Recent New York Cases Clarifying Points of New York Contract Law

Recent cases from the Commercial Division and the Appellate Division concerning appeals from the Commercial Division enunciate interesting holdings in contract law.

In the first one, on July 2, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Board of Managers of the Clermont Greene Condominium v. Vanderbilt Mansions, LLC, 2014 NY Slip Op. 51023(U), holding that a condominium board lacked capacity to bring the action against the condominium’s sponsor because the board failed formally to vote to authorize the action. In Board of Managers of the Clermont Greene Condominium, the defendant moved to dismiss on the ground that the plaintiff board lacked capacity to bring an action against it. Justice Demarest agreed, ruling that even though, as a general matter, “Real Property Law § 339-dd . . . expressly confers standing and legal capacity upon a condominium board to prosecute this action,” the board lacked capacity in this situation, explaining:

Business Corporation Law § 708(a), . . . provides that “except as otherwise provided in this chapter, any reference in this chapter to corporate action to be taken by the board shall mean such action at a meeting of the board.” In the absence of contrary statutory authority directly relevant to condominiums per se, notwithstanding that condominium ownership is a hybrid form of real property, created by statute, and the fact that a condominium, unlike a cooperative, is not organized pursuant to the Business Corporation Law, Business Corporation Law § 708 provides the clearest relevant authority on the subject of board action. It is noted that the bylaws for Clermont Greene Condominium track the language of Business Corporation Law §§ 708(b) and (c) in authorizing action without a formal meeting “if all members of the board . . . consent in writing to the adoption of a resolution authorizing the action” and the resolution and written consents are filed with the minutes of the proceedings (see Bylaws, Section 11), and in providing for waiver of notice upon appearance at a meeting and for participation by telephone, evidencing an intent to conform to the procedures set forth in the Business Corporation Law, as applicable. There is no evidence or representation, however, that any meeting or vote of any kind effected a decision by the Board to commence this action.

Exclusive authority to manage the common elements and joint finances of the condominium is vested in the board of managers. . . . It is clear that plaintiff has standing to maintain this action against defendant, but in the absence of any indication that it acted as a board by voting to authorize commencement of suit, defendant’s motion pursuant to CPLR 3211 (a) (3), must be granted as plaintiff lacked capacity to sue at the time the action was filed.

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

In the second case, on June 24, 2014, the First Department issued a decision in Plymouth Financial Co., Inc. v. Plymouth Park Tax Services LLC, 2014 NY Slip Op. 04686, interpreting conflicting indemnification provisions in an asset purchase agreement. In Plymouth Financial, the parties disagreed on the distribution of a $1 million “hold-back payment” detailed in their asset purchase agreement based on differing interpretations of the APA’s indemnification provisions. At issue were payments for a litigation specifically identified in the APA: the “MRS Litigation.” The First Department held:

Defendant contends that it is entitled to reduce the amount of its payment by the amount of an indemnification found in the APA’s section 8.1(a)(v), for costs associated with . . . the MRS Litigation. Plaintiff argues that defendant must pay the full $1 million and cannot deduct the indemnification, because its affiliate company acquired separate counsel in the MRS Litigation and, according to section 8.6 of the APA, this separate counsel was obtained at defendant’s expense.

The motion court correctly determined that section 8.6 was intended to apply only to future third-party claims, while the indemnification in section 8.1(a)(v) was intended to apply specifically to the then-pending MRS Litigation. However, the court incorrectly applied the provisions of section 8.6 to the MRS Litigation indemnification regardless of this distinction. Section 8.1(a)(v) evinces the parties’ clear intent to place the risk of “any and all losses” connected to the MRS Litigation, including legal fees, “whether arising before or after the Closing,” squarely on plaintiff. The provisions of section 8.6 cannot be read to limit the indemnification found in section 8.1(a)(v), as this interpretation would vitiate the language of section 8.1(a)(v), rendering it meaningless.

(Internal quotations and citations omitted).

Finally, on June 19, 2014, Justice Scarpulla of the New York County Commercial Division issued a decision in CF Notes, LLC v. Johnson, 2014 NY Slip Op. 31598(U), granting summary judgment in lieu of complaint on a note. The case is interesting because he held that summary judgment could be granted even if there were conditions other than timely payment. In CF Notes, the plaintiff moved for summary judgment in lieu of complaint on a note signed by an employee that was made due on demand in the event of one of several conditions occurring and was only payable if the defendant failed to meet certain conditions. The court nonetheless granted summary judgment in lieu of complaint, explaining:

[The plaintiff] makes its prima facie showing that it is entitled to summary judgment on the note. To establish a prima facie case, plaintiff must present an instrument for the payment of money only and evidence of a failure to make the payment called for by its terms. [The plaintiff] submitted a copy of note annexed to its moving papers, which is for the payment of money only. Moreover, by its terms, [the defendant] acknowledges that this Note is an agreement for the payment of money only subject to enforcement pursuant to NY CPLR § 3213.

For evidence of [the defendant's] failure to make the payment called for by the note, [the plaintiff] submits the Kofsky affidavit, in which Kofsky states that on or about May 17, 2013, [the defendant] resigned . . . . This, by the terms of the note, caused the sum owed under the note to become immediately due and payable. Kofsky further states that [the defendant] did not earn $5 million in gross revenue . . . , such that the Net Loan Amount would have been forgiven. Kofsky also states that [the defendant] has not made any payments against the sums due under the loan. [The plaintiff] therefore makes its prima facie showing that [the defendant] failed to repay the amounts owed under the note.

LOAD MORE
Industry: