Articles Posted in Contract/Corporate

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.

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.

In another demonstration of New York’s inclination not to enforce non-compete agreements, two weeks ago, the Second Department refused to enforce the non-compete agreement of a professional, a class of people for whom a such an agreement has a better shot of enforcement than in most cases generally.

Plaintiff is a surgical group, maintaining seven offices in the New York metropolitan area. Plaintiff hired a surgeon who signed a three-year employment agreement. This agreement included a non-compete provision prohibiting competition for two years after termination and within a 10-mile radius from any of plaintiff’s offices and its affiliated hospitals. Defendant spent most of his time while working for plaintiff in Nassau County. Some four years later, defendant was fired.

Defendant thereafter began work at a hospital that was within the 10-mile zone but his office was not. Plaintiff filed suit claiming the breach of the non-compete agreement. That action was met with a successful motion to dismiss, which plaintiff appealed.

As promised, we write about another recent trade-secret case where the court refused to enforce an employer’s claims that its information was secret.

After plaintiff was indicted for a host of crimes, some of its employees left to form a competing business, in violation of their non-compete and confidentiality agreements. These employees argued that because of the indictment, their past employer had unclean hands and could not enforce the non-compete, which is equity-based relief and unavailable generally where the other party does not act equitably.

Judge Emerson, of Suffolk County Supreme Court, first addressed the non-compete issue by noting the “powerful considerations of public policy which militate against sanctioning the loss of a person’s livelihood.” This principle resulted in the general rule that restrictive covenants that prevent an employee’s work in a similar line are “disfavored by the law.” She then found that the non-compete provisions, which bound the employees for three years and contained no geographical limitation, to be overbroad, unnecessary to protect the employer, and therefore unenforceable.