Nastasi & Associates, Inc., was a subcontractor for Turner Construction Corp. Payment to Nastasi was conditioned on Turner being paid by the owner. Turner had the right to terminate the parties’ agreement by written notice, with any payments due to Nastasi, again, conditioned on Turner being paid. The agreement also included a one year period in which claims against Turner or the owner could be brought.

In April 2015, Nastasi asked for certain payment from Turner. Turner responded by informing Nastasi that it was working on processing paperwork so payment could be obtained from the owner and paid. In May 2015, Turner terminated its agreement with Nastasi. Between May 2015 and April 2017, Turner continued promising payment to Nastasi. Instead, in April 2017, Turner sued Nastasi for more than $4 million. Nastasi responded with counterclaims, to which Turner moved to dismiss based on the expiration of the one-year limitation period. Nastasi responded by arguing that it had been negotiating with Turner for years. Supreme Court granted Turner’s motion.

The First Department, however, disagreed. While the court agreed that parties may contract to shorter limitation periods, they could not where “a contract imposes a condition precedent that cannot reasonably be met within the time frame of the limitations period under the available facts,” with the “‘circumstances, not the time, … the determining factor.’”

Although not a new issue, we discuss it because it comes up from time to time. What obligation does a lender have to verify documents used by a corporate entity to establish that the individual borrowing the money has the corporate authority to do so? In short, very little (assuming there are no red-flags). A mortgagee has no responsibility— no “duty of care”—to verify that a mortgagor’s alleged principal, with authority to borrow, is so authorized. The lender is permitted to accept whatever documents it requires to allow an individual to borrow for and bind an entity without looking beyond those documents.

In one case, defendant LLC borrowed money and purchased a property. Later, a second loan was taken by that same party. After the borrower’s default, the “real” LLC sued claiming that the individual who had represented himself to be the LLC’s sole member, with authority to borrow for the entity, was not the sole member and had no authority to do so, so that the loans were therefore void.

The court disagreed. Once the individual provided documents to support his authority to borrow on behalf of the entity, the lender had no obligation to “ascertain the validity of the documentation presented by the individual who claims to have authority to act on behalf of a borrower corporation or entity.” As such, the loans and mortgages were valid.

Plaintiff claims that shortly after they built their house, they placed sod, and a tree and bushes on a strip of land at the edge of defendant’s property, and then linked the area to their in-ground sprinkler system. Defendant purchased its adjoining property after this had been done. After defendant tore up the strip, plaintiff filed suit, claiming adverse possession. Pending the decision of defendant’s motion to dismiss, the court granted a preliminary injunction against defendant’s further interference with this strip of land.

The first issue before the court was whether the pre-2008 law or post-2008 law applied. The laws of adverse possession were amended in 2008 to require, among other things, that the adverse possessor make substantial and more obvious improvements to the disputed property so that the conduct was more objectively adverse. Acts that are seen as de minimis, such as fences, hedges, shrubs, and even non-structural building, were not acts upon which adverse possession could be claimed post-2008. Lawn maintenance, too, a basis often used to argue adverse possession, is not a sufficiently adverse to support that claim. Under the pre-2008 law, however, this type of conduct could support a claim, depending on the land and its usage. Because these claims accrued before 2008, the court applied the old law.

Turning next to the adverse use, the court dismissed the case, finding that even under the old law planting and mowing grass would not suffice. Even “[a]dding a bush or a young tree does not tip the balance” to find adverse possession. The same for running a hose and “a few sprinkler heads.” These items do not amount to a showing, by clear and convincing evidence, of exclusive, hostile or use under a claim of right.

Plaintiff was induced to leave his current employment and start working at defendant’s agency. As part of the parties’ agreement, plaintiff was promised six months’ severance if terminated without cause. Plaintiff signed the agreement but, despite receiving an email from a board member welcoming him aboard, defendant did not sign the agreement. Plaintiff was terminated without cause but defendant refused to pay his severance.

The First Department reversed the lower court’s dismissal of plaintiff’s case, finding that although defendant did not sign the employment agreement, there was no question that plaintiff began working for defendant and performed as expected. Once fired, he was due the promised severance. The contract made no provision that required a signature for it to be binding, so that defendant’s failure to sign the fully-integrated agreement was no bar to its enforcement.

 

Lord v. Marilyn Model Management, Inc.

While short on facts, a recent decision out of the Southern District rejected the defendants’ claim that their inability to pay on a consent judgment was due to COVID-19. The defendants did not deny liability, only that their payment should be excused because the virus and the circumstances rendered them unable to pay.

Magistrate Judge Stewart D. Aaron rejected that argument. Asserting the impossibility defense, held the Judge, is only available when performance is rendered “‘objectively impossible’” by an unforeseen event that could not be anticipated. The “‘means of performance’” must have been destroyed; financial or economic difficulties would not suffice even if those hardships resulted in an objective inability to pay.

With this, while the defendants’ “financial difficulties arising out of COVID-19 and the PAUSE Executive Order” may have adversely affected their ability to pay, their obligation to do so cannot be excused.

Licensor sued a licensee for breaching an agreement to pay certain fees. In responding, the licensee counterclaimed for breach of the parties’ agreement. In doing so, it lumped together multiple allegations of breach into one cause of action but without detailing the specific contract provisions that the licensor violated.

The court granted the licensor’s motion to dismiss the counterclaims, with leave to amend, as the counterclaims failed to specify the provisions breached or the dates that they were breached. Those dates were of particular note, as the claims raised addressed issues that may have been barred by the statute of limitations.  Instead of using the licensee’s affidavit to supplement the counterclaims, the court deemed it the “better practice” to replead.

Icon DE Holdings, LLC v. Mondani Handbags & Accessories, Inc.

Plaintiff agreed to buy and defendant to sell, three contiguous parcels of property. The parties had set a time of the essence closing date, at which closing, plaintiff did not appear. However, a week before that closing, plaintiff’s attorney informed defendant’s that the lender’s appraisal was pending, and asked to adjourn the closing. Defendant’s counsel did not reply. The day before the closing, the attorneys communicated, but about issues unrelated to the actual closing or the request for an adjournment. On the closing date, seller appeared but buyer did not. Seller declared buyer’s breach and retained the downpayment.

Plaintiff-buyer sued, arguing that based on the parties’ prior practices of adjourning the closing, and defendant’s counsel’s failure to respond, led the buyer to a good faith belief that the time of the essence closing date had been adjourned. Plaintiff also pointed out that title revealed more than $11 million in outstanding mortgages, far exceeding the almost $4 million purchase prices, and that the seller had made no effort address those mortgages prior to the closing date.

The lower court dismissed plaintiff’s case, finding that it was not able to close and had failed to object to the title defects prior to the closing date. With plaintiff-buyer’s default defendant-seller was relieved from performance.

A buyer signed a contract and paid a downpayment as part of the purchase of real property. The buyer did not show at a time of the essence closing, leading the seller to declare its default and intention to retain the downpayment as damages.

Some eight months later, the buyer sued seeking specific performance. The seller counterclaimed for declaratory relief that it was entitled to retain the downpayment. The trial court denied the seller’s summary judgment motion seeking dismissal of the complaint and relief on its counterclaim.

The Second Department reversed finding that the buyer’s counsel’s email to seller’s counsel offering to extend the closing date for additional consideration, which was ignored by the seller’s counsel, did not void the time of the essence declaration or avoid buyer’s default. The counterclaim was remanded for judgment.

Many contracts are being pulled out for review to ascertain how COVID-19 affects them.  I have received some preliminary inquiries and briefly address the topic here.

Contractual force majeure, or “acts of Gd,” provisions found in a contract are a specific variation of a party’s inability to perform due to performance having been rendered impossible. Because establishing a claim of impossibility sufficient to release a party from its contractual obligations is difficult, establishing force majeure claims are challenging as well.

In one Court of Appeals case, where a property owner’s literal inability to procure sufficient insurance ended in the landlord declaring a default, the court upheld the default, explaining:

It is no secret that convincing a judge to vacate or even modify an arbitration award is a tall order. Even more difficult is to vacate based on a public policy argument. To establish vacatur on public policy grounds, a petitioner must show either that the arbitrator decided an issue that is deemed a matter of public policy and thus not subject to an arbitrator’s jurisdiction or where the arbitrator’s award violates a well-defined law or regulatory provision; and this prong can be further broken down.

In this case, Petitioner was employed by an executive search firm. As part of his employment agreement, Petitioner agreed not to compete for six years within 100 miles of the company’s office and/or New York City. After arbitrating between Petitioner and his employer, Respondent, an award was issued that enforced the restrictive covenant. Petitioner came to court seeking to vacate the award. Among the arguments petitioner made was that the broad nature of the restriction, on its face, violated public policy as being unreasonable in scope as a matter of law.

After finding that the award did not run afoul of the first prong noted above, the Nassau County court considered whether the broad scope of this restriction comported with the policy considerations of restrictive covenants—to protect an employer but also not deprive an employee of earning a living in his chosen field of work. After noting that the six-year term would alone not necessarily offend public policy, the court turned to the geographic scope of the restriction. Finding that the award barred Petitioner from working in the “United States’s largest city by population [and] all of its metropolitan area, and more,” and “greatly affect[ed]” his ability to earn an income in the field where he has years of experience, did not just protect Respondent from unfair competition but was grounded in preventing Petitioner from competing at all and thus violative of public policy. As such, the award was vacated.

Contact Information