You are here: / Contract Law

Zoning Change Prohibiting Subdivision Was Foreseeable, Developer Not Entitled to Rescind Contract for Land Purchase

The Second Department determined plaintiff-developer’s (RW’s) complaint seeking rescission of a contract for the purchase of land was properly denied and the cross-motion to dismiss the complaint was properly granted. RW argued that the zoning changes enacted by the town, which prohibited the subdivision plan contemplated by the contract, was not foreseeable. The court found that defendants had demonstrated the zoning change was, in fact, foreseeable and rescission was therefore not an available remedy:

” [T]he law of impossibility provides that performance of a contract will be excused if such performance is rendered impossible by intervening governmental activities, but only if those activities are unforeseeable'” … . Contrary to RW’s contention, a party seeking to rescind a contract must show that the intervening act was unforeseeable, even if the intervening act consisted of the actions of a governmental entity or the passage of new legislation … .

Here, RW did not show that it was unforeseeable that a change in the Town’s Zoning Code would render it impossible to subdivide the property as initially planned, and did not raise a triable issue of fact in opposition to [defendants’]  showing that such a change was foreseeable … . RW Holdings, LLC v Mayer, 2015 NY Slip Op 07020, 2nd Dept 9-30-15

 

,

Forum Selection Clause in a “Release of Liability” Form Is Enforceable

The Second Department determined the forum selection clause in an “Equipment Rental Form and Release of Liability” signed by plaintiff prior to taking snowboarding lessons at defendant ski resort was enforceable. Plaintiff alleged injury caused by improper instruction and argued the form was an invalid contract of adhesion:

Contrary to the plaintiff’s contentions, the “Equipment Rental Form and Release of Liability” was not an unenforceable contract of adhesion, and enforcement of the forum selection clause contained therein does not contravene public policy … . Karlsberg v Hunter Mtn. Ski Bowl, Inc., 2015 NY Slip Op 06890, 2nd Dept 9-23-15

 

,

Although Plaintiff Could Not Establish a Valid Mechanic’s Lien, Supreme Court Should Have Allowed the Action to Proceed As If it Were Brought As a Breach of Contract

The Second Department determined plaintiff’s complaint seeking foreclosure of a mechanic’s lien (re: work done pursuant to a contract) should not have been dismissed on the ground the notice of pendency (of the mechanic’s lien) had expired. Because the complaint alleged the existence of a contract, performance of plaintiff’s  obligation thereunder, the amount unpaid balance, and sought a personal judgment for any deficiency after the foreclosure sale, plaintiff’s action should have been allowed to proceed:

“… [U]nder the plain language of the Lien Law, the Supreme Court had the authority to retain the action and award a money judgment even though the lien had expired … . Section 17 of the Lien Law provides that the ‘failure to file a notice of pendency of action shall not abate the action as to any person liable for the payment of the debt specified in the notice of lien, and the action may be prosecuted to judgment against such person.’ The same rule applies where, as here, the notice of pendency expired during the pendency of the plaintiff’s action … . Section 54 of the Lien Law provides that if ‘the lienor shall fail, for any reason, to establish a valid lien in an action under the provisions of this article, he may recover judgment therein for such sums as are due him, or which he might recover in an action on a contract, against any party to the action.’ The complaint in this action alleged the existence of the contract, the plaintiff’s performance of its obligation thereunder, and the unpaid balance of the agreed price. Additionally, the ad damnum clause included a request for a personal judgment against the defendants for any deficiency remaining after a foreclosure sale. These allegations were sufficient to support an award of a personal judgment against the defendants even if the mechanic’s lien was defective …”. Aluminum House Corp. v Demetriou, 2015 NY Slip Op 06767, 2nd Dept 9-16-15

 

Plaintiff Not Entitled to Summary Judgment—Plaintiff Could Not Demonstrate Plaintiff’s Interpretation of the Contract Was the Only Reasonable Interpretation (Rendering the Contract Ambiguous)

Plaintiff sued under a brokerage agreement alleging entitlement to a fee in connection with the sale of defendant’s property. By the terms of the agreement, no fee was owed if the property was sold to “a private party identified as James Walker.” Ultimately the property was sold to “James Walker,” but defendant alleged the buyer was not James Walker but was merely using the name as a pseudonym to protect his privacy. The Second Department determined plaintiff was not entitled to summary judgment because it could not be found as a matter of law that plaintiff’s interpretation of the contract was the only reasonable interpretation. The court explained the relevant analytical criteria:

“The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties’ intent” … . “[A] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms” … . “To determine whether a writing is unambiguous, language should not be read in isolation because the contract must be considered as a whole” … . If the language of the contract is susceptible of more than one reasonable interpretation, the contract will be considered ambiguous … .

The threshold question of whether a contract is unambiguous, and the subsequent construction and interpretation of an unambiguous contract, are issues of law within the province of the court … . “[W]hen interpreting a contract, the court should arrive at a construction which will give fair meaning to all of the language employed by the parties to reach a practical interpretation of the expressions of the parties so that their reasonable expectations will be realized” … . Extrinsic and parol evidence of the parties’ intent may not be admitted to create ambiguity in a contract that is unambiguous on its face, but such evidence may be considered where a contract is determined to be ambiguous … .

* * * … [Here it] cannot be determined as a matter of law that the plaintiff’s interpretation … was the only reasonable interpretation … . NRT N.Y., LLC v Harding, 2015 NY Slip Op 06719, 2nd Dept 9-2-15

 

, ,

Fees Owed by Seller to “Financial Advisor” Hired by Seller to Facilitate the Sale Were Excluded from the Asset Purchase Agreement (APA)—Doctrine of “De Facto Merger” Did Not Apply in Absence of “Continuity of Ownership”

The First Department, in a full-fledged opinion by Justice Friedman, over a full-fledged dissenting opinion by Justice Manzanet-Daniels, determined that the buyer of a business (TBA Buyer) did not assume the seller’s (TBA Seller’s) obligation to pay a financial advisor (Fidus) hired by TBA Seller to find a buyer and facilitate a sale. The opinion focused on the precise language of the asset purchase agreement (APA) and held that any monies owed by TBA Seller to Fidus were excluded, by the terms of the APA, from the assets and liabilities TBA Buyer purchased. Much of the opinion addresses the arguments made by the dissent. With respect to the dissent’s argument that TBA Buyer assumed TBA Seller’s obligation to pay Fidus under the “de facto merger” doctrine, the majority wrote:

While the general rule is that, absent a merger or consolidation, an entity purchasing the assets of another entity does not thereby acquire liabilities of the seller not expressly transferred in the sale …, a purchase-of-assets transaction may be deemed to constitute a de facto merger between seller and buyer, even if not formally structured as such, under certain conditions … . We have recognized, however, that “the essence of a merger” … is the element of continuity of ownership, which

“exists where the shareholders of the predecessor corporation become direct or indirect shareholders of the successor corporation as the result of the successor’s purchase of the predecessor’s assets, as occurs in a stock-for-assets transaction. Stated otherwise, continuity of ownership describes a situation where the parties to the transaction become owners together of what formerly belonged to each'” … . * * *

… [U]nder New York law, continuity of ownership is “the touchstone of the [de facto merger] concept” and “thus a necessary predicate to a finding of de facto merger” … . The purpose of requiring continuity of ownership is “to identify situations where the shareholders of a seller corporation retain some ownership interest in their assets after cleansing those assets of liability” … . Stated otherwise, “[t]he fact that the seller’s owners retain their interest in the supposedly sold assets (through their ownership interest in the purchaser) is the substance’ which makes the transaction inequitable” … . By contrast, where a “buyer pays a bona fide, arms-length price for the assets, there is no unfairness to creditors in . . . limiting recovery to the proceeds of the sale — cash or other consideration roughly equal to the value of the purchased assets would take the place of the purchased assets as a resource for satisfying the seller’s debts” … . Thus, “allowing creditors to collect against the purchasers of insolvent debtors’ assets would give the creditors a windfall by increasing the funds available compared to what would have been available if no sale had taken place” … .

In this case, there is no continuity of ownership between TBA Seller and TBA Buyer because, as the record establishes (and Fidus does not dispute), none of TBA Seller’s owners acquired a direct or indirect interest in TBA Buyer (and thus in the transferred assets) as a result of the asset purchase transaction … .  Matter of TBA Global, LLC v Fidus Partners, LLC, 2015 NY Slip Op 06698, 1st Dept 9-1-15

 

,

Recovery Under the Doctrine of Quantum Meruit Was Proper—Proof of Damages Was Sufficient

The Second Department determined defendants, who did construction work without a written contract, were entitled to recover under the doctrine of quantum meruit.  The court noted that proof of damages may be based solely on oral testimony as long as the witness has knowledge of the actual costs:

The elements of a cause of action sounding in quantum merit are: (1) the performance of services in good faith, (2) the acceptance of services by the person to whom they are rendered, (3) the expectation of compensation therefor, and (4) the reasonable value of the services rendered … . Here, the trial court properly determined that the … defendants performed services in good faith, that the plaintiff accepted those services, and that the … defendants expected to be compensated therefor. The court also properly determined that the … defendants provided sufficient evidence of the reasonable value of their services. The unsigned agreement furnished evidence of such value … . In addition, the … defendants presented proposals that they submitted to the plaintiff for payment in connection with additional work that they performed, invoices and proof of payments to subcontractors, and invoices and proof of payments to suppliers of materials and equipment. The fair and reasonable value of the … defendants’ services may be properly based on evidence concerning the amount that they billed the plaintiff for such services, and the amounts that subcontractors billed them for their services and for costs of supplies and equipment … .

Moreover, “[p]roof of damages may be based solely on oral testimony as long as the witness has knowledge of the actual costs” … . The record demonstrates that the … defendants, who had 20 years of experience in construction and had built over 100 homes, had knowledge of the actual costs of the services being provided … . Therefore, the … defendants’ testimony provided further evidence of the reasonable value of the services performed … . Johnson v Robertson, 2015 NY Slip Op 06658, 2nd Dept 8-26-15

 

,

Defendant, In Its Summary Judgment Motion, Properly Addressed Only the Theory of “Tort Liability Arising from Contract” Which Was Alleged in the Pleadings

The Second Department determined defendant was entitled to summary judgment in an action based upon the allegation defendant had “launched an instrument of harm,” thereby imposing liability in tort arising from a contract. Defendant demonstrated it did not launch and instrument of harm and plaintiff failed to raise a question of fact in response. The court explained the applicable law, noting that defendant need only address the specific theory of contract-based liability which was raised in the pleadings:

“Generally, a contractual obligation, standing alone, will not give rise to tort liability in favor of a third party” … . The Court of Appeals has recognized three exceptions to this general rule: (1) where the contracting party, in failing to exercise reasonable care in the performance of its duties, launches a force or instrument of harm, (2) where the plaintiff detrimentally relies on the continued performance of the contracting party’s duties, and (3) where the contracting party has entirely displaced the other party’s duty to maintain the premises safely … . Here, the only exception alleged in the pleadings with respect to the defendant Wiley Engineering, P.C. (hereinafter Wiley), was that Wiley launched a force or instrument of harm … . Therefore, in moving for summary judgment dismissing the complaint and all cross claims insofar as asserted against it, Wiley was only required to address this exception by demonstrating, prima facie, that it did not launch a force or instrument of harm creating or exacerbating any allegedly dangerous condition … . Here, Wiley met its prima facie burden and, in opposition, the plaintiff failed to raise a triable issue of fact. Reece v J.D. Posillico, Inc., 2015 NY Slip Op 06580, 2nd Dept 8-19-15

 

, ,

Allegations of Fraud in the Inducement Did Not Invalidate the Arbitration Clause in the Agreement

The Second Department, over a dissent, determined that plaintiff’s motion to stay arbitration was properly denied. Plaintiff alleged that an agreement to sell her business and related real property was induced by fraud and, therefore, the arbitration clause in the agreement was invalid and unenforceable. The court noted that the agreement was properly signed by plaintiff’s attorney as her attorney-in-fact and plaintiff attended the closing where she signed the relevant documents. She was deemed, therefore, to have read and understood the documents. The court explained its limited role in determining whether a matter is arbitrable, and further explained that, absent fraud which permeated the entire agreement, the arbitration clause will still be enforced in the face of allegations of fraud in the inducement:

Arbitration is a favored method of dispute resolution in New York … . “[T]he announced policy of this State favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties” … . “New York courts interfere as little as possible with the freedom of consenting parties’ to submit disputes to arbitration” … . Parties to arbitration agreements should be prevented from using the courts as a vehicle to protract litigation … . The threshold issue of whether there is a valid agreement to arbitrate is for the courts … . Once it is determined that the parties have agreed to arbitrate the subject matter in dispute, the court’s role has ended and it may not address the merits of the particular claims … . * * *

… [T]he Court of Appeals ruled that an arbitration clause is generally separable from substantive provisions of a contract, so that an agreement to arbitrate is valid even if the substantive provisions of the contract are induced by fraud … . However, if a party can demonstrate that “the alleged fraud was part of a grand scheme that permeated the entire contract, including the arbitration provision, the arbitration provision should fall with the rest of the contract” … . “To demonstrate that fraud permeated the entire contract, it must be established that the agreement was not the result of an arm’s length negotiation or the arbitration clause was inserted into the contract to accomplish a fraudulent scheme” … . Here, the plaintiff failed to make such a showing. Ferrarella v Godt, 2015 NY Slip Op 06571, 2nd Dept 8-19-15

 

, ,

Elements of Tortious Interference with Contract and Tortious Interference With Prospective Business Relations Explained

The Second Department, over a dissent, determined that the counterclaims alleging tortious interference with contract and tortious interference with prospective business relations were properly dismissed. The counterclaims alleged that the plaintiffs-attorneys, who represented defendant, Landmark, improperly sought payment of attorney’s fees for a negotiated stipulation of settlement directly from the party with whom Landmark settled, rather than from Landmark. In dismissing the counterclaims, the court explained the required elements of each:

A necessary element of [tortious interference with contract] is the intentional and improper procurement of a breach and damages … . Here, Landmark failed to adequately plead facts that would establish that the plaintiffs, in communicating with the third party to secure their attorney’s fees, intentionally procured that party’s breach of the stipulation of settlement… . …

A claim for tortious interference with prospective business relations does not require a breach of an existing contract, but the party asserting the claim must meet a “more culpable conduct” standard … . This standard is met where the interference with prospective business relations was accomplished by wrongful means or where the offending party acted for the sole purpose of harming the other party … . ” Wrongful means’ include physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure” … . As a general rule, the offending party’s conduct must amount to a crime or an independent tort, as conduct that is neither criminal nor tortious will generally be “lawful” and thus insufficiently “culpable” to create liability for interference with prospective business relations … . The mere violation of an attorney disciplinary rule will only create liability if actual damages are incurred as a result of the violating conduct  … . In addition, where the offending party’s actions are motivated by economic self-interest, they cannot be characterized as solely malicious … . Law Offs. of Ira H. Leibowitz v Landmark Ventures, Inc., 2015 NY Slip Op 06575, 2nd Dept 8-19-15

 

,

Under the Terms of the Lease and the Related Guaranty of Payment, the Guarantor Was Required to Pay Liquidated Damages in an Amount Equal to the Rent for the Unfinished Term of the Lease Even After the Tenant Was Evicted and the Landlord Had Regained Possession of the Property

The Second Department, over a dissent, determined that the terms of appellant’s guaranty of payment of amounts owed under a lease obligated the appellant even after the tenant had left the premises and the landlord took possession. Although the tenant’s obligation to pay rent had ended when the plaintiff-landlord took possession, the terms of the lease allowed the plaintiff to seek the amount of the rent for the remaining term of the lease as liquidated damages and did not require the plaintiff to mitigate those damages by renting to another:

“Although an eviction terminates the landlord-tenant relationship, the parties to a lease are not foreclosed from contracting as they please” … . Where a lease provides that a landlord is under no duty to mitigate damages after its reentry by virtue of its successful prosecution of a summary proceeding, and that the tenant remains liable for damages, “[the tenant] remain[s] liable for all monetary obligations arising under the lease” … .

Here, the lease did not obligate the plaintiff to mitigate damages after reentry by virtue of its successful prosecution of a summary proceeding, and specifically provided that in the event of such reentry, “tenant shall also pay owner as liquidated damages . . . any deficiency between the rent hereby received and or covenanted to be paid and the net amount, if any, of the rent collected on account of the subsequent lease or leases of the demised premises for each month of the period which would otherwise have constituted the balance of the term of this lease.” Thus, although the tenant no longer remained liable for rent after it vacated the premises, it was liable for liquidated damages, which could be as much as the balance of rent due under the original term of the lease, since the plaintiff was under no obligation to rent to a new tenant for the balance of the term. Moreover, the guaranty specifically stated that the appellant guaranteed “the full and prompt payment by Tenant of all amounts due under [the] lease.” Accordingly, the plaintiff was entitled to seek from the appellant the liquidated damages for which the tenant was liable under the lease even after the termination of the landlord-tenant relationship… . H.L. Realty, LLC v Edwards, 2015 NY Slip Op 06572, 2nd Dept 8-19-15

 

Categories

Sign Up for the Mailing List to Be Notified When the Site Is Updated.

  • This field is for validation purposes and should be left unchanged.

Copyright © 2026 New York Appellate Digest, Inc.
Site by CurlyHost | Privacy Policy