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THE BREACH OF CONTRACT (FIRE INSURANCE POLICY) CAUSE OF ACTION ALLEGED IN THE COMPLAINT DID NOT GIVE NOTICE OF THE CLAIM THE CONTRACT SHOULD BE REFORMED BASED UPON MUTUAL MISTAKE; THEREFORE THE PLAINTIFF SHOULD NOT HAVE BEEN ALLOWED TO CONFORM THE PLEADINGS TO THE PROOF AND THE JURY SHOULD NOT HAVE BEEN ALLOWED TO CONSIDER WHETHER THE ENDORSEMENT REQUIRING A SPRINKLER SYSTEM ON THE INSURED PREMISES WAS INCLUDED IN THE POLICY BY MUTUAL MISTAKE (CT APP).

The Court of Appeals, reversing the Appellate Division, in a full-fledged opinion by Judge Rivera, determined plaintiff should not have been allowed to conform the pleadings to the proof and the jury should not have considered whether the contract, an insurance policy, should be reformed based upon mutual mistake. The complaint alleged defendant insurer breached the contract (the policy) by refusing to pay for fire damage. The insurance policy included a Protective Safeguards Endorsement (PSE) which required plaintiff to have a sprinkler system in good working order. The buildings apparently were vacant and did not have sprinkler systems. Based on testimony given at trial, plaintiff argued inclusion of the PSE was a mutual mistake and the contract (policy) should be reformed to exclude it. The jury and the appellate division so found. But the Court of Appeals held the courts should not have looked beyond the four corners of the pleadings, and the pleadings did not give notice of the reformation action:

[CPLR] Section 203 (f) requires the court to determine solely whether a plaintiff’s or a defendant’s original pleading gives notice of the transactions or occurrences underlying the proposed amendment …

To plead reformation, a plaintiff must allege sufficient facts supporting a claim of mutual mistake, meaning that “the parties have reached an oral agreement and, unknown to either, the signed writing does not express that agreement” … . Given the “heavy presumption that a deliberately prepared and executed written instrument manifests the true intention of the parties, . . . [t]he proponent of reformation must show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties” … .

In contrast, to plead a cause of action for breach of contract, a plaintiff usually must allege that: (1) a contract exists … ; (2) plaintiff performed in accordance with the contract … ; (3) defendant breached its contractual obligations … ; and (4) defendant’s breach resulted in damages … . …

The complaint … alleges that plaintiffs complied “with all of the conditions precedent and subsequent pursuant to the terms of the subject policy.” This … allegation is fatal to plaintiffs’ assertion that the complaint provides notice of the transactions or occurrences to be proved in support of a reformation claim. In fact, if anything, it suggests the opposite because, by asserting total compliance, plaintiffs necessarily disclaimed any challenge to the policy’s terms, specifically the PSE. 34-06 73, LLC v Seneca Ins. Co., 2022 NY Slip Op 06029, CtApp 10-27-22

Practice Point: Here the complaint alleged defendant insurer breached the policy by refusing to pay for fire damage. The insured buildings were vacant and did not have sprinkler systems. The policy included an endorsement requiring sprinkler systems. The insurer refused payment citing plaintiff’s failure to comply with the “sprinkler” endorsement. Based on trial evidence, plaintiff moved to conform the pleadings to the proof to include a cause of action for reformation of the contract alleging that the endorsement requiring sprinkler systems was included by mutual mistake and should be excluded from the policy. The Court of Appeals ruled the complaint did not give notice of the reformation cause of action. Therefore the jury should have been allowed to consider it. The trial verdict, reforming the contract to exclude the “sprinkler” endorsement, and the affirmance by the appellate division were reversed.

 

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THE CERTIFICATION OF ACKNOWLEDGMENT IS PRIMA FACIE EVIDENCE THE DECEDENT EXECUTED THE CONTRACT, BUT THAT EVIDENCE CREATES ONLY A REBUTTABLE PRESUMPTION; PLAINTIFF PRESENTED SUFFICIENT EVIDENCE TO RAISE A QUESTION OF FACT WHETHER DECEDENT SIGNED THE AGREEMENT (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined the certification of acknowledgment is prima facie proof the contract was executed by decedent but the certification only creates a rebuttable presumption:

… [T]he agreement was notarized by defendant Rosemary Bellini. “Certification of the acknowledgment or proof of a writing . . . in the manner prescribed by law for taking and certifying the acknowledgment or proof of a conveyance of real property within the state is prima facie evidence that it was executed by the person who purported to do so” (CPLR 4538). * * *

“The certification of acknowledgment becomes prima facie evidence that the writing was executed by the person who acknowledged having done so. [This] [p]rima facie evidence” is not conclusive; rather, it “creates a rebuttable presumption” … .  Plaintiff marshalled considerable evidence casting doubt on whether decedent actually signed the purported agreement and, if so, whether he knew or understood what he was signing. Thus, plaintiff should be given a chance to rebut the presumption created by Bellini’s notarization … . Langbert v Aconsky, 2022 NY Slip Op 06067, First Dept 10-27-22

Practice Point: Here the certification of acknowledgment was prima facie proof decedent signed the agreement but that proof only creates a rebuttable presumption. But plaintiff raised a question of fact whether decedent actually executed the agreement.

 

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THE PLAINTIFF DID NOT DEMONSTRATE HIS DECEASED BROTHER MADE AN INTER VIVOS GIFT OF THE COOPERATIVE APARTMENT TO PLAINTIFF; THE STATUTE OF FRAUDS APPLIES AND THERE WAS NO WRITING; AND THE FAILURE TO FOLLOW THE TRANSFER PROVISIONS OF THE PROPRIETARY LEASE NEGATED A FINDING OF DONATIVE INTENT (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiff did not demonstrate his deceased brother made an inter vivos gift of a cooperative apartment to plaintiff. The alleged transfer of the property was subject to the Statute of Frauds and there was no writing memorializing the alleged gift:

Defendant established that there was no valid inter vivos gift to plaintiff of the shares and proprietary lease for the apartment, as the statute of frauds applies to the sale of stock in a housing cooperative and there was no writing to effect the transfer … . …

Plaintiff’s claim further fails as a matter of law, as the decedent — his brother — failed to follow the transfer provisions of the proprietary lease, which required, among other things, a written assignment of shares signed by the shareholder and the approval of defendant’s board of directors to make a valid transfer of the shares to the apartment within the decedent’s lifetime … .

… [E]ven if the decedent had not been required to abide by the terms of the proprietary lease to make a valid inter vivos gift of the apartment, the lack of a writing also militates against establishing the decedent’s donative intent, which is a necessary element of a valid inter vivos gift … . Not only does the decedent’s failure to follow the procedures in the proprietary lease contradict any donative intent, but plaintiff also acknowledges that the delivery of the share certificate and proprietary lease were not made by the decedent himself, and the conflicting affidavits of the decedent’s girlfriend fail to establish that she was acting as decedent’s agent for that purpose. Rivera v 98-100 Ave. C Hous. Dev. Fund Corp., 2022 NY Slip Op 06074, First Dept 10-27-22

Practice Point: Plaintiff did not demonstrate his deceased brother made an inter vivos gift of a cooperative apartment. The Statute of Frauds applies and there was no writing. In addition the failure to follow the transfer provisions in the proprietary lease negated donative intent.

 

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IN THIS BREACH OF CONTRACT SUIT CONCERNING SHARING ATTORNEY’S FEES, THE COMPLAINT DID NOT ALLEGE SUFFICIENT FACTS TO STATE A CAUSE OF ACTION AGAINST AN INDIVIDUAL ATTORNEY, AS OPPOSED TO THE ATTORNEY’S FIRM (SECOND DEPT). ​

The Second Department, in this breach of contract action, determined the complaint did not allege sufficient facts to state a cause of action against an attorney (Lefft) as an individual, as opposed to against the attorney’s law firm:

“As a general rule, the law treats corporations as having an existence separate and distinct from that of their shareholders and, consequently, will not impose liability upon shareholders for the acts of the corporation” ( … Business Corporation Law § 1505). “In order for a plaintiff to state a viable claim against a shareholder of a corporation in his or her individual capacity for actions purportedly taken on behalf of the corporation, [the] plaintiff must allege facts that, if proved, indicate that the shareholder exercised complete domination and control over the corporation and ‘abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice'” … .

Here, while the complaint alleged that Leftt had authority to make decisions on behalf of the firm, and that Leftt “ratified” both that the plaintiffs held an “of counsel” position with the firm, as well as the compensation arrangement … , the complaint does not allege that Leftt exercised “complete dominion and control over” the firm, or otherwise “abused the privilege of doing business in the corporate form” that would form the basis for personal liability … . Hymowitz v Hoang Q. Nguyen, 2022 NY Slip Op 05997, Second Dept 10-26-22

Practice Point: To assert that a shareholder is personally liable for the conduct of the corporation (here a law firm), the complaint must allege the shareholder exercised complete dominion and control over the corporation.

 

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ALTHOUGH PLAINTIFF-SELLER MAY HAVE THOUGHT THE PARCEL OF REAL PROPERTY SHE SOLD WAS SMALLER THAN IT ACTUALLY WAS, DEFENDANT-BUYER WAS NEVER UNDER THAT IMPRESSION; THE COMPLAINT ALLEGING THE DEAL SHOULD BE RESCINDED BASED ON MUTUAL MISTAKE SHOULD HAVE BEEN DISMISSED (THIRD DEPT).

The Third Department, reversing Supreme Court and granting defendant’s motion for summary judgment dismissing the complaint, determined the plaintiff-seller of real property did not demonstrate the sale should be rescinded based upon mutual mistake. Plaintiff alleged she intended to transfer 20 acres but the deed described a 39-acre parcel. The parcel, however, was described in feet, not acres, and defendant was never under the impression the parcel was 20 acres in size. There was no “mutual mistake:”

… [E]ven if plaintiff misunderstood the size of the parcel she ultimately conveyed in the corrected deed, she was bound by the contents of a deed she executed absent fraud or other wrongdoing by defendant that she does not suggest occurred, and any unilateral mistake on her part as to the acreage being conveyed by it “resulted from [her] negligence in failing to take the means readily accessible of checking” its property description … . Williams v Sowle, 2022 NY Slip Op 05914, Third Dept 10-20-22

Practice Point: Here plaintiff-seller may have thought the parcel of land she sold to defendant was smaller than it actually was. But defendant was never under that impression. Therefore the sale could not be rescinded based upon “mutual mistake.”

 

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THE INDEMNIFICATION CLAUSE IN THE PARTNERSHIP AGREEMENT DID NOT INCLUDE “UNMISTAKABLY CLEAR” LANGUAGE INDICATING THE WAIVER OF THE “AMERICAN RULE” REQUIRING EACH PARTY TO PAY THAT PARTY’S OWN ATTORNEY’S FEES; PLAINTIFF WAS NOT ENTITLED TO ATTORNEY’S FEES ASSOCIATED WITH DEFENDANT’S UNSUCCESSFUL DISSOLUTION ACTION (CT APP).

​The Court of Appeals, in a full-fledged opinion by Judge Rivera, reversing the appellate division, determined the indemnification clause in the partnership agreement did not serve to waive the “American Rule” that each party is responsible for that party’s own attorney’s fees. The indemnification clause states: “The Partnership and the other Partners shall be indemnified and held harmless by each Partner from and against any and all claims, demands, liabilities, costs, damages, expenses and causes of action of any nature whatsoever arising out of or incidental to any act performed by a Partner which is not performed in good faith or is not reasonably believed by such Partner to be in the best interests of the Partnership and within the scope of authority conferred upon such Partner under this Agreement, or which arises out of the fraud, bad faith, willful misconduct or negligence of such Partner.” Here defendant had brought an unsuccessful dissolution action and plaintiff argued defendant was obligated to pay plaintiff’s attorney’s fees because the indemnification clause waived the American Rule:

Under the American Rule, “attorney’s fees are incidents of litigation and a prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties, statute or court rule” … . The American Rule is intended to increase “free access to the courts” for those who would otherwise be discouraged from seeking “judicial redress of wrongs” for fear of having to pay a defendant’s attorney’s fees … . …

The Rule is straightforward enough, but in the context of private agreements to avoid the Rule, courts have had to determine the intent of vague fee-shifting language and broad indemnification provisions that do not explicitly allow for the prevailing party in an action between contracting parties to collect attorney’s fees … .. To the extent that some of these decisions presume that broadly worded indemnification provisions by their nature are intended to cover attorney’s fees in direct party actions, they deviate from this Court’s exacting standard that the agreement must contain “unmistakably clear” language of the parties’ intent to encompass such actions … . * * *

Here, the indemnification provision makes no explicit mention that partners may recoup attorney’s fees in an action on the contract. Nor is there any basis to infer the provision is limited to actions between the partners.  Sage Sys., Inc. v Liss, 2022 NY Slip Op 05918, CtApp 10-20-22

Practice Point: Unless “unmistakably clear” language in a contract indicates an one party’s agreement to pay another party’s attorney’s fees, the American Rule applies and each party pays that party’s own attorney’s fees.

 

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THE BROKER WAS THE PROCURING CAUSE OF THE SALE OF THE REAL PROPERTY AND THEREFORE WAS ENTITLED TO THE AGREED 4% COMMISSION (SECOND DEPT).

The Second Department, reversing Supreme Court, over an extensive dissent, determined the broker in this sale of real property was the procuring cause of the sale and was therefore entitled to the agreed 4% commission:

“To prevail on a cause of action to recover a commission, the broker must establish (1) that it is duly licensed, (2) that it had a contract, express or implied, with the party to be charged with paying the commission, and (3) that it was the procuring cause of the sale” … . Here, the issue disputed by the parties was whether the plaintiff was the procuring cause of the sale. “To establish that a broker was the procuring cause of a transaction, the broker must establish that there was ‘a direct and proximate link, as distinguished from one that is indirect and remote'” between the bare introduction of the parties to the transaction and the consummation of the sale … . “[I]n order to qualify for a commission, a broker need not have been involved in the ensuing negotiations or in the completion of the sale,” if such a direct and proximate causal link exists … . …

It was Minetree’s [the broker’s] introduction of the subject properties to, and work with, TNC [the nature conservancy] which brought the County and the defendants together on a bargain sale transaction. Saunders Ventures, Inc. v Catcove Group, Inc., 2022 NY Slip Op 05879, Second Dept 10-19-22

Practice Point: If a broker is the “procuring cause” of the sale of real property, the broker is entitled to the commission agreed to in the broker’s contract.

 

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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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