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PETITIONERS SOUGHT FUNDS THE DECEDENT HAD TAKEN OUT OF THE CORPORATION AS CLAIMS ON DECEDENT’S ESTATE, ALLEGING THAT THE STATUTE OF LIMITATIONS STARTED ANEW WHEN THE DECEDENT ACKNOWELDGED THE DEBT IN A DEPOSITION; THE STATUTE-OF-LIMITATIONS TOLL IN THE GENERAL OBLIGATIONS LAW ONLY APPLIES TO AN ACKNOWLEDGMENT OF THE DEBT IN WRITING SIGNED BY THE PARTY TO BE CHARGED, NOT TO THE QUASI-CONTRACT ALLEGED BY PETITIONERS (FOURTH DEPT).

The Fourth Department, reversing Surrogate’s Court, determined decedent’s acknowledgement of a debt in a deposition did not start the statute of limitations anew because there was no written contract to which General Obligations Law 17-101 could apply:

In 2011, decedent removed funds from the corporate entity, and he later acknowledged that some of those funds belonged to petitioners. Decedent died in 2018 without returning the funds owed to petitioners. * * *

The tolling provision that the Surrogate relied on is General Obligations Law § 17—101. That provision states, in pertinent part, that “[a]n acknowledgment or promise contained in a writing signed by the party to be charged thereby is the only competent evidence of a new or continuing contract whereby to take an action out of the operation of the provisions of limitations of time for commencing actions under the civil practice law and rules.” Here, petitioners did not allege that they had a contract with decedent; rather, they alleged claims sounding in quasi-contract, which is “not [a] contract[] at all” … . Thus, General Obligations Law § 17—101, which applies only where there is “competent evidence of a new or existing contract,” does not apply here … . Matter of Reich, 2022 NY Slip Op 04446, Fourth Dept 7-8-22

Practice Point: In order to start the statute of limitations anew on a debt pursuant to General Obligations Law 17-101, the debt must be acknowledged in a writing signed by the party to be charged.

 

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PLAINTIFFS ALLEGED THE CONTRACT FOR THE PURCHASE OF LAND INCLUDED A PARCEL OF LAND NOT INCLUDED IN THE DEED AND SOUGHT A CORRECTED DEED; PURSUANT TO THE MERGER DOCTRINE, THE CONTRACT AND THE DEED MERGED AT THE CLOSING AND THE PROPERTY DESCRIPTION IN THE DEED IS DEEMED TO REFLECT THE FINAL AGREEMENT OF THE PARTIES (ABSENT FRAUD OR AMBIGUITY IN THE DEED); PLAINTIFFS’ COMPLAINT SHOULD HAVE BEEN DISMISSED (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined, pursuant to the merger doctrine, the contract for the sale of land merged with the deed when the deal was closed. The deed therefore represents the final agreement of the parties. The plaintiff alleged the deed description did not match the description in the contract and demanded that the deed be “corrected” to include an additional parcel of land:

… [W]e agree with defendants that the court erred in denying the motion with respect to the breach of contract and quiet title causes of action. Those causes of action are barred by the merger doctrine. “It is settled law that, where a contract for the sale of land has been executed by a conveyance, the terms of the contract concerning the nature and extent of property conveyed merge into the deed and any inconsistencies between the contract and the deed are to be explained and governed solely by the deed, which is presumed to contain the final agreement of the parties” … . Exceptions to the merger doctrine include “where the parties have expressed their intention that [a] provision shall survive delivery of the deed” … , where the deed is ambiguous with respect to the land conveyed …, and where there exists a valid fraud cause of action … . Pickard v Campbell, 2022 NY Slip Op 04442, Fourth Dept 7-8-22

Practice Point: Any discrepancy between the property as described in a real estate contract and as described in the deed is resolved by the merger doctrine. Absent fraud or ambiguity in the deed, the deed description controls.

 

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PETITIONER SOUGHT TO DEMONSTRATE THAT HIS DECEASED MOTHER DID NOT HAVE THE CAPACITY TO EXECUTE A DOCUMENT DESIGNATING RESPONDENT AS HER AGENT TO CONTROL THE DISPOSITION OF HER REMAINS; PETITIONER SUBMITTED PROOF HIS MOTHER HAD BEEN DIAGNOSED WITH DEMENTIA, BUT DEMENTIA IS NOT THE EQUIVALENT OF INCOMPETENCE OR INCAPACITY; THE PETITION SHOULD HAVE BEEN DISMISSED (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, held that the petition pursuant to Public Health Law 4201 for a determination concerning the disposition of petitioner’s deceased mother’s remains should have been dismissed. The deceased was also the mother of the respondent in this action. The issue was whether the deceased had the capacity to execute a document designating the respondent as her agent to control the disposition of her remains. The proceeding under the Public Health Law is handled like a motion for summary judgment. Although petitioner demonstrated his mother was diagnosed with dementia in 2014, dementia is not the equivalent of incompetence:

Every dispute relating to the disposition of the remains of a decedent shall be resolved . . . pursuant to a special proceeding” (Public Health Law § 4201 [8]). Upon the return date of the petition in a special proceeding, “[t]he court shall make a summary determination upon the pleadings, papers and admissions to the extent that no triable issues of fact are raised,” and “may make any orders permitted on a motion for summary judgment” (CPLR 409 [b] …). “[E]very hearing of a special proceeding is equivalent to the hearing of a motion for summary judgment” … . …

Even assuming, arguendo, that the heightened contractual capacity standard is applicable in this case … , we conclude that petitioner failed to establish that the decedent was incapable “of comprehending and understanding the nature of the transaction at issue” … .  Although petitioner submitted evidence establishing that the decedent had been diagnosed with dementia in 2014, “there is no presumption that a person suffering from dementia is wholly incompetent” … . “Rather, it must be demonstrated that, because of the affliction, the individual was incompetent at the time of the challenged transaction” … . Here, petitioner failed to set forth any evidence that the decedent was without capacity to execute the designating document in September 2017 … . Matter of Hurlbut v Leo M. Bean Funeral Home, Inc., 2022 NY Slip Op 04439, Fourth Dept 7-8-22

Practice Point: A proceeding pursuant to the Public Health Law to determine the disposition of the remains of a decedent is in the nature of a special proceeding and is handled like a summary judgment motion. Here the petitioner did not raise a question of fact about whether the decedent had the capacity to designate the respondent as her agent to control the disposition of her remains. Proof decedent had been diagnosed with dementia did not raise a question of fact about decedent’s competence or capacity.

 

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THE QUALIFIED DOMESTIC RELATION ORDER (QDRO) AS DESCRIBED IN THE STIPULATION OF SETTLEMENT INCORPORATED BUT NOT MERGED INTO THE JUDGMENT OF DIVORCE CANNOT BE MODIFIED BY THE COURT; NO APPEAL LIES OF RIGHT FROM A QDRO, AN APPLICATION FOR LEAVE TO APPEAL MUST BE MADE (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the qualified domestic relations order (QDRO) should not have been modified by the court because the stipulation of settlement, which was incorporated but not merged into the judgment of divorce, controls. The Fourth Department noted that no appeal lies of right from a QRDO but it treated the notice of appeal as an application for leave to appeal and granted the application:

A stipulation of settlement that is incorporated but not merged into a judgment of divorce “is a contract subject to the principles of contract construction and interpretation” … . Where such an agreement is clear and unambiguous, the intent of the parties must be gleaned from the language used in the stipulation of settlement and not from extrinsic evidence … , and the agreement in that instance ” ‘must be enforced according to the plain meaning of its terms’ ” … . “A proper QDRO obtained pursuant to a stipulation of settlement can convey only those rights to which the parties stipulated as a basis for the judgment” … . “An alternative result would undermine litigants’ freedom of contract by allowing QDROs to create new rights—or litigants to generate new claims—unexpressed in the settlement stipulation” … . Thus, “a court cannot issue a QDRO encompassing rights not provided in the underlying stipulation . . . , or one that is more expansive than the stipulation” … . Gay v Gay, 2022 NY Slip Op 04480, Fourth Dept 7-8-22

Practice Point: A qualified domestic relations order (QDRO) as described in a stipulation of settlement incorporated but not merged into the judgment of divorce cannot be modified by the court. No appeal lies of right from a QDRO, an application for permission to appeal must be made.

 

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PLAINTIFF ALLEGED DEFENDANT INSURER BREACHED THE INSURANCE CONTRACT BY FAILING TO PAY THE FULL AMOUNT OF THE COVERAGE; THAT ALLEGATION DOES NOT SUPPORT AN ADDITIONAL CAUSE OF ACTION FOR BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the cause of action for breach of the implied covenant of good faith and fair dealing duplicated the breach of contract cause of action and should have been dismissed. Plaintiff alleged defendant insurer failed to pay her the full amount of the supplemental uninsured motorist (SUM) coverage:

In the context of insurance contracts specifically, the implied covenant of good faith and fair dealing includes a duty on the part of the insurer ” ‘to investigate in good faith and pay covered claims’ ” … “[I]n order to establish a prima facie case of bad faith, the plaintiff must establish that the insurer’s conduct constituted a ‘gross disregard’ of the insured’s interests—that is, a deliberate or reckless failure to place on equal footing the interests of [the] insured with [the] insurer’s own interests” … .

… [T]he allegations in plaintiff’s complaint that defendant violated its duty of good faith and fair dealing are predicated solely upon the claim that defendant failed or refused to pay her the full amount of SUM coverage under the insurance policy, i.e., that defendant had breached the terms of the policy. Consequently, plaintiff failed to state a cause of action for breach of the implied duty of good faith and fair dealing … , and the court should have granted defendant’s motion insofar as it sought to dismiss that cause of action as duplicative of the breach of contract cause of action … . Brown v Erie Ins. Co., 2022 NY Slip Op 04459, Fourth Dept 7-8-22

Practice Point: In the context of an insurance policy, a cause of action for breach of the implied covenant of good faith and fair dealing must be supported by allegations of the insurer’s gross disregard of the insured’s interests, which is not demonstrated by the alleged failure to pay the full amount of the coverage (a simple breach of contract).

 

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THE CASUALTY CLAUSE IN THE LEASE DID NOT APPLY TO EXCUSE DEFENDANT-TENANT’S NONPAYMENT OF RENT DURING THE COVID PANDEMIC; THE FORCE MAJEURE, FRUSTRATION OF PURPOSE AND UNCLEAN HANDS DOCTRINES ALSO DID NOT APPLY (FOURTH DEPT). ​

The Fourth Department, reversing Supreme Court, determined (1) the casualty clause in the lease did not excuse defendant’s failure to pay rent during the COVID pandemic, (2) the force majeure doctrine did not apply, (3) and the frustration-of-purpose and unclean-hands doctrines did not apply:

… [W]e conclude that plaintiff established as a matter of law that defendant was not entitled to a rent abatement under the section of the lease providing that defendant was “not required to pay [r]ent when the [r]ental [s]pace [was] unusable” as a result of “damage” caused by a “fire or other casualty.” “That [section] of the lease refers to singular incidents causing physical damage to the premises and does not contemplate loss of use due to a pandemic or resulting government lockdown” … . * * *

… [T]he lease “contain[s] no force majeure provision, much less one specifying the occurrence that defendant would now have treated as a force majeure, and, accordingly, there is no basis for a force majeure defense” … . * * *

… “[T]he doctrine of frustration of purpose does not apply as a matter of law where, as here, the tenant was not ‘completely deprived of the benefit of its bargain’ ” … .

… [T]here is no triable issue of fact on its unclean hands defense because, even if defendant had made genuine attempts to procure another tenant, plaintiff was under no contractual obligation to seek or approve a sublease with a third party for the relatively short period remaining on the commercial lease, and there is nothing immoral or unconscionable about plaintiff’s decision to seek the unpaid rent that defendant was contractually obligated to pay … . Arista Dev., LLC v Clearmind Holdings, LLC, 2022 NY Slip Op 04451, Fourth Dept 7-8-22

Practice Point: The casualty clause in the lease applied only to singular events, not to the COVID pandemic. Defendant’s nonpayment of rent during the COVID pandemic was not excused by the terms of the lease.

 

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THE CONTRACTUAL ARRANGEMENTS MADE WITH APARTMENT OWNERS AND SERVICE PROVIDERS BY THE NYC DEPARTMENT OF HOMELESS SERVICES (DHS) DID NOT CREATE “ILLUSORY TENANCIES” SUCH THAT THE PREVIOUSLY HOMELESS TENANTS WERE ENTITLED TO VACANCY LEASES WHEN THE DHS CONTRACTS WERE TERMINATED (SECOND DEPT).

The Second Department, over a dissent, determined that the previously homeless appellants who had been placed in apartments did not demonstrate the arrangement constituted an “illusory tenancy” such that the appellants were entitled to vacancy leases. The owners of the apartments were entitled to possession after their contracts with the NYC Department of Homeless Services (DHS] were terminated:

… “[A]n illusory tenancy is defined generally as a residential leasehold created in a person who does not occupy the premises for his or her own residential use and subleases it for profit, not because of necessity or other legally cognizable reason”… . An illusory tenancy scheme exists, for example, where the “prime tenant” rents a rent-stabilized apartment, which it never intends to occupy, and then subleases it for an amount in excess of the legal rent so as to make a profit … . * * *

The leases in the present case did not lack a legitimate purpose. The subject premises were leased to, and by, both CAMBA and We Always for the “legally cognizable reason” of providing transitional housing in accordance with the terms of the Cluster Transitional Residence Program run by the City …  The leases entered into by CAMBA and We Always both specified that the agreement was entered into “for the sole purpose of providing transitional housing and services in connection with the DHS Agreement,” and the leases expired by their terms upon termination of the DHS [NYC Department of Homeless Services] Agreement (if not terminated earlier). * * *

… [T]he owners demonstrated, prima facie, that the appellants were not entitled to vacancy leases and related relief because illusory tenancies were not created to deprive them of the benefits of rent stabilization. Sapp v Clark Wilson, Inc., 2022 NY Slip Op 04184, Second Dept 6-29-22

Practice Points: The previously homeless tenants were not entitled to vacancy leases when the relevant contracts with the NYC Department of Homeless Services [DHS} were terminated. The tenants argued the contractual arrangements between the apartment owners and DHS created “illusory tenancies.” An “illusory tenancy” is created, for example, when a party leases a rent-stabilized apartment for the sole purpose of subletting it for a profit. Here the leases served a legitimate purpose, the provision of transitional housing.

 

HERE THE DEFENDANTS RAISED PLAINTIFF’S SIGNING A RELEASE AS AN AFFIRMATIVE DEFENSE; THE COMPLAINT ALONG WITH PLAINTIFF’S AFFIRMATION ADEQUATELY ALLLEGED THE RELEASE WAS THE PRODUCT OF OVERREACHING OR UNFAIR CIRCUMSTANCES AND THEREFORE WAS NOT A BAR TO CERTAIN CAUSES OF ACTION (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined plaintiff adequately alleged a release (raised by defendants as an affirmative defense) was the product of overreaching and therefore did not bar certain causes of action:

… [T]he amended complaint, along with the affirmation plaintiff submitted in opposition to defendants’ motion, sufficiently alleges that the release was the result of overreaching or unfair circumstances. A court must accept as true the facts as alleged in the complaint and submissions in opposition to the motion, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory … . Under the alleged facts, the affirmative defense of the release does not entirely bar plaintiff’s action at this stage of the litigation. “[I]t is inequitable to allow a release to bar a claim where. . .it is alleged. . .that it was the result of overreaching or unfair circumstances” … . Chadha v Wahedna, 2022 NY Slip Op 04089, First Dept 6-23-22

Practice Point: At least at the motion-to-dismiss stage, adequate allegations that a release was the product of overreaching or unfair circumstances will preclude dismissal of causes action which would have been barred by a valid release.

 

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A LEASE BETWEEN PLAINTIFF CORPORATION AND DEFENDANTS (ONE OF WHOM WAS A MEMBER OF PLAINTIFF’S BOARD) WAS NOT VOTED ON BY A MAJORITY OF DISINTERESTED DIRECTORS AND WAS THEREFORE VOIDABLE UNDER BUSINESS CORPORATION LAW 713(B); DEFENDANTS BREACHED THEIR FIDUCIARAY DUTY TO THE CORPORATION BY SUBLETTING THE LEASED PREMISES FOR A MUCH HIGHER RENT WITHOUT PLAINTIFF’S KNOWLEDGE (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiff cooperative apartment corporation (HDFC) demonstrated defendants (one of whom was a member of plaintiff’s board) had entered a lease with plaintiff which was not voted upon by a majority of disinterested directors and was therefore voidable under Business Corporation Law 713(b). In addition plaintiff demonstrated defendants had breached their fiduciary duty to the corporation:

Plaintiff, a low-income cooperative apartment corporation (HDFC), established prima facie that the lease between plaintiff and defendants Thomas Green and A Cup of Harlem was not voted on by a majority of disinterested directors and is therefore voidable under Business Corporation Law § 713(b). A Cup of Harlem is a partnership between Thomas Green and Siwana Green, who are married. Siwana Green is a shareholder in the HDFC and a former officer and member of plaintiff’s board of directors. By lease dated April 1, 2004, while Siwana Green was one of three members of the board, plaintiff leased one of the two commercial spaces in the building to Thomas Green and A Cup of Harlem for a 99-year term, with a monthly rent of $700 for the entirety of the term and an option to extend the lease for a 10-year term at a rate of $800 per month. In support of its motion, plaintiff submitted a former board member’s affidavit that he was elected to a one-year term in February 2004, that he only learned of the lease in 2018, when Siwana Green was removed from the board, and that he never would have approved a lease with such “outlandish” terms. …

The record demonstrates that Siwana Green breached her fiduciary duty to plaintiff by diverting a corporate opportunity without plaintiff’s knowledge or consent and admittedly receiving more than $200,000 profit from the sublessee to whom, in March 11, 2009, Thomas Green sublet the leased premises at a monthly rent of $2,500 for a ten-year term, which was then renewed for a monthly rent of $2,800. 67-69 St. Nicholas Ave. Hous. Dev. Fund Corp. v Green, 2022 NY Slip Op 04087, First Dept 6-23-22

Practice Point: Here a low-rent lease between plaintiff corporation and defendants (one of whom was a member of plaintiff’s board) was voidable because the lease was not approved by a majority of disinterested directors. Defendants sublet the leased premises for a much higher rent without plaintiff corporation’s knowledge and thereby breached their fiduciary duty to the corporation.

 

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IN THIS VEHICLE ACCIDENT CASE, PLAINTIFF ENTERED AN ARBITRATION AGREEMENT WHICH INDICATED THE AWARD WOULD BE BETWEEN $0 AND $50,000, BUT THE POLICY LIMITS WERE $100,000/300,000; THE UNILATERAL MISTAKE BY PLAINTIFF’S ATTORNEY RE: THE POLICY LIMITS WAS NOT INDUCED BY DEFENDANT OR DEFENDANT’S CARRIER, THEREFORE RESCISSION OF THE AGREEMENT WAS NOT AN AVAILABLE REMEDY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant’s motion to compel arbitration in this vehicle-accident case should have been granted. Plaintiff wanted the agreement to arbitrate rescinded because it did not reflect the actual policy limits. But the unilateral mistake by plaintiff’s attorney was not induced by the defendant because defendant’s insurance carrier had twice notified plaintiff’s attorney of the policy limits. The agreement to arbitrate set the award at between $0 and $50,000, but the policy limits were $100,000/300,000:

“Generally, a party’s unilateral mistake is a ground for rescission of a contract only where it was induced by fraud or other wrongful conduct by the other party” … . Moreover, “the equitable remedy of rescission is not available to relieve an allegedly mistaken party of the consequences of their failure to exercise ordinary care” … .

Contrary to the plaintiff’s contention, he failed to establish that the arbitration agreement was subject to the equitable remedy of rescission on the ground of unilateral mistake by his attorney regarding the policy limits … . The purported mistake in the high-low agreement at issue arose not from any fraudulent inducement by the defendant, but from the failure of the plaintiff’s attorney to exercise ordinary care under the circumstances … . Maynard v Smith, 2022 NY Slip Op 04017, Second Dept 6-22-22

Practice Point: A unilateral mistake by one party which was not induced by the other party is not a ground for rescission of a contract.

 

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