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Evidence Did Not “Utterly Refute” Plaintiff’s Allegation He Had No Notice Individual Defendant Was Acting as an Agent for a Disclosed Corporate Principal—Motion to Dismiss Action Against Individual Defendant Pursuant to CPLR 3211 Should Not Have Been Granted

The Third Department determined Supreme Court should not have granted individual defendant’s (Valentino’s) motion to dismiss pursuant to CPLR 3211 because the evidence did not “utterly refute” plaintiff’s claim he had no notice Valentino was acting as an agent of a disclosed corporate principal when a building contract was executed:

“It is well settled that an individual who signs a contract as an agent for an entity will be held personally liable on the contract if the agency relationship is not disclosed” … . Whether or not a principal is disclosed depends upon whether, at the time of the underlying transaction, the other party to the contract had notice that the agent was acting for a principal and knew of the principal’s identity … .

Here, the contract identified J & J Enterprises as the builder, but there is no reference in the contract or in the accompanying specifications sheet to the status of J & J Enterprises as the trade name of a corporation or to Valentino’s status as an officer or representative of any such corporation.  Winer v Valentino, 2014 NY Slip Op 07050, 3rd Dept 10-16-14

 

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Questions of Fact Raised About Fairness of Facially Valid Prenuptial Agreement

The Second Department determined questions of fact had been raised by defendant-wife about the fairness of a facially valid prenuptial agreement, primarily because of the absence of financial disclosure by the husband and the limited communication (at the time the agreement was executed) between the wife and the wife’s attorney (who had been hired by the husband). The court further determined that Supreme Court should not have denied the branches of the wife’s motion asking for pendente lite maintenance and counsel fees, which were not mentioned in, and therefore not precluded by, the prenuptial agreement:

An agreement between spouses which is fair on its face will be enforced according to its terms unless there is proof of unconscionability, or fraud, duress, overreaching, or other inequitable conduct … . “An unconscionable bargain is one which no person in his or her senses and not under delusion would make on the one hand, and no honest and fair person would accept on the other, the inequality being so strong and manifest as to shock the conscience and confound the judgment of any person of common sense” … .

Here, the plaintiff demonstrated his prima facie entitlement to judgment as a matter of law by submitting, inter alia, the agreement, which appeared fair on its face and set forth express representations stating that, among other things, it was not a product of fraud or duress, each party had made full disclosure to the other and was represented by independent counsel, and they had fully discussed and understood its terms … .

In opposition, the defendant raised triable issues of fact with regard to, inter alia, the fairness of the agreement, the circumstances surrounding the negotiation and execution of the agreement, and the absence of any meaningful financial disclosure by the plaintiff … . McKenna v McKenna, 2014 NY Slip Op 06951, 2nd Dept 10-15-14

 

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Alleged Misrepresentations Were Not Collateral or Extraneous to the Contract—Fraud Cause of Action Will Not Lie

Re: an elevator-maintenance contract, the Second Department explained when a fraud cause of action must be dismissed in the context of a breach of contract action:

We find unpersuasive the plaintiff’s contention that the Supreme Court erroneously granted that branch of the defendants’ motion which was pursuant to CPLR 3211(a)(1) to dismiss the fifth cause of action, which alleged fraud. “Where a claim to recover damages for fraud is premised upon an alleged breach of contractual duties, and the allegations with respect to the purported fraud do not concern representations which are collateral or extraneous to the terms of the parties’ agreement, a cause of action sounding in fraud does not lie” … . Here, the complaint and the accompanying affidavits alleged that the individual defendants made knowingly false statements that the subject elevators would be promptly repaired and properly maintained, and that any governmental violations that were issued with regard to them would be resolved and closed. However, the parties’ agreement, as referenced by the defendants in support of their motion, “conclusively established that the alleged fraudulent misrepresentations at issue were not collateral or extraneous to the contract. Rather, the alleged misrepresentations amounted only to a misrepresentation of the intent or ability to perform under the contract” … . Renaissance Equity Holdings LLC v Al-An El Maintenance Corp, 2014 NY Slip Op 06570, 2nd Dept 10-1-14

 

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Parol Collateral Agreement Can Be Alleged Where Written Contract Does Not Embody Entire Agreement/Where Existence of Contract Is Disputed, Causes of Action for Unjust Enrichment and Quantum Meruit Are Okay/Courts Can Not Excuse Failure to Strictly Comply with Lien Law Requirements

The Second Department noted:  proof of a parol collateral agreement is okay where the written contract is not intended to embody the whole agreement; where the existence of a contract is in dispute, causes of action for unjust enrichment and quantum merit are okay; courts do not have discretion to excuse strict compliance with Lien Law 11:

…”[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” … . Here, although the first cause of action was based on a written contract, the plaintiff stated a second cause of action based on the breach of an alleged oral agreement as to services not encompassed in the written agreement.

As to the third and fourth causes of action, where, as here, the existence of the contract is in dispute, the plaintiff may allege causes of action to recover for unjust enrichment and in quantum meruit as alternatives to a cause of action alleging breach of contract (see CPLR 3014…).

Lien Law § 11 provides that within 5 days before or 30 days after filing the notice of lien, a lienor “shall” serve a copy of such notice upon the owner, as relevant here, at the owner’s “last known place of residence.” However, the plaintiff’s affidavit of service of the mechanic’s lien demonstrates that the plaintiff failed to serve the notice of the mechanic’s lien in compliance with Lien Law § 11, as the notice was not sent to the defendants’ last known place of residence. As strict compliance with the statutory requirements is mandated and the courts do not have discretion to excuse noncompliance… . Thompson Bros Pile Corp v Rosenblum, 2014 NY Slip Op 06577, 2nd Dept 10-1-14

 

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The Kinds of Damages Recoverable in a Property-Damage Action Stemming from Allegedly Defective Doors and Windows Explained in Some Depth—Economic Loss Rule Re: Strict Products Liability and Negligence—Consequential and Special Damages Re: Contract—When an Issue Can Be Raised for the First Time on Appeal Explained

In an action stemming from allegedly defective windows and doors which allowed the intrusion of water, the Second Department sorted out the interplay between tort claims and contract claims and the types of damages recoverable under each legal theory.  Among the issues discussed in some depth: the economic loss rule re: strict products liability and negligence; and consequential and special damages re: contract.  The court noted that the “economic loss rule” issue was raised for the first time on appeal and then explained why it still could consider the argument:

…[W]e note that the appellant did not raise before the Supreme Court its contention that the causes of action to recover damages for negligence and based on strict products liability insofar as asserted against it are barred by the economic loss rule. Nevertheless, this is a purely legal argument that appears on the face of the record and could not have been avoided had it been brought to the attention of the Supreme Court. Thus, the issue may be considered by this Court even though it is being raised for the first time on appeal… .

“The economic loss rule provides that tort recovery in strict products liability and negligence against a manufacturer is not available to a downstream purchaser where the claimed losses flow from damage to the property that is the subject of the contract and personal injury is not alleged or at issue” … . The rule is applicable to economic losses to the product itself as well as consequential damages resulting from the defect … . Therefore, when a plaintiff seeks to recover damages for purely economic loss related to the failure or malfunction of a product, such as the cost of replacing or retrofitting the product, or for damage to the product itself, the plaintiff may not seek recovery in tort against the manufacturer or the distributor of the product, but is limited to a recovery sounding in breach of contract or breach of warranty … .

Here, the plaintiff alleges, inter alia, that it sustained economic losses generated by the repair and replacement of the glass doors and windows of a building due to the failure of such doors and windows to properly prevent water intrusion. The fabrication and/or installation of those doors and windows were the subject of its agreement with the appellant. To the extent that the plaintiff seeks to recover losses generated by the repair and replacement of these doors and windows pursuant to causes of action sounding in negligence or strict products liability, such causes of action are prohibited by the economic loss rule. …

However, the plaintiff also claims that the intrusion of water caused by the defective windows and doors resulted in injury to other structural elements of the building, such as flooring and walls. These losses constitute damage to “other property” that was not the subject of the parties’ agreement and, accordingly, support a valid tort cause of action … . We note that, while the other structural elements of the building may have been damaged as a consequence of the infiltration of water through allegedly defective windows and doors, such losses do not constitute “consequential damages,” also known as “special damages,” as that term is used in contract law. Consequential or special damages usually refer to loss of expected profits or economic opportunity caused by a breach of contract … . ). Although the plaintiff may not recover such traditional consequential contract damages pursuant to a tort cause of action, the complaint does state causes of action against the appellant to recover damages for negligence and based on strict products liability to the extent that those causes of action seek to recover damages for injury to structural elements of the building other than the allegedly defective windows and doors themselves, which were the subject of the parties’ contract… . 126 Newton St LLC v Allbrand Commercial Windows and Doors Inc, 2014 NY Slip Op 06563, 2nd Dept 10-1-14

 

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Provision in Separation Agreement Which Called for Employment of the Wife by the Husband Deemed an Employment Contract Breached When Wife Opened a Competing Business

The Fourth Department reversed Supreme Court and determined that a provision in a separation agreement which was incorporated but not merged into the divorce decree constituted an employment contract breached when the plaintiff wife opened a competing business.  The reason for the agreement was to allow plaintiff wife to be paid maintenance by defendant husband’s business during the time when the husband was obligated to pay child support.  The wife was a consultant to defendant’s business:

It is well established that a separation agreement that is incorporated but not merged into a judgment of divorce “is a contract subject to the principles of contract construction and interpretation” … , and “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms” … . By entering into the Agreement, defendant agreed to employ plaintiff in the event his maintenance obligation terminated during the period of time in which he was still obligated to pay child support. Inasmuch as the language of the Agreement is clear and unambiguous on its face, “the intent of the parties must be gleaned from within the four corners of the instrument, and not from extrinsic evidence” … .

While we agree with plaintiff and the court that the clear and unambiguous intent of the Agreement was to provide a substitute source of monetary support for plaintiff after defendant’s maintenance obligation terminated, we conclude that the reason defendant agreed to employ plaintiff does not change the fact that the Agreement established an employment relationship with corresponding rights and obligations for both parties.

As we have previously stated, “[a]n employee may not compete with his [or her] employer’s business during the time of his [or her] employment” … . When plaintiff opened a business in direct competition with defendant’s business, plaintiff breached her duty of loyalty to her employer … , thereby permitting defendant to terminate the consultation fees and the employment relationship. Anderson v Anderson, 2014 NY Slip Op 06415, 4th Dept 9-26-14

 

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Consent to Divorce In Exchange for Payments Would Violate Public Policy

In the course of a lengthy decision dealing with several other issues, the Second Department explained why an in-court stipulation was properly vacated, noting that defendant-wife’s consent to the divorce in exchange for financial payments could not be consideration for the stipulated agreement because such an agreement would violate public policy:

To be enforceable, an open court stipulation must contain all of the material terms and evince a clear mutual accord between the parties (see CPLR 2104…). The 2011 on-the-record agreement was too incomplete and indefinite to be enforceable, and was merely a non-binding agreement to agree … . The parties disagreed whether the proposal included a waiver of maintenance and they did not finalize the details of the transfer of the 1999 Trust. Other material terms were never agreed upon, and the agreement was subject to the consummation of future conditions and additional agreements.

The agreement also lacked consideration … . Accepting defendant’s consent to the divorce in exchange for the financial payments would have been against public policy … . In any event, the parties unambiguously agreed that “whether we hammer out the agreement or not, the divorce will go forward uncontested.” There is no merit to defendant’s claim that her decision to avoid a public trial on fault grounds constituted consideration because it would have brought up embarrassing and difficult questions for plaintiff concerning his financial dealings. Cohen v Cohen, 2014 NY Slip Op 06157, 1st Dept 9-11-14

 

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Allegations of Mutual Mistake in Counterclaim and Affirmative Defense Not Made With Requisite Particularity

The Second Department determined the allegations of mutual mistake were not made with the requisite particularity and the related counter claim and affirmative defense were properly granted:

“A claim of mutual mistake is stated where the allegations indicate that the parties have reached an oral agreement and, unknown to either, the signed writing does not express that agreement” … . Absent fraud, “the mistake shown must be one made by both parties to the agreement, so that the intentions of neither are expressed in it” … . “A claim predicated on mutual mistake must be pleaded with the requisite particularity necessitated under CPLR 3016(b)” …, which provides that “where a cause of action or defense is based upon misrepresentation, fraud, mistake, wilful default, breach of trust or undue influence, the circumstances constituting the wrong shall be stated in detail.” Ultimately, the proponent of reformation based on mutual mistake must demonstrate the particulars of the actual agreement intended by the parties, based on the particularized allegations in the complaint… . Friedland Realty Inc v 416 W LLC, 2014 NY Slip Op 06052, 2nd Dept 9-10-14

 

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Elements of Fraud, Money Had and Received, and Unjust Enrichment Explained

In finding the allegations in the complaint insufficient, the Second Department explained the elements of causes of action for fraud, money had and received, and unjust enrichment:

The elements of a cause of action based on fraud are “a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury” … . The misrepresentation may be in the form of an omission of a material fact … . Although the question of what constitutes reasonable reliance is usually fact-intensive …, where the plaintiff alleges only that the defendant omitted a material fact when making a representation to another party, the plaintiff has failed to state a cause of action against either the representor or the representee … . * * *

“The essential elements of a cause of action for money had and received are (1) the defendant received money belonging to the plaintiff, (2) the defendant benefitted from receipt of the money, and (3) under principles of equity and good conscience, the defendant should not be permitted to keep the money”… . * * *

In a cause of action to recover damages for unjust enrichment, “[a] plaintiff must show that (1) the other party was enriched, (2) at that party’s expense, and (3) that it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered” … . The plaintiff, in his complaint, did not identify any money that was retained … at his expense and, in any event, “[a]lthough privity is not required for an unjust enrichment claim, a claim will not be supported if the connection between the parties is too attenuated” … . Lebovits v Bassman, 2014 NY Slip Op 06061, 2nd Dept 9-10-14

 

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