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THE CONDITION ATTACHED TO THE SUBDIVISION OF A LOT AND THE SALE OF ONE PARCEL BENEFITTED BOTH THE BUYER AND THE SELLER; THEREFORE THE BUYER ALONE COULD NOT WAIVE THE CONDITION WHEN IT COULD NOT BE MET; THE BUYER’S ACTION FOR SPECIFIC PERFORMANCE SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the condition attached to the sale of a lot by decedent to plaintiff, i.e., that a single-family home be built on the lot, benefited both parties and therefore could not be waived by the plaintiff alone. Plaintiff was unable to procure a building permit but elected to proceed with the sale. The decedent cancelled the sale Plaintiff then brought an action for specific performance which Supreme Court granted:

The contract of sale between the plaintiff and the decedent for the subject property provided in a rider that it was subject to the plaintiff obtaining an as-of-right building permit to build a single-family residence. The plaintiff was subsequently unable to obtain a building permit because a covenant of conditions had never been filed to complete the process of subdividing Norman’s single parcel into the two parcels referred to as 112 Jessup Lane and 114 Jessup Lane. The plaintiff’s and the decedent’s efforts to have the covenant filed so as to complete the subdivision process failed. * * *

Generally, “the party for whose benefit a condition is inserted in an agreement may waive the condition and accept performance as is” … . “However, where the relevant circumstances reveal that the condition has been inserted for the benefit of both parties to the agreement, either party may validly cancel the contract upon failure of the condition, and the condition may be waived only by the mutual assent of both parties” … . …

Inasmuch as the building permit could only be obtained if the subdivision of the property were completed, that condition cannot be interpreted as existing solely for the benefit of the plaintiff where the decedent retained an interest in the other lot to be included in the subdivision … . D&J Realty Partners, LLC v Booth, 2024 NY Slip Op 01169, Second Dept 3-6-24

Practice Point: With respect to the sale of real property, if a condition of the sale, here the construction of a single-family residence on the lot to be sold, benefits only one party, the condition can be waived by that party. Here, however, the condition benefitted both parties and could only be waived by the consent of both.

 

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ALTHOUGH THE STATUTE OF LIMITATIONS FOR REFORMATION OF A CONTRACT BASED ON A SCRIVENER’S ERROR HAD PASSED; THE CLEAR ERROR PRODUCED AN ABSURD RESULT WHICH CANNOT BE ADOPTED OR CONDONED BY THE COURT (FIRST DEPT). ​

The First Department, reversing (modifying) Supreme Court, in a full-fledged opinion by Justice Oing, determined plaintiff’s motion for summary judgment finding defendant “indemnitor” liable as guarantor of a $44 million debt should have been granted. Plaintiff argued the term “borrower,” instead of “indemnitor,” was mistakenly used to indicate the identity of the guarantor of the loan. Although the statute of limitations on the alleged “scrivener’s error” action had run, to interpret the language of the guaranty in the manner argued by defendant (i.e., “borrower” was the intended term) resulted in an absurdity, which would have rendered the loan unguaranteed:

… [A] court may correct a scrivener’s error outside of a claim for reformation of a contract in “those limited instances where some absurdity has been identified or the contract would otherwise be unenforceable either in whole or in part” … . In other words, a court is not “constrained to adopt an absurd phrasing in the contract merely because the statute of limitations for reformation had passed, when the error is obvious and the drafters’ intention clear” … . * * *

… [A] guaranty must be read in the context of the loan agreement and “in a manner that accords the words their ‘fair and reasonable meaning,’ and achieves ‘a practical interpretation of the expressions of the parties'” … . In other words, a “contract should not be interpreted to produce a result that is absurd, commercially unreasonable or contrary to the reasonable expectations of the parties” … . NCCMI, Inc. v Bersin Props., LLC, 2024 NY Slip Op 01161, First Dept 3-5-24

Practice Point: A clear-cut scrivener’s error in a contract which produces an absurd result the parties could not have intended will not be adopted or condoned by a court, despite the running of the statute of limitations on a contract-reformation cause of action.

 

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THE CONTRACTOR WHICH UNDERTOOK THE DUTY TO INSTALL FLOORING WAS REQUIRED TO PERFORM THAT DUTY WITH REASONABLE CARE; THE OWNER OF THE PROPERTY HAD A SEPARATE NONDELEGABLE DUTY TO KEEP THE PROPERTY SAFE WHICH MAY ALLOW THE CONTRACTOR’S NEGLIGENCE TO BE IMPUTED TO THE OWNER; DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT IN THIS TRIP AND FALL CASE SHOULD NOT HAVE BEEN GRANTED (FIRST DEPT).

The First Department, reversing Supreme Court, determined (1) defendant contractor (AW&S) undertook the duty to install flooring and was therefore required to perform that duty with reasonable care, and (2) the owner of the property (UJA) had a separate, nondelegable duty to keep the premises safe. There was evidence AW&S failed to secure portions of the flooring it installed and that failure was the proximate cause of plaintiff’s trip and fall. Defendants did not present any evidence of when the floor was last inspected prior to the fall and therefore did not demonstrate the absence of constructive notice of the defect:

Defendants failed to establish prima facie that they were not negligent in the installation and maintenance of the Masonite flooring on which plaintiff tripped and fell … . Although defendants claim that they neither created nor had actual or constructive notice of the condition that caused plaintiff’s injuries, the record establishes that defendant owner … (UJA) requested that defendant … (AW&S) protect the floors during a renovation project in its building for which AW&S served as general contractor. … AW&S specifically undertook responsibility for the installation, maintenance, and inspection of the protective Masonite flooring while it was on site, and the project superintendent noted that there were sections of Masonite that lacked duct tape securing it to the floor in the area where plaintiff tripped and fell. Based on this testimony, there are questions of fact as to whether AW&S’s failure to secure the Masonite, or to note that it was not secured upon inspection, was the proximate cause of plaintiff’s injuries … . … [W]here a defendant has undertaken a specific duty, it is obligated to perform that duty with reasonable care or be liable for any hazards it creates … . UJA, as owner, has a separate, nondelegable duty to maintain its premises, and AW&S’s negligent maintenance of the Masonite, if established, could be imputed to UJA …

Defendants also failed to make a prima facie showing that they lacked constructive notice of the condition. Neither defendant offered evidence of maintenance and inspection records despite testimony that the duct tape on the Masonite required routine replacement when it became curled or wet … .  …[P]laintiff was not required to establish how long the condition existed … . Bolson v UJA-FED Props. Inc., Ltd., 2024 NY Slip Op 00966, First Dept 2-27-24

Practice Point: A contractor which assumes the duty to do work, here floor-installation, is required to do so with reasonable care.

Practice Point: The property owner which hires a contractor to do work has a separate nondelegable duty to keep the premises safe such that a contractor’s negligence may be imputed to the owner.

 

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THE PURPORTED ORAL ASSIGNMENT OF A SUBLEASE FOR MORE THAN A YEAR VIOLATED THE STATUTE OF FRAUDS; THE CRITERIA FOR AN ASSIGNMENT “BY OPERATION OF LAW” WERE NOT MET (FIRST DEPARTMENT). ​

The First Department, reversing (modifying) Supreme Court, determined the oral assignment of a sublease was invalid under the statute of frauds and there was no assignment “by operation of law:”

An oral assignment of the sublease here would have to satisfy the statute of frauds, which requires the assignment of such a sublease (for more than one year) to be in writing (see General Obligations Law § 5-703[2] …). Although, in the absence of a written assignment, a presumption of “assignment by operation of law” sufficient to satisfy the statute of frauds may be created by a “tenant in possession” paying rent … , such as where a tenant pays the full rent for some extended period of time … , no such presumption applies in the circumstances here. The terms of the sublease allowed for a sublease/occupation but expressly forbade oral assignments and included a “no waiver” clause, and the occupancy and payments by [defendant]  here was not conduct “unequivocally referrable” to any purported agreement by the parties to orally modify the no oral assignment term … . Innerworkings, Inc. v Arik Eshel CPA & Assoc. P.C., 2024 NY Slip Op 00972, First Dept 2-27-24

Practice Point: An oral assignment of a sublease for more than a year violates the statute of frauds.

Practice Point: Payment of rent for an extended period of time may satisfy the statute of frauds “by operation of law” (not the case here).

 

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THE COUNTERCLAIM FOR LOST PROFITS DID NOT DEMONSTRATE “LOST PROFITS” AS CONSEQUENTIAL DAMAGES WAS CONTEMPLATED BY THE PARTIES AT THE TIME THE CONTRACT FOR THE SALE OF GOODS WAS ENTERED; THE MOTION TO DISMISS THE COUNTERCLAIM SHOULD HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the motion to dismiss the defendant’s counterclaim for lost profits should not have been converted to a summary judgment motion and the counterclaim must be dismissed because defendant did not demonstrate consequential damages for lost profits was contemplated by the parties when the contract for the sale of goods was entered. The contract was for the sale of military ordnance (target practice rounds) for the Mexican Navy. In its counterclaim, the defendant alleged the goods were not timely delivered and were not accepted by the Mexican Navy:

Lost profits are a form of consequential damages that a buyer, such as the defendant, may recover if “the seller at the time of contracting had reason to know [of them] and which could not reasonably [have been] prevented by cover or otherwise” (UCC 2-715[2][a] …). “To determine whether consequential damages were reasonably contemplated by the parties, ‘the nature, purpose and particular circumstances of the contract known by the parties should be considered, as well as what liability the defendant fairly may be supposed to have assumed consciously, or to have warranted the plaintiff reasonably to suppose that it assumed, when the contract was made'” … . In order to recover consequential damages, a pleading party is required to allege that the damages were foreseeable and within the contemplation of the parties at the time the contract was made … . “[W]here the damages reflect a loss of profits on collateral business arrangements, they are only recoverable when (1) it is demonstrated with certainty that the damages have been caused by the breach, (2) the extent of the loss is capable of proof with reasonable certainty, and (3) it is established that the damages were fairly within the contemplation of the parties” … .

Here, the defendant’s allegations, even as supplemented by an affidavit from its president, failed to sufficiently allege that consequential damages as lost future profits resulting from the cancellation of the defendant’s contract with the Mexican Navy due to the plaintiff’s breach of contract were within the plaintiff’s contemplation at the time of entering into the contract for the sale of goods (see UCC 2-715[2][a] …). Island Ordnance Sys., LLC v Amerimex, Inc., 2024 NY Slip Op 00897, Second Dept 2-21-24

Practice Point: With respect to a contract for the sale of goods controlled by the UCC, a claim for lost profits must specifically allege “lost profits” as an element of consequential damages was contemplated by the parties at the time the contract was entered, not the case here.

 

PLAINTIFF BOOK-PRINTER REPUDIATED ITS BOOK-PRINTING CONTRACT WITH DEFENDANT WHEN IT SOLD ITS PRINTING OPERATION TO A THIRD PARTY (FIRST DEPT). ​

The First Department, reversing (modifying) Supreme Court, in a full-fledged opinion by Justice Oing, determined plaintiff (EPAC) had repudiated its book-printing contract with defendant (Wiley) when it sold its printing operation to non-party LS-1. Therefore Wiley was entitled to summary judgment on EPAC’s breach of contract action:

“A repudiation can be either ‘a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach’ or ‘a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach'” … . Put another way, “a party repudiates a contract ‘where that party, before the time of performance arrives, puts it out of his power to keep his contract'” … . “Besides giving the nonrepudiating party an immediate right to sue for damages for total breach, a repudiation discharges the nonrepudiating party’s obligations to render performance in the future” … . Thus, if there were a repudiation, the rest of the case falls away, and Wiley would be entitled to summary judgment dismissing the complaint. EPAC Tech., Inc. v John Wiley & Sons, Inc., 2024 NY Slip Op 00933, First Dept 2-20-24

Practice Point: Here the requirements for “repudiation” of a contract are described in some detail.

 

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ALTHOUGH THE SPECIFIC CONTRACT WAS NOT IDENTIFIED IN THE COMPLAINT, THE NATURE OF THE BREACH OF CONTRACT CLAIM WAS SUFFICIENTLY ALLEGED BY REFERENCE TO THE NYC ADMINISTRATIVE CODE AND NYC DEPARTMENT OF TRANSPORTATION PERMITS (FIRST DEPT).

The First Department, reversing Supreme Court, determined the breach of contract cause of action was sufficiently alleged. Although the complaint did not specifically identify the breached contract, the reference to the relevant provisions of the NYC Administrative Code and the NYC Department of Transportation (DOT) permits gave sufficient notice of the nature of the claim:

… [P]laintiffs alleged that Con Edison failed to ensure payment of prevailing wages by codefendant … as required by the permits issued by the City Department of Transportation (DOT), in that it breached agreements required to be made, pursuant to Administrative Code of City of NY § 19-142, prior to obtaining such permits. Administrative Code § 19-142 required Con Edison “to agree that . . . the prevailing scale of union wages shall be the prevailing wage for similar titles as established by the fiscal officer pursuant to section [220] of the labor law, paid to those so employed,” and provides that “[n]o permit shall be issued until such agreement shall have been entered into with the” DOT. As required by the Administrative Code, the DOT permits issued to Con Edison stated that the permittee was required, “before such permit may be issued, to agree . . . that the prevailing scale of union wages shall be the prevailing wage for similar titles” established pursuant to Labor Law § 220 … …

… [T]he fact that the breach of contract cause of action in the complaint does not specifically identify the relevant contract but instead refers to “the promises required to be made pursuant to New York City Administrative Code § 19-142 prior to obtaining such permits,” does not require dismissal. Despite the non-specificity, the complaint “give[s] sufficient notice of the nature of the claim” by referencing Administrative Code § 19-142 and the DOT permits … . Ross v No Parking Today, Inc., 2024 NY Slip Op 00880, First Dept 2-20-24

Practice Point: Here the failure to identify the specific contract which was breached did not require dismissal of the breach of contract cause of action because the nature of the action was sufficiently alleged by reference to the applicable NYC Administrative Code provision and NYC Department of Transportation permits.

 

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FOLLOWING THE RE-ELECTION OF VENEZUELAN PRESIDENT NICOLAS MADURO, THE VENEZUELAN NATIONAL ASSEMBLY NAMED JUAN GUAIDO INTERIM PRESIDENT AND DECLARED THE EXCHANGE OF UNSECURED FOR SECURED NOTES OFFERED BY THE VENEZUELAN STATE-OWNED OIL COMPANY UNAUTHORIZED; VENEZUELAN LAW CONTROLS THE VALIDITY OF THE NOTES UNDER THE UCC, NEW YORK LAW CONTROLS ALL OTHER ASPECTS OF THE TRANSACTION (CT APP). ​

The Court of Appeals, in a comprehensive full-fledged opinion by Judge Troutman, answering questions posed by the Second Circuit, determined the extent to which the exchange of unsecured for secured notes offered to shareholders by the Venezuela’s state-owned oil company was controlled by the New York Uniform Commercial Code (UCC). The court concluded the validity of the notes under the UCC is governed by Venezuelan law and New York law governs the transaction in all other aspects. The opinion is far too detailed and complex to fairly summarize here. At the heart of the dispute is the 2018 re-election of Nicolas Maduro as President of Venezuela and the declaration by the Venezuelan National Assembly naming Juan Guaido as interim President, followed by the National Assembly’s declaration that the exchange of unsecured for secured notes was unauthorized:

In 2016, Venezuela’s state-owned oil company offered a bond swap through which its noteholders could exchange unsecured notes due in 2017 for new, secured notes due in 2020. The United States Court of Appeals for the Second Circuit certified three questions to this Court concerning the extent to which New York law governs this transaction. … [W]e answer that Venezuelan law governs the validity of the notes under Uniform Commercial Code § 8-110 (a) (1), which encompasses within its scope plaintiffs’ arguments concerning whether the issuance of the notes was duly authorized by the Venezuelan National Assembly under the Venezuelan Constitution—i.e., whether there is a defect in the notes occasioned by the application of a constitutional provision bearing on the procedure through which the notes were issued. … New York law governs the transaction in all other respects, including the consequences if a security was “issued with a defect going to its validity” (UCC 8-202 [b] [1]-[2]). * * *

Plaintiffs are three related entities. Petróleos de Venezuela, S.A. (PDVSA) is an oil and gas company wholly owned by the Venezuelan government (Venezuelan Const art 303 [“the State shall retain all shares of” PDVSA]). PDVSA Petróleo S.A. (Petróleo) is incorporated in Venezuela and is a wholly owned subsidiary of PDVSA. PDV Holding, Inc. (PDVH), also a wholly owned subsidiary of PDVSA, is incorporated in Delaware and has its principal place of business in Houston, Texas. PDVH wholly owns CITGO Holding, Inc., which is the sole owner of CITGO Petroleum Corporation, a refiner and marketer of petroleum products in the United States. Nonparties CITGO Holding and CITGO Petroleum Corporation are both incorporated in Delaware with a principal place of business in Houston. Petróleos de Venezuela S.A. v MUFG Union Bank, N.A., 2024 NY Slip Op 00851, CtApp 2-20-24

Practice Point: Nicolas Maduro was re-elected President of Venezuela. Juan Guaido was subsequently named interim President of Venezuela by the Venezuelan National Assembly. The question at the heart of this dispute is whether actions taken by President Maduro (issuance of notes offered by the Venezuelan state-owned oil company) are valid in the face of a subsequent declaration by the Venezuelan National Assembly that the issuance of the notes was not authorized.

 

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A RETROCESSIONAL INSURER WHICH PAID OUT A SETTLEMENT ON BEHALF OF THE INSURED IN THE UNDERLYING LABOR LAW 240(1) LADDER-FALL CASE, IS ENTITLED TO BRING A LEGAL MALPRACTICE ACTION AGAINST THE LAWYERS FOR THE INSURED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Kapnick, determined a retrocessional insurer (the reinsurer of a reinsurer) can maintain a legal malpractice claim against lawyers representing the insured in an underlying Labor Law 240(1) (ladder-fall) personal injury action. Plaintiff retrocessional insurer, having paid out on a settlement on behalf of the insured has standing to assert a claim for legal malpractice under a theory of equitable subrogation. (The opinion is too complex to fairly summarize here):

In New York, “[w]e recognize at once the fairness of the proposition that an insurer who has been compelled by his contract to pay to or in behalf of the insured claims for damages ought to be reimbursed by the party whose fault has caused such damages and the principle of subrogation ought to be liberally applied for the protection of those who are its natural beneficiaries” … . “As an equitable doctrine in the context of insurance, an insurance carrier, upon payment of a loss becomes subrogated to the rights and remedies of its assured to proceed against a party primarily liable without the necessity of any formal assignment or stipulation” … . Under the same equitable principles, “an insurer which has been compelled under its policy to pay a loss, ought in fairness to be reimbursed by the party which caused the loss” … . * * *

Where a reinsurer, or retrocessionaire, has paid a claim on behalf of an insured, equitable principles demand that the reinsurer be entitled to equitable subrogation on behalf of the insured. Having pleaded that it was contractually obligated to, and did, pay the majority of the [property owner/general contractor’s] settlement amount in the underlying personal injury action, and that it brings the instant action for legal malpractice as subrogee [of the property owner/general contractor], plaintiff can proceed with this action under the theory of equitable subrogation. Century Prop. & Cas. Ins. Corp. v McManus & Richter, 2024 NY Slip Op 00799, First Dept 2-15-24

Practice Point: Here the retrocessional insurer paid out a settlement on behalf of the insured in an underlying personal injury action. The retrocessional insurer was entitled to bring a legal malpractice action against the lawyers for the insured.

 

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PARTIAL PAYMENT OF A DEBT WITHIN THE STATUTE OF LIMITATIONS PERIOD MAY REVIVE OR TOLL THE STATUTE OF LIMITATIONS FOR AN ACTION BASED UPON THE DEBT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff in this suit against his employer seeking payment for work performed raised a question of fact whether the statute of limitations was revived by defendants’ partial payment:

There is a “long-standing common law rule” that partial payment of a debt, if made under “circumstances from which a promise to honor the obligation may be inferred,” will operate to start the statute of limitations running anew from the time the partial payment is made … . To show that the statute of limitations has been renewed by a partial payment, it must be shown that the payment was accompanied by circumstances amounting to “an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder” … .

Here, the plaintiff alleged that, over a course of years, the defendants made repeated assurances that they would pay him salary and bonus money that he was owed pursuant to his employment arrangement. Further, he alleged that the defendants made a partial payment of outstanding bonus money to the plaintiff on July 17, 2015, within the statute of limitations. Under these circumstances, the plaintiff raised a question of fact as to whether the statute of limitations was tolled or revived … . Costello v Curan & Ahlers, LLP, 2024 NY Slip Op 00758, Second Dept 2-14-24

Practice Point: Partial payment of a debt made within the statute of limitations period may revive or toll the statute of limitations for an action based on the debt.

 

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