Real Property Law

Preliminary Memorandum Can Constitute Enforceable Contract

Atai v. Dogwood Realty of N.Y., Inc.

NYLJ 1/4/06, p. 37, col. 2

AppDiv, Second Dept

(3-1 decision; memorandum opinion; dissenting memorandum by Goldstein, J.)

In an action by purchaser for specific performance of a contract for the sale of real property, purchaser appealed from Supreme Court's order granting summary judgment to seller on the ground that the contract did not comply with the statute of frauds. The Appellate Division reversed and reinstated the complaint, holding that whether the memorandum signed by the parties included all material terms was a question of fact to be resolved at trial.

Real estate broker approached seller with a potential purchaser for the subject premises, and the parties negotiated a sale of the premises for $1.8 million. The broker prepared a memorandum that included: 1) the purchase price; 2) a provision that the sale was to be “all cash”; 3) that closing was to take place in 30 to 60 days; and 4) that the broker was entitled to a $50,000 commission, to be paid by the seller. The memorandum also provided signature lines for Mrs. Atai, the purchaser, and for Mr. Jang, the seller. Finally, the memorandum concluded by asking the parties to review the terms and sign “in order to proceed with a contract of sale.” Jang then signed the memorandum, and Mrs. Atai signed the memorandum, handwriting “Farid Investment Limited Part” next to her signature, because she wanted title taken in the partnership's name. Jang knew about the change and voiced no objection. In fact, however, Jang did not own the property as an individual; title was held by Dogwood Realty, owned in equal shares by Jang and his wife. After the memorandum was signed, Jang refused to proceed with the transaction, allegedly because he received a better offer. Mrs. Atai then brought this action against Jang and Dogwood for specific performance or, in the alternative, for damages for breach. Supreme Court awarded summary judgment to Jang and Dogwood, concluding that the memorandum did not comply with the statute of frauds.

In reversing, the Appellate Division majority noted that Dogwood could be bound by an undisclosed principal if he was acting within his authority. The circumstances raised questions of fact about whether Jang was in fact acting on behalf of Dogwood. Moreover, the court emphasized that the writing included key terms that could, depending on the circumstances of the case, satisfy the statute of frauds and bind the parties. Moreover, the court noted that the fact that the parties anticipated execution of a more formal contract would not preclude the effectiveness of the writing if it embodied all of the agreement's essential terms. The court held that whether other material terms were not reflected in the memorandum was a question of fact for resolution at trial. Hence, summary judgment was not warranted.

Justice Goldstein, dissenting, noted first that the memorandum did not identify the party to be charged — here, Dogwood Realty. He then noted that the memorandum did not include provisions relating to quality of title to be conveyed, risk of loss before closing, or adjustments for taxes paid by sellers. He therefore concluded that the memorandum did not satisfy the statute of frauds.

COMMENT

When a corporate president acts within his apparent scope of duties and sells land on behalf of the corporation, the undisclosed corporate principal is estopped from denying his authority to make the sale. Thus, in Kursh v. Verderame, 87 A.D.2d 803, the court awarded specific performance to a buyer against a corporate seller of land even though the corporate principal who signed the sale contract never disclosed that the land was owned by the corporation. The principal and his family had formed the corporation that owned the subject land. When the principal refused to proceed to closing, the court held that because the principal had held himself out as having authority to make the sale, the undisclosed corporation was estopped from denying that authority. Similarly, in a case not involving the sale of real property, the Appellate Division held that when a corporate president with actual authority to enter into contracting agreements executed such an agreement, the corporation had a duty to perform the contract. A&M Wallboard v. Marina Towers Associates, 169 A.D.2d 751, 752.

When parties execute an agreement that contemplates signing of a more formal contract, courts hold that the initial agreement is an unenforceable “agreement to agree” when material terms, such as a purchase price or payment terms, remain to be determined. Thus, in Ansorge v. Kane, the Court of Appeals held a preliminary agreement unenforceable, even though the parties had agreed on the total price, because the preliminary agreement recited that the sum to be paid upon signing of the contract was “to be agreed on.” More recently, the Appellate Division has held a one-page binder agreement unenforceable when the agreement recited that it was subject to the approval of sellers' lawyer, and when the agreement did not recite that the property was part of a condominium development, and subject to the condominium board's right of first refusal. By contrast, courts conclude that contemplation of a subsequent contract does not bar enforcement of a preliminary agreement when the parties do not contemplate any change or addition of material terms. Thus, in Sabetfard v. Djavaheri Realty Corp., the court enforced a preliminary agreement when the court considered “minor” the terms to be added in the supplemental contract. 18 A.D.3d 640, 645. In Atai, as in Sabetfard, the court concluded that all material terms were covered by the initial agreement.

Mortgagor's Failure to Meet Obligations Precludes Action

Marosu Realty Corp. v. Community Preservation Corp. (CPC)

NYLJ 1/3/06, p. 18, col. 1

AppDiv, First Dept

(Mazzarelli, J.)

In an action by mortgagor for breach of a mortgage agreement, lenders appealed from a Supreme Court order dismissing one cause of action, but denying their motion to dismiss the complaint. The Appellate Division modified to dismiss the complaint in its entirety, emphasizing mortgagor's persistent failure to meet its obligations.

Mortgagor sought to purchase the subject premises and to obtain financing from the CPC through the Participation Loan Program formed with the Department of Housing Preservation and Development (HPD) pursuant to article 15 of the state Housing Finance Law. HPD denied the application based on prior problems with mortgagor and its principals. Mortgagor then obtained a private mortgage loan at a high interest rate. Mortgagor then reapplied to CPC and HPD for refinancing of the loan, and mortgagor was approved for a construction loan of $1,424,750, which the parties contemplated would later be converted into a permanent loan for the same amount. The commitment agreement provided that the conversion would occur only after mortgagor met conditions, including completion of the renovations, certification of a current rent roll at a specified amount, and clearing the building of violations. The agreement also permitted HPD to restructure rents in accordance with rent stabilization, and included a schedule of maximum rents. The calculations assumed, however, that federal section 8 subsidies would be available to eligible tenants, an assumption that later proved incorrect. Mortgagor then executed three mortgage notes for the agreed-upon total. Mortgagor did not, however, clear the building of all violations. HPD notified mortgagor that rents could not be increased until all code violations were corrected. Mortgagor nevertheless raised those rents. Nevertheless, the mortgagor faced financial difficulty, in part because of the unavailability of section 8 subsidies. HPD and CPC sought additional financing that would lower mortgagor's debt service, but mortgagor contended that the conditions attached would require $100,000 in additional renovations. Mortgagor then brought this action alleging that CPC and HPD had breached by failing to convert the construction loans into permanent mortgages, by failing to help mortgagor realize the rental minimum, by failing to secure section 8 subsidies, by failing to increase collectible rents, and by maliciously precipitating default. Supreme Court dismissed the first claim, for failing to convert the construction loans, but otherwise denied the motions to dismiss.

In modifying, the Appellate Division first noted that section 8 subsidies were within the control of the federal government, not CPC and HPD, and that the contract could not be read to require CPC and HPD to obtain section 8 benefits. The court then noted that the claim for failing to help realize rental minimums could not be maintained against CPC, a private corporation without power to regulate rents. With respect to HPD, the claim could not be maintained because HPD commenced the rent restructuring process, only to be informed by tenants that code violations had not been corrected. As a result of mortgagor's persistent failure to meet its obligations, the court held that HPD and CPC were entitled to dismissal of the complaint, and CPC was entitled to foreclosure of the mortgage based on mortgagor's failure to make payments once it initiated this action.

Owner Provided Adequate Notice of Claim for Slander of Title Action

Rosenbaum v. City of New York

NYLJ 1/3/06, p. 28, col. 1

AppDiv, First Dept

(memorandum opinion)

In an action by landowner against the city for slander of title, landowner appealed from Supreme Court's grant of summary judgment to the city. The Appellate Division reversed and reinstated the complaint, holding that landowner had provided the city with adequate notice of its claim.

Landowner purchased the subject apartment building in August 1993. Later that year, landowner and the city entered into an in rem agreement, under the terms of which landowner paid the city $64,000 to discharge all existing liens for taxes, water, sewer, rent and property repairs. Before landowner's purchase and without landowner's knowledge, the city's Department of Housing Preservation and Development (HPD) had made repairs to the premises and had not included those costs in the in rem agreement. HPD then informed landowner that he was liable for those costs, and filed liens against the building in the amount of $160,000. Landowner's lawyer immediately wrote HPD requesting that the city remove the liens, noting that the liens constituted slander of landowner's title, and threatened a prospective sale. After litigation to the Court of Appeals, the liens were ultimately discharged. The current proceeding involves landowner's slander of title claim. The city contended that the claim must be dismissed for failure to provide the notice of claim required by section 50-e(3) of the General Municipal Law. Supreme Court agreed.

In reversing, the Appellate Division noted the city's claim that notice was improper because not sent by registered mail and not sent to the Corporation Counsel. The court held, however, that the nature of a plaintiff's claim is critical to interpretation and application of the notice of claim statute. Because this claim was not one within the exclusive knowledge of the plaintiff, and was not one that required extensive investigation by the city, the purpose of the notice of claim statute would not be advanced by finding the notice in this case inadequate. In addition, the court rejected the city's argument that the lawyer's letter was inadequate because no slander of title claim could accrue until landowner lost a sale. The court held that the slander of title claim accrued when the lien was filed, because filing of the lien immediately diminished the value of landowner's parcel.

COMMENT

A slander of title claim requires a false and intentional claim or statement (“claim”) that clouds the validity of landowner's title. It is not sufficient for the claim to merely affect the value of the property; rather, the claim must question the landowner's ownership interest in the property. Thus, in Hirschhorn v. Town of Harrison, 210 A.D.2d 587, the court held that statements that the property was “a potential environmental disaster” did not give rise to a slander of title claim even though the statements reduced the resale value of the property. In Hirschhorn, after plaintiff purchasers put a 10% down payment on the subject property, but prior to the completion of the transaction, two people associated with defendant landowner stated on television that the subject property “was a potential environmental disaster.” The court dismissed plaintiffs' slander of title claim. In contrast, in Hanbidge v. Hunt, 183 A.D.2d 700, the court found that the “wrongful filing of record of an unfounded claim to the property of another” gave rise to a slander of title claim because it created a defect in landowner's title. In Hanbidge, defendant neighbors filed a “Notice of Easement and Right of Way” (“Notice”) acknowledging an easement over defendants' property, but restricting any future increase in its use. The court in Hanbidge held that a slander of title claim accrues, for statute of limitations purposes, when a prospective purchaser refuses to buy the property. In Hanbidge, the Incorporated Village of Centre Island neighbors filed the Notice that created the title defect in July 1984. Landowners became aware of the Notice on July 23, 1987 when a potential buyer refused to purchase part of plaintiffs' property because of the Notice. The court found that plaintiffs' cause of action for slander of title accrued on July 23, 1987, at the moment they were economically damaged by the lost sale. In contrast, the Rosenbaum court held that plaintiff landowner's cause of action for slander of title accrued the moment the lien was filed, even though no particular sale was lost, because the value of the property was immediately diminished.

This difference of approach on when the claim accrues reflects the difference in the issue before the court. In Hanbidge, where the issue was whether the statute of limitations barred landowner's slander of title claim, the court reasonably held that landowner's claim did not accrue until the loss of a potential purchaser made landowner aware of the cloud on its title. There was no reason for landowner to take any action until that time, and starting the statute of limitations to run at an earlier point would have extinguished landowner's claim before landowner even recognized the existence of a wrong. By contrast, in Rosenbaum, where the issue was whether landowner provided adequate notice of claim, the court reasonably held that the claim accrued before a lost sale; the alternative would have made it difficult for landowner to serve a timely notice of claim.

Preliminary Memorandum Can Constitute Enforceable Contract

Atai v. Dogwood Realty of N.Y., Inc.

NYLJ 1/4/06, p. 37, col. 2

AppDiv, Second Dept

(3-1 decision; memorandum opinion; dissenting memorandum by Goldstein, J.)

In an action by purchaser for specific performance of a contract for the sale of real property, purchaser appealed from Supreme Court's order granting summary judgment to seller on the ground that the contract did not comply with the statute of frauds. The Appellate Division reversed and reinstated the complaint, holding that whether the memorandum signed by the parties included all material terms was a question of fact to be resolved at trial.

Real estate broker approached seller with a potential purchaser for the subject premises, and the parties negotiated a sale of the premises for $1.8 million. The broker prepared a memorandum that included: 1) the purchase price; 2) a provision that the sale was to be “all cash”; 3) that closing was to take place in 30 to 60 days; and 4) that the broker was entitled to a $50,000 commission, to be paid by the seller. The memorandum also provided signature lines for Mrs. Atai, the purchaser, and for Mr. Jang, the seller. Finally, the memorandum concluded by asking the parties to review the terms and sign “in order to proceed with a contract of sale.” Jang then signed the memorandum, and Mrs. Atai signed the memorandum, handwriting “Farid Investment Limited Part” next to her signature, because she wanted title taken in the partnership's name. Jang knew about the change and voiced no objection. In fact, however, Jang did not own the property as an individual; title was held by Dogwood Realty, owned in equal shares by Jang and his wife. After the memorandum was signed, Jang refused to proceed with the transaction, allegedly because he received a better offer. Mrs. Atai then brought this action against Jang and Dogwood for specific performance or, in the alternative, for damages for breach. Supreme Court awarded summary judgment to Jang and Dogwood, concluding that the memorandum did not comply with the statute of frauds.

In reversing, the Appellate Division majority noted that Dogwood could be bound by an undisclosed principal if he was acting within his authority. The circumstances raised questions of fact about whether Jang was in fact acting on behalf of Dogwood. Moreover, the court emphasized that the writing included key terms that could, depending on the circumstances of the case, satisfy the statute of frauds and bind the parties. Moreover, the court noted that the fact that the parties anticipated execution of a more formal contract would not preclude the effectiveness of the writing if it embodied all of the agreement's essential terms. The court held that whether other material terms were not reflected in the memorandum was a question of fact for resolution at trial. Hence, summary judgment was not warranted.

Justice Goldstein, dissenting, noted first that the memorandum did not identify the party to be charged — here, Dogwood Realty. He then noted that the memorandum did not include provisions relating to quality of title to be conveyed, risk of loss before closing, or adjustments for taxes paid by sellers. He therefore concluded that the memorandum did not satisfy the statute of frauds.

COMMENT

When a corporate president acts within his apparent scope of duties and sells land on behalf of the corporation, the undisclosed corporate principal is estopped from denying his authority to make the sale. Thus, in Kursh v. Verderame, 87 A.D.2d 803, the court awarded specific performance to a buyer against a corporate seller of land even though the corporate principal who signed the sale contract never disclosed that the land was owned by the corporation. The principal and his family had formed the corporation that owned the subject land. When the principal refused to proceed to closing, the court held that because the principal had held himself out as having authority to make the sale, the undisclosed corporation was estopped from denying that authority. Similarly, in a case not involving the sale of real property, the Appellate Division held that when a corporate president with actual authority to enter into contracting agreements executed such an agreement, the corporation had a duty to perform the contract. A&M Wallboard v. Marina Towers Associates, 169 A.D.2d 751, 752.

When parties execute an agreement that contemplates signing of a more formal contract, courts hold that the initial agreement is an unenforceable “agreement to agree” when material terms, such as a purchase price or payment terms, remain to be determined. Thus, in Ansorge v. Kane, the Court of Appeals held a preliminary agreement unenforceable, even though the parties had agreed on the total price, because the preliminary agreement recited that the sum to be paid upon signing of the contract was “to be agreed on.” More recently, the Appellate Division has held a one-page binder agreement unenforceable when the agreement recited that it was subject to the approval of sellers' lawyer, and when the agreement did not recite that the property was part of a condominium development, and subject to the condominium board's right of first refusal. By contrast, courts conclude that contemplation of a subsequent contract does not bar enforcement of a preliminary agreement when the parties do not contemplate any change or addition of material terms. Thus, in Sabetfard v. Djavaheri Realty Corp., the court enforced a preliminary agreement when the court considered “minor” the terms to be added in the supplemental contract. 18 A.D.3d 640, 645. In Atai, as in Sabetfard, the court concluded that all material terms were covered by the initial agreement.

Mortgagor's Failure to Meet Obligations Precludes Action

Marosu Realty Corp. v. Community Preservation Corp. (CPC)

NYLJ 1/3/06, p. 18, col. 1

AppDiv, First Dept

(Mazzarelli, J.)

In an action by mortgagor for breach of a mortgage agreement, lenders appealed from a Supreme Court order dismissing one cause of action, but denying their motion to dismiss the complaint. The Appellate Division modified to dismiss the complaint in its entirety, emphasizing mortgagor's persistent failure to meet its obligations.

Mortgagor sought to purchase the subject premises and to obtain financing from the CPC through the Participation Loan Program formed with the Department of Housing Preservation and Development (HPD) pursuant to article 15 of the state Housing Finance Law. HPD denied the application based on prior problems with mortgagor and its principals. Mortgagor then obtained a private mortgage loan at a high interest rate. Mortgagor then reapplied to CPC and HPD for refinancing of the loan, and mortgagor was approved for a construction loan of $1,424,750, which the parties contemplated would later be converted into a permanent loan for the same amount. The commitment agreement provided that the conversion would occur only after mortgagor met conditions, including completion of the renovations, certification of a current rent roll at a specified amount, and clearing the building of violations. The agreement also permitted HPD to restructure rents in accordance with rent stabilization, and included a schedule of maximum rents. The calculations assumed, however, that federal section 8 subsidies would be available to eligible tenants, an assumption that later proved incorrect. Mortgagor then executed three mortgage notes for the agreed-upon total. Mortgagor did not, however, clear the building of all violations. HPD notified mortgagor that rents could not be increased until all code violations were corrected. Mortgagor nevertheless raised those rents. Nevertheless, the mortgagor faced financial difficulty, in part because of the unavailability of section 8 subsidies. HPD and CPC sought additional financing that would lower mortgagor's debt service, but mortgagor contended that the conditions attached would require $100,000 in additional renovations. Mortgagor then brought this action alleging that CPC and HPD had breached by failing to convert the construction loans into permanent mortgages, by failing to help mortgagor realize the rental minimum, by failing to secure section 8 subsidies, by failing to increase collectible rents, and by maliciously precipitating default. Supreme Court dismissed the first claim, for failing to convert the construction loans, but otherwise denied the motions to dismiss.

In modifying, the Appellate Division first noted that section 8 subsidies were within the control of the federal government, not CPC and HPD, and that the contract could not be read to require CPC and HPD to obtain section 8 benefits. The court then noted that the claim for failing to help realize rental minimums could not be maintained against CPC, a private corporation without power to regulate rents. With respect to HPD, the claim could not be maintained because HPD commenced the rent restructuring process, only to be informed by tenants that code violations had not been corrected. As a result of mortgagor's persistent failure to meet its obligations, the court held that HPD and CPC were entitled to dismissal of the complaint, and CPC was entitled to foreclosure of the mortgage based on mortgagor's failure to make payments once it initiated this action.

Owner Provided Adequate Notice of Claim for Slander of Title Action

Rosenbaum v. City of New York

NYLJ 1/3/06, p. 28, col. 1

AppDiv, First Dept

(memorandum opinion)

In an action by landowner against the city for slander of title, landowner appealed from Supreme Court's grant of summary judgment to the city. The Appellate Division reversed and reinstated the complaint, holding that landowner had provided the city with adequate notice of its claim.

Landowner purchased the subject apartment building in August 1993. Later that year, landowner and the city entered into an in rem agreement, under the terms of which landowner paid the city $64,000 to discharge all existing liens for taxes, water, sewer, rent and property repairs. Before landowner's purchase and without landowner's knowledge, the city's Department of Housing Preservation and Development (HPD) had made repairs to the premises and had not included those costs in the in rem agreement. HPD then informed landowner that he was liable for those costs, and filed liens against the building in the amount of $160,000. Landowner's lawyer immediately wrote HPD requesting that the city remove the liens, noting that the liens constituted slander of landowner's title, and threatened a prospective sale. After litigation to the Court of Appeals, the liens were ultimately discharged. The current proceeding involves landowner's slander of title claim. The city contended that the claim must be dismissed for failure to provide the notice of claim required by section 50-e(3) of the General Municipal Law. Supreme Court agreed.

In reversing, the Appellate Division noted the city's claim that notice was improper because not sent by registered mail and not sent to the Corporation Counsel. The court held, however, that the nature of a plaintiff's claim is critical to interpretation and application of the notice of claim statute. Because this claim was not one within the exclusive knowledge of the plaintiff, and was not one that required extensive investigation by the city, the purpose of the notice of claim statute would not be advanced by finding the notice in this case inadequate. In addition, the court rejected the city's argument that the lawyer's letter was inadequate because no slander of title claim could accrue until landowner lost a sale. The court held that the slander of title claim accrued when the lien was filed, because filing of the lien immediately diminished the value of landowner's parcel.

COMMENT

A slander of title claim requires a false and intentional claim or statement (“claim”) that clouds the validity of landowner's title. It is not sufficient for the claim to merely affect the value of the property; rather, the claim must question the landowner's ownership interest in the property. Thus, in Hirschhorn v. Town of Harrison, 210 A.D.2d 587, the court held that statements that the property was “a potential environmental disaster” did not give rise to a slander of title claim even though the statements reduced the resale value of the property. In Hirschhorn, after plaintiff purchasers put a 10% down payment on the subject property, but prior to the completion of the transaction, two people associated with defendant landowner stated on television that the subject property “was a potential environmental disaster.” The court dismissed plaintiffs' slander of title claim. In contrast, in Hanbidge v. Hunt, 183 A.D.2d 700, the court found that the “wrongful filing of record of an unfounded claim to the property of another” gave rise to a slander of title claim because it created a defect in landowner's title. In Hanbidge, defendant neighbors filed a “Notice of Easement and Right of Way” (“Notice”) acknowledging an easement over defendants' property, but restricting any future increase in its use. The court in Hanbidge held that a slander of title claim accrues, for statute of limitations purposes, when a prospective purchaser refuses to buy the property. In Hanbidge, the Incorporated Village of Centre Island neighbors filed the Notice that created the title defect in July 1984. Landowners became aware of the Notice on July 23, 1987 when a potential buyer refused to purchase part of plaintiffs' property because of the Notice. The court found that plaintiffs' cause of action for slander of title accrued on July 23, 1987, at the moment they were economically damaged by the lost sale. In contrast, the Rosenbaum court held that plaintiff landowner's cause of action for slander of title accrued the moment the lien was filed, even though no particular sale was lost, because the value of the property was immediately diminished.

This difference of approach on when the claim accrues reflects the difference in the issue before the court. In Hanbidge, where the issue was whether the statute of limitations barred landowner's slander of title claim, the court reasonably held that landowner's claim did not accrue until the loss of a potential purchaser made landowner aware of the cloud on its title. There was no reason for landowner to take any action until that time, and starting the statute of limitations to run at an earlier point would have extinguished landowner's claim before landowner even recognized the existence of a wrong. By contrast, in Rosenbaum, where the issue was whether landowner provided adequate notice of claim, the court reasonably held that the claim accrued before a lost sale; the alternative would have made it difficult for landowner to serve a timely notice of claim.