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WHETHER THE JUDGMENT DEBTOR IS ENTITLED TO RESTITUTION AFTER REVERSAL OF A RESTRAINING NOTICE AND WHETHER PLAINTIFF IS ENTITLED TO AN INSTALLMENT PAYMENT ORDER ARE DISCRETIONARY ISSUES TO BE DECIDED UPON REMAND; CRITERIA EXPLAINED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Higgitt, reversing Supreme Court and remanding the matter, determined that whether the judgment debtor was entitled to restitution based on the reversal of a restraining notice and whether the plaintiff is entitled to an installment payment order were not decided by the reversal, but  rather were discretionary issues to be resolved on remand. The facts are too complex to fairly summarize here:

… CPLR 5015(d) provides that, “[w]here a judgment or order is set aside or vacated, the court may direct and enforce restitution in like manner and subject to the same conditions as where a judgment is reversed or modified on appeal.” … Thus, “CPLR 5015[d] empowers a court that has set aside a judgment or order to restore the parties to the position they were in prior to its rendition, consistent with the court’s general equitable powers” … . The essential inquiry for a court addressing a request for the equitable remedy of restitution is whether it is against equity and good conscious to permit a party to retain the money that is sought to be recovered … . The determination whether to award restitution is committed to the trial court’s discretion … . * * *

Contrary to defendant’s contention that an installment payment order cannot be directed at funds exempt from execution under CPLR 5231 (i.e., 90% of his monthly disability insurance payments), such an order is the expedient for accessing exempt income … . As Professor Siegel stated long ago, “[o]ne of [CPLR 5226’s] prime uses is in that situation . . . where it appears that the judgment debtor can afford more than the 10% to which the income execution is limited” … . Thus, “[t]he court on the [CPLR 5226] motion can direct the debtor to make regular payments to the judgment creditor in any sum it finds the debtor able to afford, not limited by the 10% that restricts the income execution of CPLR 5231” … . Hamway v Sutton, 2025 NY Slip Op 01062, First Dept 2-25-25

Practice Point: Although this opinion is fact-specific, it includes the criteria for some fundamental debtor-creditor issues, i.e., the amount of monthly disability insurance payments which is available to a judgment debtor, the income-sources which are available to a judgment debtor, whether a plaintiff is entitled to an installment payment order, the criteria for a court’s discretionary determination of the amount a judgment debtor can afford to pay every month, etc.

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DEFENDANT BOUGHT THE FORECLOSED PROPERTY WITHOUT KNOWLEDGE THE JUDGMENT OF FORECLOSURE AND SALE HAD BEEN APPEALED; DEFENDANT WAS A PURCHASER IN GOOD FAITH AND FOR VALUE AND WAS THEREFORE INSULATED FROM THE EFFECTS OF THE APPELLATE REVERSAL (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant (Bartlett) was a purchaser in good faith and for value of the foreclosed property. The foreclosure was reversed on appeal. Defendant, as the fee owner of the property, was insulated from the effects of the reversal:

Where a judgment of foreclosure and sale is reversed on appeal, the successful appellant may seek restitution of the real property lost by the judgment (see CPLR 5015[d]; 5523). However, where the real property was sold pursuant to the judgment of foreclosure and sale, and the title is held by “a purchaser in good faith and for value,” recovery is limited to the value of the real property (id. § 5523). In the absence of a stay of the sale or an outstanding notice of pendency, title of the purchaser in good faith and for value “is . . . insulate[d] . . . from the effects of an appellate reversal” … .

Here, in support of its cross-motion, Bartlett established, through an affidavit of its member, that Bartlett acquired title to the property subsequent to a foreclosure sale, without actual knowledge of a successful appeal by the plaintiffs in the underlying action that resulted in a vacatur of the judgment of foreclosure and sale … . The affidavit also demonstrated that the plaintiffs had not obtained a stay of the foreclosure sale in the underlying action. Under these circumstances, Bartlett established … that it was a purchaser in good faith and for value entitled to the protection of CPLR 5523 … . Puretz v Mae, 2024 NY Slip Op 06227, Second Dept 12-11-24

Practice Point: A buyer of foreclosed property who had no knowledge the judgment of foreclosure had been appealed is insulated from the effects of a reversal on appeal. The buyer, as a purchaser in good faith for value, is the fee owner of the property.

 

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HERE AN OTHERWISE UNTIMELY COUNTERCLAIM WAS RENDERED TIMELY PURSUANT TO CPLR 203(D) TO THE EXTENT IT SOUGHT EQUITABLE RECOUPMENT, AS OPPOSED TO AFFIRMATIVE RELIEF (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the counterclaim alleging professional malpractice was timely pursuant to CPLR 203(d) to the extent the counterclaim sought equitable recoupment, as opposed to affirmative relief:

Even crediting the court’s determination that this claim accrued on February 4, 2019, rendering time-barred the counterclaim alleging professional malpractice asserted on February 15, 2022, the defendants are permitted, pursuant to CPLR 203(d), to seek equitable recoupment in a counterclaim. CPLR 203(d) provides, “[a] defense or counterclaim is interposed when a pleading containing it is served. A defense or counterclaim is not barred if it was not barred at the time the claims asserted in the complaint were interposed, except that if the defense or counterclaim arose from the transactions, occurrences, or series of transactions or occurrences, upon which a claim asserted in the complaint depends, it is not barred to the extent of the demand in the complaint notwithstanding that it was barred at the time the claims asserted in the complaint were interposed.” “This provision allows a defendant to assert an otherwise untimely claim which arose out of the same transactions alleged in the complaint, but only as a shield for recoupment purposes, and does not permit the defendant to obtain affirmative relief” … . Getzel Schiff & Pesce, LLP v Shtayner, 2024 NY Slip Op 06186, Second Dept 12-11-24

Practice Point: An otherwise untimely counterclaim which arises from a claim asserted in the complaint may be deemed timely pursuant to CPLR 2013(d) to the extent it seeks equitable recoupment as opposed to affirmative relief.​

 

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ALTHOUGH THE GUARANTEES REQUIRED THAT THE TENANT SURRENDER THE PREMISES IN THE CONDITION DESCRIBED BY THE LEASE, THE GUARANTEES DID NOT INCORPORATE THE LEASE OR EXPRESSLY REQUIRE COMPLIANCE WITH THE SURRENDER TERMS OF THE LEASE; THEREFORE THE TENANT’S FAILURE TO COMPLY WITH THE SURRENDER TERMS OF THE LEASE DID NOT TRIGGER THE GUARANTORS’ OBLIGATIONS (FIRST DEPT). ​

The First Department, reversing Supreme Court, determined the language of the guarantees controlled and the guarantors were relieved of responsibility for the tenant’s rent payments when the tenant surrendered the property in compliance with the terms of the guarantees. Although the guarantees referred to surrendering the premises in the condition required by the lease, the guarantees did not incorporate the lease or expressly require compliance with the surrender terms of the lease. Therefore the tenant’s failure to comply with the surrender terms of the lease did not trigger any obligation on the part of the guarantors:

… [T]he guarantees expressly limit defendants’ liability to the terms contained therein, which, as relevant here, only require that tenant surrender the premises in compliance with the surrender provisions set forth in the guarantees. While the guarantees mandated tenant surrender the premises in the condition required by the terms of the lease, they do not incorporate the terms of the underlying lease by reference … or expressly require that tenant’s surrender of the premises be performed pursuant to the terms of the lease … .

Therefore, while tenant was required to obtain written consent of the surrender from plaintiff under the lease, the motion court improperly determined that tenant’s failure to do so precluded the guarantors’ avoidance of liability for unpaid rent after tenant’s surrender … . ROC-Lafayette Assoc., LLC v Sturm, 2024 NY Slip Op 06016, Frist Dept 12-3-24

Practice Point: The language of a guarantee is strictly construed. Here the guarantees required surrender of the premises in the condition described by the lease but did not incorporate the lease or expressly require compliance with the surrender terms of the lease. Therefore the tenant’s failure to comply with the surrender terms of the lease did not trigger the guarantors’ responsibility for the tenant’s rent payments. The tenant had fully complied with the surrender terms in the guarantees.

 

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A LIENHOLDER NONPARTY TO AN ACTION THAT RESULTED IN A FEE AWARD TO A DEBTOR MAY SUE TO RECOVER THOSE FEES WHERE THE LIENHOLDER WAS NEITHER JOINED NOR REQUIRED TO INTERVENE IN THAT ACTION (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Rivera, reversing the Appellate Division, determined: “[a] lienholder nonparty to an action that resulted in a fee award against a debtor may challenge the legal basis of the judgment in a separate proceeding to recover those fees. We conclude that because the nonparty was neither joined nor required to intervene in the action against the debtor, it had no prior opportunity to challenge the award and thus is not barred from doing so in this proceeding … “.  Matter of Kasowitz, Benson, Torres & Friedman, LLP v JPMorgan Chase Bank, N.A., 2024 NY Slip Op 05876, CtApp 11-26-24

 

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THE TURNOVER PETITION SEEKING REAL PROPERTY AND FUNDS TRANSFERRED TO DEFRAUD JUDGMENT CREDITORS SHOULD HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the turnover petition seeking real property and funds transferred by judgment debtors to defraud judgment creditors should have been granted:

CPLR 5225(b) “‘provides for an expedited special proceeding by a judgment creditor to recover money or other personal property belonging to a judgment debtor against a person in possession or custody of money or other personal property in which the judgment debtor has an interest in order to satisfy a judgment'” … . A proceeding pursuant to CPLR 5225(b) “may also be maintained ‘against a person who is a transferee of money or other personal property from the judgment debtor'” …

Pursuant to CPLR 5227, “a special proceeding may be commenced by a judgment creditor ‘against any person who it is shown is or will become indebted to the judgment debtor'” … . In a proceeding pursuant to CPLR 5227, the “judgment creditor stands in the judgment debtor’s shoes, and may enforce the obligations owed to the judgment debtor by the indemnifying party” … .

… [T]he judgment creditors offered sufficient evidence to establish that [respondent] Nancy Barrick transferred the Barrick estate to the Barrick Trust with actual intent to hinder, delay, and defraud present or future creditors pursuant to Debtor and Creditor Law former § 276 … …. Nancy Barrick transferred title to the Barrick estate without adequate consideration to a trust for which she and her brother served as the trustees while retaining control over and possession of the property.

… [T]he judgment creditors also offered sufficient evidence to establish that the conveyances from the RMP judgment debtors to the RMP transferees were made with actual intent to defraud present and future creditors pursuant to Debtor and Creditor Law former § 276. … [T]he transfers were made without adequate consideration and evinced a distinct course of conduct after incurring large debts to the judgment creditors to render the RMP judgment debtors insolvent … . Matter of Argyle Funds SPC, Inc. v Barrick, 2024 NY Slip Op 01806, Second Dept 4-3-24

Practice Point: The CPLR provides a mechanism called a turnover petition which allows a judgment creditor to obtain property fraudulently transferred by the judgment debtor.

 

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ALTHOUGH THE STATUTE OF LIMITATIONS FOR REFORMATION OF A CONTRACT BASED ON A SCRIVENER’S ERROR HAD PASSED; THE CLEAR ERROR PRODUCED AN ABSURD RESULT WHICH CANNOT BE ADOPTED OR CONDONED BY THE COURT (FIRST DEPT). ​

The First Department, reversing (modifying) Supreme Court, in a full-fledged opinion by Justice Oing, determined plaintiff’s motion for summary judgment finding defendant “indemnitor” liable as guarantor of a $44 million debt should have been granted. Plaintiff argued the term “borrower,” instead of “indemnitor,” was mistakenly used to indicate the identity of the guarantor of the loan. Although the statute of limitations on the alleged “scrivener’s error” action had run, to interpret the language of the guaranty in the manner argued by defendant (i.e., “borrower” was the intended term) resulted in an absurdity, which would have rendered the loan unguaranteed:

… [A] court may correct a scrivener’s error outside of a claim for reformation of a contract in “those limited instances where some absurdity has been identified or the contract would otherwise be unenforceable either in whole or in part” … . In other words, a court is not “constrained to adopt an absurd phrasing in the contract merely because the statute of limitations for reformation had passed, when the error is obvious and the drafters’ intention clear” … . * * *

… [A] guaranty must be read in the context of the loan agreement and “in a manner that accords the words their ‘fair and reasonable meaning,’ and achieves ‘a practical interpretation of the expressions of the parties'” … . In other words, a “contract should not be interpreted to produce a result that is absurd, commercially unreasonable or contrary to the reasonable expectations of the parties” … . NCCMI, Inc. v Bersin Props., LLC, 2024 NY Slip Op 01161, First Dept 3-5-24

Practice Point: A clear-cut scrivener’s error in a contract which produces an absurd result the parties could not have intended will not be adopted or condoned by a court, despite the running of the statute of limitations on a contract-reformation cause of action.

 

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PARTIAL PAYMENT OF A DEBT WITHIN THE STATUTE OF LIMITATIONS PERIOD MAY REVIVE OR TOLL THE STATUTE OF LIMITATIONS FOR AN ACTION BASED UPON THE DEBT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff in this suit against his employer seeking payment for work performed raised a question of fact whether the statute of limitations was revived by defendants’ partial payment:

There is a “long-standing common law rule” that partial payment of a debt, if made under “circumstances from which a promise to honor the obligation may be inferred,” will operate to start the statute of limitations running anew from the time the partial payment is made … . To show that the statute of limitations has been renewed by a partial payment, it must be shown that the payment was accompanied by circumstances amounting to “an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder” … .

Here, the plaintiff alleged that, over a course of years, the defendants made repeated assurances that they would pay him salary and bonus money that he was owed pursuant to his employment arrangement. Further, he alleged that the defendants made a partial payment of outstanding bonus money to the plaintiff on July 17, 2015, within the statute of limitations. Under these circumstances, the plaintiff raised a question of fact as to whether the statute of limitations was tolled or revived … . Costello v Curan & Ahlers, LLP, 2024 NY Slip Op 00758, Second Dept 2-14-24

Practice Point: Partial payment of a debt made within the statute of limitations period may revive or toll the statute of limitations for an action based on the debt.

 

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THE ACTION FOR DAMAGES FOR MEDICAL SERVICES WAS NOT APPROPRIATE FOR A CLERK’S JUDGMENT FOR A SUM CERTAIN; DEFENDANT RAISED A QUESTION OF FACT WHETHER HE WAS PROPERLY SERVED WITH THE SUMMONS WITH NOTICE (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined (1) the action for damages for medical services was not appropriate for a clerk’s judgment for a sum certain pursuant to CPLR 3215(a) and (2) defendant raised a question of fact about whether he was served with the summons with notice pursuant to CPLR 308(4):

… [T]he Clerk lacked authority under CPLR 3215 (a) to enter the default judgment. “CPLR 3215 (a) allows a party to seek a default judgment by application to the clerk if the claim is ‘for a sum certain or for a sum which can by computation be made certain’ ” … . “The limitation of clerk’s judgments to claims for a sum certain contemplates a situation in which, once liability has been established, there can be no dispute as to the amount due” … . “The statute is intended to apply to only the most liquidated and undisputable of claims, such as actions on money judgments and negotiable instruments” … . Under the circumstances of this case, we conclude that this action, which seeks to recover damages for medical services, is not for a sum certain or for a sum that by computation can be made certain … . * * *

Defendant submitted an affidavit in which he averred, inter alia, that he lived in the upstairs apartment of a two-story, two-family house, and that, because his apartment was not specified on the papers described in the process server’s affidavit of service, he never received service … . State of New York v Walker, 2024 NY Slip Op 00716, Fourth Dept 2-9-24

Practice Point: An action for a clerk’s judgment for a sum certain is only appropriate where there is absolutely no dispute about the amount due, not here in a case seeking damages for medical services.

 

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THE GUARANTOR OF RENT DUE UNDER A LEASE FOR A BARBERSHOP FORCED TO CLOSE BY THE NYS GOVERNOR DURING COVID WAS RELIEVED OF LIABILITY FOR ONLY THE COVID-PERIOD COVERED BY NYC’S GUARANTY LAW (FIRST DEPT).

The First Department, reversing Supreme Court, determined the guarantor of a lease for a barbershop that was forced to close by the Governor of New York during COVID was relieved of liability for unpaid rent only for the period covered by NYC’s Guaranty Law:

As part of its declarations of intent and findings for the amendments extending the closing of the period of the Guaranty Law (first from September 30, 2020 to March 31, 2021, then from March 31, 2021 to June 30, 2021), the City Council made plain that the protections were “temporary,” and designed to provide businesses covered by the law with “a reasonable recovery period with a duration that is comparable to the period of time that [the] businesses were forced to close or operate with significant limitations on indoor occupancy” (New York City Local Laws 98/2020 and 50/2021, §§ 1[a][7], [9]).

In light of the language of the Guaranty Law and its legislative history, we conclude that the law “bars only those claims against guarantors seeking rent that came due within the [law’s] protection period” … . Tamar Equities Corp. v Signature Barbershop 33 Inc., 2024 NY Slip Op 00039, First Dept 1-4-24

Practice Point: New York City’s Guaranty Law relieves a guarantor of its liability for unpaid rent during a COVID-related business closure only for the “COVID” period described in the Guaranty Law.

 

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