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In the Absence of Allegations in the Pleadings Supporting an “Espinal” Exception to the Rule that Tort Liability to Third Persons Does Not Arise from a Contract, No Question of Fact Was Raised About a Duty Owed by the Defendant to the Plaintiff

The Second Department determined the complaint in a slip and fall case was properly dismissed.  There apparently was a contract between the defendant cleaning services company, One-A, and plaintiff’s employer.  Plaintiff slipped and fell on a wet floor. The court explained the Espinal criteria for tort liability to third parties arising from a contract and then found that, because plaintiff was not a party to the cleaning-services contract, the cleaning-services company did not owe her a duty of care:

Generally, a contractual obligation, standing alone, will not give rise to tort liability in favor of a third party … . Nonetheless, 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 his or her 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 another party’s duty to maintain the premises safely … . As part of its prima facie showing, a contracting defendant is only required to negate the applicability of those Espinal exceptions that were expressly pleaded by the plaintiff or expressly set forth in the plaintiff’s bill of particulars … . Here, given the allegations in the complaint and the plaintiff’s bill of particulars, One-A established its prima facie entitlement to judgment as a matter of law simply by offering sufficient proof that the plaintiff was not a party to its contract to clean the floor of the premises, and that it thus owed her no duty of care … . In opposition, the plaintiff failed to raise a triable issue of fact … . Glover v John Tyler Eters Inc, 2014 NY Slip Op 08809, 2nd Dept 12-17-14

 

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Contract Giving Plaintiff Option to Sell the Property Back to the Defendants If Rezoning Not Obtained Was Ambiguous About When the Option Must Be Exercised Raising a Question of Fact About the Timeliness of Plaintiff’s Exercise of the Option

The Second Department determined the contract rider which allowed plaintiff-purchaser to sell the property back to the defendants-sellers if rezoning and subdivision approvals were not obtained within 15 months was an option contract.  The defendants argued that the option must be exercised within a reasonable time and the plaintiff’s failure to do so entitled defendants to summary judgment.  Supreme Court disagreed and granted plaintiff summary judgment (specific performance). The Second Department found that the contract was ambiguous concerning the time within which the option must be exercised, raising a triable question of fact:

An option contract is an agreement to hold an offer open; it confers upon the optionee, for consideration paid, the right to purchase–—or, less commonly, to sell –at a later date … . Whether an agreement is an option contract or a bilateral contract is determined by reference to its various terms … .

Here, as the defendants correctly contend, section 8(a) of the rider to the subject contract giving the plaintiff the right to sell the property back to [the defendants if plaintiff] failed to obtain certain rezoning and subdivision approvals was an option contract, as it conferred upon the plaintiff the right to sell the property back to Fairview at a later date.

However, in order for there to be an enforceable contract for the sale of land upon which an action for specific performance can be based, an optionee must exercise an option in accordance with its terms, within the time and the manner specified in the option … .

Here, the plaintiff interprets the option contained in section 8(a) of the rider as providing it with an open-ended right to exercise same, and the Supreme Court agreed. The defendants, however, interpret the same provision as limiting the plaintiff’s time to exercise the option to “a reasonable time” after the expiration of the aforementioned 15-month period in which to obtain the specified rezoning and subdivision approvals, and contend that the plaintiff failed to timely exercise its rights.

“Contract language which is clear and unambiguous must be enforced according to its terms” … . However, ambiguity in a written agreement exists if there is more than one reasonable interpretation of the language at issue … . The test for determining whether contract language is ambiguous is “whether the agreement on its face is reasonably susceptible of more than one interpretation” … . Whether an agreement is ambiguous is a question of law to be resolved by the court … . Here, we conclude that section 8(a) of the rider is ambiguous and subject to more than one interpretation regarding the time within which the plaintiff had to exercise the option. Since a triable issue of fact exists as to the intention of the parties, the Supreme Court erred in granting the plaintiff’s motion for summary judgment on the cause of action for specific performance … . IPE Asset Mgt LLC v Fairview Block & Supply Corp, 2014 NY Slip Op 08811, 2nd Dept 12-17-14

 

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Criteria for Challenge to Prenuptial Agreement Not Met

The First Department determined Family Court properly denied plaintiff’s request to extend the time for challenging a prenuptial agreement.  The court explained the analytical criteria for such a challenge:

New York has a long-standing “strong public policy favoring individuals ordering and deciding their own interests through contractual arrangements” … . It is axiomatic that a duly executed prenuptial agreement is presumed to be valid and controlling unless and until the party challenging it meets his or her very high burden to set it aside … . However, in many instances, “agreements addressing matrimonial issues have been subjected to limitations and scrutiny beyond that afforded contracts in general” … . Although “there is a heavy presumption that a deliberately prepared and executed written instrument manifests the true intention of the parties” …, an agreement between prospective spouses may be invalidated if the party challenging the agreement demonstrates that it was the product of fraud, duress, or other inequitable conduct … . Nevertheless, such results remain the exception rather than the rule. The burden of producing evidence of such fraud, duress or overreaching is on the party asserting the invalidity of the agreement … . Anonymous v Anonymous, 2014 NY Slip Op 08766, 1st Dept 12-16-14

 

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Nature of a “Turn-Key” or “Design-Build” Contract Explained—Three-Year Statute of Limitations for Malpractice Applied to Defendant Architects Who Were Engaged Solely to Design, Not Build, the Renovations

In a lawsuit stemming from the failure of a building facade, the Third Department determined that the contract between plaintiff property-owner and defendant architects was not a “turn-key” or “design-build” contract, which encompassed the entire construction project, but rather was a professional services contract for the design of building renovations.  Therefore the three-year statute of limitations for professional malpractice applied. The Third Department affirmed the dismissal of the complaint, explaining the nature of a “design-build” contract:

In “turnkey” or “design-build” construction projects, “an owner contracts with one entity to both design and build the project [and t]he turnkey builder is responsible for every phase of the construction from final design through subcontracting, construction, finishing and testing” … . The design-builder generally cannot shift liability and is the “single point [of] responsibility” under a design-build contract, because it is “the [d]esign-[b]uilder [who] has the responsibility of the preliminary and construction design, the responsibility of submitting a fixed sum for the construction of the project and the responsibility for holding the contracts with its trade contractors” … . As plaintiff asserts, it follows that nearly every design-build project involves the existence of two or more contracts — at least one among the members of the design-build team and one between the design-builder and the owner. Here, however, it was not defendant, the purported design-builder, who held the separate contract with the general contractor, but plaintiff as the owner. * * *

…[W]e conclude that plaintiff’s … causes of action — alleging that defendant was negligent and breached the parties’ contract by failing to use reasonable care in rendering its professional services — essentially allege professional malpractice … . Such claims “‘come[] within the purview of CPLR 214 (6),'” which sets forth a three-year statute of limitations for nonmedical malpractice, “‘regardless of whether the theory is based in tort or breach of contract'”… . We note that “‘a claim for professional malpractice against an engineer or architect accrues upon the completion of performance under the contract and the consequent termination of the parties’ professional relationship'” … . 797 Broadway Group LLC v Stracher Roth Gilmore Architects, 2014 NY Slip Op 08689, 3rd Dept 12-11-14

 

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Plaintiff Wife’s Waiver of Her Entitlement (Pursuant to a Divorce Stipulation) to Cost of Living Adjustments (COLA) to Maintenance Payments (By Acceptance of Checks With No COLA for Years) Was Withdrawn In 2008 When She Commenced Suit to Enforce the COLA Provision of the Stipulation

The Second Department determined that plaintiff wife had waived her entitlement, pursuant to the terms of a divorce stipulation, to cost of living adjustment (COLA) of her maintenance until she commenced an action to enforce the COLA provision of the stipulation. Plaintiff wife had waived the COLA by accepting maintenance payments (without COLA) for years. The waiver, however, was withdrawn when suit was commenced in 2008:

Waiver, which is the voluntary and intentional relinquishment of a contract right, ” should not be lightly presumed' and must be based on a clear manifestation of intent' to relinquish a contractual protection” … . It may be accomplished by affirmative conduct or failure to act so as to evince an intent not to claim the purported advantage … .

The mere existence of a nonwaiver clause does not preclude waiver of a contract clause … . However, a “waiver is not created by negligence, oversight, or thoughtlessness, and cannot be inferred from mere silence” … .

As the plaintiff correctly contends, the record demonstrates that the plaintiff voluntarily relinquished her right to receive maintenance COLA increases as provided in the parties' 1983 stipulation from 1984 through May 2008, when such waiver was withdrawn … . Although the defendant is correct that the plaintiff raises for the first time on appeal her contention that she withdrew her waiver upon commencing this action, this contention may be reached since it involves a question of law that is apparent on the face of the record and could not have been avoided by the Supreme Court if it had been brought to its attention … . Thus, we reach this issue.

“A waiver, to the extent that it has been executed, cannot be expunged or recalled, but, not being a binding agreement, can, to the extent that it is executory, be withdrawn, provided the party whose performance has been waived is given notice of withdrawal and a reasonable time after notice within which to perform” … . Since the stipulation was an executory contract between the parties pursuant to which the defendant remained under a continuing obligation to pay maintenance to the plaintiff, upon the plaintiff's filing of the summons and complaint in this action, such waiver was withdrawn … . Stassa v Stassa, 2014 NY Slip Op 08629, 2nd Dept 12-10-14

 

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Operating Agreements Created a Limited Liability Company In Which Members Did Not Share Control of the Development Project or Responsibility for Losses/No Fiduciary Duty Arises from a Limited-Liability-Company Relationship, As It Does from a Partnership or Joint Venture

The Second Department noted that a fiduciary duty did not arise among members of a limited liability company, as it would have in a partnership or joint venture.  Here, the operating agreements created a limited liability company in which (unlike a partnership or joint venture) the members did not share control of the project or responsibility for losses:

“Generally, where parties have entered into a contract, courts look to that agreement to discover . . . the nexus of [the parties'] relationship and the particular contractual expression establishing the parties' interdependency. If the parties . . . do not create their own relationship of higher trust, courts should not ordinarily transport them to the higher realm of relationship and fashion the stricter duty for them'” … . Here, the written operating agreements submitted in support of the motions demonstrated an intent to form a limited liability company, not a partnership or joint venture that would have given rise to a fiduciary relationship. Moreover, the members of the limited liability company did not share control of the subject development project or responsibility for the losses, which are elements of both a joint venture and a partnership … . Grand Pac Fin Corp v 97-111 Hale LLC, 2014 NY Slip Op 08604, 2nd Dept 12-10-14

 

Language of a Guaranty Must Be Strictly Construed

In finding that the language of defendant's (Hart's) guaranty to pay the debts of a business (Gotham) in which Hart had a financial interest did not support the interpretation that the guaranty extended to purchases made by Gotham after the guarantor sold his interest in the business, the Second Department explained the analytical criteria:

Gary Hart, who was then the vice president of Gotham …, and had a financial interest therein, executed a credit application and agreement (hereinafter the credit agreement) on behalf of Gotham on a preprinted form provided to him by the plaintiff, Solco … . Pursuant to the credit agreement, Solco agreed to sell and deliver goods to Gotham on credit. The form recited, in pertinent part:

“PERSONAL GUARANTEE OF PAYMENT AND AGREEMENT*****”the undersigned, being financially interested in the above customer, hereby, jointly and severally, unconditionally, guarantee payment when due of all indebtedness of the above customer including any amount currently due to [the plaintiff] as such indebtedness may exist from time to time together with interest and/or finance charges” … .

The guaranty contained no provision requiring the defendant to notify Solco in the event that his financial interest in Gotham was terminated. * * *

The terms of a guaranty are to be strictly construed …, and a guarantor should not be found liable beyond the express terms of the guaranty … . Moreover, since the language in question was part of a form contract prepared by Solco, any alleged ambiguity should be interpreted against Solco … . Further, in determining the meaning of contractual language, “a court should not read a contract so as to render any term, phrase, or provision meaningless or superfluous” …, but should give effect to all of the contract's provisions … . Solco Plumbing Supply Inc v Hart, 2014 NY Slip Op 08626, 2nd Dept 12-10-14

 

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Analytical Criteria Re: the Validity of a Stipulation Explained

In affirming the validity of a stipulation related to a divorce, the Second Department explained the relevant analysis, including the concept of ratification of the agreement by accepting its benefits:

” Stipulations of settlement are favored by the courts and are not lightly set aside'” … . A stipulation of settlement is an independent contract binding on the parties unless impeached or challenged for some cause recognized by law … . “Judicial review is to be exercised sparingly, with a goal of encouraging parties to settle their differences on their own” … . ” [A] stipulation of settlement which is fair on its face will be enforced according to its terms unless there is proof of fraud, duress, overreaching, or unconscionability'” … .

Here, the defendant established her prima facie entitlement to judgment as a matter of law by submitting, inter alia, the Stipulation, which contained an express representation that it was not a product of fraud or duress and which awarded the plaintiff meaningful benefits, as well as her affidavit wherein she averred that the parties’ attorneys were engaged in negotiations for months regarding the distribution of marital assets … . Furthermore, the defendant established that the plaintiff ratified the Stipulation and waived his claim to set aside the Stipulation by accepting the benefits of the Stipulation for a significant period of time … . Sabowitz v Sabowitz, 2014 NY Slip Op 08624, 2nd Dept 12-10-14

 

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Court’s Limited Arbitration-Review Powers Described—Collateral Estoppel Precluded the District from Raising the “Faithless Servant Doctrine” in a Related Lawsuit Because the Arbitrator Concluded the Doctrine Did Not Apply

The Third Department affirmed the arbitrator's decision that the school district employee, who had attempted to retire after allegations that she stole school district property surfaced, was entitled to health benefits.  The court determined, given that the faithless servant doctrine was litigated fully during the arbitration and deemed inapplicable, and given the arbitrator's conclusion the employee was entitled to her contractual health benefits, the school district was collaterally estopped from amending its complaint in the related court proceedings to include the faithless servant doctrine:

…Vacatur of the arbitration award is not warranted. “It is well established that an arbitrator's award is largely unreviewable” … . Vacatur of an arbitration award is only appropriate where “it violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator's power” … . “Outside of these narrowly circumscribed exceptions, courts lack authority to review arbitral decisions, even where 'an arbitrator has made an error of law or fact'” … . Union-Endicott Cent Sch Dist v Peters, 2014 NY Slip Op 08533, 3rd Dept 12-4-14

 

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Separation and Modification Agreements Did Not Comply with the Child Support Standards Act

The Third Department determined the parties’ separation and modification agreements did not comply with the Child Support Standards Act (CSSA).  The court explained the flaws:

If an agreement or stipulation entered into between the parties “deviates from the basic child support obligation, the agreement or stipulation must specify the amount that such basic child support obligation would have been and the reason or reasons that such agreement or stipulation does not provide for payment of that amount. Such provision may not be waived by either party or counsel” (Domestic Relations Law § 240 [1-b] [h]…).

Here, the original separation and settlement agreement indicated that the parties had been advised of the provisions of the CSSA and that the amount of child support calculated in compliance therewith would be presumptively valid; the agreement further set forth the applicable statutory percentage for three children (29%) and the parties’ respective incomes and indicated that the husband’s child support obligation would be adjusted upon the cessation of the agreed-upon maintenance payments (see Domestic Relations Law § 240 [1-b] [b] [5] [vii] [C]). The agreement did not, however, indicate what the presumptive amount of child support would be, nor did it set forth the reasons for deviating therefrom. Similar deficiencies exist with respect to the provisions governing the parties’ pro rata share of childcare and medical expenses and, to our analysis, none of the foregoing deficiencies was cured by the subsequent modification agreement. Although the modification agreement acknowledged a departure from the presumptive pro rata share of each party’s childcare expenses and purported to explain the basis for the deviation therefrom, the agreement was silent as to what the presumptive pro rata percentages would be under the CSSA and failed to set forth the income and other financial data supporting the basis for such deviation. Malone v Malone, 2014 NY Slip Op 08281, 3rd Dept 11-26-14

 

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