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THERE WAS A QUESTION OF FACT WHETHER THE ONE-YEAR STATUTE OF LIMITATIONS IN THE CONTRACT WITH DEFENDANT SUBCONTRACTOR WAS REASONABLE BECAUSE THE RUNNING OF THE STATUTE COULD BE TRIGGERED BY A PARTY OVER WHICH DEFENDANT HAD NO CONTROL (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Singh, reversing Supreme Court, determined the counterclaims by defendant subcontractor, Nastasi, in this breach of a construction contract action, should not have been dismissed. The central issue was whether the one-year contractual statute of limitations was enforceable. Because the statute could be triggered by the failure of the owner to pay the plaintiff general contractor, Turner, a circumstance over which the defendant subcontractor, Nastasi, had no control, there was a question of fact whether the one-year limitations period was reasonable:

The relevant question when deciding whether a limitations period is enforceable is whether and when the damages were objectively ascertainable … . A contractual limitations period is unenforceable without a concrete determination of damages accrual … .

Here, the provisions setting a one-year limitation period for claims arising out of the contracts between Turner and Nastasi are reasonable on their face. However, the contracts also provide that payments by the owner are conditions precedent to any sums owed by Turner to Nastasi. As observed in D&S Restoration, it was neither fair nor reasonable to impose such a condition precedent, which was not within Nastasi’s control, but had the capability of nullifying its claim (D&S Restoration, 160 AD3d at 926).

… [T]he intent of the owner should not govern the interplay of the two provisions. Such a holding will unreasonably permit a party to choose to stay silent on the issue of owner payment unless it suited them, and unilaterally set the accrual date for the claim. Turner Constr. Co. v Nastasi & Assoc., Inc., 2020 NY Slip Op 08024, First Dept 12-29-20

 

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THE JUDGE SHOULD NOT HAVE, SUA SPONTE, INCREASED A PENALTY TO WHICH THE PARTIES HAD AGREED IN A SO-ORDERED STIPULATION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the judge, sua sponte, should not have increased a penalty to which the parties had stipulated:

“A so-ordered stipulation is a contract between the parties thereto and as such, is binding on them and will be construed in accordance with contract principles and the parties’ intent” … . “When an agreement between parties is clear and unambiguous on its face, it will be enforced according to its terms and without resort to extrinsic evidence” … . Accordingly, a court “should not, under the guise of contract interpretation, ‘imply a term which the parties themselves failed to insert’ or otherwise rewrite the contract” … .

Here, we disagree with the Supreme Court’s sua sponte determination to change the $1,000 per week penalty set forth in the 2013 stipulation … . Although the New York City Landmarks Preservation Law authorizes a penalty of up to $5,000 per day … ,  the parties expressly agreed to a different penalty in their 2013 stipulation. Thus, the court should not have “rewritten” the terms of the 2013 stipulation by changing the amount of the penalty agreed to by the parties. City of New York v Quadrozzi, 2020 NY Slip Op 07856, Second Dept 12-23-20

 

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ONCE THE PLAINTIFFS-TENANTS PROPERLY SOUGHT TO EXERCISE THEIR OPTION TO PURCHASE, THE LANDLORD, WHO IMPROPERLY REFUSED TO HONOR THE OPTION, NO LONGER HAD A RIGHT TO USE AND OCCUPANCY PAYMENTS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiffs’ cause of action for return of the rent paid to defendant after the plaintiffs exercised their option to purchase the property should have been granted. Plaintiffs were defendant landlord’s tenants. Plaintiffs sought to exercise an option to purchase the property which was in the lease. Once the plaintiffs properly exercised the option to purchase, the landlord, who refused to honor the option, could no longer seek payment for plaintiffs’ use and occupancy:

… “[I]t is well settled that the legal owner of real property is not entitled to an award for use and occupancy from a contract vendee in possession unless there also exists a landlord-tenant relationship between the parties” … . Under the merger doctrine, “execution of a contract of sale [for real property] between landlord and tenant serves to merge the landlord-tenant relationship into the vendor-vendee relationship and thus effectively terminates the former, unless the parties clearly intend the contrary result” … . “An intention to deviate from the general rule and to avoid a merger may be directly expressed in the agreement or may be inferred from a medley of factors such as the terms of the agreement, the circumstances of its making, and the subsequent behavior of the parties” … .

Here … the parties did not express an intention to deviate from the general rule or to avoid a merger upon the exercise of the purchase option. To the contrary, the terms of the rider provided, in relevant part, that “[i]n the event that Tenant decides not to exercise its option to purchase, all provisions herein remain in full force and effect and Tenant remains liable for all payments hereunder, including but not limited to rent” … . Since the plaintiffs validly exercised their option to purchase on July 21, 2015, and became a contract vendee in possession, it follows that the landlord-tenant relationship terminated on that date by application of the merger doctrine … . Blackburn Food Corp. v Ardi, Inc., 2020 NY Slip Op 07850, Second Dept 12-23-20

 

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THE SOLE REMEDY PROVISION IN THE REPRESENTATIONS AND WARRANTIES AGREEMENT IN THIS RESIDENTIAL MORTGAGE-BACKED SECURITIES CASE WAS VALID AND ENFORCEABLE; THE GROSS NEGLIGENCE PUBLIC POLICY RULE DOES NOT APPLY WHERE THE SOLE REMEDY PROVISION IMPOSES REASONABLE LIMITATIONS ON LIABILITY OR REMEDIES (CT APP).

The Court of Appeals, reversing the Appellate Division, in a full-fledged opinion by Judge Fahey, over a partial dissent, held that the sole remedy provision in the Representations and Warranties Agreement (RWA) in this residential mortgage-backed securities (RBMS) case was valid and enforceable. Plaintiff unsuccessfully tried to avoid the sole remedy provision by arguing the defendants breached the contract with gross negligence:

… [W]e … conclude that the parties’ contract, as written, means what it says. In this RMBS put-back action, plaintiff seeks to avoid a provision in the contract … that sets out a sole remedy for a breach by alleging that defendants breached the contract with gross negligence. This sole remedy provision purports to limit, but not eliminate, the remedies available to the plaintiff in the event of a breach. We conclude that, in a breach of contract action, the public policy rule prohibiting parties from insulating themselves from damages caused by grossly negligent conduct applies only to exculpatory clauses or provisions that limit liability to a nominal sum. The rule does not apply to contractual limitations on remedies that do not immunize the breaching party from liability for its conduct. The sole remedy provision is not an exculpatory or nominal damages clause. Plaintiff cannot render it unenforceable through allegations of gross negligence. * * *

We have previously considered the application of the gross negligence public policy rule only in cases where the contract provision at issue was an exculpatory clause, purporting to wholly immunize a party from liability, or a nominal damages clause limiting damages to, at most, $250 … . We have not yet determined whether grossly negligent conduct may render unenforceable contractual provisions that do not wholly insulate a party from liability for its breach, but instead impose reasonable limitations on either liability or the remedies available to the non-breaching party. We conclude that, in a breach of contract case, grossly negligent conduct will render unenforceable only exculpatory or nominal damages clauses, and the public policy rule does not extend to limitations on the remedies available to the non-breaching party. Matter of Part 60 Put-Back Litig., 2020 NY Slip Op 07687, CtApp 12-22-20

 

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THE INSURER’S ACCEPTANCE OF PREMIUM PAYMENTS AFTER IT LEARNED OF THE MISREPRESENTATION ABOUT THE SPRINKLER SYSTEM WAIVED THE INSURER’S RIGHT TO RESCIND THE POLICY (SECOND DEPT).

The Second Department determined that the insurer’s (Hamilton’s) acceptance of premiums after disclaiming coverage for fire damage when it learned the building did not have a sprinkler system waived the insurer’s right to rescind the policy. The insured had indicated the building had a sprinkler system it its application for the policy:

The continued acceptance of premiums by an insurance carrier after learning of sufficient facts which allow for the rescission of the policy, constitutes a waiver of the right to rescind … . Here, … the record demonstrated, as a matter of law, that Hamilton waived its right to assert the plaintiff’s misrepresentation as a basis for rescinding the policy and disclaiming coverage by renewing the policy and accepting further premiums after it discovered the misrepresentation … . 5512 OEAAJB Corp. v Hamilton Ins. Co., 2020 NY Slip Op 07525, Second Dept 12-16-20

 

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THE PROFESSIONAL LIABILITY INSURANCE POLICYHOLDERS (DOCTORS), NOT THE POLICYHOLDERS’ EMPLOYER WHICH PAID THE PREMIUMS, ARE ENTITLED TO THE PAYMENTS ASSOCIATED WITH THE CONVERSION OF THE MUTUAL INSURANCE COMPANY TO A STOCK INSURANCE COMPANY (SECOND DEPT).

The Second Department, in a full-fledged decision by Justice Scheinkman, reversing Supreme Court, determined the policyholders (doctors), not the policyholders’ employer which paid the professional liability insurance premiums, were entitled the payments associated with the conversion of a mutual insurance company to a stock insurance company. The Second Department further held that the doctors were not unjustly enriched from the standpoint of their employer because the payments to the doctors were not being made by the employer:

We agree with the Third and Fourth Departments that Insurance Law § 7307 makes clear that the policyholder is entitled to the consideration … . Thus, the defendants [doctors] are “legally entitled to receive the cash consideration” … .

In reaching this conclusion, we also note that the First Department … did not express any contrary views as to the import of the statute, the conversion plan, and the DFS [New York Department of Financial Services] approval decision. Rather, the First Department’s determination to award the cash consideration to the employer medical group was predicated entirely upon the theory of unjust enrichment … . Maple Med., LLP v Scott, 2020 NY Slip Op 07366, Second Dept 12-9-20

 

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THE WIFE’S COUNTERCLAIM FOR ADULTERY IN THIS DIVORCE ACTION, WHICH, IF PROVEN, WOULD HAVE HAD SUBSTANTIAL FINANCIAL CONSEQUENCES FOR THE HUSBAND, SHOULD HAVE BEEN DISMISSED; THE HUSBAND AND THE WOMAN WHO WAS THE SUBJECT OF THE WIFE’S ALLEGATIONS SUBMITTED AFFIDAVITS DENYING ANY SEXUAL RELATIONSHIP; THE WIFE’S AFFIDAVIT WAS BASED ENTIRELY ON PROXIMITY–THE WOMAN WAS THE FAMILY’S BABYSITTER–AND WAS OTHERWISE UNSUPPORTED (SECOND DEPT).

The Second Department, reversing Supreme Court, in a full-fledged opinion by Justice Dillon, determined the husband’s motion for summary judgment dismissing the wife’s adultery counterclaim should have been granted in this divorce action. Whether the husband committed adultery was an important issue because of the significant financial consequences agreed to in the post-nuptial agreement, including the award to the wife of 80% of the husband’s future gross income and 80% of all marital assets. The wife alleged the husband committed adultery with the family’s babysitter, R.I. The husband and R.I. submitted affidavits denying any sexual relationship:

… [T]he wife’s focus on the husband’s “opportunity” to commit adultery amounts to the husband’s mere proximity to R.L. at various times and places. Clearly, R.L. was the family babysitter and, in that capacity, could be expected to be in the husband’s presence on many occasions, including occasional overnight stays. The wife offers no facts or evidence — whether objective, inferential, or otherwise — of any adulterous conduct between the husband and R.L. beyond their mere physical proximity to one another. The wife’s affidavit provides no dates, describes no suspicious circumstance with any detail or particularity, identifies no particular relevant social event, and identifies no witness who observed conduct or heard comments between the husband and R.L. that might inferentially support a claim of adultery against the husband. There is no investigator, no photograph, and no suspicious documents, texts, emails, or social media posts. Put another way, the wife’s opposition to summary judgment amounts to mere unilateral speculation, conjecture, guess, and surmise stemming from the husband’s and R.L.’s mere proximity to one another, without anything more. The wife’s conclusory affidavit cannot substitute for admissible evidence even recognizing, as we do, that the adultery counterclaim is premised upon circumstantial evidence and the court’s role in determining summary judgment is that of issue-finding … . Agulnick v Agulnick, 2020 NY Slip Op 07335, Second Dept 12-9-20

 

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THE CRITERIA FOR THE HARSH REMEDY OF ATTACHMENT WERE NOT MET (SECOND DEPT).

The Second Department determined the criteria for an order of attachment were not met. The court noted that suspicion of an intent to defraud and the removal, assignment or disposition of property is not enough to warrant the harsh remedy of attachment:

CPLR 6212(a) provides that, on a motion for an order of attachment, “the plaintiff shall show, by affidavit and such other written evidence as may be submitted, that there is a cause of action, that it is probable that the plaintiff will succeed on the merits, that one or more grounds for attachment provided in section 6201 exist, and that the amount demanded from the defendant exceeds all counterclaims known to the plaintiff.” “Attachment is considered a harsh remedy and CPLR 6201 is strictly construed in favor of those against whom it may be employed” … .

The plaintiffs failed to make an adequate evidentiary showing that each of the defendants is a nondomiciliary residing without the state (see CPLR 6201[1]; see also General Construction Law § 35). Moreover, the plaintiffs’ contention that the defendants were attempting to defraud creditors or frustrate enforcement of a possible judgment against them (see CPLR 6201[3]) “was devoid of evidentiary support” … . “The fact that the affidavits in support of an attachment contain allegations raising a suspicion of an intent to defraud is not enough. It must appear that such fraudulent intent really existed in the defendant’s mind” … , and “the mere removal, assignment or other disposition of property is not grounds for attachment” … . 651 Bay St., LLC v Discenza, 2020 NY Slip Op 07331, Second Dept 12-9-20

 

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THE BUILDING OWNER HAD, BY CONTRACT, RELINQUISHED ALL RESPONSIBILITY FOR ELEVATOR MAINTENANCE TO DEFENDANT AMERICAN ELEVATOR AND WAS THEREFORE NOT LIABLE FOR THE ALLEGED ELEVATOR MALFUNCTION; THE PLAINTIFF ALLEGED THE INNER GATE CLOSED ON HER SHOULDER, PINNING HER, AND THE ELEVATOR THEN DESCENDED; A QUESTION OF FACT PURSUANT TO THE RES IPSA LOQUITUR DOCTRINE WAS RAISED (FIRST DEPT). ​

The First Department determined that the building owner, 1067 Fifth Avenue Corp. had, by contract, relinquished the responsibility to maintain the elevator to defendant American Elevator. Plaintiff alleged the elevator inner gate closed on her shoulder and then the elevator descended. Plaintiff alleged she injured her shoulder, neck and back pulling her arm free. Although the defendants demonstrated they did not have actual or constructive notice of the defect, a question of fact was raised pursuant to the res ipsa loquitur doctrine. Based on its maintenance contract with American, the action against the building owner should have been dismissed:

… [U]nder the terms of its contract with 1067 Fifth, American was responsible for providing “full comprehensive maintenance and repair services” for the elevators, which included maintaining “[t]he entire vertical transportation system,” including “all engineering, material, labor, testing, and inspections needed to achieve work specified by the contract.” Further, under the terms of the contract, maintenance “include[s], but is not limited to, preventive services, emergency callback services, inspection and testing services, repair and/or direct replacement component renewal procedures.” The contract also provided for American to “schedule [ ] systematic examinations, adjustments, cleaning and lubrication of all machinery, machinery spaces, hoistways and pits,” and to do all “repairs, renewals, and replacements . . . as soon as scheduled or other examinations reveal the necessity of the same.” Further, American agreed to provide emergency call-back service 24 hours a day, 7 days a week. Given such broad contractual responsibilities, American’s contract can be said to have “entirely displaced” the responsibility of 1067 Fifth and Elliman to maintain the safety of the building’s elevators, which gave rise to a duty owed directly to plaintiff by America … . Sanchez v 1067 Fifth Ave. Corp., 2020 NY Slip Op 07326, First Dept 12-8-20

 

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THE PROPERTY OWNER SUED THE VILLAGE ALLEGING THE VILLAGE BREACHED A CONTRACT IN FAILING TO RE-ZONE THE PROPERTY TO ALLOW DEVELOPMENT; A MUNICIPALITY DOES NOT HAVE THE AUTHORITY TO ENTER A CONTRACT WHICH CONTROLS ITS LEGISLATIVE POWERS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the cause of action by plaintiff property owner alleging the defendant village breached a contract to rezone the property to allow development should have been dismissed. A municipality does not have the authority to make contracts which control legislative powers and duties:

Even were we to find that the stipulations contained a provision that required the Village Board to enact zoning, such a provision is unenforceable, as obligating the Village Board to enact certain zoning requiring a legislative act cannot be agreed to by stipulation. “While a municipality possesses the inherent right to compromise a claim against it, it may not, under the guise of a compromise, impair a public duty owed by it or give validity to a void claim. Municipal corporations have no power to make contracts which will embarrass or control them in the performance of their legislative powers and duties” … . Moreover, “[t]he term limits rule prohibits one municipal body from contractually binding its successors in areas relating to governance unless specifically authorized by statute or charter provisions to do so. Elected officials must be free to exercise legislative and governmental powers in accordance with their own discretion and ordinarily may not do so in a manner that limits the same discretionary right of their successors to exercise those powers” … . BT Holdings, LLC v Village of Chester, 2020 NY Slip Op 07157, Second Dept 12-2-20

 

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