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​ THE EXISTENCE OF A WRITTEN CONSULTING AGREEMENT BETWEEN THE PARTIES RELATING TO SALES AND MARKETING DID NOT, PURSUANT TO THE PAROL EVIDENCE RULE, PRECLUDE EVIDENCE OF AN ALLEGED ORAL AGREEMENT BETWEEN THE SAME PARTIES RELATING TO THE FORMATION AND OWNERSHIP OF A BUSINESS (SECOND DEPT). ​

The Second Department, reversing (modifying) Supreme Court, determined the counterclaim for breach of an oral contract should not have been dismissed. The court explained when the parol evidence rule does not exclude evidence of an oral contract. Here there was a written consulting agreement for defendant’s marketing and sales services. The alleged oral agreement related to the formation and ownership of a company (ION):

… ” … [A] written agreement does not exclude proof of a parol collateral agreement made even between the same parties, where the written contract is not intended to embody the whole agreement and does not on its face purport to cover completely the subject-matter of the alleged collateral agreement” … . For a prior oral agreement to be enforceable, “(1) the agreement must in form be a collateral one; (2) it must not contradict express or implied provisions of the written contract; (3) it must be one that parties would not ordinarily be expected to embody in the writing; or put in another way, an inspection of the written contract, read in the light of surrounding circumstances must not indicate that the writing appears to contain the engagements of the parties, and to define the object and measure the extent of such engagement. Or again, it must not be so clearly connected with the principal transaction as to be part and parcel of it” … .

Here, the consulting agreement did not completely cover the same subject matter as the alleged oral agreement, as the alleged oral agreement related to the formation and ownership of ION and the consulting agreement only related to the compensation that Ovadia [defendant] would receive for performing certain marketing and sales services … . Further, the alleged oral agreement did not vary, alter, or supplement any terms of the consulting agreement, which did not address ownership interests in ION … . Moreover, it would not ordinarily be expected that the subject matter of the alleged oral agreement would be addressed in the consulting agreement … . Parizat v Meron, 2024 NY Slip Op 04776, Second Dept 10-2-24

Practice Point: Consult this decision for a clear explanation of the application of the parol evidence rule. Here evidence of an alleged oral contract between the parties was not precluded by the existence of a written consulting agreement because the two agreements covered different subjects and the terms did not conflict.

 

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THE SHORTER LIMITATIONS PERIOD IN THE FIRE INSURANCE POLICY WAS NOT FAIR AND REASONABLE; THE MOTION TO DISMISS IN THIS BREACH OF CONTRACT ACTION SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court in the fire-insurance breach of contract case, determined the contractual limitations period in the insurance policy was not fair and reasonable:

“Article 2 of the CPLR (‘Limitations of Time’), provides that ‘[a]n action . . . must be commenced within the time specified in this article unless . . . a shorter time is prescribed by written agreement'” … . “‘[A]n agreement which modifies the Statute of Limitations by specifying a shorter, but reasonable, period within which to commence an action is enforceable'” … . “‘[T]he period of time within which an action must be brought . . . should be fair and reasonable, in view of the circumstances of each particular case. . . . The circumstances, not the time, must be the determining factor'” … . “‘Absent proof that the contract is one of adhesion or the product of overreaching, or that [the] altered period is unreasonably short, the abbreviated period of limitation will be enforced'” … .

The Supreme Court should have denied that branch of the defendants’ motion which was pursuant to CPLR 3211(a) to dismiss the complaint. Contrary to the defendants’ contentions, the modified limitations period in the subject insurance policy was not fair and reasonable. The insurance policy provided that “[n]o action can be brought unless the policy provisions have been complied with and the action is started within one year after the date of loss” and that “[w]e will pay no more than the actual cash value of the damage until actual repair or replacement is complete. Once actual repair or replacement is complete, we will settle the loss.” Here, the one-year limitation was unreasonable since the condition precedent, completion of actual repair or replacement, was not within the plaintiffs’ control and could not be met within that period … . “‘A “limitation period” that expires before suit can be brought is not really a limitation period at all, but simply a nullification of the claim'” … . Filasky v Andover Cos., 2024 NY Slip Op 04545, Second Dept 9-25-25

Practice Point: Parties can agree on shorter limitations periods. Here the limitations period in the subject fire insurance policy expired before suit could be brought rendering it unfair, unreasonable and unenforceable.

 

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THE ARBITRATION RULING THAT THE CONTRACT WAS TERMINATED UNDER A “FRUSTRATION OF PURPOSE” THEORY PRECLUDED, UNDER THE DOCTRINE OF RES JUDICATA, ANY CONSIDERATION OF THE BREACH OF CONTRACT CAUSES OF ACTION THAT AROSE FROM THE SAME FACTS (FIRST DEPT).

The First Department, in a detailed full-fledged opinion by Justice Oing, determined the arbitration-ruling that a multi-million dollar contract for construction and operation of a liquid-natural-gas-related facility was terminated under a “frustration of purpose” theory precluded consideration of the breach of contract causes of action (res judicata). New technology for the extraction of natural gas from shale had rendered the liquid natural gas facility obsolete. The opinion is much too detailed to fairly summarize here. In simple terms, the arbitration ruling precluded the breach of contract causes of action under the doctrine of res judicata because all arose from the same facts:

Under the transactional analysis, the test is to determine whether a claim should be precluded by viewing a claim or cause of action as conterminous with the transaction, regardless of the number of substantive theories or variant forms of relief available to a litigant … . The analysis embraces a broadened view of the scope of a claim in order to limit the number of possible actions arising out of a single controversy … . The application of this test means that a final judgment on the merits of a claim or claims will bar future claims or causes of action arising from “all or any part of the transaction, or series of connected transactions, out of which the [prior] action arose” … . The question for us to resolve is whether the [breach of contract causes of action] arise from “all or any part of the transaction, or series of connected transactions” out of which the prior arbitration arose. We hold they do. Gulf LNG Energy, LLC v Eni S.p.A., 2024 NY Slip Op 04517, First Dept 9-24-24

Practice Point: Here an arbitration ruling that the contract was terminated for “frustration of purpose” precluded, under the doctrine of res judicata, any consideration of the breach of contract causes of action that arose from the same facts.

 

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THE PRE-ANSWER MOTION TO DISMISS CERTAIN CAUSES OF ACTION BASED UPON DOCUMENTARY EVIDENCE SHOULD HAVE BEEN GRANTED; THE CAUSES OF ACTION WERE PRECLUDED BY CONTRACT PROVISIONS (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined certain causes of action should have been dismissed based upon documentary evidence, I.e., the purchase agreement and warranty. The plaintiff Board of Managers sued the sponsor and developer of defendant condominium alleging defective construction in common areas:

“On a pre-answer motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction and the plaintiff’s allegations are accepted as true and accorded the benefit of every possible favorable inference” … . “‘A motion to dismiss a complaint pursuant to CPR 3211(a)(1) may be granted only if the documentary evidence submitted by the moving party utterly refutes the factual allegations of the complaint and conclusively establishes a defense to the claims as a matter of law'” … . “On a motion to dismiss for failure to state a cause of action pursuant to CPLR 3211(a)(7), the court must afford the complaint a liberal construction, accept the facts as alleged in the complaint as true, accord the plaintiff[ ] the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory” … . “[T]he criterion is whether the proponent of [a] pleading has a cause of action, not whether he [or she] has stated one” … .

… [T]he defendants submitted, among other things, a limited warranty that had been incorporated into the purchase agreements between the sponsor and unit owners, which expressly stated, “[t]he [s]ponsor’s [l]imited [w]arranty excludes all consequential, incidental, special damages and indirect damages.” This documentary evidence conclusively established a defense to so much of that cause of action as sought consequential damages as a matter of law … .

… [D]efendants’ motion … to dismiss the … causes of action, sounding in unjust enrichment, breach of implied housing merchant warranty, and negligence [should have been granted}. … [T]he defendants conclusively established that these causes of action are precluded by the purchase agreement and limited warranty … . Board of Mgrs. of the 37, 39 Madison St. Condominium v 31 Madison Dev., LLC, 2024 NY Slip Op 04451, Second Dept 9-18-24

Practice Point: Here the pre-answer motion to dismiss based on documentary evidence should have been granted. The relevant causes of action were precluded by the terms of a purchase agreement and warranty.

 

FAILURE TO COMPLY WITH THE NOTICE OF DEFAULT REQUIREMENTS IN THE BUILDING-CONSTRUCTION BOND PRECLUDED RECOVERY UNDER THE BOND FOR CONSTRUCTION DELAYS (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Friedman, determined plaintiff’s failure to comply with the notice of default requirements in the building-construction bond precluded recovery under the bond for construction delays:

With regard to the “trigger” of the surety’s obligation, paragraph 3 of the A312 bond provides that “the Surety’s obligation under this Bond shall arise after” … the beneficiary of the bond (1) has notified the surety and the principal that it is considering declaring a default and offered to confer with the surety and the principal to discuss how to proceed, (2) has declared a default and formally terminated the principal’s right to complete the contract no earlier than 20 days after the aforementioned notice, and (3) has agreed to pay the balance of the contract price to the surety or to a new contractor chosen by the surety. * * *

​Upon [plaintiff’s] appeal, we affirm on the ground that JDS’s claim for delay damages under the 36-floor bond is barred by [plaintiff’s] failure to have complied, at any time before the bonded work had been completed, with the condition precedent of the notice and termination procedures specified in paragraph 3 of the bond. JDS Dev. LLC v Parkside Constr. Bldrs. Corp., 2024 NY Slip Op 04227, First Dept 8-15-24

Practice Point: Compliance with the notice of default provisions in an A312 building-construction bond is a condition precedent to recovery under the bond for construction delays.​

 

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HERE THE RIGHT OF FIRST REFUSAL IN THE ORIGINAL DEED DIVIDING THE PROPERTY INTO EIGHT PARTS WAS A VALID DEFENSE TO THE PARTITION ACTION; HOWEVER, IF DEEMED TO RUN WITH THE LAND, THE RIGHT OF FIRST REFUSAL VIOLATED THE RULE AGAINST PERPETUITIES (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the right of first refusal in the original deed which divided the property into eight parts was a valid defense to the partition action. However the right of first refusal could not be enforced because it violated the rule against perpetuities:

A right of first refusal . . . is a preemptive or contractual right to ‘receive an offer'” … . “[I]t is a restriction on the power of one party to sell without first making an offer of purchase to the other party upon the happening of a contingency” … . A reasonable, valid, and enforceable right of first refusal constitutes a good defense to a partition action … . However, with narrow exceptions not applicable here, rights of first refusal are subject to the rule against perpetuities and are thus invalid if it is possible for the future interests they represent to vest outside the prescribed time period (see EPTL 9-1.1[b] …).

Here, the 1966 deed demonstrates that the right of first refusal was for the benefit of the original grantees only … . Moreover, to the extent that the surrounding circumstances demonstrate an intent that the covenant should run with the land … , the restriction would violate the rule against perpetuities (see EPTL 9-1.1[b]…). Block 865 Lot 300, LLC v Baione, 2024 NY Slip Op 04189, Second Dept 8-14-24

Practice Point: A right of first refusal in a deed is a valid defense to a partition action.

Practice Point: Here the right of first refusal in the original deed applied only to the original grantees and, if deemed a covenant which runs with the land, it violated the rule against perpetuities.

 

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THE LEASE FOR THE LAND WHERE PLAINTIFF PLANTED CROPS HAD A MUTUAL 90-DAY TERMINATION PROVISION WHICH DEFENDANTS EXERCISED; DEFENDANTS THEN DESTROYED THE CROPS MONTHS BEFORE THEY COULD BE HARVESTED; PLAINTIFFS’ COMPLAINT STATED CAUSES OF ACTION FOR BREACH OF CONTRACT AND CONVERSION BASED UPON THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING AND THE THEORY OF EMBLEMENTS (THIRD DEPT).

The Third Department, reversing Supreme Court, in a full-fledged opinion by Justice Pritzker, over a partial dissent, determined the complaint stated causes of action for breach of contract and conversion. Plaintiffs leased land from defendants to grow crops. There was a provision in the lease allowing termination upon 90 days notice. Plaintiffs alleged they planted crops in the fall of 2019 which could not be harvested until the fall of 2020. Defendants elected to terminate the contract effective May 2020. In May 2020 defendants entered the land and destroyed the crops with herbicide: The Third Department found that the implied covenant of good faith and fair dealing and the theory of emblements should be harmonized with the termination provision:

… [T]he purpose of the lease agreement was clear and, since both parties were aware that the land was to be used to seed, maintain and harvest the crops[*3], defendants were under a contractual duty to allow plaintiffs to fulfill this purpose under the implied covenant of good faith and fair dealing … . Against this backdrop, both parties had the express right to terminate the lease agreement with 90 days’ notice. Therefore, plaintiffs’ right of possession would extinguish upon rightful termination and, as such, without an express or implied obligation, plaintiffs would be unable to recover on a breach of contract theory … . However, given the nature of the agricultural lease agreement, the implied covenant of good faith and fair dealing and the theory of emblements must be harmonized with the mutual termination provision. * * *

… [G]iven the purpose of the lease agreement as well as the early termination provision, the doctrine of emblements created an implied contractual term granting plaintiffs a right of reentry to harvest their crops in the event that defendants exercised the early termination provision. * * *

… [P]laintiffs have adequately alleged a possessory interest in the … crops because, under the doctrine of emblements, they retained a right to harvest and take away those crops after defendants terminated their tenancy early … . Together with plaintiffs’ allegation that defendants destroyed the cereal crops, plaintiffs’ conversion cause of action was improperly dismissed … . Van Amburgh v Boadle, 2024 NY Slip Op 04168, Third Dept 8-8-24

Practice Point: Here, although the land-lease for crop-growing included a mutual 90-day termination provision, the exercise of the termination provision must be harmonized with the implied covenant of good faith and fair dealing and the theory of emblements. Because defendants terminated the lease before plaintiffs could harvest the crops, the complaint stated causes of action for breach of contract and conversion.​

 

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IN THIS SLIP AND FALL CASE, THERE IS A QUESTION OF FACT WHETHER THE MUNICIPALITY OWED A DUTY TO PLAINTIFF BASED UPON THE MUNICIPALITY’S LAUNCHING AN INSTRUMENT OF HARM; IT WAS ALLEGED THAT SALT APPLIED TO MELT ICE CREATED A POOL OF WATER WHICH FROZE AND CAUSED PLAINTIFF’S FALL (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined there was a question of fact whether the municipality, which had contracted with the school district to provide salting services, owed plaintiff a duty based upon the municipality’s launching an instrument of harm. It was alleged the defendant municipality’s use of salt to melt ice resulted in a frozen pool of water where plaintiff slipped and fell:

… [P]laintiffs submitted the affidavit of an expert, who opined that defendants’ use of sodium chloride (rock salt) created a dangerous condition and launched a force of harm because the rock salt would have caused water to flow and pool near the area where plaintiff fell. The expert further opined that, due to the temperatures on the date of the incident, the pooled water near the area of plaintiff’s fall would have refrozen quickly, thereby creating the alleged dangerous condition … . Plaintiffs also submitted the deposition testimony of defendants’ employee, who confirmed that during wintertime, when the temperature can fluctuate above and below freezing, water could accumulate in the parking lot where plaintiff fell, and that the accumulated water could then freeze when the temperature went below freezing … . We conclude that plaintiffs’ submissions raised a triable issue of fact whether defendants assumed a duty of care to plaintiff by launching the force or instrument of harm. Kirschler v Village of N. Collins, 2024 NY Slip Op 03977, Fourth Dept 7-26-24

Practice Point: Here the municipality entered a contract with the school district to salt the parking lot and other areas. There was a question of fact whether the application of salt launched an instrument of harm (forming a pool of water which froze causing plaintiff’s fall) thereby creating a duty owed plaintiff.

 

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THE CONTRACT AT ISSUE WAS NOT FOR THE “SALE OF GOODS” AND THEREFORE WAS NOT SUBJECT TO THE REQUIREMENTS OF THE UNIFORM COMMERCIAL CODE (UCC) (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the contract at issue was not for the “sale of goods” and therefore was not subject to the requirements of the Uniform Commercial Code (UCC):

Plaintiff and defendant signed a one-page “independent contractor and consultant” contract pursuant to which plaintiff agreed to sell certain minimum amounts of concrete on behalf of defendant (minimum) in return for monthly payments. During the term of the contract, defendant ceased making its monthly payments to plaintiff and terminated the contract, claiming that plaintiff had sold less than 10% of the minimum and failed to provide defendant with an adequate assurance that it could sell the remaining quantity by the end of the contract term. * * *

The dispositive issue before this Court is whether defendant was justified in demanding “adequate assurance of due performance” from plaintiff pursuant to UCC 2-609 (1). If article 2 of the UCC applies and if “adequate assurance is not forthcoming, repudiation is deemed confirmed, and the nonbreaching party is allowed to take reasonable actions as though a repudiation had occurred” … . Article 2 of the UCC applies only to agreements that are “predominantly . . . for the sale of goods, as opposed to the furnishing of services” … . “In determining whether a contract is for the sale of property or services the main objective sought to be accomplished by the contracting parties must be looked for” … .

Here, plaintiff met its initial burden on the motion of establishing that the contract was not predominately for the sale of goods. Pursuant to the contract, plaintiff agreed to provide services to defendant, i.e., to sell the concrete. The contract did not require plaintiff to purchase any products from defendant. Plaintiff therefore demonstrated that the UCC did not apply here, that defendant did not have the right to demand adequate assurance of performance … . Dreamco Dev. Corp. v Cranesville Block Co., Inc., 2024 NY Slip Op 03937, Fourth Dept 7-26-24

Practice Point: The first question to ask in a breach of contract action is whether the contract is for the “sale of goods.” If not, the UCC does not apply.

 

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THE DENTISTS’ FEE-SPLITTING AGREEMENT VIOLATED THE EDUCATION LAW; A COURT WILL NOT ENFORCE AN ILLEGAL CONTRACT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the complaint seeking to enforce an illegal contract should have been dismissed:

… [T]he plaintiff entered into an asset purchase agreement (hereinafter the APA) to sell certain assets of its dental practice to the defendant, a licensed dentist who retained his own separate practice. The APA specified a purchase price of $250,000. A portion of that amount was to be paid as a percentage of the monthly revenue generated by the plaintiff’s practice or, under certain conditions, a percentage of the revenue generated from a potential sale of the defendant’s separate practice. * * *

The defendant established his entitlement to dismissal of the causes of action alleging breach of contract and unjust enrichment pursuant to CPLR 3211(a)(7). As the defendant correctly contends, the APA constituted a voluntary prospective arrangement for the splitting of fees in violation of the Education Law because it required the defendant to pay the plaintiff a percentage of revenue generated by the plaintiff’s practice and, under certain conditions, the defendant’s own separate dental practice (see Education Law §§ 6509-a, 6530[19] …). “‘It is the settled law of this State (and probably of every other State) that a party to an illegal contract cannot ask a court of law to help him or her carry out his or her illegal object, nor can such a person plead or prove in any court a case in which he or she, as a basis for his or her claim, must show forth his or her illegal purpose'” … . “‘Where the parties’ arrangement is illegal the law will not extend its aid to either of the parties . . . or listen to their complaints against each other, but will leave them where their own acts have placed them'” … . Advanced Dental of Ardsley, PLLC v Brown, 2024 NY Slip Op 03804, Second Dept 7-17-24

Practice Point: A fee-splitting agreement between dentists violates the Education Law.

Practice Point: A court will not enforce an illegal contract.

 

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