Recent NY Commercial Division Contract Decisions

In the past few days, the Commercial Division and Appellate Division, First Department have issued some interesting opinions on New York contract law.

In the first, on May 27, 2014, the First Department issued a decision in Smile Train, Inc. v. Ferris Consulting Corp., 2014 NY Slip Op. 03785, specifically enforcing a contractual term shortening the limitations period to bring a claim under the agreement.

In Smile Train, the defendants moved to dismiss the plaintiff’s claims based on a contract term shortening the limitations period in which to make a claim. The First Department affirmed the trial court’s decision granting the motion, explaining:

An agreement which modifies the Statute of Limitations by specifying a shorter, but reasonable, period within which to commence an action is enforceable provided it is in writing. In addition, it must not be so vague and ambiguous that it is unenforcible. . . . .

We . . . disagree with plaintiff’s contention that [the limitations provision in the parties' contract] does not apply to its claim for breach of the implied covenant of good faith and fair dealing. It is true that I.C.C. Metals v Municipal Warehouse Co. (50 NY2d 657 [1980]) says that a party may not limit its liability for an intentional tort. However, breach of the implied covenant of good faith and fair dealing is not a tort; rather, it is a contract claim. A claim for breach of the implied covenant of good faith and fair dealing may not be used as a substitute for a nonviable claim of breach of contract. It would be anomalous if plaintiff’s contract claim were subject to a three-month statute of limitations but its claim for breach of the implied covenant were not.

(Internal quotations and citations omitted).

In another, on May 20, 2014, Justice Sherwood of the New York County Commercial Division issued a decision in Goddard Investors II, LLC v. Goddard Development Partners II, LLC, 2014 NY Slip Op. 31335(U), denying a motion for summary judgment in lieu of complaint based on a guaranty because the plaintiff’s right to payment could not be ascertained from the face of the guaranty.

In Goddard Investors II, the plaintiff “move[d] pursuant to CPLR 3213 for summary judgment in lieu of complaint on a note and guaranty.” In denying the motion, Justice Sherwood explained:

A claim on an instrument for the payment of money is established by proof of the instrument and a failure to make the payments called for by its terms. Proof of the fulfillment of the condition precedent to the obligation to repay, comes within this limited category of elements of proof which may be established by extrinsic evidence without rendering accelerated treatment unavailable.

The fact that defenses may be asserted against the instrument sued upon does not preclude the use of CPLR § 3213 as long as the right to payment can be ascertained from the face of the document without regard to extrinsic evidence, other than simple proof of nonpayment or a similar de minimis deviation from the face of the document. Determining the amount to be paid under the guaranty by reference to a note or a mortgage to which the Guaranty relates is a de minimis deviation in CPLR § 3213 actions for payment.

An unconditional guaranty is an instrument for the payment of money only. A guaranty is not an instrument for the payment of money only when it is relates to a stock purchase agreement which did not specify a sum certain or a series of purchase orders with separately issued invoices. The same result is reached when the guaranty is conditioned upon creditor refraining from disparaging comments about her former employer, because it requires investigation into whether the condition was respected or not.

The Note [is not] an instrument for the payment of money only because the right to payment cannot be ascertained from the face of the document. Although the Note reads that the GDP promises to pay the principal amount of $500,000 with an annual 8% interest, the payment is expressly conditional on the acquisition and sale of property. This is not the sort of de minimus deviation from the face of document that CPLR 3213 contemplates.

(Internal quotations and citations omitted) (emphasis added).

Finally, on May 29, 2014, the First Department issued a decision in Pleiades Publishing, Inc. v. Springer Science + Business Media LLC, 2014 NY Slip Op. 03917, affirming that the plaintiff had stated a claim for breach of the implied covenant of good faith and fair dealing where plaintiff’s rights under the agreement were frustrated.

In Pleiades Publishing, the plaintiff, “a publisher of English-language versions of Russian-language scientific, technical, and medical journals,” sued the defendant, the “plaintiff’s exclusive distributor pursuant to an agreement that required it to use ‘commercially reasonable efforts’ to promote the Russian-language journals and to market and promote them as offerings in its online database,” alleging “that [the] defendant incorporated its journals into a bundle of available non-subscribed journals, which disguised from customers the separate identity, value proposition, and pricing approach for the” database. The trial court denied the motion to dismiss the plaintiff’s claim for breach of the implied covenant of good faith and fair dealing, and the First Department affirmed:

These allegations state a cause of action for breach of the implied covenant of good faith and fair dealing. While the agreement granted defendant the discretion to decide how to market and promote the [database], defendant did not have the right to exercise that discretion in such a way as to frustrate plaintiff’s rights under the agreement, deprive plaintiff of the value of its journals, or benefit itself at plaintiff’s expense.

(Internal quotations and citations omitted).

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