Articles Posted in Contract/Corporate

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.

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:

Owner of a property entered into a contract for its sale. At the time of the contract, Owner, a corporation, was dissolved by proclamation. The contract had a one-year closing date, time being of the essence, but if there was no closing, Buyer’s downpayment would be returned upon its termination of the contract. If the buyer defaulted, however, it would forfeit its downpayment.

Upon receiving the title report, Buyer learned that Seller had been dissolved, which was marked as an exception on that report. To remedy the issue, language was inserted into the deed “indicating that the transfer was being done to wind up [Seller’s] business.” Upon vacating the residential tenants and putting the commercial tenants on notice that they would have to do the same, Seller notified Buyer that it was ready to close.

Buyer’s new counsel then notified Seller’s that because Seller was not in good standing, and without authority as an entity to enter into the contract, Seller was in default. Buyer demanded the return of its downpayment. Seller’s attorney responded by demanding to close and that if Buyer did not, it would be held in default.

A property owner challenged a lien because the contractor did not apportion the work over two properties, thus exaggerating the lien amount and subjecting it to cancellation.

The First Department refused to cancel the lien, finding that the Lien Law did not require that multiple liens be filed for work under one contract. The court also decided that the claims of exaggeration was not “conclusively established,” without which dismissal could not be granted.

J.T. Magen & Co. v. Nissan N. Am., Inc.

Specifically in connection with real estate contracts, where issues come up during the due diligence period, parties often demand relief of their own imagination, which courts refuse to enforce.

In a case decided in the Commercial Division of Kings County, involving a buyer’s demand not found in the contract, the court reaffirmed the principle that relief outside the contract would not be considered and would be deemed a default. There, the seller held some 71% of the property, with the remaining interest held by the seller’s brothers. When it turned out that certain estate proceedings required to clear title would be costly, the seller notified the buyer that those proceedings exceeded what was required of him to provide clean title under the parties’ contract, but also asked that the purchase price be raised to comply with the estate proceedings. The buyer sued claiming that this notification breached the contract. Both parties moved for summary judgment.

In dismissing the buyer’s claims and his case, the court found that the buyer had two options once he learned of the costs to be incurred by the seller—either take the property as is or cancel the contract and receive the return of his downpayment. The buyer did neither. Because the buyer had no other option in connection with the seller’s notice his lawsuit was itself a breach of the contract allowing the seller to deem the buyer to be in breach, entitling him to judgment dismissing the lawsuit.

In refusing to dismiss a case where anticipatory repudiation of an employment agreement was claimed, the court held that for the purposes of a pre-answer motion to dismiss, plaintiff’s claim that he sent three emails to defendant about unpaid commissions which were ignored sufficed to properly allege that claim—“the Defendants’ failure to state its intent to perform under the Employment Agreement and Commission Agreement when such agreements required payment by a date certain is sufficient to state a cause of action for anticipatory repudiation.”

Cooperstein v. Securewatch24, LLC

Landlord sued the guarantor of a lease when the tenant failed to pay. The guarantor argued that it should not be liable for the full amount of the rent as called for in the lease because the landlord and tenant had negotiated a temporary discount without informing or consulting the guarantor. The court did not agree.

While the court agreed with the notion that an agreement cannot be modified without the consent of a surety, and that a new agreement relieves the guarantor from liability, “‘[t]he test is whether there is a new contract which will be enforced by the courts.’ However, “‘[i]ndulgence or leniency in enforcing a debt when due is not an alteration of the contract … .’” With that, the court held that “[t]he subsequent agreement between the tenant and the landlord reducing the tenant’s rent obligations did not discharge defendant’s obligations under the guaranty as it merely constituted leniency on the part of the landlord and did not create a new contract between the parties.”

SpringPRINCE, LLC v. Elie Tahari, Ltd.

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