DECISION AFTER TRIAL The defendant Robert Castaldi was the president of the defendant Castle Restoration & Construction, Inc. (“Castle Inc.”) and his wife, the defendant Diane Castaldi, was its sole shareholder. Castle Inc.’s business was the exterior restoration and waterproofing of commercial buildings in New York City and in the tri-state area. Anthony Colao was also in the restoration and waterproofing business. In 2012, the Castaldis agreed to sell their business to Colao, the sole member of the plaintiff, Castle Restoration LLC (“Castle LLC”). On March 15, 2012, Castle Inc. entered into an asset-sale agreement with Castle LLC. The sale included, inter alia, the transfer of equipment and a list of clients from Castle Inc. to Castle LLC. The purchase price was $1.2 million. Castle LLC paid Castle Inc. $100,000 at the closing and gave Castle Inc. a promissory note in the amount of $1.1 million. The note was payable in consecutive monthly installments commencing on April 15, 2012. Castle LLC defaulted on the note by failing to make the first payment on April 15, 2012. Castle Inc. commenced an action to recover on the note by moving for summary judgment in lieu of complaint in the Supreme Court, Nassau County. The motion was denied by an order of that court (Bucaria, J.) entered November 14, 2013. Castle Inc. appealed. On appeal, Castle LLC argued that it was not delinquent on the note because the parties entered into a subsequent oral agreement in which Castle LLC agreed to provide Castle Inc. with labor and materials for additional construction projects, the value of which would be used to offset Castle LLC’s obligation under the note. The Appellate Division, Second Department, rejected that argument on the ground that the breach of a related contract cannot defeat a motion for summary judgment on an instrument for the payment of money only unless the two are “inextricably intertwined” and that the alleged oral agreement and the note were not “inextricably intertwined.” By a decision and order dated November 19, 2014, the Appellate Division reversed the order of the Supreme Court, Nassau County, and granted Castle Inc.’s motion for summary judgment in lieu of complaint (122 AD3d 789). Castle LLC commenced this action on June 10, 2015. The complaint contained ten causes of action for breach of contract, fraud in the inducement, quantum meruit, unjust enrichment, and tortious interference with contract. After discovery was complete, the defendants Castle Inc., Robert Castaldi, Diane Castaldi, and Windy Osprey Construction Corp. moved for summary judgment dismissing the complaint insofar as it was asserted against them.1 By an order of this court dated July 8, 2020, the motion was granted to the extent of dismissing all of the causes of action except the first and third causes of action for breach of contract. The first cause of action alleges that Castle Inc. breached the asset-sale agreement, inter alia, by failing to complete all of the work-in-progress that remained unfinished as of the closing date, as required by §2.04, which provides as follows: “The Parties agree that all of [Castle Inc.'s] work in progress shall be completed by [Castle Inc.] notwithstanding the fact that the completion of such work in progress may occur following the Closing. [Castle Inc.] shall be responsible for the payment of all expenses incurred while in the course of completing such work in progress, and [Castle Inc.] shall be entitled to retain all receivables and profits realized from such work in progress, net of expenses. [Castle LLC] agrees to assist [Castle Inc.] with respect to the completion of such work in progress pursuant to the terms contained in a Construction Management Agreement to be entered into by the Parties for such purpose.” The record does not reflect that the parties entered into a written construction-management agreement. However, the third cause of action alleges that Castle Inc. entered into an oral agreement with Castle LLC in which Castle LLC agreed to complete Castle Inc.’s work-inprogress in exchange for a reduction of Castle LLC’s obligation under the promissory note, that Castle LLC completed Castle Inc.’s work-in-progress, and that Castle Inc. breached the purported oral agreement by failing to compensate Castle LLC for completing the work. In denying summary judgment, the court noted, “The alleged oral agreement would have relieved Castle Inc. of its obligation to perform under §2.04. Thus, Castle LLC cannot prevail on its claim that Castle Inc. breached §2.04 of the asset-purchase agreement if the alleged oral agreement is valid and enforceable[.]“ The case proceeded to trial on the first and third causes of action. A virtual trial was held on September 14 and 15, 2021. The plaintiff’s case consisted of 49 exhibits; direct testimony by Lisa Cortese, Castle LLC’s former controller; and the direct-testimony affidavits of four witnesses: Anthony Colao, the sole member of Castle LLC; Terrence Flood, Castle Inc.’s former insurance broker; Eve Skrocka and Clem Villa, former Castle Inc. employees who worked for Castle LLC. In addition, Villa testified and was cross examined by the defendant. Skrocka and Colao were also cross examined by the defendant. The defendants’ case consisted of 22 exhibits and the direct testimony of Robert Castaldi, the president of Castle, Inc. Castaldi was cross examined by the plaintiff. The threshold issue for the court to determine is whether the alleged oral agreement is enforceable. As the court noted in its summary-judgment decision, the asset-sale agreement contained a no-oral-modification provision. Parties to a written agreement who include a proscription against oral modification are protected by the statute of frauds (General Obligations Law §15-301[1]; Rose v. Spa Realty Assoc., 42 NY2d 338, 343). Any contract containing such a clause cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement is sought (Id.). Put otherwise, if the only proof of an alleged agreement to deviate from a written contract is the oral exchanges between the parties, the writing controls. Thus, the authenticity of any amendment is ensured (Id.). A party’s admission of the existence and essential terms of an oral agreement is sufficient to take the agreement out of the statute of frauds (Camhi v. Tedesco Realty, LLC, 105 AD3d 795, 797). The defendants acknowledge that Castle Inc. entered into an oral agreement with Castle LLC in which Castle LLC agreed to complete Castle Inc.’s work-in-progress. The parties’ dispute centers on the terms of the oral agreement, specifically how Castle LLC was to be compensated for its work. According to Colao, Castaldi agreed that Castle LLC’s compensation would be a reduction of the balance due on the promissory note in an amount equal to Castle LLC’s costs and expenses, including labor, materials, overhead, general conditions, and profit. According to Castaldi, Castle Inc. would purchase any materials needed to complete its work, and Castle LLC would supply the labor. Castle Inc. would pay Castle LLC’s employees directly for the work performed or reimburse Castle LLC for the cost of the labor. Castle LLC would then bill the owners of the projects for the work and deliver the payments it received from the owners to Castle Inc. According to Castaldi, Castle Inc. never agreed to pay Castle LLC for any mark-ups, including overhead, profits, and general conditions. The statute of fraud applies when, as here, the parties acknowledge an oral agreement, but dispute its terms and conditions, (Komlossy v. Faruqi & Faruqi, LLP, 714 Fed Appx 11, 14 [2nd Cir], citing Camhi v. Tedesco Realty, LLC, supra). The effect of the statute of frauds is to render an oral contract coming within its operation unenforceable, and such a contract cannot form the basis or foundation for an action (61 NY Jur 2d Frauds, Statute of §322). Accordingly, the alleged oral agreement between the plaintiff and Castle Inc. is unenforceable, and there can be no recovery thereunder (Id.). The result is the same even if the statute of frauds does not apply. To establish the existence of an enforceable agreement, a plaintiff must establish an offer, acceptance of the offer, consideration, mutual assent, and an intent to be bound (Kolchins v. Evolution Markets, Inc., 128 AD3d 47, 59, affd 31 NY3d 100. Even if parties intend to be bound by a contract, it is unenforceable if there is no meeting of the minds (Gessin Elec. Contrs., Inc. v. 95 Wall Assoc LLC, 74 AD3d 516, 518). The meeting of the minds must include agreement on all essential or material terms (Kolchins, supra). The consideration to be paid under a contract is a material term (Gutkowski v. Steinbrenner, 680 F Supp 2d 602, 610 [SDNY]; see also, Regency Homes Realty Group, Inc. v. Leo and Laura, LLD, 155 AD3d 1075, 1077 [essential terms include the time and terms of payment]). If the parties understand the contract’s material terms differently, there is no meeting of the minds (Gessin Elec. Contrs., Inc., supra). Here, the parties clearly disagreed on how Castle LLC was to be paid for its work. Since the parties never reached a meeting of the minds on that material term, the alleged oral agreement is unenforceable. Turning to the first cause of action, the plaintiff alleges that Castle Inc. breached the assetsale agreement (I) by failing to complete all of the work-in-progress that remained unfinished as of the closing date, as required by §2.04, (ii) by failing to honor its warranty obligations to existing customers and satisfy its other debts and liabilities, as required by §2.03, (iii) by failing to pay its vendors, and (iv) by failing to indemnify Castle LLC for losses incurred as a result of its breaches, as required by §10.01. Under New York law, the essential elements of a breach-of-contract cause of action are the existence of a contract, the plaintiff’s performance pursuant to the contract, the defendant’s breach of its contractual obligations, and damages resulting from the breach (Innovative Biodefense, Inc. v. VSP Tech., Inc., 176 F Supp 3d 305, 317 [SDNY]). A party will not be able to prevail on a breach-of-contract claim unless it proves, by a preponderance of the evidence, that it performed its own obligations under the contract (Id.). Thus, a party is relieved of its duty to perform under a contract when the other party has committed a material breach (Franklin Pavkov Constr. Co. v. Ultra Roof, Inc., 51 F Supp 2d 204, 215 [NDNY]). For a breach to be considered material, it must go to the root of the agreement between the parties (Id.). Failure to tender payment pursuant to the terms of a contract is generally considered a material breach, which excuses the other party’s obligation to further perform (Id.). While Castle Inc. may have breached the asset-sale agreement, Castle LLC also breached the agreement by failing to make any payments on the promissory note for the $1.1 million balance due on the purchase price. Morever, Castle LLC’s breach occurred on April 15, 2012, almost immediately after the parties signed the asset-sale agreement on March 15, 2012. Castle LLC’s failure to pay the purchase price constituted a material breach of the asset-sale agreement, discharging Castle Inc. of its duty to perform. Accordingly, Castle LLC, having failed to perform its side of the bargain, cannot prevail on its first cause of action for breach of the asset-sale agreement (see Innovative Biodefense, Inc. v. VSP Tech., Inc., supra). In sum, the alleged oral agreement is unenforceable, and the plaintiff has failed to establish by a preponderance of the credible evidence that it performed its own obligations under the asset-sale agreement. Accordingly, the court finds in favor of the defendants on both causes of action. Dated: February 9, 2022
