Contract Law – Page 58 – New York Appellate Digest

PLAINTIFF WAS ENTITLED TO THE REFORMATION OF THE INSURANCE POLICY TO NAME HIM AS MORTGAGEE; ALL PARTIES AGREED THEY INTENDED TO SO NAME THE PLAINTIFF AND THE FAILURE TO DO SO WAS THE RESULT OF A MISTAKE; PLAINTIFF WAS ENTITLED TO PAYMENT OF THE FIRE-DAMAGE PROCEEDS IRRESPECTIVE OF THE PROPERTY OWNER’S ACTS OR NEGLECT (THIRD DEPT).

The Third Department, reversing Supreme Court, determined plaintiff was entitled to the reformation of an insurance policy and to the payment of the fire-damage proceeds. Through error plaintiff was never named as the mortgagee on the policy:

Plaintiff asserts that reformation of the property policy to name him as the mortgagee is appropriate because the undisputed evidence demonstrates that [all the parties] intended to have him so named and reached an oral agreement to that effect, but that, without their knowledge and because of mutual mistake, the property policy did not embody that agreement. In support of this claim, plaintiff submitted the uncontradicted testimony of [the buyer] and the wife that they were aware of the requirement to have plaintiff named as a mortgagee on the property policy as required by the mortgages and intended to comply with it, that the wife asked [the insurance agent] to make the change, and that she and [the buyer] believed afterward that the change had been made and that plaintiff had become a mortgagee on the property policy. * * *

… [W]e find that the property policy should be reformed to name plaintiff as mortgagee … . Plaintiff’s resulting identification as the mortgagee “creates an independent insurance of [his] interest just as if he had received a separate policy from the company but without any inconsistent or repugnant conditions imposed upon the owner and free from invalidation by the latter’s act or neglect” … . Imrie v Ratto, 2020 NY Slip Op 05986, Third Dept 10-22-20

October 22, 2020

Civil Procedure, Contract Law, Family Law

FATHER’S CHILD SUPPORT OBLIGATIONS CONTROLLED BY THE JUDGMENT OF DIVORCE, NOT THE CONFLICTING PROVISIONS OF THE SEPARATION AGREEMENT (THIRD DEPT).

The Third Department, reversing Family Court, determined the provisions in the judgment of divorce, not the separation agreement, controlled father’s child support obligations:

Although the parties entered into a separation agreement directing what the husband was to pay for child support, the subsequent judgment of divorce specifically provided that “the child support obligations of the parties hereto shall be as directed by the [c]orrective [o]rder of [s]upport . . . entered on November 16, 2017.” A conflict therefore exists between the separation agreement and the subsequently entered judgment of divorce. In such circumstance, the judgment of divorce controls … .

Although Family Court was without jurisdiction to modify the terms of the separation agreement (see Kleila v Kleila, 50 NY2d 277, 282 [1980]), the fact that the corrective order of support was denominated as an order by Family Court or that it emanated from a Family Court proceeding does not mean the terms therein are invalid. The parties voluntarily consented to the terms in the corrective order of support. Additionally, there is nothing in the record indicating that the parties disputed any of those terms. Under these circumstances, and because the judgment of divorce specifically stated that the parties’ child support obligations were to be determined by the corrective order of support, we are not of the view that Family Court modified the separation agreement. Sherman v Sherman, 2020 NY Slip Op 05993, Third Dept 10-22-20

October 22, 2020

Civil Procedure, Contract Law, Negligence

THE MOTION TO SET ASIDE THE VERDICT AS INCONSISTENT AFTER IT WAS DEEMED A DEFENSE VERDICT VIOLATED THE BINDING SUMMARY TRIAL STIPULATION; THE MOTION TO SET ASIDE SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined granting the motion to set aside the verdict in this personal injury trial violated the binding summary jury trial stipulation which was entered into pursuant to Richmond County Summary Jury Trial Rules:

The plaintiff commenced this action to recover damages for personal injuries she allegedly sustained in an automobile accident. The parties subsequently entered into a stipulation to submit this matter to a binding summary jury trial pursuant to the Richmond County Summary Jury Trial Rules.

In its verdict sheet, the jury found that the [defendant’s] … negligence was not a substantial factor in causing the accident, but went on to assess her percentage of fault at 49%. The jury did not determine whether the plaintiff had sustained a serious injury and did not award any damages. Upon receiving the jury’s verdict sheet, the Supreme Court informed the jury that “there was no need to go on past” the finding that [defendant’s] negligence was not a substantial factor in causing the accident, and after ascertaining that all six jurors had signed the form, the trial court dismissed the jurors and announced that “[t]his constitutes a defense verdict.”

Four days later, the plaintiff moved, in effect, to set aside the verdict on the ground that it was internally inconsistent, and the Supreme Court granted the motion.

As the defendants contend, the Supreme Court “exceeded the boundaries of the parties’ agreement by setting aside the verdict” … . Conio v Talarico, 2020 NY Slip Op 05720, Second Dept 10-14-20

October 14, 2020

Contract Law, Insurance Law

THE UNAMBIGUOUS INSURANCE POLICY DID NOT INCLUDE COVERAGE FOR LOSS OF BUSINESS INCOME AND THE POLICY MUST BE ENFORCED AS WRITTEN (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the coverage unambiguously described in an insurance policy must be enforced as written and there is no coverage for anything, here loss of business income, which is not explicitly described in the contract:

… [T]he insurance contract unambiguously does not include coverage for actual loss of business income. The contract provides coverage “as described and limited” for certain categories of loss “for which a Limit Of Insurance is shown in the Declarations.” Actual loss of business income, however, is neither described nor limited by the declarations. Thus, there is no actual loss of business income coverage “by reason of ‘lack of inclusion’ “… , and “the policy as written could not have covered the liability in question under any circumstances” … . Downstairs Cabaret, Inc. v Wesco Ins. Co., 2020 NY Slip Op 05637, Fourth Dept 10-9-20

October 9, 2020

Contract Law, Fraud, Negligence

PLAINTIFF HOMEOWNERS’ ACTION AGAINST THE INSURER FOR BREACH OF CONTRACT, FRAUD AND NEGLIGENCE SHOULD HAVE BEEN DISMISSED; PLAINTIFF ACKNOWLEDGED THE HOME WAS VACANT WHEN THE POLICY WAS PURCHASED AND AT THE TIME OF THE FIRE AND THE POLICY EXCLUDED COVERAGE FOR VACANT PROPERTY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the insurer’s motion for summary judgment in this “disclaimed coverage” case should have been granted. Plaintiff homeowner acknowledged the home had been vacant and was vacant at the time of the fire. Plaintiff’s allegation that the insurance agent was aware the house was vacant when the policy was purchased was rejected because plaintiff was deemed to have read the policy (which excluded coverage for vacant property):

The defendants demonstrated, prima facie, that the policy only provided coverage if the premises were used as a residence by the plaintiffs and that the plaintiffs never resided at the premises during the policy period … . * * *

“The element of justifiable reliance is ‘essential’ to any fraud claim” … . Here, the defendants established, prima facie, that any reliance by [plaintiff] on an alleged misrepresentation made by [the insurance agent] was not justifiable since [plaintiff] testified that he received a copy of the policy when it was issued in August 2010, and again in 2011, when it was renewed … . …

The defendants made a prima facie showing of their entitlement to judgment as a matter of law dismissing [the negligence] cause of action by submitting evidence which demonstrated that [plaintiff] only made a general request for homeowner’s insurance, and did not specifically request coverage for premises that were not owner occupied … , and that no special relationship existed between the parties … . Waknin v Liberty Ins. Corp., 2020 NY Slip Op 05551, Second Dept 10-7-20

October 7, 2020

Appeals, Architectural Malpractice, Contract Law

PLAINTIFF WAS A THIRD-PARTY BENEFICIARY OF THE CONTRACT WITH THE ARCHITECTS; THEREFORE THE ARCHITECTURAL MALPRACTICE ACTION ACCRUED WHEN THE CONSTRUCTION WAS COMPLETE, RENDERING THE ACTION TIME-BARRED (FOURTH DEPT).

The Fourth Department determined the architectural malpractice action accrued when the construction was complete, despite the fact that plaintiff was not a party to the contract with the architects. Therefore the action was time-barred. The court noted that Supreme Court should have settled the record on appeal by including the transcript of the motion to dismiss the complaint as well as the accompanying memorandum of law to demonstrate preservation of the issues for appeal:

Before breaking ground on the project, plaintiff entered into an agreement with an engineering firm, pursuant to which the engineering firm agreed to provide professional engineering services on the project. The engineering firm, in turn, entered into a contract with defendant, pursuant to which defendant agreed to provide professional architectural services on the project. * * *

A claim against an architect accrues upon the completion of performance … . “This rule applies ‘no matter how a claim is characterized in the complaint’ because ‘all liability’ for defective construction ‘has its genesis in the contractual relationship of the parties’ ” … . “Even if the plaintiff is not a party to the underlying construction contract, the claim may accrue upon completion of the construction where the plaintiff is not a ‘stranger to the contract,’ and the relationship between the plaintiff and the defendant is the ‘functional equivalent of privity’ ” … .

Despite the lack of privity between plaintiff and defendant, plaintiff was “not a stranger to the contract” … . Indeed, we conclude that plaintiff was an intended third-party beneficiary of the contract … . * * *

Because plaintiff “is not a ‘stranger to the contract,’ ” its professional malpractice cause of action accrued upon completion of performance by defendant … . Town of W. Seneca v Kideney Architects, P.C., 2020 NY Slip Op 05323, Fourth Dept 10-2-20

October 2, 2020

Civil Procedure, Contract Law, Foreclosure

THE MERE PRESENCE OF A REINSTATEMENT CLAUSE IN THE MORTGAGE, WHICH ESSENTIALLY ALLOWS A BORROWER IN DEFAULT TO PAY THE ARREARS AND STOP THE ACCELERATION OF THE DEBT, DOES NOT AFFECT OR IMPEDE THE ACCELERATION OF THE DEBT WHEN A FORECLOSURE ACTION IS STARTED; THE DEBT HERE WAS ACCELERATED WHEN THE FIRST FORECLOSURE ACTION WAS COMMENCED IN 2009 RENDERING THE INSTANT FORECLOSURE ACTION TIME-BARRED (FOURTH DEPT).

The Fourth Department, in a full-fledged opinion by Justice Curran, agreeing with the Second Department, determined the mere presence of reinstatement clause in a mortgage, which allows a borrower who has missed payments to pay the amount of the missed payments and resume monthly payments, does not affect or impede the acceleration of the debt when a foreclosure action is brought. Therefore the foreclosure action at issue was time-barred:

The mortgage is a uniform instrument issued by Fannie Mae, among others, for use in New York State and contains several provisions that are relevant on appeal. Section 22 (acceleration provision) permits the lender to require immediate payment of the loan in full upon the borrower’s default, provided certain conditions are met. Section 19 (reinstatement provision) grants a borrower in default the right to effectively de-accelerate the maturity of the mortgage debt by paying in full the past due amount, thereby returning the loan to its pre-default status. * * *

… [W]e conclude that the mortgage’s reinstatement provision does not in any way affect or impede acceleration of the full mortgage debt. The reinstatement provision is not mentioned anywhere in the text of the mortgage’s acceleration provision, which governs when Fannie Mae could exercise its option to accelerate the full debt … . Further, the language of the reinstatement provision “indicates that [Fannie Mae’s] right to accelerate the entire debt may be exercised before the [borrower’s] rights under the reinstatement provision . . . are exercised or extinguished” … . Thus, in effect, the reinstatement provision merely “gives the borrower the contractual option to de-accelerate the mortgage when certain conditions are met” … —which presupposes that an acceleration has already occurred. Federal Natl. Mtge. Assn. v Tortora, 2020 NY Slip Op 05410, Fourth Dept 10-2-20

October 2, 2020

Contract Law, Fraud

THE RELEASE DID NOT APPLY TO THE ALLEGATIONS OF FRAUD IN THE INDUCEMENT AND THERE WAS A QUESTION OF FACT WHETHER PLAINTIFFS JUSTIFIABLY RELIED ON THE ALLEGED MISREPRESENTATIONS; THE FRAUD IN THE INDUCEMENT CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determine plaintiffs’ action for fraud in the inducement should not have been dismissed. The release did not require dismissal and there was a question of fact whether plaintiffs justifiably relied on the alleged misrepresentations:

… [D]efendants failed to meet their initial burden of establishing, as a matter of law, that the release barred plaintiffs’ claims that they were fraudulently induced to enter the liquidation agreement by misrepresentations that defendants made in violation of their obligations thereunder … . …

… [D]efendants’ own submissions establish that plaintiffs “made a significant effort to protect themselves against the possibility of false financial statements: they obtained representations and warranties to the effect that nothing in the financials was materially misleading”… , i.e., that [defendant] had no material liabilities beyond those disclosed in the financial statements and no circumstances existed that could reasonably be expected to result in such a material obligation. Thus, “[i]f plaintiffs can prove the allegations in the complaint, whether they were justified in relying on the warranties they received is a question to be resolved by the trier of fact” … . Dillon v Peak Envtl., LLC, 2020 NY Slip Op 05332, Fourth Dept 10-2-20

October 2, 2020

Civil Procedure, Contract Law, Foreclosure, Real Property Actions and Proceedings Law (RPAPL)

GENERAL OBLIGATIONS LAW 17-105, NOT 17-101, APPLIES TO THE REVIVAL OF AN EXPIRED STATUTE OF LIMITATIONS FOR A MORTGAGE FORECLOSURE; THE RELEVANT DOCUMENTS HERE DID NOT MEET THE CRITERIA OF SECTION 17-105; FORECLOSURE WAS THEREFORE TIME-BARRED (FOURTH DEPT).

The Fourth Department, in a full-fledged opinion by Justice Peradotto, determined that General Obligations Law 17-105, not 17-101, applied to the revival of an expired statute of limitations for foreclosure of a mortgage and the documents in this case did not meet the criteria of section 17-105. Therefore the foreclosure action was time-barred. The court noted that Supreme Court should have issued a judgment declaring the rights of the parties pursuant to Real Property Actions and Proceedings Law 1501 and 1521:

General Obligations Law § 17-105 (1) provides, in relevant part:

“A waiver of the expiration of the time limited for commencement of an action to foreclose a mortgage of real property or a mortgage of a lease of real property, or a waiver of the time that has expired, or a promise not to plead the expiration of the time limited, or not to plead the time that has expired, or a promise to pay the mortgage debt, if made after the accrual of a right of action to foreclose the mortgage and made, either with or without consideration, by the express terms of a writing signed by the party to be charged is effective, subject to any conditions expressed in the writing, to make the time limited for commencement of the action run from the date of the waiver or promise.”

* * *

… [T]the financial statements submitted by defendant do not meet the requirements of subdivision (1) of section 17-105 because those documents merely list the mortgage as a liability and do not constitute an express promise to pay the mortgage debt … . Batavia Townhouses, Ltd. v Council of Churches Hous. Dev. Fund Co., Inc., 2020 NY Slip Op 05331, Fourth Dept 10-2-20

October 2, 2020

Contract Law, Evidence, Foreclosure, Real Property Actions and Proceedings Law (RPAPL)

PLAINTIFF BANK FAILED TO SHOW COMPLIANCE WITH THE NOTICE PROVISIONS OF THE MORTGAGE AGREEMENT AND RPAPL 1304; PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff bank failed to demonstrate the notice of default was provided in accordance with the mortgage agreement, failed to demonstrate compliance with the notice requirements of RPAPL 1304 and failed to demonstrate such compliance was not required:

… [T]he plaintiff failed to demonstrate, prima facie, that it complied with a condition precedent contained in the consolidated mortgage agreement, requiring the lender to send a notice of default prior to the commencement of the action. In this respect, the unsubstantiated and conclusory statements in the affidavit of an employee of the plaintiff’s servicer, which indicated that the required notice of default was sent in accordance with the terms of the mortgage, combined with a copy of the notice of default, failed to show that the required notice was mailed by first-class mail or actually delivered to the notice address if sent by other means, as required by the consolidated mortgage agreement … .

… [T]he plaintiff failed to demonstrate, prima facie, that it properly served upon the defendant the notice required by RPAPL 1304. The mailing required under that statute “‘is established with proof of the actual mailings, such as affidavits of mailing or domestic return receipts with attendant signatures, or proof of a standard office mailing procedure designed to ensure that items are properly addressed and mailed, sworn to by someone with personal knowledge of the procedure'” … . Here, the plaintiff proffered neither evidence of the actual mailings nor evidence of a standard office mailing procedure, but rather relied upon its servicer’s conclusory and unsubstantiated affidavit averring that the notice was sent, along with a copy of the notice. This evidence failed to satisfy the plaintiff’s burden … . Moreover, contrary to the Supreme Court’s conclusion, affidavits of service pertaining to the summons and complaint as well as the defendant’s verified answer, which demonstrated that the defendant was present in the State of Florida at the time of service of those pleadings, failed to demonstrate, prima facie, that the subject property was not the defendant’s “principal dwelling,” so as to establish that compliance with RPAPL 1304 was not required … . U.S. Bank N.A. v Negrin, 2020 NY Slip Op 05253, Second Dept 9-30-20

September 30, 2020

FATHER’S CHILD SUPPORT OBLIGATIONS CONTROLLED BY THE JUDGMENT OF DIVORCE, NOT THE CONFLICTING PROVISIONS OF THE SEPARATION AGREEMENT (THIRD DEPT).

THE MOTION TO SET ASIDE THE VERDICT AS INCONSISTENT AFTER IT WAS DEEMED A DEFENSE VERDICT VIOLATED THE BINDING SUMMARY TRIAL STIPULATION; THE MOTION TO SET ASIDE SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

THE UNAMBIGUOUS INSURANCE POLICY DID NOT INCLUDE COVERAGE FOR LOSS OF BUSINESS INCOME AND THE POLICY MUST BE ENFORCED AS WRITTEN (FOURTH DEPT).

PLAINTIFF HOMEOWNERS’ ACTION AGAINST THE INSURER FOR BREACH OF CONTRACT, FRAUD AND NEGLIGENCE SHOULD HAVE BEEN DISMISSED; PLAINTIFF ACKNOWLEDGED THE HOME WAS VACANT WHEN THE POLICY WAS PURCHASED AND AT THE TIME OF THE FIRE AND THE POLICY EXCLUDED COVERAGE FOR VACANT PROPERTY (SECOND DEPT).

PLAINTIFF WAS A THIRD-PARTY BENEFICIARY OF THE CONTRACT WITH THE ARCHITECTS; THEREFORE THE ARCHITECTURAL MALPRACTICE ACTION ACCRUED WHEN THE CONSTRUCTION WAS COMPLETE, RENDERING THE ACTION TIME-BARRED (FOURTH DEPT).

THE RELEASE DID NOT APPLY TO THE ALLEGATIONS OF FRAUD IN THE INDUCEMENT AND THERE WAS A QUESTION OF FACT WHETHER PLAINTIFFS JUSTIFIABLY RELIED ON THE ALLEGED MISREPRESENTATIONS; THE FRAUD IN THE INDUCEMENT CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (FOURTH DEPT).

GENERAL OBLIGATIONS LAW 17-105, NOT 17-101, APPLIES TO THE REVIVAL OF AN EXPIRED STATUTE OF LIMITATIONS FOR A MORTGAGE FORECLOSURE; THE RELEVANT DOCUMENTS HERE DID NOT MEET THE CRITERIA OF SECTION 17-105; FORECLOSURE WAS THEREFORE TIME-BARRED (FOURTH DEPT).

PLAINTIFF BANK FAILED TO SHOW COMPLIANCE WITH THE NOTICE PROVISIONS OF THE MORTGAGE AGREEMENT AND RPAPL 1304; PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

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