH OF CONTRACT)/ARCHITECTS (ARCHITECT MAY BE LIABLE IN TORT AND FOR BREACH OF CONTRACT)

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CAUSE OF ACTION FOR BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING NOT DUPLICATIVE OF BREACH OF CONTRACT CAUSE OF ACTION.

The Second Department determined a cause of action alleging breach of the insurer’s duty to act in good faith was not duplicative of the breach of contract cause of action. Therefore the motion to dismiss the “duty to act in good faith” cause of action was properly denied. Plaintiff sued his own car insurance carrier to recover supplementary uninsured/underinsured motorist (SUM) coverage. The court explained the elements of a “duty to act in good faith” cause of action:

 

The second cause of action alleges a failure to act in good faith. Implicit in every contract is an implied covenant of good faith and fair dealing … . The implied covenant of good faith and fair dealing is a pledge that neither party to the contract shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruit of the contract, even if the terms of the contract do not explicitly prohibit such conduct … . Such a cause of action is not necessarily duplicative of a cause of action alleging breach of contract … .

An insurance carrier has a duty to “investigate in good faith and pay covered claims” … . Damages for breach of that duty include both the value of the claim, and consequential damages, which may exceed the limits of the policy, for failure to pay the claim within a reasonable time … . Such a cause of action is not duplicative of a cause of action sounding in breach of contract to recover the amount of the claim … . Such consequential damages may include loss of earnings not directly caused by the covered loss, but caused, instead, by the breach of the implied covenant of good faith and fair dealing … . The second cause of action states a claim for consequential damages for breach of the implied covenant of good faith and fair dealing. Gutierrez v Government Empls. Ins. Co., 2016 NY Slip Op 01292, 2nd Dept 2-24-16

 

INSURANCE LAW (CAUSE OF ACTION BASED ON DUTY TO ACT IN GOOD FAITH)/CONTRACT LAW (INSURANCE, CAUSE OF ACTION BASED UPON INSURER’S DUTY TO ACT IN GOOD FAITH IS NOT DUPLICATIVE OF  BREACH OF CONTRACT CAUSE OF ACTION)/IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING (INSURANCE, CAUSE OF ACTION BASED UPON INSURER’S DUTY TO ACT IN GOOD FAITH IS NOT DUPLICATIVE OF BREACH OF CONTRACT CAUSE OF ACTION)

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NO QUESTION OF FACT RAISED ABOUT AN ALLEGED ORAL WAIVER OF A LEASE PROVISION, CRITERIA EXLAINED.

The First Department, in a lease-dispute, determined the tenant’s claim that a provision of the lease requiring percentage rent (based upon the income of the tenant) was orally waived did not raise a question of fact. The lease specifically required any waiver to be in writing. The court explained when an oral waiver can be valid, despite the written-waiver requirement:

 

An agreement in a lease providing that no waiver of a term shall be inferred absent a writing to that effect is enforceable … . Thus, “if the only proof of an alleged agreement to deviate from a written contract is the oral exchanges between the parties, the writing controls” … . Tenant correctly notes that the parties to a contract may, by mutual agreement, disregard a no-waiver clause. However, some performance confirming the modification must be present, and it must be “unequivocally referable to the oral modification” …  As stated by this Court, in the context of a lease dispute, there must be “sufficient indicia that the reasonable expectations of both parties under the original lease were supplanted by subsequent actions” … . …

Here, tenant has attempted to establish that it did not pay percentage rent over the years because landlord had orally waived the requirement. However, tenant has failed to establish that nonpayment of the percentage rent was unequivocally referable to the alleged statement … . To be sure, where a party orally waives a contract provision requiring the other party to perform an affirmative act, it may be difficult for the other party to establish the waiver other than by demonstrating that it did not do the thing it was originally required to do. Nevertheless, a nonbreaching party should not have to litigate the issue based only on the breaching party’s unsupported and uncorroborated representation that it orally waived a provision. This is the very reason why many contracts require waivers to be in writing. Such a bald representation is all tenant presents here. Accordingly, it has failed to raise an issue of fact. Paramount Leasehold, L.P. v 43rd St. Deli, Inc., 2016 NY Slip Op 01258, 1st Dept 2-23-16

 

CONTRACT LAW (NO QUESTION OF FACT RAISED ABOUT ALLEGED ORAL WAIVER IN THE FACE OF A WRITTEN-WAIVER REQUIRMENT IN THE LEASE)/LANDLORD-TENANT (NO QUESTION OF FACT RAISED ABOUT ALLEGED ORAL WAIVER IN THE FACE OF A WRITTEN-WAIVER REQUIRMENT IN THE LEASE)/WAIVER (NO QUESTION OF FACT RAISED ABOUT ALLEGED ORAL WAIVER IN THE FACE OF A WRITTEN-WAIVER REQUIRMENT IN THE LEASE)

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EQUITABLE ACTION SEEKING RESCISSION BASED UPON FRAUD NEED NOT ALLEGE PECUNIARY LOSS.

The First Department, in a full-fledged opinion by Justice Tom, determined a triable issue of fact had been raised about whether defendant made misrepresentations in a contract for a condominium such that the contract could be rescinded. Defendant agreed the condominium was to be used for residential purposes, but sought to operate a day care center on the premises. The court noted that pecuniary damages need not be alleged in an equitable action to rescind a contract based upon fraud:

 

Fraud sufficient to support the rescission requires only a misrepresentation that induces a party to enter into a contract resulting in some detriment, and “unlike a cause of action in damages on the same ground, proof of scienter and pecuniary loss is not needed” … . Thus, the fourth cause of action alleging that misrepresentations in defendant’s purchase application induced plaintiff to forgo exercise of its right of first refusal has a sound basis in the record, and Supreme Court properly concluded that a triable issue is presented. Board of Mgrs. of the Soundings Condominium v Foerster, 2016 NY Slip Op 01273, 1st Dept 2-23-16

 

CONTRACT LAW (RESCISSION FOR MISREPRESENTATIONS NEED NOT BE SUPPORTED BY AN ALLEGATION OF PECUNIARY LOSS)/RESCISSION (ACTION FOR RESCISSION BASED UPON MISREPRESENTATIONS NEED NOT ALLEGE PECUNIARY LOSS)/FRAUD (ACTION FOR RESCISSION OF A CONTRACT BASED UPON MISREPRESENTATIONS NEED NOT ALLEGE PECUNIARY LOSS)/DAMAGES (ACTION FOR RESCISSION OF A CONTRACT BASED UPON MISREPRESENTATIONS NEED NOT ALLEGE PECUNIARY LOSS)

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BOARD OF RESIDENTIAL COOPERATIVE CORPORATION UNREASONABLY WITHHELD CONSENT TO TRANSFER SHARES AND PROPRIETARY LEASE TO TWO SONS OF THE DECEASED APARTMENT RESIDENTS.

The First Department, over a two-justice dissent, determined the board of defendant residential cooperative corporation unreasonably withheld consent for the shares and proprietary lease to be transferred to the two sons of the deceased holders of the shares and proprietary lease. The case turned on the language of the proprietary lease. The application was made by the two sons, only one of whom was to live in the apartment. The dissent emphasized the term “a family member,” arguing the proprietary lease did not allow a transfer to more than one family member. Estate of Del Terzo v 33 Fifth Ave. Owners Corp., 2016 NY Slip Op 01039. 1st Dept 2-11-16

CORPORATION LAW (RESIDENTIAL COOPERATIVE, BOARD UNREASONABLY WITHHELD CONSENT TO TRANSFER OF SHARES AND PROPRIETARY LEASE)/RESIDENTIAL COOPERATIVE (BOARD UNREASONABLY WITHHELD CONSENT TO TRANSFER OF SHARES AND PROPRIETARY LEASE)/PROPRIETARY LEASE (RESIDENTIAL COOPERATIVE, BOARD UNREASONABLY WITHHELD CONSENT TO TRANSFER OF SHARES AND PROPRIETARY LEASE)

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ACTION TO RESCIND A PURCHASE CONTRACT CONSTITUTED AN ANTICIPATORY BREACH OF THE CONTRACT WHICH RELIEVED SELLERS OF ANY FURTHER OBLIGATIONS AND ENTITLED SELLERS TO RETAIN THE DEPOSIT.

The First Department, in a full-fledged opinion by Justice Acosta, determined plaintiff-buyer’s action to rescind a real estate purchase contract before the final closing date constituted an anticipatory breach which relieved defendants-sellers of any further obligations called for by the purchase contract, including the acquisition of development approvals. The case raised two questions of first impression: (1) whether a rescission action by a buyer constitutes an anticipatory breach or repudiation of a purchase contract; and (2) whether such a breach relieves the seller of having to demonstrate it was ready, willing and able to close on the closing date. Both questions were answered in the affirmative and the sellers were entitled to retain the deposit and certain additional fees called for by the contract:

 

We … agree with the motion court that, by “commencing this lawsuit [before the Final Closing Date] and seeking the particular relief of rescission of the Amendment and abatement of the purchase price, [plaintiff] unequivocally notified the … defendants of its intention to renounce its contractual duties” … . Plaintiff did not simply seek to define its rights under the parties’ agreement; it sought to nullify the agreement entirely. * * *

The contract required defendants to obtain the development approvals as a condition precedent to closing, but defendants were absolved of that obligation upon plaintiff’s anticipatory breach. Whether defendants were in fact “on track” to obtain the approvals by the closing date is of no moment; the record demonstrates that they had been engaged in significant efforts to obtain the approvals until plaintiff’s repudiation, and it was possible, however unlikely, that they could have obtained the approvals before the Final Outside Closing Date (which the parties had been extending on a monthly basis). They were not required to continue to pursue the approvals after plaintiff repudiated the contract by commencing the instant action seeking rescission … . Once plaintiff commenced the instant action, it would have been futile and wasteful for defendants to continue to seek the approvals in preparation for a closing that plaintiff was tirelessly seeking to avoid. Princes Point LLC v Muss Dev. L.L.C., 2016 NY Slip Op 00783, 1st Dept 2-4-16

 

CONTRACT LAW (RESCISSION ACTION IS AN ANTICIPATORY BREACH)/REAL ESTATE (BUYER’S ACTION TO RESCIND A PURCHASE AGREEMENT IS AN ANTICIPATORY BREACH WHICH RELIEVES SELLER OF ANY FUTHER CONTRACTUAL OBLIGATIIONS)/RESCISSION (ACTION TO RESCIND A REAL ESTATE PURCHASE AGREEMENT IS AN ANTICIPATORY BREACH)/ANTICIPATORY BREACH (ACTION TO RESCIND A REAL ESTATE PURCHASE AGREEMENT IS AN ANTICIPATORY BREACH)/PURCHASE AGREEMENT, REAL ESTATE (ACTION TO RESCIND PURCHASE AGREEMENT IS AN ANTICIPATORY BREACH)

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FRAUD CAUSE OF ACTION STEMMING FROM THE SIGNING OF A DOCUMENT WITHOUT READING IT DISMISSED AS TIME BARRED; RELEVANT STATUTES OF LIMITATIONS AND BURDENS OF PROOF EXPLAINED.

The Second Department determined plaintiff’s cause of action for fraud was time-barred because it accrued when she signed the allegedly fraudulent document without reading it. The court explained the two statutes of limitations which apply to fraud and the related burdens of proof in a motion to dismiss:

 

An action alleging fraud must be commenced within “the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it” (CPLR 213[8]; see CPLR 203[g]…). “On a motion to dismiss a complaint pursuant to CPLR 3211(a)(5) on statute of limitations grounds, the moving defendant must establish, prima facie, that the time in which to commence the action has expired” … . “The burden then shifts to the plaintiff to raise a question of fact as to whether the statute of limitations is tolled or is otherwise inapplicable, or whether the plaintiff actually commenced the action within the applicable limitations period”… .

Where a plaintiff relies upon the two-year discovery exception to the six-year limitations period, ” [t]he burden of establishing that the fraud could not have been discovered prior to the two-year period before the commencement of the action rests on the plaintiff who seeks the benefit of the exception'” * * *  … [A]lthough “mere suspicion” will not substitute for knowledge of the fraudulent act …, a plaintiff may not ” shut his [or her] eyes to facts which call for investigation … .

Here, the gravamen of the plaintiff’s complaint is fraud in the factum, that she was induced to sign documents without being advised of their contents … . However, “[a] party who signs a document without any valid excuse for not having read it is conclusively bound’ by its terms” … . In this case, the plaintiff admitted that she neither read nor inquired about the contents of the documents upon which she relies to establish the fraud before she signed them, yet she failed to proffer any valid excuse for her failure to do so. Under these circumstances, the plaintiff is conclusively presumed to have agreed to the terms of those documents … and, accordingly, cannot establish that she lacked knowledge from which she could have discovered the alleged fraud with reasonable diligence … . Cannariato v Cannariato, 2016 NY Slip Op 00650, 2nd Dept 2-3-16

 

FRAUD (TWO STATUTES OF LIMITATIONS EXPLAINED)/FRAUD (SIGNING DOCUMENT WITHOUT READING IT)/CONTRACT LAW (SIGNING DOCUMENT WITHOUT READING CONSTITUTES AGREEMENT)/CIVIL PROCEDURE (PROOF BURDENS RE: MOTION TO DISMISS FRAUD CAUSE OF ACTION AS TIME-BARRED)/STATUTES OF LIMITATIONS (FRAUD)

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