Scott E. Mollen

Contracts—Purchaser Failed To Close on "Time of the Essence" Date—Although Seller Agreed To Meet and Did Meet With Purchaser the Day Following the Closing Date, Purchaser's Estoppel Claim Was Barred by the Contract's No Waiver or Modification Provision—Purchaser Claimed It Would Have Obtained an Extension by Filing for Bankruptcy Had it Not Been for the Seller's Agreement To Meet To Discuss an Extension

A purchaser of real property sought a declaratory judgment that the seller was estopped from enforcing the default provision of a purchase agreement (contract) and the purchaser was entitled to additional time to close on the purchase. The seller counterclaimed, seeking a declaratory judgment that it had properly terminated the contract and therefore was entitled to retain the down payment, plus recover attorney fees and costs. The seller had moved for summary judgment on its counterclaims.

The seller and a purchaser entered into the contract on Feb. 8, 2019 for the purchase/sale of real property, for a price of $12.5 million. The purchaser made a down payment of $937,500. The contract specified that the closing would take place on May 6, 2019, "no later than 6:00 p.m., with time being of the essence…." The contract provided that if the purchaser defaulted, the seller could terminate the contract and "retain the down payment as liquidated damages." The contract also stated that it "may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the party to be charged or by its agent duly authorized in writing…."

By the end of the day on May 6, 2019, the seller was "ready to close the sale but (purchaser) did not pay the balance payment and requested instead an extension of the time-of-the-essence closing date (TOE)." The purchaser alleged that it had "prepared and was ready to file a Chapter 11 bankruptcy petition that would automatically extend the closing date by 60 days, regardless whether (seller) consented to the extension or received additional consideration for the postponement."

The purchaser alleged that it had not filed the bankruptcy petition because it "believed that an extension would be obtained based on (seller's) commitment to negotiate the next day." The parties met on May 7, 2019 to discuss a possible extension of the closing date. However, by the end of the day, on May 7, 2019, the seller filed a "notice of default" claiming that the purchaser had defaulted by failing to pay the balance on the purchase price on May 6, 2019.

The purchaser then commenced the subject action wherein the parties disputed whether the seller was entitled to declare the purchaser in default under the purchase agreement and whether the seller was entitled to retain the down payment and collect attorney's fees. The purchaser contended that the seller was "estopped from immediately enforcing the default provision of the purchase agreement," and that the purchaser was entitled to "additional time in which to close on the purchase."

The court held that the seller was entitled to summary judgment on its declaratory judgment counterclaim since, "as a matter of law," the seller "is not estopped from enforcing the contract's time-of-the-essence provision." The court emphasized that the contract provided that the closing "must occur on May 6." It was undisputed that the seller was ready to close on May 6 and "the reason no closing happened is that (purchaser) was not ready on May 6 to tender the balance of the purchase price."

The purchaser had argued that it had "reasonably relied on its belief that (seller) would agree to extend the (TOE) closing date—supported by the fact that (purchaser) refrained from filing the Chapter 11 petition, which would immediately postpone the time of closing date-(seller) was estopped from filing a notice of default pursuant to the (TOE) provision." The purchaser asserted that "whether the parties agreed to negotiate an extension raises material issues of fact that must be decided at trial." However, the court reasoned that any modification of the (TOE) provision had to be made in accordance with the contract's terms and "the contract expressly provide[d] that the agreement cannot be modified—or its obligations waived—except by a signed 'written instrument'."

The court acknowledged that the record "suggests" that the seller "may have indicated a potential willingness to extend the closing date—including by agreeing to meet the day after the closing date to discuss an extension." However, the parties never "memorialized their willingness to extend the closing the date in writing. Given the contract's clear language requiring contractual modifications to be both written and signed…, as a matter of law (purchaser) could have not reasonably relied for estoppel purposes on (seller's) orally expressed willingness to discuss an extension." Thus, the court held that "no factual dispute exists as to whether (seller) is equitably estopped from enforcing the (TOE) closing date at issue here."

The purchaser had also argued that the seller's motion for summary judgment was premature since no discovery had been exchanged yet. However, the court found that the purchaser had failed to show 'that further discovery would shed light on any material issues on (seller's) counterclaims."

Accordingly, the court granted summary judgment to the seller and held that it had "properly terminated the purchase agreement according to its terms, because (purchaser) failed without lawful excuse to close on the date specified in the agreement." Thus, the seller was entitled to retain the down payment.

Additionally, the purchaser had argued that in May, "New York is under Eastern Daylight Time, not Standard Time, making the terms of the (TOE) provision…imprecise." The court viewed such argument as irrelevant since the seller had filed its default notice against the purchaser "one day after the (TOE) closing date passed, not one hour after."

The court further held that pursuant to the contract, the seller was entitled to recover reasonable attorney fees, costs and expenses incurred in litigating this action.

Comment: Dani Schwartz, a partner at Wachtel Missry, counsel for the seller stated that his client "never wanted anything more than to sell the building to the buyer at the price the buyer agreed to pay. The buyer played games, and at the end of the day they had to pay my client a million bucks, got nothing in return, and my client keeps the building. It's a great result for us, and it's the right result." Mr. Schwartz advised that a notice of appeal has been filed.

This case illustrates inter alia, how a willingness to engage in settlement discussions could be cited in support of an estoppel or waiver argument. After a default, attorneys will often recommend that a pre-negotiation agreement be signed, which acknowledges, inter alia, that the non-defaulting party reserves all rights that accrued prior to such discussion and settlement discussions cannot be cited in support of a waiver, estoppel or modification argument.

Suncore Group SA, LLC v. 1660 1^ST LLC, Supreme Court, New York Co., Case No. 652992/2019, decided March 23, 2020, Lebovits, J.

Foreclosures—Motion for Judgment of Foreclosure and Sale Granted—Court Struck Interest From Recovery—Decade Old Foreclosure Action—Plaintiff as the Senior Creditor, Was Not Obligated To Participate in a Junior Creditor's Foreclosure Action—Nor Was It Entitled to Surplus Funds Generated in Such Action—Lender Allegedly Tried To "Sneak In" a Deficiency Judgment After It Waived Such Right—Lender Cannot Delay Foreclosure Action as an Investment Strategy

A plaintiff moved for a judgment of foreclosure and sale. The court granted the motion and denied a cross-motion from a non-party ("A") who sought to intervene. However, the court struck interest from the plaintiff's recovery based upon the lender's dilatory conduct.

This decision involved a more than a decade old foreclosure case. The plaintiff had finally moved to confirm a report of a referee, which found that the plaintiff was owed $828,812.34 (which includes more than a decade of interest).

"A" had purchased the subject apartment at a condo foreclosure sale in 2016. "Apparently, while plaintiff failed to prosecute this case, the condo commenced its own foreclosure action for unpaid common charges." "A" claimed that there was about $205,000 in surplus funds remaining following the sale of the condo's foreclosure auction. "A" alleged that he had reached out to the plaintiff in order to "get them to make a claim for these surplus funds."

"A" claimed that after his efforts were unsuccessful, he had commenced a separate declaratory judgment action in 2017. "A" was awarded a judgment in that case. In that same action, the plaintiff opposed "A"'s motion and argued that "A" was "simply trying to get it to take less than what it was owed." The plaintiff asserted that it was not obligated to accept the surplus monies "because its loan was superior." "A" alleged that the plaintiff had not done anything to acquire the "surplus funds and the original borrower ended up claiming the surplus." "A" further asserted that he should "not be subject to plaintiff's large recovery while the original borrower received $200,000." Thus, "A" asked the court to reduce the plaintiff's recovery "for not trying to get money that a court previously found it was entitled to collect."

The subject court noted that the plaintiff's mortgage took first priority over all other creditors (including the condo) and is not extinguished if a junior creditor successfully closes on a junior interest. "A" had acknowledged in its declaratory judgment action that it was not seeking to extinguish the plaintiff's mortgage. The court explained that "[o]rdinarily, the lender with the first mortgage would not be entitled to surplus funds in a condo foreclosure case, because the first mortgage is not foreclosed." The "purpose of surplus monies is to compensate junior creditors, whose interest had been extinguished."

The court understood that "A" had been trying to get the plaintiff "to do something with respect to this foreclosure case and/or at least reduce his eventual monetary obligation to plaintiff…." However, the court found out that the order in the declaratory judgment case had "no effect here." The "declaratory judgment action did not name any of the junior creditors in the condo foreclosure case (not even the borrower). Those parties had legitimate claims to the surplus monies and one of the them (the borrower) eventually got the money."

Additionally, the decision granting "A" summary judgment merely stated the plaintiff was "entitled to the money." That judgment did not require the plaintiff to take any steps to acquire the money and "A" had not taken any action until now, when the plaintiff "failed to retrieve the funds." Moreover, the condo's foreclosure case "did not name plaintiff (or its predecessor)." Thus, the plaintiff, as the senior creditor, was not obligated "to participate in the junior creditor's foreclosure action, nor was it entitled to surplus funds generated in such case."

The court then explained that "[a]lthough still uncommon, a consequence of delay to a foreclosing plaintiff is the possible loss of some interest recoupment." CPLR 5001(a) provides that an equitable action—"and the mortgage foreclosure case fits the category: . . 'interest and the rate and date from which it shall be computed shall be in a court's discretion.'"

Although the plaintiff was under "no obligation to retrieve the surplus money from the condo foreclosure sale, the procedural history of the three cases (this foreclosure action, the condo foreclosure case and the declaratory judgment action) compels the court to strike all interest from plaintiff's recovery." Here, the plaintiff had filed its summons and complaint in 2008. In February 2009, plaintiff and the defendants entered into a stipulation wherein the defendants waived all defenses in exchange for the plaintiff's promise to not seek a deficiency judgment. The stipulation also stated that the plaintiff and the borrowers "are desirous that this foreclosure action shall proceed without delay." Notwithstanding the foregoing, a decade later, the foreclosure action was still ongoing.

The plaintiff had obtained a judgment of foreclosure and sale (without opposition) in March 2010. However, "for some reason, plaintiff has ignored this case since and apparently abandoned the motion for judgment of foreclosure and sale when it failed to settle the order." The plaintiff "did nothing for years." The plaintiff did nothing to move the foreclosure case along when the condo commenced its own foreclosure sale. The plaintiff "did nothing when the property was sold and the purchaser tried to negotiate about the surplus funds." Additionally, the plaintiff did nothing when "A" commenced the declaratory judgment action. The plaintiff "even offered opposition to the declaratory judgment case, but still did nothing in this case for another two years."

The court opined that "[e]very other party related to this action proceeded as it should have." The court noted that the condo started its foreclosure action in 2015 and sold the property in 2016. "A" bought the "property subject to the first mortgage and made numerous efforts to get plaintiff to move this case. He pointed out plaintiff could attempt to recover the surplus funds, and even brought a separate case to get plaintiff to move. But that did nothing to disturb plaintiff's deep slumber."

The court explained that it now was "confronted with a plaintiff who wants to recover over ten years of interest—ten years that accumulated only because of plaintiff's failure to sell a property in a case in which the defendants conceded in February 2009." The court concluded that under these circumstances, "equity requires this court to strike plaintiff's interest. Plaintiff cannot be rewarded for how it prosecuted this case."

The court cited the February 2009 waiver, which stated that the borrower waived "defenses in exchange for plaintiff's promise not to seek a deficiency judgment." The court observed that "[s]hockingly, the plaintiff's proposed judgment of foreclosure and sale asks the court to grant it a deficiency judgment against the borrower." Although the court understood that such a request may have been "a simple mistake," the court believed that it "demonstrates yet another instance in which plaintiff failed to pay attention to this case." The plaintiff had "reached an agreement to waive a deficiency a judgment and then it tried to sneak the provision back into the judgment."

Furthermore, plaintiff sought "to amend the caption to substitute the plaintiff despite the fact that it was sued as the proposed substitute party in the 2017 declaratory judgment action. That means that, at the latest, the proposed substitute plaintiff was represented by counsel in an action related to this property more than two years ago and it did not seek to change the caption in this action until now."

The court concluded that "glaring delays are inexcusable and merit the striking of interest." The court stayed that it would not "condone such conduct." The court acknowledged that "A" had bought the property subject to the plaintiff's mortgage and the court granted the plaintiff a judgment of foreclosure and sale. However, the court stated that the plaintiff may not "abuse its standing as a senior creditor to the detriment of every other party and the new owner." Therefore, the court "limited the plaintiff's judgment to $543,353.53 (principal, plus escrow advances and other monies awarded by the referee in her 2019 report)."

The court further warned that "lenders must timely prosecute foreclosure cases." The court also noted that while it "understands that properties in Manhattan almost always increase in value the longer a foreclosure case remains pending (and therefore a lender is likely to recover any interest accrued), that is not a reason to let a case meander without action for over a decade." The court stated that a foreclosure action represents a lender's decision to "declare all amounts due and sell the property; it is not an investment opportunity." Here, the defendants had not contested the action and had agreed to waive all defenses.

Moreover, the court opined that "it seems to have been plaintiff's business plan, once waiting a deficiency judgment, to just make loads of money off the interest—here, almost a quarter million dollars!" The court also stated that "delay eats away at surplus funds from those who might be entitled to them." Thus, the court held that plaintiff is not entitled to the interest. "Plaintiff's strategy to delay and get interest in order to siphon off surplus funds from junior lienholders is simply unfair and this court disallows it."

The court then denied that part of "A"'s motion to intervene since the case is over. The court noted that "A" "may make motions as he sees fit with respect to the sale and distribution of any surplus monies. But that does not mean he has a right to intervene at this late date of the litigation."

IndyMac Federal Bank FSB v. Parekh, Supreme Court, New York Co., Case No. 111222/2008, decided Jan. 21, 2020, Bluth, J.

Landlord-Tenant—Rent Stabilization—Appellate Term Grants Vacatur of Stipulation, Final Judgment and Warrant of Eviction—a Trial Court's Refusal To Sign an Order To Show Cause Does Not Create Law of the Case

A rent stabilized tenant had appealed from order of the Civil Court of the City of New York, which denied her motion to vacate a stipulation of settlement, final judgment of possession and a warrant of eviction (stipulation) in a holdover summary proceeding. The Appellate Term reversed and granted the tenant's motion to vacate the stipulation and remanded the matter to Civil Court for further proceedings.

The tenant had neither appeared or answered in the holdover proceeding. The tenant's daughter had appeared without counsel and entered into the stipulation. The tenant then retained counsel, and promptly moved to vacate the stipulation, arguing that the tenant had a meritorious succession defense. The trial court denied the motion. Appellate Term (court) reversed.

The court acknowledged that "a stipulation is essentially a contract and should not be lightly set aside." However, courts possess "discretionary power to relieve parties from the consequences of a stipulation 'if it appears that the stipulation was entered into inadvisedly or that it would be inequitable to hold the parties to it….'" The tenant, now represented by counsel, submitted evidence "showing the existence of an arguably meritorious succession defense." Under the circumstances, the court exercised its discretion to relieve the tenant of her "uncounseled decision to consent to a possessory judgment and allow her to defend the holdover petition on the merits…."

The court explained that "[c]ontrary to the conclusion reached below," the tenant's motion to vacate the stipulation was not barred by a trial court's "prior refusal to sign her pro se order to show cause for vacatur relief." The court reasoned that the "prior refusal to sign an order to show cause did not create law of the case…and did not preclude (tenant's) subsequent application, made after she retained counsel, that contained evidentiary proof not submitted in her earlier pro se application (Cf. Cyprus Hill's Mgmt., Inc v. Lempinski, 173 AD 3d 8/30 (2019).)" The court expressed no opinion as to the ultimate merits of the defense and noted the absence of any brief from the landlord on appeal.

1901 Hennessy LLC v. Vicente, Appellate Term, 1st Dept., Case No. 570628/19, decided Feb. 24, 2020, Shulman, P.J., Cooper, Edmead, JJ. All concur.

 Scott E. Mollen is a partner at Herrick, Feinstein.