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Plaintiff Breached Contract By Not Being Ready on the Time-of-the-Essence Date and Was Therefore Not Entitled to a Return of the Downpayment/Plaintiff’s “Tortious-Interference-with-Contract” Cause of Action Against Brokers Dismissed Because Sellers Did Not Breach the Contract

In finding plaintiff was not entitled to return of her downpayment because she was not ready to close on the “time-of-the-essence” date, the Second Department explained the relevant analytical criteria, as well as the elements of a tortious interference with contract cause of action:

The sellers established, prima facie, that they were ready, willing, and able to perform on the time-of-the-essence closing date, and that the plaintiff lacked a lawful excuse for her failure to close … . In opposition, the plaintiff failed to raise a triable issue of fact … . Accordingly, the sellers established that they did not breach the contract and that the plaintiff was not entitled to the return of her down payment … . …

The plaintiff alleged that the brokers tortiously interfered with the contract between the plaintiff and the sellers. The elements of a cause of action for tortious interference with contract are (1) a valid contract between the plaintiff and a third party; (2) the defendant’s knowledge of that contract; (3) the defendant’s intentional procurement of the third party’s breach of that contract; and (4) damages … . Here, the brokers established their prima facie entitlement to judgment as a matter of law by submitting evidence demonstrating that the third-party, i.e., the sellers, did not breach the contract; rather, the plaintiff breached the contract when she did not appear on the time-of-the-essence closing date. In opposition, the plaintiff failed to raise a triable issue of fact. Iacono v Pilavas, 2015 NY Slip Op 01418, 2nd Dept 2-18-15

 

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Landlord Not Entitled to Reformation of a Lease—Landlord Had Failed to Use Due Diligence Before Signing and Did Not Notice a Deletion Made by Plaintiff—Plaintiff Was Not Obligated to Highlight the Deletion

The First Department determined defendant landlord, sophisticated in business matters, was not entitled to reformation of a lease. The landlord had signed the agreement after the provision capping what the landlord would pay for renovations made by the tenant was deleted.  The renovations ended up costing nearly a year’s rental income. Plaintiff’s failure to “highlight” the deletion did not constitute fraud:

Defendant landlord failed to demonstrate that it was entitled to reformation of the lease amendment providing that it would reimburse plaintiff tenant the total cost of its alterations, rather than a capped amount as had been set forth in drafts circulated during negotiations over the renewal lease. Defendant’s failure to read the final document before signing it precludes its claim of unilateral mistake induced by fraud based on plaintiff’s failure to highlight its deletion of the portion of the provision capping the reimbursement amount, before presenting it to defendant’s in-house counsel for defendant’s signature … . Contrary to this sophisticated defendant’s contention, the justifiability of its reliance does not present an issue of fact barring summary disposition … . Even assuming an obligation to conduct pre-contractual negotiations in good faith in appropriate circumstances, such as would enable a party to rely on the adverse party negotiating in good faith and to assume that there are no new changes to earlier drafts unless the change is highlighted, defendant’s claim for reformation based on the allegation of fraud cannot stand. Defendant simply may not justifiably rely on the absence of such highlighting for its failure to fully review the final version of this four-page document before signing it, especially since the change is on the first page. US Legal Support Inc v Eldad Prime LLC, 2015 NY Slip Op 01386, 1st Dept 2-17-15

 

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Contract with Construction Manager Did Not Give the Manager Sufficient Supervisory Control to Impose Liability Under Labor Law 200, 240 (1) or 246 (1)

The First Department determined the terms of the contract with the construction manager did not afford the manager sufficient control to impose liability under Labor Law 200.  The court further determined the contract did not make the manager an agent for the property owner, such that the manager would be vicariously liable under Labor Law 240 (1) or 246 (1). Plaintiff fell when an elevated plank on which he was standing shifted:

… [T]he CMS (construction management services contra t) specified that [t]he [construction manager] will not supervise, direct, control or have authority over or be responsible for each contractor’s means, methods, techniques, sequences or procedures of construction or the safety precautions and programs incident thereto. If it became apparent that the means and methods of construction proposed by the construction contractors would constitute or create a hazard, then the construction manager was required to notify the Commissioner, or . . . his/her duly authorized representative.”

Where a claim under Labor Law § 200 is based on alleged defects or dangers arising from a subcontractor’s methods or materials, liability cannot be imposed on an owner or general contractor unless it is shown that it exercised some supervisory control over the work … . Defendants established that under the CMS they were not obligated to exercise supervisory control over the construction contractor’s means or methods of work, nor did they assume such responsibility … . Although under the CMS the construction manager had some general duties to monitor safety at the work-site, and defendants’ personnel were on site on a daily basis, these general supervisory duties are insufficient to form a basis for the imposition of liability … .

Defendants also established that they were not the property owner’s statutory agent for purposes of Labor Law §§ 240(1) or 241(6) such that they should be held vicariously liable for plaintiff’s injuries …. The CMS did not confer upon the construction manager the right to exercise supervisory control over the individual contractors, nor were defendants authorized to stop the work if their personnel observed an unsafe practice … . The construction manager was only obligated to notify the project owner or its duly authorized representative of such a situation. DaSilva v Haks Engrs, 2015 NY Slip Op 01380, 1st Dept 2-17-15

 

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Telephone-Communication Buy-Sell Arrangements Sufficient for Long-Arm Jurisdiction/Forum Selection Clause In Invoices Not Enforceable Pursuant to UCC 207

The First Department determined that telephone communications re: the sale of diamonds between a seller in New York and a buyer in California were a sufficient basis for New York's long-arm jurisdiction over the California defendant.  The court further found that the forum selection clause and consent to jurisdiction in the relevant invoices were additional terms which, pursuant to UCC 207, were never expressly agreed to and therefore not enforceable:

UCC § 2-207 contemplates situations like the one here, where parties do business through an exchange of forms such as purchase orders and invoices. As the parties did here, merchants frequently include terms in their forms that were not discussed with the other side. UCC § 2-207[2] addresses that scenario, providing, “[t]he additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: … [b] they materially alter it.”

Here, during telephone discussions, the parties negotiated the essential terms required for contract formation, and the invoices were merely confirmatory … . Thus, the forum selection clause is an additional term that materially altered the parties' oral contracts, and defendant did not give its consent to that additional term … . …

… [T]he motion court erred in finding that the parties' telephone dealings over several years and in the two transactions at issue were insufficient as a matter of law to confer personal jurisdiction over defendant pursuant to CPLR 302(a)(1). CPLR 302(a)(1) authorizes the assertion of long-arm jurisdiction over a non-domiciliary who “transacts any business within the state or contracts anywhere to supply goods or services in the state.” CPLR 302(a)(1) is a “single act statute”; accordingly, physical presence is not required and one New York transaction is sufficient for personal jurisdiction. The statute applies where the defendant's New York activities were purposeful and substantially related to the claim … . ” Purposeful'” activities are defined as ” those with which a defendant, through volitional acts, avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws'” … .

We recognize that courts of this state have generally held telephone communications to be insufficient for finding purposeful activity conferring personal jurisdiction … . However, there are exceptions to this general rule, and in some cases, telephone communications will, in fact, be sufficient to confer jurisdiction … . C Mahendra NY LLC v National Gold & Diamond Ctr Inc, 2015 NY Slip Op 01157, 1st Dept 2-10-15

 

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Criteria for Determining the Clarity or Ambiguity of the Terms of a Contract Explained

In affirming the verdict after a bench trial (finding the relevant terms of a contract unambiguous), the Second Department explained its review powers and outlined the analytical criteria re: the determination of the clarity or ambiguity of the terms of a contract:

“In reviewing a determination rendered after a nonjury trial, the power of this Court is as broad as that of the trial court, and this Court may render the judgment it finds warranted by the facts, taking into account that in a close case the trial court had the advantage of seeing the witnesses and hearing the testimony” … . “The construction and interpretation of an unambiguous written contract is an issue of law within the province of the court, as is the inquiry of whether the writing is ambiguous in the first instance. If the language is free from ambiguity, its meaning may be determined as a matter of law on the basis of the writing alone without resort to extrinsic evidence” … . “When interpreting a contract, the construction arrived at should give fair meaning to all of the language employed by the parties, to reach a practical interpretation of the parties' expressions so that their reasonable expectations will be realized” … . “The terms of a contract are clear and unambiguous when the language used has a definite and precise meaning, unattended by danger of misconception in the purport of the agreement itself, and concerning which there is no reasonable basis for a difference of opinion” … . Palumbo Group v Poughkeepsie City Sch Dist, 2015 NY Slip Op 00857, 2nd Dept 2-4-15


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Where Extrinsic Evidence Indicates a Party’s Interpretation of Ambiguous Language Is the Only Fair Interpretation, Summary Judgment Is Appropriate

In finding that the meaning of a title insurance policy was properly determined as a matter of law, the Second Department explained the complicated analytical criteria:

Generally, courts determine the rights and obligations of parties under insurance contracts based on the specific language of the policies … . However, where the language is reasonably susceptible of more than one interpretation, and thus ambiguous, “the parties to the policy may, as an aid in construction, submit extrinsic evidence of their intent at the time of contracting” … . “[I]f the tendered extrinsic evidence is itself conclusory and will not resolve the equivocality of the language of the contract, the issue remains a question of law for the court” … . “Under those circumstances, the ambiguity must be resolved against the insurer which drafted the contract” … .

“It is only where such evidence does not resolve the equivocality that the ambiguity must be resolved against the insurer” … . Where there is ambiguity and the “determination of the intent of the parties depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence, then such determination is to be made by the jury” … . Where, however, a party’s extrinsic evidence demonstrates “not only that its interpretation is reasonable but that it is the only fair interpretation,” summary judgment is appropriate … . Demetrio v Stewart Tit Ins Co, 2015 NY Slip Op 00720, 2nd Dept 1-28-15

 

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Basic Criteria Re: Common-Law and Contractual Indemnification Explained

In finding that the criteria for common-law and contractual indemnification were not met, the Second Department explained some of the basic requirements for both:

“[T]he key element of a common-law cause of action for indemnification is not a duty running from the indemnitor to the injured party, but rather is a separate duty owed the indemnitee by the indemnitor'” … . ” Since the predicate of common-law indemnity is vicarious liability without actual fault on the part of the proposed indemnitee, it follows that a party who has itself actually participated to some degree in the wrongdoing cannot receive the benefit of the doctrine'” … .

… General Obligations Law § 5-322.1 …  “generally renders void a clause in a construction contract purporting to indemnify a party for its own negligence” (… see General Obligations Law § 5-322.1). … [A] contractual clause that purports to indemnify a party for its own negligence ” may be enforced where the party to be indemnified is found to be free of any negligence'” … . Dreyfuss v MPCC Corp, 2015 NY Slip Op 00723, 2nd Dept 1-28-15

 

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“Warranty” Need Not Be Set Forth In Any Special Manner—Here the Language on the Declaration Page that “Warranted” a Fire Alarm Will Be “Fully Operational” Was a Valid Condition Precedent to the Insured’s Liability—Summary Judgment In Favor of Insurer Properly Granted

The Second Department determined the language on the declaration page of a fire insurance policy constituted a “warranty” that the fire alarm will be “fully operational,” meaning that the alarm must be activated at the time of the fire or coverage can be disclaimed The alarm was not activated at the time of the fire and defendant’s motion for summary judgment was therefore properly granted:

Insurance Law § 3106(a) provides:

“In this section warranty means any provision of an insurance contract which has the effect of requiring, as a condition precedent of the taking effect of such contract or as a condition precedent of the insurer’s liability thereunder, the existence of a fact which tends to diminish, or the non-existence of a fact which tends to increase, the risk of the occurrence of any loss, damage, or injury within the coverage of the contract” (Insurance Law § 3106[a] [emphasis added]).

“As a general matter, warranties represent a promise by the insured to do or not to do some thing that the insurer considers significant to its risk of liability under an insurance contract” … . Here, the provision in the “special conditions” section of the declaration page which states “[w]arranted . . . burglar alarm[] will be [f]ully operational throughout the period of the policy” meets the definition of a warranty pursuant to the Insurance Law, since requiring the plaintiff to have a fully operational burglar alarm would be significant to the defendant’s risk of liability under the insurance policy. Contrary to the plaintiff’s contention, there is no requirement that the warranty be set forth in any particular manner, as long as its effect is to create a condition precedent to the insurer’s liability. Indeed, the use of the term “warranted” at the beginning of the subject provision establishes that the provision was a warranty as defined by the Insurance Law … . Triple Diamond Cafe Inc v Those Certain Underwriters at Lloyd’s London, 2015 NY Slip Op 00527, 2nd Dept 1-21-15

 

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Only Out-of-Pocket Damages Allowed in Fraud Action (Re: a Real Estate Purchase Agreement)

The Third Department affirmed a judgment in favor of the plaintiffs stemming in large part from the fraudulent representation (re: a property information sheet) that a septic system, which failed, was “new.” The court noted the out-of-pocket rule for damages based upon fraud (lost profits/rents, etc. not recoverable):

[D]efendants’ realtor prepared a property information sheet — to be given to prospective buyers — bearing the notation, “Septic system totally new — le[a]ch field totally replaced — new 5000 gallon holding tank,” as well as the general qualification that “all information [was] deemed reliable but not guaranteed.” …[P]laintiffs … entered into a purchase and sale contract for the property. The contract, which reflected a purchase price of $545,000 and indicated that the buildings on the premises would be sold “as is,” also contained a waivable septic system contingency. Plaintiffs ultimately did not avail themselves of this contingency–a decision purportedly based, in part, upon plaintiffs’ belief that the property contained a new septic system. * * *

…[T]he case law makes clear that where, as here, a cause of action for fraud has been asserted, “[t]he true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong or what is known as the ‘out-of-pocket’ rule. . . . Damages are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they might have gained. Under the out-of-pocket rule, there can be no recovery of profits which would have been realized in the absence of fraud” … . Revell v Guido, 2015 NY Slip Op 00411, 3rd Dept 1-15-15

 

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Where Plaintiff Was “Demoted” In Violation of an Employment Agreement, the Restrictive Covenants in the Agreement Are No Longer Enforceable

The First Department determined the restrictive covenants agreed to by the plaintiff in conjunction with the job he was hired to do did not apply to the job, with diminished responsibility, he was subsequently assigned (in violation of the employment contract):

The significant change in plaintiff’s duties constituted a material breach of his employment agreement … . * * *

The record demonstrates that defendants did not have a legitimate interest in restricting plaintiff from working for a competitor once he was in his demoted position … . Although the employment agreement acknowledged the uniqueness of plaintiff’s services, that acknowledgment was made in connection with plaintiff’s acceptance of a position he no longer held at the time of his resignation. Further, the record is devoid of evidence that plaintiff possessed any trade secrets or confidential customer lists … . Thus, insofar as the restrictive covenants contained in the employment and option agreements prohibited plaintiff from competing …, they are unenforceable. Fewer v GFI Group Inc, 2015 NY Slip Op 00440, 1st Dept, 1-15-15

 

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