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Supreme Court Should Not Have Denied Motion to Set Aside a Stipulation of Settlement Without a Hearing, Criteria Explained/Lower Court Properly Considered Issues Raised for the First Time in Plaintiff’s Reply Papers Because Defendant Availed Himself of the Opportunity to Oppose the Contentions at Oral Argument

The Second Department determined Supreme Court should not have denied plaintiff's motion to set aside the stipulation of settlement without a hearing.  The court explained the analytical criteria.  (It is worth noting that the Second Department found that Supreme Court properly considered matters raised for the first time in plaintiff's reply papers because the defendant availed himself of the opportunity to oppose the contentions at oral argument.):

“Marital settlement agreements are judicially favored and are not to be easily set aside” … . However, because of the fiduciary relationship existing between spouses, ” [a] stipulation of settlement should be closely scrutinized and may be set aside upon a showing that it is unconscionable or the result of fraud, or where it is shown to be manifestly unjust because of the other spouse's overreaching'” … .

“To rescind a separation agreement on the ground of overreaching, a plaintiff must demonstrate both overreaching and unfairness” … . ” [N]o actual fraud need be shown, for relief will be granted if the settlement is manifestly unfair to a spouse because of the other's overreaching . . . in its execution'” … . “[C]ourts may examine the terms of the agreement as well as the surrounding circumstances to ascertain whether there has been overreaching” … . However, generally, if the execution of the agreement is fair, no further inquiry will be made … . “[W]hile evidence that one spouse was not represented by counsel is insufficient, standing alone, to find overreaching, it is a significant consideration when determining whether the parties entered into the stipulation freely and fairly” … . “[C]ourts have thrown their cloak of protection [over] separation agreements and made it their business, when confronted, to see to it that they are arrived at fairly and equitably, in a manner so as to be free from the taint of fraud and duress, and to set aside or refuse to enforce those born of and subsisting in inequity” … . Jon v Jon, 2014 NY Slip Op 08961, 2nd Dept 12-24-14

 

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Although the Landlord Can Sue Pursuant to the Accelerated Rent Clause and Is Not Under a Duty to Mitigate, the Out-of-Possession Tenant Should Be Afforded a Hearing On Whether the Accelerated Rent/Liquidated Damages Clause, Under the Facts, Constitutes an Unenforceable Penalty Because It Results In Recovery Grossly Disproportionate to the Landlord’s Actual Damages

The Court of Appeals, in a full-fledged opinion by Judge Rivera, determined that, where the tenant has breached the lease and left the premises, the landlord can sue to enforce the rent acceleration clause and is under no duty to mitigate.  However, under the facts here, the tenant was entitled to a hearing to address whether the acceleration clause allows liquidated damages which are grossly disproportionate to the actual losses, and therefore constitutes an unenforceable penalty:

As a general matter parties are free to agree to a liquidated damages clause “provided that the clause is neither unconscionable nor contrary to public policy” … . Liquidated damages that constitute a penalty, however, violate public policy, and are unenforceable … . A provision which requires damages “grossly disproportionate to the amount of actual damages provides for a penalty and is unenforceable” … .

Whether a provision in an agreement is “an enforceable liquidation of damages or an unenforceable penalty is a question of law, giving due consideration to the nature of the contract and the circumstances” … . “The burden is on the party seeking to avoid liquidated damages[] to show that the stated liquidated damages are, in fact a penalty” … . Where a party establishes a penalty, the proper recovery is the amount of actual damages established by the party … .

Defendants claim that because the acceleration clause permits [the landlord] to hold possession and immediately collect all rent due, the damages are grossly disproportionate to the landowner's actual damages. They contend this is a windfall that allows [the landlord] to double dip—–get the full rent now and hold the property. On its face this argument is compelling because arguably the ability to obtain all future rent due in one lump sum, undiscounted to present-day value, and also enjoy uninterrupted possession of the property provides the landowner with more than the compensation attendant to the losses flowing from the breach—–even though such compensation is the recognized purpose of a liquidated damages provision … . 172 Van Duzer Realty Corp v Globe Alumni Student Assistance Assn Inc, 2014 NY Slip Op 08872, CtApp 12-18-14

 

Breach of Contract Lawsuit Precluded by Claimant’s Failure to Comply With Notice Requirements Which Were Conditions Precedent—Alleged Misconduct by Defendant Did Not Prevent Compliance with Conditions Precedent—Conditions Precedent Not Waived by Defendant’s Participation In an Attempt to Resolve the Dispute

The Third Department noted that, absent any claim that defendant's misconduct prevented claimant from fulfilling the notice requirements in the contract, the notice requirements were conditions precedent which, because they were not met, precluded the breach of contract lawsuit:

Claimant alleged seven specific items of damages, each of which was subject to contract provisions requiring that notice be provided to defendant within 10 work days and that certain records be kept and submitted to defendant. The contract provided that “[t]he notification and record-keeping provisions of this Contract shall be strictly complied with for disputes of any nature and are a condition precedent to any recovery” … . No party can prevail on a breach of contract claim if that party has failed to perform a specified condition precedent … . According to the contract, the contractor's failure to supply the required notice and submit the required records is deemed a waiver of any related claim by the contractor, “notwithstanding the fact that [defendant] may have actual notice of the facts and circumstances which comprise such dispute and is not prejudiced by said failure.”

Defendant established its entitlement to summary judgment by submitting proof that claimant did not comply with the condition precedent, in that claimant did not provide timely notice for the alleged items of damages and did not timely submit the required records … . In response, claimant did not provide proof that it complied with the notice and record-keeping requirements, but argued that defendant waived noncompliance, had actual knowledge of the disputed items and prevented claimant from complying with those requirements. Those arguments are unavailing. Fahs Constr Group Inc v State of New York, 2014 NY Slip Op 0885, 3rd Dept 12-18-14

 

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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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Question of Fact Raised About Whether Contract for the Installation of Marble Staircase Landings Gave Rise to Tort Liability to Third Party (Plaintiff) Stemming from the Collapse of a Landing

The Second Department determined a question of fact had been raised about whether a contract for the installation of marble staircase landings (by defendant Suli) gave rise to tort liability for injury to plaintiff resulting from the collapse of the landing:

Ordinarily, the breach of a contractual obligation is not sufficient in and of itself to impose tort liability upon the promisor to noncontracting parties … . However, a party who enters into a contract to render services may be said to have assumed a duty of care and, thus, would be potentially liable in tort to third persons when the contracting party, in failing to exercise reasonable care in the performance of its duties, launches an instrument of harm or creates or exacerbates a hazardous condition … . Here, Suli demonstrated its prima facie entitlement to judgment as a matter of law by presenting evidence that it properly installed the marble slab, that it never received any complaints about the work prior to the accident, and that no defects in the marble were observed prior to the accident. However, in opposition, the plaintiff and the building defendants raised a triable issue of fact as to whether Suli created the hazardous condition that caused the accident through the affidavit of an experienced marble setter and installer. That expert explained that marble could weaken over time due to stress fractures, and opined that Suli should have supported the marble slab with an additional “angle iron” in the center of the slab, and that Suli’s failure to do so was a substantial contributing factor in the happening of the accident … . Torres v 63 Perry Realty LLC, 2014 NY Slip Op 08830, 2nd Dept 12-17-14

 

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Elevator Company Which Agrees to Keep Elevator in a Safe Operating Condition May Be Liable to Injured Passenger

The Second Department reversed Supreme Court finding an elevator company which agreed to maintain an elevator in a safe condition may be liable to an injured passenger:

“An elevator company which agrees to maintain an elevator in safe operating condition may be liable to a passenger for failure to correct conditions of which it has knowledge or failure to use reasonable care to discover and correct a condition which it ought to have found” … . Here, the defendant submitted maintenance records for the subject elevator, including work tickets for a period of approximately one year preceding the plaintiff’s accident and a “callout report,” which indicated that approximately six months before the accident, the defendant was called to repair the alarm bell. The defendant also submitted the plaintiff’s deposition transcript, wherein he testified that, prior to his accident, there were times when the alarm bell and strobe light did not activate and that two other individuals had been struck on the head by the gate prior to his accident. Thus, the defendant’s submissions failed to establish, prima facie, that it did not have actual or constructive notice concerning the defective operation of the elevator’s gate, alarm bell, and strobe light … . Since the defendant failed to establish its prima facie entitlement to judgment as a matter of law, its motion should have been denied regardless of the sufficiency of the plaintiff’s opposition papers … . Papapietro v Knoe Inc, 2014 NY Slip Op 08817, 2nd Dept 12-17-14

 

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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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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

 

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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