Real Property Law

Business Judgment Rule Bars Action Against Homeowners Association

Lorusso v. Brookside Homeowners Association, Inc.

NYLJ 4/8/05, p. 27, col. 5

AppDiv, Second Dept

(memorandum opinion)

In an action by homeowners for a declaration that the homeowners association had failed to perform maintenance obligations, the association appealed from the Supreme Court's denial of its summary judgment motion. The Appellate Division reversed and granted summary judgment to the association, relying on the business judgment rule.

The Declaration of Easements, Covenants, and Restrictions for the subdivision requires the association to maintain certain ponds in the residential subdivision. The homeowners brought this action contending that the association had failed to perform the required maintenance. The Supreme Court denied the association's summary judgment motion.

In reversing, the Appellate Division noted that the association had made a prima facie showing that the decisions made by its board were made in good faith and in the furtherance of the association's legitimate interests. At that point, the business judgment rule shifted the burden to the homeowners to come forward with facts alleging fraud, self-dealing, unconscionability, or other misconduct. Because the homeowners did not do so, the association was entitled to summary judgment.

Negligence Claim Barred By Language of Title Insurance Policy

Paradise Heating Co. v. Commonwealth Land Title Ins Co.

NYLJ 3/23/05, p. 19, col. 1

Supreme Ct., Bronx Cty

(Victor, J.)

In an action by a landowner against a title insurance company for negligence in conducting a survey inspection, both parties moved for summary judgment. The court granted the title insurer's summary judgment motion, holding that the negligence claim was barred both by the statute of limitations and by the language in the title insurance policy.

The landowner purchased an oil storage facility in 1987, after obtaining title insurance from the title insurer. The title insurance policy excepted facts that an accurate survey might show, but then indicated that a 1975 survey showed numerous oil tanks, all located within the lines of the premises, and provided that an inspection made in 1987 revealed no changes. The policy further provided that all actions against the company “must be based on the provisions of this policy,” and all other claims shall be deemed merged into the policy. In 1991, a subsequent survey commissioned by the landowner revealed that some of the oil tanks encroached on neighboring property, contrary to the recitations in the title insurance policy. The landowner then made a claim on the title insurance policy, and ultimately brought this action, contending that if the title insurance company had properly performed the survey inspection in 1987, the defect would have been discovered.

In awarding summary judgment to the title insurance company, the court first concluded that any claim for negligence in conducting the survey, like any claim for negligence in conducting a title search, would have merged into the title insurance policy. As a result, the landowner's only remedy would be for breach of contract, not for negligence. In this case, the language of the policy precluded a breach of contract action, because the policy excepted from coverage any state of facts “an actual survey might show, unless survey coverage is ordered.” Even if the landowner failed to order survey coverage in reliance on the insurer's inspection, the landowner would nevertheless be precluded from recovering in tort. The court then noted that in any event, landowner's claim was untimely because it was brought more than 3 years after the landowner learned of the true state of facts.

COMMENT

It is well-established law that an insured can only recover against a title insurance company upon the contract of insurance for breach of contract and not in negligence. In Citibank v. Chicago Title Ins. Company, 214 A.D. 2d 212 (1995), the Appellate Division reversed the lower court's ruling allowing the insured to recover against the insurer on the negligence claim because “under the contract of insurance no question of negligence can arise.” Id. at 216. Citibank, the insured, issued a loan based on the insurer's title insurance policy that omitted several title defects that would have prevented the insured from refinancing the existing mortgage. The insured brought suit for both breach of contract and negligence. In reversing and dismissing the negligence claim, the Appellate Division noted that a title insurance policy is separate and distinct from a contract for searching title and does not allow an action for negligence

While normally an insured can only recover from a title insurance company those claims based on breach of contract, New York courts will permit an insured to recover on a negligence claim when a legal duty independent of the contract has been violated. In Cruz v. Commonwealth Land Title Ins. Company, 157 A.D. 2d 333 (1990), the Appellate Division reversed the lower court's dismissal of a negligence claim because it did not allege a violation of a legal duty separate from the contract. The insured bought property only after the insurer had examined the title, certified it as marketable, and agreed to issue the purchaser title insurance. At the closing, the insured paid the title insurance company its fee and also gave the deed for recordation, which the insurer did not complete until 4 months later. Subsequent to the closing, the insured reached an agreement to sell this newly acquired property. However, the contract was cancelled when the parties learned that the original seller of the property had conveyed another deed before the title insurance company had recorded the insured's deed. While the insurer argued and the lower court agreed that the negligence claim should merge with the policy, the Appellate Division noted that the recordation of the deed was not contemplated by the insurance policy. Moreover, since the insurer violated a legal duty independent of the contract, the delayed recording of the deed, the insured could recover on a negligence claim.

Finder's Fee Claim Presents Questions of Fact

PKG Associates, Inc. v. Dubb

NYLJ 3/30/05, p. 23, col. 3

Supreme Ct., Nassau Cty

(Lally, J.)

In an action by licensed real estate brokers for a finder's fee, a purchaser sought summary judgment dismissing the complaint. The court denied the motion, holding that questions of fact precluded summary judgment.

The broker alleged that it entered into an oral contract with Beechwood under the terms of which the broker would introduce Beechwood to BDC, an entity engaged in construction of affordable housing, in connection with state-owned property located in the Town of Huntington. That property was ultimately purchased by SBJ Associates, an entity in which BDC was a member, and Beechwood bought a portion of the property from SBJ. The broker alleges that he sent a series of e-mails to a contact at BDC, championing Beechwood's qualifications. The broker alleged that as a result of the oral agreement, together with these efforts on Beechwood's behalf, he is entitled to a finder's fee. Beechwood and its principal sought summary judgment, denying the existence of any agreement, and asserting that the telephone conversation with the broker made no mention of any compensation.

In denying Beechwood's summary judgment motion, the court held first that the broker had raised issues of fact about the existence of an oral contract between the parties. In the court's view, lack of specificity about compensation would not be fatal to a contract claim, because compensation might be fixed by reference to an extrinsic event, commercial practice, or trade usage. The court also concluded that the broker had raised questions of fact about whether it brought the parties together, noting that a finder might earn a fee even if the finder never brings the parties together personally, so long as the finder facilitates the exchange of information which results in a deal. As a result, the court held that factual issues precluded grant of summary judgment.

COMMENT

Once a valid finder's fee agreement exists, to earn his fee, a finder must find potential buyers or sellers, stimulate interest and bring the parties together, but the finder need not have any involvement in negotiating the terms of the final transaction. Ames v. Ideal Cement Co., 37 Misc2d 883 at 886. There is no specific function that a finder must undertake to earn his fee, and the services performed may vary from case to case. The New York Court of Appeals has stated that, “it is possible for a finder to accomplish his service by making only two phone calls and, if the parties later conclude a deal, he is entitled to a commission.” Minichiello v. Royal Business Funds Corp., 18 N.Y.2d 521 (1966). For example, in Simon v. Electrospace Corp., the finder-plaintiff introduced two parties who later consummated a merger. 32 A.D.2d 62 (1969). After the introduction, the parties conducted their own negotiations and excluded the plaintiff from those negotiations. The court determined that the plaintiff was entitled to compensation as a finder under the terms of his written agreement and the facts as found.

For a court to enforce a finder's fee agreement, there must be a written note or memorandum evidencing the agreement. In Minichiello, the plaintiff found a purchaser for the defendant's convertible debentures. However, the plaintiff had no written memorandum of the agreement between the parties. The court concluded that the legislature intended the Statute of Frauds, N.Y. Gen. Oblig. Law ' 5-701, to include agreements with “finders,” which therefore prevented any recovery by a finder in quantum meruit. 18 N.Y.2d 521. Similarly, in Roberts v. Champion International, Inc., the plaintiff alleged that she was entitled to compensation for bringing defendant and a third-party company together based on an oral promise. 52 A.D.2d 773 (1976). This court also held that the agreement alleged was unenforceable unless the agreement, or some note or memorandum evidencing the agreement, was in writing.

Business Judgment Rule Bars Action Against Homeowners Association

Lorusso v. Brookside Homeowners Association, Inc.

NYLJ 4/8/05, p. 27, col. 5

AppDiv, Second Dept

(memorandum opinion)

In an action by homeowners for a declaration that the homeowners association had failed to perform maintenance obligations, the association appealed from the Supreme Court's denial of its summary judgment motion. The Appellate Division reversed and granted summary judgment to the association, relying on the business judgment rule.

The Declaration of Easements, Covenants, and Restrictions for the subdivision requires the association to maintain certain ponds in the residential subdivision. The homeowners brought this action contending that the association had failed to perform the required maintenance. The Supreme Court denied the association's summary judgment motion.

In reversing, the Appellate Division noted that the association had made a prima facie showing that the decisions made by its board were made in good faith and in the furtherance of the association's legitimate interests. At that point, the business judgment rule shifted the burden to the homeowners to come forward with facts alleging fraud, self-dealing, unconscionability, or other misconduct. Because the homeowners did not do so, the association was entitled to summary judgment.

Negligence Claim Barred By Language of Title Insurance Policy

Paradise Heating Co. v. Commonwealth Land Title Ins Co.

NYLJ 3/23/05, p. 19, col. 1

Supreme Ct., Bronx Cty

(Victor, J.)

In an action by a landowner against a title insurance company for negligence in conducting a survey inspection, both parties moved for summary judgment. The court granted the title insurer's summary judgment motion, holding that the negligence claim was barred both by the statute of limitations and by the language in the title insurance policy.

The landowner purchased an oil storage facility in 1987, after obtaining title insurance from the title insurer. The title insurance policy excepted facts that an accurate survey might show, but then indicated that a 1975 survey showed numerous oil tanks, all located within the lines of the premises, and provided that an inspection made in 1987 revealed no changes. The policy further provided that all actions against the company “must be based on the provisions of this policy,” and all other claims shall be deemed merged into the policy. In 1991, a subsequent survey commissioned by the landowner revealed that some of the oil tanks encroached on neighboring property, contrary to the recitations in the title insurance policy. The landowner then made a claim on the title insurance policy, and ultimately brought this action, contending that if the title insurance company had properly performed the survey inspection in 1987, the defect would have been discovered.

In awarding summary judgment to the title insurance company, the court first concluded that any claim for negligence in conducting the survey, like any claim for negligence in conducting a title search, would have merged into the title insurance policy. As a result, the landowner's only remedy would be for breach of contract, not for negligence. In this case, the language of the policy precluded a breach of contract action, because the policy excepted from coverage any state of facts “an actual survey might show, unless survey coverage is ordered.” Even if the landowner failed to order survey coverage in reliance on the insurer's inspection, the landowner would nevertheless be precluded from recovering in tort. The court then noted that in any event, landowner's claim was untimely because it was brought more than 3 years after the landowner learned of the true state of facts.

COMMENT

It is well-established law that an insured can only recover against a title insurance company upon the contract of insurance for breach of contract and not in negligence. In Citibank v. Chicago Title Ins. Company, 214 A.D. 2d 212 (1995), the Appellate Division reversed the lower court's ruling allowing the insured to recover against the insurer on the negligence claim because “under the contract of insurance no question of negligence can arise.” Id. at 216. Citibank, the insured, issued a loan based on the insurer's title insurance policy that omitted several title defects that would have prevented the insured from refinancing the existing mortgage. The insured brought suit for both breach of contract and negligence. In reversing and dismissing the negligence claim, the Appellate Division noted that a title insurance policy is separate and distinct from a contract for searching title and does not allow an action for negligence

While normally an insured can only recover from a title insurance company those claims based on breach of contract, New York courts will permit an insured to recover on a negligence claim when a legal duty independent of the contract has been violated. In Cruz v. Commonwealth Land Title Ins. Company, 157 A.D. 2d 333 (1990), the Appellate Division reversed the lower court's dismissal of a negligence claim because it did not allege a violation of a legal duty separate from the contract. The insured bought property only after the insurer had examined the title, certified it as marketable, and agreed to issue the purchaser title insurance. At the closing, the insured paid the title insurance company its fee and also gave the deed for recordation, which the insurer did not complete until 4 months later. Subsequent to the closing, the insured reached an agreement to sell this newly acquired property. However, the contract was cancelled when the parties learned that the original seller of the property had conveyed another deed before the title insurance company had recorded the insured's deed. While the insurer argued and the lower court agreed that the negligence claim should merge with the policy, the Appellate Division noted that the recordation of the deed was not contemplated by the insurance policy. Moreover, since the insurer violated a legal duty independent of the contract, the delayed recording of the deed, the insured could recover on a negligence claim.

Finder's Fee Claim Presents Questions of Fact

PKG Associates, Inc. v. Dubb

NYLJ 3/30/05, p. 23, col. 3

Supreme Ct., Nassau Cty

(Lally, J.)

In an action by licensed real estate brokers for a finder's fee, a purchaser sought summary judgment dismissing the complaint. The court denied the motion, holding that questions of fact precluded summary judgment.

The broker alleged that it entered into an oral contract with Beechwood under the terms of which the broker would introduce Beechwood to BDC, an entity engaged in construction of affordable housing, in connection with state-owned property located in the Town of Huntington. That property was ultimately purchased by SBJ Associates, an entity in which BDC was a member, and Beechwood bought a portion of the property from SBJ. The broker alleges that he sent a series of e-mails to a contact at BDC, championing Beechwood's qualifications. The broker alleged that as a result of the oral agreement, together with these efforts on Beechwood's behalf, he is entitled to a finder's fee. Beechwood and its principal sought summary judgment, denying the existence of any agreement, and asserting that the telephone conversation with the broker made no mention of any compensation.

In denying Beechwood's summary judgment motion, the court held first that the broker had raised issues of fact about the existence of an oral contract between the parties. In the court's view, lack of specificity about compensation would not be fatal to a contract claim, because compensation might be fixed by reference to an extrinsic event, commercial practice, or trade usage. The court also concluded that the broker had raised questions of fact about whether it brought the parties together, noting that a finder might earn a fee even if the finder never brings the parties together personally, so long as the finder facilitates the exchange of information which results in a deal. As a result, the court held that factual issues precluded grant of summary judgment.

COMMENT

Once a valid finder's fee agreement exists, to earn his fee, a finder must find potential buyers or sellers, stimulate interest and bring the parties together, but the finder need not have any involvement in negotiating the terms of the final transaction. Ames v. Ideal Cement Co., 37 Misc2d 883 at 886. There is no specific function that a finder must undertake to earn his fee, and the services performed may vary from case to case. The New York Court of Appeals has stated that, “it is possible for a finder to accomplish his service by making only two phone calls and, if the parties later conclude a deal, he is entitled to a commission.” Minichiello v. Royal Business Funds Corp., 18 N.Y.2d 521 (1966). For example, in Simon v. Electrospace Corp., the finder-plaintiff introduced two parties who later consummated a merger. 32 A.D.2d 62 (1969). After the introduction, the parties conducted their own negotiations and excluded the plaintiff from those negotiations. The court determined that the plaintiff was entitled to compensation as a finder under the terms of his written agreement and the facts as found.

For a court to enforce a finder's fee agreement, there must be a written note or memorandum evidencing the agreement. In Minichiello, the plaintiff found a purchaser for the defendant's convertible debentures. However, the plaintiff had no written memorandum of the agreement between the parties. The court concluded that the legislature intended the Statute of Frauds, N.Y. Gen. Oblig. Law ' 5-701, to include agreements with “finders,” which therefore prevented any recovery by a finder in quantum meruit. 18 N.Y.2d 521. Similarly, in Roberts v. Champion International, Inc., the plaintiff alleged that she was entitled to compensation for bringing defendant and a third-party company together based on an oral promise. 52 A.D.2d 773 (1976). This court also held that the agreement alleged was unenforceable unless the agreement, or some note or memorandum evidencing the agreement, was in writing.