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IN THIS REVERSE MORTGAGE FORECLOSURE ACTION, DEFENDANT WAS NAMED AS A BORROWER IN THE MORTGAGE (WHICH SHE SIGNED) BUT NOT IN THE NOTE; THE NOTE AND MORTGAGE MUST BE READ AS A SINGLE AGREEMENT, RAISING A QUESTION OF FACT WHETHER DEFENDANT WAS A “SURVIVING BORROWER” THEREBY PRECLUDING FORECLOSURE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant raised a question of fact in this reverse-mortgage foreclosure action. The mortgage allowed foreclosure upon the death of a borrower (Goldman) as long as the property is not occupied by a “surviving borrower.” Although the defendant was not named as a borrower in the note, she was names as a borrower in the mortgage, which she signed:

… [T]he defendant raised a triable issue of fact as to whether she was a “surviving Borrower” under the note and mortgage, which would preclude the plaintiff from requiring payment in full upon Goldman’s death … . Although the defendant was not named as a borrower in the note, she signed the mortgage in which she was named as a borrower. “Generally, the rule is that separate contracts relating to the same subject matter and executed simultaneously by the same parties may be construed as one agreement” … . Here, the note and mortgage, construed together, were ambiguous as to whether the defendant was intended to be a borrower … . Where, as here, contract language is “reasonably susceptible of more than one interpretation, . . . extrinsic or parol evidence may be . . . permitted to determine the parties’ intent as to the meaning of that language” …  Here, the extrinsic evidence submitted by the parties raised a triable issue of fact as to whether the defendant was a borrower under the subject loan. Although Goldman, and not the defendant, was named as the borrower on various documents, including the loan application, both Goldman and the defendant signed a copy of a Truth-in-Lending Act disclosure. Moreover, in her affidavit, the defendant averred that when she and Goldman applied for the reverse mortgage, they were “assured that when [Goldman] passed away, that I would get the house and that I could continue to live there.” Nationstar Mtge., LLC v Hoar, 2022 NY Slip Op 05853, Second Dept 10-19-22

Practice Point: Here the mortgage and the note must be read as a single agreement. The fact that defendant was named in the mortgage, which she signed, but not named in the note, raised a question of fact whether she was a “surviving borrower,” precluding the reverse-mortgage foreclosure.

 

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THERE WERE DISPUTED FACTS CONCERNING WHETHER DEFENDANT BREACHED THE COOPERATION AGREEMENT; THE JUDGE SHOULD HAVE HELD A HEARING TO RESOLVE THE DISPUTED FACTS; DEFENDANT’S CONVICTION BY GUILTY PLEA REVERSED (SECOND DEPT).

The Second Department, reversing defendant’s conviction by guilty plea, determined the judge should not have determined defendant breached the cooperation agreement without a hearing. The prosecutor argued defendant breached the agreement by not providing information which defendant didn’t reveal until he was about to testify against a codefendant in accordance with the agreement. The defendant argued the information did not relate to the codefendant and he did not believe it was relevant at the time the cooperation agreement was created:

“[S]entencing is a critical stage of the criminal proceeding and . . . ‘the sentencing process, as well as the trial itself, must satisfy the requirements of the Due Process Clause'” … . Generally, “a guilty plea induced by an unfulfilled promise either must be vacated or the promise honored” … , but, where no promises are breached by the People and a defendant fails to abide by the terms of a cooperation agreement, a court is not obligated to permit a defendant to withdraw his plea … . Under the circumstances present here, these important issues have not been adequately resolved because the Supreme Court failed to hold a hearing or conduct a sufficient inquiry into whether the defendant violated the terms of the cooperation agreement … . …

This record reflects that the parties are sharply at odds as to whether there was a material breach of the cooperation agreement when the defendant provided additional information in response to new evidence shown to him during the codefendant’s trial … . The determination of this issue rests on nuanced considerations, including the defendant’s intent and the prosecutors’ interactions with the defendant while preparing for the codefendant’s trial. A hearing would have provided, among other things, an opportunity for the defendant to testify about the nature of the belatedly disclosed information, his reasons therefor, and his understanding of its importance to the case against the codefendant. People v Owensford, 2022 NY Slip Op 05716, Second Dept 10-12-22

Practice Point: Here there were nuanced disputed facts concerning whether defendant breached the cooperation agreement. The judge should have held a hearing to resolve the disputed facts. Conviction reversed and matter remitted.

 

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A QUESTION OF FACT WHETHER THE PARTIES AGREED TO ARBITRATE THE DISPUTE REQUIRES A FRAMED-ISSUE HEARING; THE PROPER PROCEDURE IF ARBITRATION IS REQUIRED IS TO STAY THE UNDERLYING SUIT, NOT DISMISS IT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined: (1)  there was a question of fact whether the parties agreed to arbitrate the dispute, requiring a framed-issue hearing; and (2) arbitration is not a defense to an action; so where arbitration is required the underlying action is stayed, not dismissed:

… [Q]uestions of fact exist as to whether the parties agreed to arbitrate the instant dispute, which questions require a hearing (see CPLR 7503[a] …). We therefore remit the matter … for a framed-issue hearing, and thereafter, a new determination of that branch of [the] motion which was pursuant to CPLR 7503 to compel arbitration.

… Supreme Court should have denied [the] motion which was pursuant to CPLR 3211(a)(1) to dismiss the … complaint based upon the arbitration agreement. “An agreement to arbitrate is not a defense to an action,” and “[t]hus, it may not be the basis for a motion to dismiss” … . The proper remedy, should a valid agreement to arbitrate exist, is an order compelling arbitration, which operates to stay the action (see CPLR 7503[a] …). Ferarro v East Coast Dormer, Inc., 2022 NY Slip Op 05679, Second Dept 10-12-22

Practice Point: If there is a question of fact whether the parties agreed to arbitrate a dispute, a framed-issue hearing is required. If there is a valid agreement to arbitrate, the underlying action should be stayed pending the arbitration, not dismissed.

 

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IN A CONSTRUCTION CONTRACT TRIAL, IT IS IMPROPER TO DETERMINE ADDITIONAL LABOR COST DUE TO DELAY BY USING A DEFENDANT’S PRECONTRACT ESTIMATE OF LABOR COST (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court in this construction contract case, determined the labor cost associated with a delay could not be determined by using the defendant’s precontract estimate of what its labor cost would be:

The trial court should not have awarded damages for additional labor costs due to defendants’ delays in the construction project. In general, it is impermissible to calculate delay damages for additional labor costs based on a comparison of the contractor’s precontract estimate of what its labor cost would be and what it claimed its labor cost actually turned out to be … . Nevertheless, in calculating the additional labor costs that plaintiff incurred from defendants’ delays, plaintiff’s expert improperly used plaintiff’s pre-bid estimate of the project’s expected labor costs, and Supreme Court erred in basing the award on this improper method of calculation. Five Star Elec. Corp. v A.J. Pegno Constr. Co., Inc./Tully Constr. Co., Inc.,2022 NY Slip Op 05659, First Dept 10-11-22

Practice Point: Here in this construction-contract trial, plaintiff’s expert should not have calculated the additional labor cost due to delay by using the defendant’s precontract labor cost estimate.

 

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THE PHRASE “CONSUMMATION OF THE ANTICIPATED MARRIAGE” IN THE PRENUPTIAL AGREEMENT, A CONDITION PRECEDENT, MEANT THE MARRIAGE CEREMONY, NOT SEXUAL RELATIONS; THE WIFE’S ARGUMENT THAT THE PRENUPTIAL AGREEMENT COULD NOT BE ENFORCED BECAUSE THE COUPLE NEVER HAD SEXUAL RELATIONS WAS REJECTED BY THE APPELLATE COURT (FIRST DEPT).

The First Department, reversing Supreme Court, determined the phrase “consummation of the anticipated marriage” in the prenuptial agreement meant the marriage ceremony, not sexual relations. In these divorce proceedings, the wife argued the prenuptial agreement was unenforceable because the couple never had sexual relations and “consummation” of the marriage was a condition precedent to the prenuptial agreement:

While the word “consummation” connotes sexual relations in certain contexts, such as annulment proceedings, that is not the only meaning of the word, which may simply mean achieve or fulfill (see Black’s Law Dictionary [11th ed 2019]). The plain meaning of “consummation,” in the context of the section titled “Marriage — a Condition Precedent and Effective Date” and defining the effective date of agreement as the date of the parties’ marriage, is consummation or fulfillment of the parties’ intention to enter into a valid “marriage.” Reading the contract as a whole, this interpretation of the section effectuates the parties’ expressed intention to fix their respective rights accruing upon marriage and to avoid unnecessary and intrusive litigation in the event of divorce, and sets an ascertainable date for determining the effectiveness and enforceability of the prenuptial agreement.

In contrast, accepting the wife’s position would render the parties’ respective rights uncertain and require the court to conduct a highly intrusive hearing into the parties’ intimate relations, which is both contrary to the parties’ stated intention and impractical. Fort v Haar, 2022 NY Slip Op 05660, First Dept 10-11-22

Practice Point: The condition precedent to the prenuptial agreement was the “consummation” of the marriage. The wife argued the agreement was unenforceable because the couple never had sexual relations. The appellate court found that the word “consummation” referred to the marriage ceremony, not sexual relations, and the agreement was therefore enforceable.

 

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ALTHOUGH IT MAY BE PLED IN THE ALTERNATIVE, A QUANTUM MERUIT CAUSE OF ACTION MUST BE DISMISSED WHERE THE ISSUE IS ADDRESSED BY A VALID CONTRACT (SECOND DEPT).

The Second Department, reversing (modifying) the Court of Claims, determined the quantum meruit cause of action should have been dismissed because the action was based upon a valid contract:

Contrary to the conclusion of the Court of Claims, that branch of the State’s motion which was for summary judgment dismissing the eleventh cause of action, which sought damages based upon a “total cost,” or quantum meruit, method of recovery, should have been granted, on the ground that parties to a valid contract cannot seek damages in quantum meruit as an alternative to a breach of contract claim arising out of the same subject matter … . Quantum meruit may be pleaded in the alternative where there is a bona fide dispute as to the existence of a contract, or where the contract does not cover the dispute in issue … . Here, there clearly was a valid contract, and the amount in dispute was incurred pursuant to the contract. Further, the claims did not involve a qualitative change in the nature of the work which was outside the contemplation of the contract … . Tutor Perini Corp. v State of New York, 2022 NY Slip Op 05556, Second Dept 10-5-22

Practice Point: Although a quantum meruit cause of action may be pled as an alternative to a breach of contract cause of action, it must be dismissed if the underlying issues are addressed by a contract found to be valid.

 

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WHEN THE CONTRACTOR’S EMPLOYEE ARRIVED TO CLEAN THE TANK, THE OPENING WAS COVERED ONLY BY CARDBOARD; AFTER FINISHING THE WORK, THE EMPLOYEE REPLACED THE CARDBOARD COVER; PLAINTIFF SUBSEQUENTLY STEPPED ON THE CARDBOARD AND FELL INTO THE TANK; THE CONTRACTOR’S EMPLOYEE DID NOT LAUNCH AN INSTRUMENT OF HARM WITHIN THE MEANING OF ESPINAL, 98 NY2D 140 (FIRST DEPT).

The First Department, reversing Supreme Court, determined the contractor’s (A&L’s) employee did not launch an instrument of harm by leaving the accident site as it was when the employee arrived to clean a sewage tank, the opening of which was covered only by cardboard. Plaintiff stepped on the cardboard and fell into the tank:

Supreme Court should have granted A&L summary judgment dismissing the complaint as against it. Plaintiff was not a party to A&L’s contract to clean the sewage tank. Plaintiff argues that A&L may nevertheless be liable in tort because it failed to exercise reasonable care in the performance of its contractual duties and thereby launched a force or instrument of harm (see Espinal v Melville Snow Contrs., 98 NY2d 136, 140 [2002]). However, this exception to the general rule that a contractual obligation does not give rise to tort liability to a third party is inapplicable where “the breach of contract consists merely in withholding a benefit . . . where inaction is at most a refusal to become an instrument for good” … . Thus, a defendant who neglects to make the accident site “safer — as opposed to less safe — than it was before” the defendant came upon the site is not liable pursuant to the Espinal exception … . …

By simply replacing the cardboard box cover already in place over the sewage tank after he completed his work, A&L’s employee returned the site to the condition in which he originally found it. Thus, he neglected to make the area safer, but did not affirmatively make the area less safe than it was when he first came upon it … . That A&L’s employee did not report the cardboard is immaterial because a third-party contractor’s awareness of a condition and failure to warn does not amount to launching an instrument of harm … . Skeete v Greyhound Lines, Inc., 2022 NY Slip Op 05511, First Dept 10-4-22

Practice Point: A contractor will be liable to an injured person who is not a party to the contract if the contractor launches an instrument of harm which causes the injury. Here the contractor’s employee left the accident scene as it was before the employee started the job, replacing the cardboard which covered the opening to the tank which the employee cleaned. The contractor’s employee did not launch an instrument of harm by replacing the cardboard cover. The contractor was not liable to the plaintiff who stepped on the cardboard and fell into the tank.

 

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THE COMPLAINT STATED CAUSES OF ACTION FOR BREACH OF FIDUCIARY DUTY, FRAUD, CONSTRUCTIVE FRAUD AND MUTUAL MISTAKE; PLAINTIFFS-PHYSICIANS ALLEGED THE FORMS THE EMPLOYER REQUIRED THEM TO SIGN CONSENTING TO THE DISTRIBUTION (TO THE EMPLOYER) OF THE PROCEEDS OF THE DEMUTUALIZATION OF THE MEDICAL MALPRACTICE INSURER WERE INVALID (FIRST DEPT).

The Frist Department, reversing (modifying) Supreme Court, determined the complaint by physicians against their employer/malpractice-insurance-policy-administrator stated causes of action for breach of fiduciary duty, fraud and mutual mistake. The dispute centers on whether the physicians or the employer which paid the malpractice insurance premiums are/is entitled to the proceeds when the insurer (MLMIC) demutualized. The employer had the physicians sign forms consenting to distributing the proceeds to the employer. The physicians allege the consent forms are invalid:

Plaintiffs allege that the forms by which they authorized MLMIC to distribute their demutualization proceeds to defendant are invalid because defendant obtained them in breach of its fiduciary duty, by fraud, or due to mutual mistake. If these forms are invalid, then the demutualization proceeds belong to plaintiffs … .

Transactions between a fiduciary and beneficiary are voidable if the fiduciary acts in its own interest and does not fully disclose all material facts … . Defendant is alleged not only to have withheld the policyholder information statement from plaintiffs, but to have significantly misrepresented their contents for its own gain. These allegations, which are not conclusively refuted by the documentary evidence, are sufficient to survive a motion to dismiss.

Fraud is another basis for rescinding the consent forms … . Plaintiffs also properly allege constructive fraud, because they were owed a fiduciary duty by defendant and so were “warranted to . . . relax the care and vigilance they would ordinarily exercise in the circumstances” … . …

Mutual mistake “may not be invoked by a party to avoid the consequences of its own negligence” … . For the purposes of this motion to dismiss, however, it cannot be said as a matter of law that plaintiffs were negligent … . Cordaro v AdvantageCare Physicians, P.C., 2022 NY Slip Op 05267, First Dept 9-27-22

Practice Point: The complaint adequately alleged the employer, which also served at the medical malpractice insurance policy administrator, breached a fiduciary duty owed to the plaintiffs-physicians by requiring them to consent to the distribution (to the employer) of the proceeds of the demutualization of the medical malpractice insurance carrier. The complaint also sufficiently alleged fraud, constructive fraud and mutual-mistake causes of action.

 

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THE INSURED MISREPRESENTED HER HOME ADDRESS AND THE INSURERS DISCLAIMED COVERAGE; THE CONCLUSORY AFFIDAVIT SUBMITTED BY THE INSURERS WAS NOT SUPPORTED BY DOCUMENTARY EVIDENCE (UNDERWRITING MANUALS, RULES, BULLETINS) AND THEREFORE DID NOT DEMONSTRATE THE MISREPRESENTATION WAS MATERIAL (FIRST DEPT).

The First Department, reversing Supreme Court, determined the insurers which disclaimed coverage did not demonstrate the insured’s misrepresentation of her address was material. The insurers’ motion for summary judgment should not have been granted:

… [T]he insurers filed this action for a declaration of no-coverage and an injunction barring defendant medical providers from seeking any no-fault reimbursement under the claimant’s automobile insurance policy. The insurers alleged that the claimant had intentionally and materially misrepresented her home address in procuring the policy, as the proper policy address was not the Wappingers Falls address she had stated, but rather, an address in the Bronx.

The insurers submitted undisputed evidence that the claimant misrepresented her address based on her testimony at the Examination Under Oath (EUO). However, the insurers failed to establish, as a matter of law, that the alleged misrepresentation as to the correct address was a material misrepresentation. The affidavit of the insurers’ underwriter is conclusory and not supported by relevant documentary evidence such as underwriting manuals, rules, or bulletins …  Liberty Mut. Ins. Co. v Valera, 2022 NY Slip Op 05277, First Dept 9-27-22

Practice Point: To disclaim insurance coverage based upon a misrepresentation by the insured, the insurer must demonstrate the misrepresentation was material. Here, at the summary judgment stage, the insurers’ conclusory affidavit, which was not supported by underwriting manuals, roles or bulletins, was not enough.

 

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LANDLORD DID NOT DEMONSTRATE TENANT ABANDONED THE LEASED PREMISES AND WAS NOT ENTITLED TO RENT FOR THE PERIODS BEFORE AND AFTER TENANT WAS LOCKED OUT; TENANT WAS ENTITLED TO RECOVER THE VALUE OF THE PERSONAL PROPERTY WHICH REMAINED IN THE LEASED PREMISES AFTER THE LOCKOUT (THIRD DEPT).

The Third Department, reversing the plaintiffs’ verdict in this landlord-tenant dispute, determined plaintiffs did not demonstrate defendants had abandoned the leased premises, a restaurant. Therefore plaintiffs were not entitled to recover rent after defendants were locked out by the plaintiffs, and plaintiffs did not submit sufficient proof of the alleged rent arrears (prior to the lockout). Defendants were entitled to recover on their unjust enrichment counterclaim for the value of the personal property which remained in the restaurant after the lockout:

As relating to commercial premises, “a landlord may avail himself or herself of a lease provision permitting reentry upon breach of conditions as long as he or she reenters peaceably” … . Certain evidence indicating abandonment may include failure to pay bills and rent, surrender of keys and physical relocation of business or personal items previously kept at the subject property … . Contrary conduct found not to demonstrate an intent to abandon a premises includes conduct such as leaving commercial equipment on the premises, paying the utilities, paying lump sum arrears, negotiating the sale of the business that included the leasehold and threatening to call the police on a landlord over a lockout … .

At trial, plaintiffs offered limited evidence of abandonment, namely, that plaintiff Martin P. Patton drove by the restaurant several times in May 2018 or June 2018 and observed it was closed and that defendants were behind on rent, although Patton was not exactly sure what days or what times he drove by or the total amount of rent arrears.  In contrast, Chen [the tenant] testified that, although business was declining, he continued to pay the rent and began to contact potential buyers to take over the restaurant and lease. According to Chen, the restaurant operated the day before the lockout and, when he returned the next day to find the locks changed, he called plaintiffs, who did not respond to him, and then he called the police, who generated an incident report. Defendants entered into evidence several photographs of the premises depicting equipment, furniture, powered-on televisions, liquor bottles on display at the bar and other chattel owned by defendants … . Patton v Modern Asian, Inc., 2022 NY Slip Op 05192, Third Dept 9-15-22

Practice Point: Here the landlord was unable to prove at trial that the tenant had abandoned the leased premises. The landlord was not entitled to rent for the period before and after the tenant was locked out. The tenant was entitled to recover the value of the personal property remaining on the leased premises after the lockout.

 

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