Scott E. Mollen
Scott E. Mollen ()

Landlord-Tenant—Nuisance—Landlord Set Up Sting Operation to Respond to Tenant’s Craigslist Advertisement to Rent out Part of His Apartment—In Tape-Recorded Conversation, Tenant Asked Undercover to Pay Rent in Cash—Too Few Incidents Over a 46-Year Tenancy to Constitute Nuisance—Tenant Sought Short-Term Rentals, But Did Not Actually Engage in Short-Term Rentals

A landlord commenced a nuisance holdover proceeding, seeking to terminate a rent-controlled tenant who occupied a three-bedroom apartment. The tenant had lived in the apartment for more than 40 years. The landlord alleged, inter alia, that the tenant damaged the building, engaged in “illegal subletting,” had sub-divided a master suite, and had profiteered on short-term rentals.

A landlord employee posing as prospective subtenant (undercover) responded to the tenant’s Craigslist advertisement to rent out a portion of his apartment. The undercover met with the tenant and recorded the meeting. The audiotape was admitted into evidence. The undercover offered the tenant the requested $1,700 rent in money orders. The tenant asked for cash so as to not “create a paper trail for the IRS” and told the undercover that if anyone asks, say you are “a friend of mine.” The undercover never sublet the apartment.

The landlord’s building manager testified they had received complaints from other residents regarding garbage left in the hallway, late night noises, including gunshot sounds, “banging in the laundry room after hours,” and “chemical odors emanating” from the tenant’s apartment. The manager also testified that the tenant had engaged in illegal subletting, citing Craigslist advertisements that stated, “[l]ength of stay is open… $1,700 a month total….”

The manager used other aliases to communicate with the tenant in response to the Craigslist ads. The tenant stated that he would rent the apartment for $500 a week or $100 a night for stays “under a week.” However, the landlord did not present “any evidence these… communications resulted in actual rentals, for $500 a week or $100 a night.”

The manager further testified as to a water leak from an overflowing bathtub in 2015. The tenant’s neighbor testified that she had heard “heavy machinery being operated” from the tenant’s apartment, she heard “possible gun shots being fired from his apartment and smelled chemical smoke emanating from his apartment.” She also testified that she saw garbage, a washing machine, and a bicycle in front of the tenant’s door, the tenant was “creepy,” she felt “intimidated and was afraid” of the tenant, and from time to time “she saw transient guests in (tenant’s) apartment, including young women.”

One of the tenant’s subtenants testified that he had rented the apartment for six weeks, paying $1,600 for the first month and a proportional payment for the following two weeks. Another subtenant testified that she had rented the master suite for about three months and paid the monthly rent. She stated that while she was there, the tenant had lived in another part of the apartment.

The tenant testified that he had three bedrooms. He had not changed the configuration of the apartment and he submitted pictures to support such contention. He admittedly left garbage in the hallway, as other tenants had, and building staff had picked it up as a courtesy. After objection by management, he regularly took the garbage to the garbage room.

He admittedly left his bicycle in the hallway when he was going in and out of the apartment, but he stated that he stored the bike inside the apartment. He had once hung a mirror “out on the window ledge which fell and crashed to the courtyard below….” The tenant had apologized. Although he had left a washing machine in the hallway, he discarded it in a few days. The tenant claimed that he never sublet his apartment on a nightly basis “nor did he sublet to transient guests.”

“A nuisance is generally defined as a condition which threatens the health, safety, or comfort of neighboring tenants or other building occupants and must be continuous or persistent in nature.” Typical grounds for an eviction based on nuisance include “chronic non-payment of rent, health or fire hazards, illegal drug use or sales and other egregious conduct.”

The court found that the tenant’s conduct did not “constitute a nuisance to entitle the landlord to a judgment of possession.” It was unclear as to what specific odors the neighbor was referring to when she testified. The alleged noise was “not proven to be so loud such as to go on through the night or on a regular basis.” Evidence of gunshots “was completely speculative.” The evidence did not establish that there was “regular noise that occurs continuously over a long period of time, that gunshots actually came from his apartment, that water damage occurred numerous times, conduct sufficient to cause a fire, and hoarding of bicycles or trash in the hallway or in the apartment.”

The court stated that there were only “a few documented instances” that the tenant did something “wrong” during a 46-year tenancy. Moreover, the landlord failed to prove that the tenant had sublet his apartment “on a short term basis… to transient people such that he profited and commercialize the apartment.” The court further stated that whether charging a disproportionate amount of rent for the apartment rises to the level of profiteering was “not relevant here, because during the nuisance period the proof only established that (tenant) rented out his apartment for four months (to two different renters).” The court would not punish “respondent for wanting to sublet the apartment on a short-term basis without proof of him” doing it.

The court further observed that illegal sublet cases often involve testimony from a doorman, “sign-in sheets maintained by the doorman, video cameras showing multiple people coming and going, and/or tax returns or financial records indicating the amount of money the tenant made from… illegal renting.” Here, there was insufficient proof that the tenant “actually engaged” in an illegal lucrative commercial enterprise. The neighbor’s testimony lacked “dates, times and specificity.” The manager’s testimony of complaints by others constituted “as hearsay” and was not supported by witnesses with personal knowledge. Accordingly, the court dismissed the petition.

RSP 100 Property v. Brant, L&T 89925/13, NYLJ 1202766275650, at *1 (Civ., NY, Decided August 8, 2016), Saxe, J.


Breach of Contract—Statute of Limitations (SOL) Bars Breach of Contract Action Brought More Than Six Years After Alleged False Representations as to Loans Underlying Residential Mortgage-Backed Securities—Claim Accrues on Date Alleged False Statements Were Made—Contract Provision Specifying Conditions That Would Have Delayed Cause of Action’s Accrual Unenforceable as Against Public Policy—Parties May Agree After a Cause of Action Has Accrued to Extend the SOL, But Agreement to Extend the SOL Made at Inception of Liability Is Unenforceable

A plaintiff appealed from a trial court order which granted the defendant’s motion to dismiss a breach of contract claim on the grounds that it was time-barred. The salient issue was whether the statute of limitations (SOL) bars a breach of contract action that was brought more than six years after the seller made allegedly false representations and warranties (representations) as to loans underlying residential mortgage-backed securities (RMBS). The Appellate Division, First Department (court) held that “dismissal of the action is mandated” by a Court of Appeals decision, which held that “a breach of contract claim in an RMBS put-back action accrues on the date the allegedly false representations were made.”

The court further held that, “[n]otwithstanding the parties’ sophistication and their assent to a contract provision specifying a set of conditions that would have delayed the cause of action’s accrual, we find that the accrual provision is unenforceable as against public policy, because it is tantamount to extending the (SOL) based on an imprecise ‘discovery’ rule, which the Court of Appeals has consistently rejected in the commercial sphere….”

Moreover, “the accrual provision does not compel defendant to undertake a promised future performance, separate from its obligations to cure or repurchase defective loans, so as to trigger the (SOL) anew; nor does it contemplate a substantive condition precedent to defendant’s performance that would delay accrual of the breach of contract claim….” Thus, the court affirmed the trial court’s dismissal of the action.

The defendant originated mortgage loans that were sold pursuant to a contract dated June 1, 2006. The contract contained representations concerning the “characteristics, quality and risk profile of the loans.” The closing date for the sales of each package of loans occurred between Dec. 7, 2006 and May 31, 2007. The contract provided the following remedies:

Upon discovery by either the seller or the purchaser of a material breach of… warranties, the discovering party was to give the other…parties prompt written notice. Within 60 days of either discovery by or notice to the seller of any material breach, the seller was required to cure the breach or either repurchase the defective loan or substitute a “qualified” loan in its place (the repurchase protocol), and provide indemnification; these were to be the “sole remedies” for the breach.

Another provision provided that the accrual of a breach of contract claim would be delayed until three conditions were met. The accrual provision specified that any cause of action against defendant relating to a breach of representations

shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the Purchaser or notice thereof by the Seller to the Purchaser, (ii) failure by the Seller to [cure, repurchase or substitute] and (iii) demand upon the Seller by the Purchaser for compliance with this Agreement.

There were various assignments of the loan pool. The loan pool was eventually sold to “investor certificateholders in a securitization that closed on Oct. 2, 2007.”

In 2013, a certificate holder, Federal Home Loan Mortgage Corporation (Freddie Mac), commissioned a forensic review of the underlying loans. The review revealed “a large number of the loans breached representations…made by defendant regarding the quality and characteristics of the loans.” In July 2013, Freddie Mac informed plaintiff of the breaches. The required notices to and demands upon the defendant were issued.

On Aug. 30, 2013, the plaintiff commenced the subject action for breach of contract and failure to cure or repurchase the loans. The complaint sought specific performance, damages and/or rescission, and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing. The defendant moved to dismiss the complaint based on, inter alia, the SOL.

The defendant argued that the loans were initially sold in several groups, with the closing date for the sale of each package of loans occurring between Dec. 7, 2006, and May 31, 2007 and therefore, “all claims accrued in or before May 2007.” The defendant contended that the action was untimely because it was commenced on Aug. 30, 2013, more than six years after the accrual date. The plaintiff acknowledged that the representations were effective as of the closing date for the sale of the loans, i.e., May 31, 2007, at the latest, but asserted that the SOL “had not lapsed, under the agreement’s accrual provision.” The trial court dismissed the action on the grounds that the breach of contract claim was untimely.

The court explained that “‘[s]tatutes of limitation not only save litigants from defending stale claims, but also express[] a… public policy of giving repose to human affairs.’” “‘Because of the combined private and public interests involved, individual parties are not entirely free to waive or modify the statutory defense’” “Although parties may agree after a cause of action has accrued to extend the [SOL], an ‘agreement to…extend the [SOL] [that] is made at the inception of liability [will be] unenforceable because a party cannot in advance, make a valid promise that a statute founded in public policy shall be inoperative’”….

The Court of Appeals “held that a breach of contract claim in an RMBS put-back action accrues on the date the allegedly false representations and warranties were made….” Thus, the court found that the plaintiff’s claims for breach of contract accrued, at the latest, on May 31, 2007, and the subject action , commenced more than six years later on August 30, 2013, is “barred by the SOL (CPLR 213[2]).”

The court held that the subject accrual provision is unenforceable, notwithstanding “the principle of freedom of contract.” The court noted that the freedom of contract principle is “not absolute, and must give way to ‘countervailing public policy concerns’ in appropriate circumstances….” The court found that the accrual provision violates New York’s “public policies of ‘finality, certainty and predictability that [our] contract law endorses.’” The court further reasoned that enforcement of the accrual provision, which had been entered into at the inception of the breach, would “postpone the time from which the SOL is to be computed,” but would also “contravene the principle that ‘New York does not apply the discovery rule to statutes of limitations in contract actions….”

Additionally, the court stated that the accrual provisions conditions “creates an imprecisely ascertainable accrual date—possibly occurring decades in the future, since some of the loans extend for 30 years—which the Court of Appeals has ‘repeatedly rejected…in favor of a bright line approach’….” The court cited a U.S. Court of Appeals for the Second Circuit decision which invalidated a similar accrual provision, but had done so “without voiding the provision on public policy grounds.”

The court further held that the plaintiff’s “untimely action cannot be saved by construing the accrual provision as a promise of future performance by defendant.” The plaintiff argued that the defendant has promised “future performance because the agreement states that the representations…are to survive the sale of the loans.” The court explained, inter alia, “[w]hether they survive…does not alter the question of performance. A representation of present fact is either true or false—and the contract therefore performed or breached—if the underlying fact was true or false at the time the representation was made….” The plaintiff “was entitled to demand its contractual remedy” at the time when the representations became effective and the claim accrued at that time. The agreement “did not call for future performance of a separate obligation by defendant….”

The court also stated that the accrual provision’s requirement that plaintiff serve a demand on the defendant for performance of the agreement did not “not constitute a substantive condition precedent that could delay accrual of the breach of contract claim.” The court believed that the plaintiff overlooked the “significant distinction between substantive and procedural demand requirements….” The court explained that a demand “‘that is a condition to a party’s performance’ is a substantive condition precedent, which can delay accrual of a claim, whereas ‘a demand that seeks a remedy for a preexisting wrong’ is a procedural prerequisite to suit, which cannot….” Here, the plaintiff suffered a legal wrong “at the moment [defendant] allegedly breached the representations” and a claim existed for breach of a representation at that time. Thus, the condition that plaintiff demand defendant’s compliance with the agreement “‘was a procedural prerequisite to suit,’ not a substantive condition precedent to defendant’s performance….”

The court also rejected the plaintiff’s contention that even if the accrual provision were unenforceable, it was an error to hold that all of the breach of contract claims were time-barred. The plaintiff argued that at least one of the representations was allegedly breached by the defendant as late as Oct. 2, 2007 (the closing date of the securitization, when the loans and rights under the purchase agreement were assigned to the trust), rendering timely the claim asserted in the complaint filed on August 30, 2013. The court explained that the complaint’s allegations all relate “to the representations…made about the loans in the agreement in 2006 and the closing dates of the loan sales, the last of which occurred in May 2007.”

The complaint’s allegations did not address “any other allegedly false statement or information furnished by defendant on Oct. 2, 2007, in connection with the securitization.” Accordingly, the court held that all of plaintiff’s claims accrued no later than May 31, 2007, and were not timely asserted. Thus, the court affirmed the trial court decision dismissing the complaint.

Deutsche Bank Natl. Trust v. Flagstar Capital Mkts., 653048/13, NYLJ 1202765154632, at *1 (App. Div., 1st, Decided August 11, 2016) Before Acosta, J.P., Renwick, Saxe, Richter, Gische, JJ. Decision by Acosta, J. All concur.

Landlord-Tenant—Nuisance—Landlord Set Up Sting Operation to Respond to Tenant’s Craigslist Advertisement to Rent out Part of His Apartment—In Tape-Recorded Conversation, Tenant Asked Undercover to Pay Rent in Cash—Too Few Incidents Over a 46-Year Tenancy to Constitute Nuisance—Tenant Sought Short-Term Rentals, But Did Not Actually Engage in Short-Term Rentals

A landlord commenced a nuisance holdover proceeding, seeking to terminate a rent-controlled tenant who occupied a three-bedroom apartment. The tenant had lived in the apartment for more than 40 years. The landlord alleged, inter alia, that the tenant damaged the building, engaged in “illegal subletting,” had sub-divided a master suite, and had profiteered on short-term rentals.

A landlord employee posing as prospective subtenant (undercover) responded to the tenant’s Craigslist advertisement to rent out a portion of his apartment. The undercover met with the tenant and recorded the meeting. The audiotape was admitted into evidence. The undercover offered the tenant the requested $1,700 rent in money orders. The tenant asked for cash so as to not “create a paper trail for the IRS” and told the undercover that if anyone asks, say you are “a friend of mine.” The undercover never sublet the apartment.

The landlord’s building manager testified they had received complaints from other residents regarding garbage left in the hallway, late night noises, including gunshot sounds, “banging in the laundry room after hours,” and “chemical odors emanating” from the tenant’s apartment. The manager also testified that the tenant had engaged in illegal subletting, citing Craigslist advertisements that stated, “[l]ength of stay is open… $1,700 a month total….”

The manager used other aliases to communicate with the tenant in response to the Craigslist ads. The tenant stated that he would rent the apartment for $500 a week or $100 a night for stays “under a week.” However, the landlord did not present “any evidence these… communications resulted in actual rentals, for $500 a week or $100 a night.”

The manager further testified as to a water leak from an overflowing bathtub in 2015. The tenant’s neighbor testified that she had heard “heavy machinery being operated” from the tenant’s apartment, she heard “possible gun shots being fired from his apartment and smelled chemical smoke emanating from his apartment.” She also testified that she saw garbage, a washing machine, and a bicycle in front of the tenant’s door, the tenant was “creepy,” she felt “intimidated and was afraid” of the tenant, and from time to time “she saw transient guests in (tenant’s) apartment, including young women.”

One of the tenant’s subtenants testified that he had rented the apartment for six weeks, paying $1,600 for the first month and a proportional payment for the following two weeks. Another subtenant testified that she had rented the master suite for about three months and paid the monthly rent. She stated that while she was there, the tenant had lived in another part of the apartment.

The tenant testified that he had three bedrooms. He had not changed the configuration of the apartment and he submitted pictures to support such contention. He admittedly left garbage in the hallway, as other tenants had, and building staff had picked it up as a courtesy. After objection by management, he regularly took the garbage to the garbage room.

He admittedly left his bicycle in the hallway when he was going in and out of the apartment, but he stated that he stored the bike inside the apartment. He had once hung a mirror “out on the window ledge which fell and crashed to the courtyard below….” The tenant had apologized. Although he had left a washing machine in the hallway, he discarded it in a few days. The tenant claimed that he never sublet his apartment on a nightly basis “nor did he sublet to transient guests.”

“A nuisance is generally defined as a condition which threatens the health, safety, or comfort of neighboring tenants or other building occupants and must be continuous or persistent in nature.” Typical grounds for an eviction based on nuisance include “chronic non-payment of rent, health or fire hazards, illegal drug use or sales and other egregious conduct.”

The court found that the tenant’s conduct did not “constitute a nuisance to entitle the landlord to a judgment of possession.” It was unclear as to what specific odors the neighbor was referring to when she testified. The alleged noise was “not proven to be so loud such as to go on through the night or on a regular basis.” Evidence of gunshots “was completely speculative.” The evidence did not establish that there was “regular noise that occurs continuously over a long period of time, that gunshots actually came from his apartment, that water damage occurred numerous times, conduct sufficient to cause a fire, and hoarding of bicycles or trash in the hallway or in the apartment.”

The court stated that there were only “a few documented instances” that the tenant did something “wrong” during a 46-year tenancy. Moreover, the landlord failed to prove that the tenant had sublet his apartment “on a short term basis… to transient people such that he profited and commercialize the apartment.” The court further stated that whether charging a disproportionate amount of rent for the apartment rises to the level of profiteering was “not relevant here, because during the nuisance period the proof only established that (tenant) rented out his apartment for four months (to two different renters).” The court would not punish “respondent for wanting to sublet the apartment on a short-term basis without proof of him” doing it.

The court further observed that illegal sublet cases often involve testimony from a doorman, “sign-in sheets maintained by the doorman, video cameras showing multiple people coming and going, and/or tax returns or financial records indicating the amount of money the tenant made from… illegal renting.” Here, there was insufficient proof that the tenant “actually engaged” in an illegal lucrative commercial enterprise. The neighbor’s testimony lacked “dates, times and specificity.” The manager’s testimony of complaints by others constituted “as hearsay” and was not supported by witnesses with personal knowledge. Accordingly, the court dismissed the petition.

RSP 100 Property v. Brant, L&T 89925/13, NYLJ 1202766275650, at *1 (Civ., NY, Decided August 8, 2016), Saxe, J.


Breach of Contract—Statute of Limitations (SOL) Bars Breach of Contract Action Brought More Than Six Years After Alleged False Representations as to Loans Underlying Residential Mortgage-Backed Securities—Claim Accrues on Date Alleged False Statements Were Made—Contract Provision Specifying Conditions That Would Have Delayed Cause of Action’s Accrual Unenforceable as Against Public Policy—Parties May Agree After a Cause of Action Has Accrued to Extend the SOL, But Agreement to Extend the SOL Made at Inception of Liability Is Unenforceable

A plaintiff appealed from a trial court order which granted the defendant’s motion to dismiss a breach of contract claim on the grounds that it was time-barred. The salient issue was whether the statute of limitations (SOL) bars a breach of contract action that was brought more than six years after the seller made allegedly false representations and warranties (representations) as to loans underlying residential mortgage-backed securities (RMBS). The Appellate Division, First Department (court) held that “dismissal of the action is mandated” by a Court of Appeals decision, which held that “a breach of contract claim in an RMBS put-back action accrues on the date the allegedly false representations were made.”

The court further held that, “[n]otwithstanding the parties’ sophistication and their assent to a contract provision specifying a set of conditions that would have delayed the cause of action’s accrual, we find that the accrual provision is unenforceable as against public policy, because it is tantamount to extending the (SOL) based on an imprecise ‘discovery’ rule, which the Court of Appeals has consistently rejected in the commercial sphere….”

Moreover, “the accrual provision does not compel defendant to undertake a promised future performance, separate from its obligations to cure or repurchase defective loans, so as to trigger the (SOL) anew; nor does it contemplate a substantive condition precedent to defendant’s performance that would delay accrual of the breach of contract claim….” Thus, the court affirmed the trial court’s dismissal of the action.

The defendant originated mortgage loans that were sold pursuant to a contract dated June 1, 2006. The contract contained representations concerning the “characteristics, quality and risk profile of the loans.” The closing date for the sales of each package of loans occurred between Dec. 7, 2006 and May 31, 2007. The contract provided the following remedies:

Upon discovery by either the seller or the purchaser of a material breach of… warranties, the discovering party was to give the other…parties prompt written notice. Within 60 days of either discovery by or notice to the seller of any material breach, the seller was required to cure the breach or either repurchase the defective loan or substitute a “qualified” loan in its place (the repurchase protocol), and provide indemnification; these were to be the “sole remedies” for the breach.

Another provision provided that the accrual of a breach of contract claim would be delayed until three conditions were met. The accrual provision specified that any cause of action against defendant relating to a breach of representations

shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the Purchaser or notice thereof by the Seller to the Purchaser, (ii) failure by the Seller to [cure, repurchase or substitute] and (iii) demand upon the Seller by the Purchaser for compliance with this Agreement.

There were various assignments of the loan pool. The loan pool was eventually sold to “investor certificateholders in a securitization that closed on Oct. 2, 2007.”

In 2013, a certificate holder, Federal Home Loan Mortgage Corporation ( Freddie Mac ), commissioned a forensic review of the underlying loans. The review revealed “a large number of the loans breached representations…made by defendant regarding the quality and characteristics of the loans.” In July 2013, Freddie Mac informed plaintiff of the breaches. The required notices to and demands upon the defendant were issued.

On Aug. 30, 2013, the plaintiff commenced the subject action for breach of contract and failure to cure or repurchase the loans. The complaint sought specific performance, damages and/or rescission, and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing. The defendant moved to dismiss the complaint based on, inter alia, the SOL.

The defendant argued that the loans were initially sold in several groups, with the closing date for the sale of each package of loans occurring between Dec. 7, 2006, and May 31, 2007 and therefore, “all claims accrued in or before May 2007.” The defendant contended that the action was untimely because it was commenced on Aug. 30, 2013, more than six years after the accrual date. The plaintiff acknowledged that the representations were effective as of the closing date for the sale of the loans, i.e., May 31, 2007, at the latest, but asserted that the SOL “had not lapsed, under the agreement’s accrual provision.” The trial court dismissed the action on the grounds that the breach of contract claim was untimely.

The court explained that “‘[s]tatutes of limitation not only save litigants from defending stale claims, but also express[] a… public policy of giving repose to human affairs.’” “‘Because of the combined private and public interests involved, individual parties are not entirely free to waive or modify the statutory defense’” “Although parties may agree after a cause of action has accrued to extend the [SOL], an ‘agreement to…extend the [SOL] [that] is made at the inception of liability [will be] unenforceable because a party cannot in advance, make a valid promise that a statute founded in public policy shall be inoperative’”….

The Court of Appeals “held that a breach of contract claim in an RMBS put-back action accrues on the date the allegedly false representations and warranties were made….” Thus, the court found that the plaintiff’s claims for breach of contract accrued, at the latest, on May 31, 2007, and the subject action , commenced more than six years later on August 30, 2013, is “barred by the SOL ( CPLR 213 [2]).”

The court held that the subject accrual provision is unenforceable, notwithstanding “the principle of freedom of contract.” The court noted that the freedom of contract principle is “not absolute, and must give way to ‘countervailing public policy concerns’ in appropriate circumstances….” The court found that the accrual provision violates New York ‘s “public policies of ‘finality, certainty and predictability that [our] contract law endorses.’” The court further reasoned that enforcement of the accrual provision, which had been entered into at the inception of the breach, would “postpone the time from which the SOL is to be computed,” but would also “contravene the principle that ‘ New York does not apply the discovery rule to statutes of limitations in contract actions….”

Additionally, the court stated that the accrual provisions conditions “creates an imprecisely ascertainable accrual date—possibly occurring decades in the future, since some of the loans extend for 30 years—which the Court of Appeals has ‘repeatedly rejected…in favor of a bright line approach’….” The court cited a U.S. Court of Appeals for the Second Circuit decision which invalidated a similar accrual provision, but had done so “without voiding the provision on public policy grounds.”

The court further held that the plaintiff’s “untimely action cannot be saved by construing the accrual provision as a promise of future performance by defendant.” The plaintiff argued that the defendant has promised “future performance because the agreement states that the representations…are to survive the sale of the loans.” The court explained, inter alia, “[w]hether they survive…does not alter the question of performance. A representation of present fact is either true or false—and the contract therefore performed or breached—if the underlying fact was true or false at the time the representation was made….” The plaintiff “was entitled to demand its contractual remedy” at the time when the representations became effective and the claim accrued at that time. The agreement “did not call for future performance of a separate obligation by defendant….”

The court also stated that the accrual provision’s requirement that plaintiff serve a demand on the defendant for performance of the agreement did not “not constitute a substantive condition precedent that could delay accrual of the breach of contract claim.” The court believed that the plaintiff overlooked the “significant distinction between substantive and procedural demand requirements….” The court explained that a demand “‘that is a condition to a party’s performance’ is a substantive condition precedent, which can delay accrual of a claim, whereas ‘a demand that seeks a remedy for a preexisting wrong’ is a procedural prerequisite to suit, which cannot….” Here, the plaintiff suffered a legal wrong “at the moment [defendant] allegedly breached the representations” and a claim existed for breach of a representation at that time. Thus, the condition that plaintiff demand defendant’s compliance with the agreement “‘was a procedural prerequisite to suit,’ not a substantive condition precedent to defendant’s performance….”

The court also rejected the plaintiff’s contention that even if the accrual provision were unenforceable, it was an error to hold that all of the breach of contract claims were time-barred. The plaintiff argued that at least one of the representations was allegedly breached by the defendant as late as Oct. 2, 2007 (the closing date of the securitization, when the loans and rights under the purchase agreement were assigned to the trust), rendering timely the claim asserted in the complaint filed on August 30, 2013. The court explained that the complaint’s allegations all relate “to the representations…made about the loans in the agreement in 2006 and the closing dates of the loan sales, the last of which occurred in May 2007.”

The complaint’s allegations did not address “any other allegedly false statement or information furnished by defendant on Oct. 2, 2007, in connection with the securitization.” Accordingly, the court held that all of plaintiff’s claims accrued no later than May 31, 2007, and were not timely asserted. Thus, the court affirmed the trial court decision dismissing the complaint.

Deutsche Bank Natl. Trust v. Flagstar Capital Mkts., 653048/13, NYLJ 1202765154632, at *1 (App. Div., 1st, Decided August 11, 2016) Before Acosta , J.P., Renwick, Saxe, Richter, Gische, JJ. Decision by Acosta , J. All concur.