Real Property Law

Court of Appeals

(memorandum opinion)

In an action by broker to recover a commission, seller appealed from the Appellate Division's order awarding summary judgment to the broker. The Court of Appeals affirmed, holding that the seller had raised no material issues of fact about whether broker was acting as a dual agent.

Sellers retained Prudential Douglas Elliman to sell their co-op apartment. Lockwood served as the broker for the exclusive listing, which provided for a 6% commission. Four months later, a bidder made an oral offer acceptable to sellers. Meanwhile, Lockwood met the ultimate buyer of the apartment at an open house in sellers' apartment, and showed buyer a number of other apartments, including other apartments in sellers' building. When the initial bidder's offer fell through, Lockwood communicated buyer's offer to seller. The offer was for $100,000 less than the initial bidder's offer, but Douglas Elliman agreed to reduce its commission to 5% if sellers accepted the offer. They did so, and the buyer paid $1.4 million at closing, $70,000 of which was held in escrow. Douglas Elliman then brought this action to recover the $70,000, and sellers asserted that Douglas Elliman was not entitled to a commission because it had breached its fiduciary duty to seller by acting as a dual agent for buyers and showing competing apartment to buyers. Both parties moved for summary judgment and Supreme Court denied both motions, holding that questions of fact existed about whether Lockwood was acting as a dual agent. The Appellate Division, with one justice dissenting, modified to grant broker's summary judgment motion, and sellers appealed.

In affirming, the Court of Appeals held that because sellers and brokers did not specifically agree that broker would decline prospective purchasers' requests to see other apartments, Lockwood had no duty to refrain from showing other apartments to prospective purchasers. A contrary result, the court indicated, would unreasonably restrain brokers from cultivating other clients at open houses. The court concluded that sellers had not raised a material issue of fact about whether Lockwood was acting as a dual agent in the transaction.

COMMENT

Although real estate brokers owe various fiduciary duties to their principals, the Court of Appeals in Sonnenschein v. Douglas Elliman-Gibbons & Ives, 96 N.Y.2d 369, established that once negotiations have commenced between a seller and potential buyer, a broker who shows property to a potential buyer does not ' absent an express agreement with the seller ' owe seller a duty to refrain from showing additional properties to the potential buyer. In Sonnenschein itself, when broker brought potential buyers to seller's attention, seller signed a letter agreement promising to pay a commission if the sale closed. When the potential buyers bought another apartment shown to them by another agent at the same broker, seller sued the broker for breach of fiduciary duty. In holding that the broker was entitled to summary judgment, the court first questioned whether the letter agreement between seller and broker was sufficient to establish that broker was seller's agent. The court then indicated that even if the commission agreement had established a broker/principal relationship, the broker would have been free to show its other listed properties to the potential buyer. The court reasoned that otherwise, brokers would be unreasonably restrained from representing similar properties, because of a fear of breaching a fiduciary duty to some seller when buyers select one property over another. Moreover, if broker were not free to show multiple properties, the seller's interests in marketing property to various purchasers would be frustrated, as would and the buyer's interests in examining
multiple properties.

Douglass Elliman LLC makes clear that the Sonnenschein rule applies even to listing brokers who enter into an exclusive listing agreement with the seller ' absent a restriction in the exclusive listing agreement with seller. The court also rejected seller's argument that a seller's broker acts as a dual agent, and forfeits the right to a commission, by showing additional properties to potential buyer.

When a broker does act as a dual agent, broker jeopardizes its right to a commission if the broker does not receive the informed consent of both seller and buyer. Thus, in Queens Structure Corp. v. Jay Lawrence Associates, Inc., 304 A.D.2d 736, the Second Department affirmed the trial court's denial of summary judgment to a broker seeking to collect a consulting fee that the buyer had agreed to pay, noting that there were questions of fact about whether the broker had acted as a dual agent when broker entered into the consulting agreement with the prospective buyer while also representing the sellers.

If Forfeiture of Down Payment Is the Exclusive Remedy for Breach, Seller May Not Recover Statutory Interest

J. D'Addario & Co., Inc. v. Embassy Industries, Inc.

NYLJ 11/20/12, p. 22, col. 1

Court of Appeals

(4-2 decision; majority opinion by Lippman, Ch. J; dissenting opinion by Graffeo, J.)

In an action by contract vendee to recover its down payment, seller prevailed at trial, and then appealed from the Appellate Division's reversal of Supreme Court's award of statutory interest on the amount of the down payment. The Court of Appeals affirmed, holding that a contract provision making forfeiture of the down payment the exclusive remedy for breach of the contract precluded any award of statutory interest.

In 2006, seller agreed to sell the subject property to contract vendee for $6,500,000. Contract vendee paid $650,000 into escrow. The contract required the escrow funds to be deposited into an interest bearing account, and provided that if purchaser defaulted, seller would retain the deposit at liquidated damages “and no further rights or causes of action shall remain against Purchaser … ” Seller later scheduled a time-is-of-the-essence closing, and contract vendee did not show up, purporting to terminate based on seller's inability to certify that groundwater contamination had been addressed. Seller then declared contract vendee to be in default and retained the down payment. When contract vendee brought this action to recover the down payment, seller counterclaimed alleging default by contract vendee. After a non-jury trial, Supreme Court awarded seller the down payment plus statutory 9% interest, for a total of $877,406. The Appellate Division modified to vacate the award of interest, and seller appealed.

In affirming, the Court of Appeals majority held that statutory interest is generally mandatory, not, as the Appellate Division had suggested, within the discretion of the trial court. But the majority also held that parties to a contract can stipulate to eliminate the right to statutory damages, and concluded that in this case, the parties had done so. Judge Victoria A. Graffeo, dissenting for herself and Judge Eugene Pigott, disagreed about the effect of the liquidated damages provision in this case. She emphasized that the stipulation did not mention statutory interest, and concluded that statutory interest represented compensation for the wrong of not paying the agreed sum when due.

Prescriptive Easement Limited to Actual Use

Garden Homes Mobile Home Park Co v. Patel

NYLJ 11/16/12, p. 33, col. 6

AppDiv, Second Dept.

(memorandum opinion).

In landowner's action for a declaration that it has a prescriptive easement over neighboring land, neighbor appealed from Supreme Court's grant of summary judgment declaring that landowner had established an easement to maintain pipes over neighbors' land for the discharge of effluent. The Appellate Division reversed, holding that questions of fact about the extent of landowner's use precluded summary judgment.

Landowner's evidence established that landowner had maintained pipes over neighbors' land for the prescriptive period, and that the use of the pipes was adverse, open and notorious, and continuous. On that basis, Supreme Court awarded landowner summary judgment on its easement by prescription claim.

In reversing, the Appellate Division pointed to material in landowner's submission raising issues about whether the actual use of neighbors' land was enlarged within the prescriptive period. The court held that because landowner had not established the extent of its actual use during the prescriptive period, landowner was not entitled to summary judgment.

COMMENT

A prescriptive easement holder may not generally expand the easement beyond the purpose of the use and the physical boundaries established during the prescriptive period. For example, in Dermody v. Tilton, 85 A.D. 3d 1682the court found that when a prescriptive easement holder had used right of way for egress and ingress during the prescriptive period, the easement holder did not acquire a right to improve, construct upon, maintain, or use the land generally for enjoyment. Similarly, in Vitiello v. Merwin, 87 A.D.3d 632, the court held that the dominant estate owner could not widen a roadway beyond the width used during the prescriptive period.

However, if the dispute involves not purpose or physical boundaries, but frequency of use, an easement holder is entitled to use the easement in conformity with the most robust use established during the prescriptive period, and may even be entitled to expand the frequency of the easement's use. For example, in Vitiello, even though the court rejected the physical expansion of the easement, it allowed the easement holder's increased usage because the increased frequency still conformed to the most frequent use that had taken place during the prescriptive period. Id. Moreover, in Bremer v. Manhattan Railway Co., the Court of Appeals found that a railroad company that had established a prescriptive easement to operate an elevated railway could increase the frequency of the trains it operated beyond what was established during the prescriptive period because the increased operations were not an increased use of the easement. 191 N.Y. 333. In Bremer, the court found that even though the railroad company increased the frequency of its trains, the length of its trains, changed the type of trains that ran, and added a third rail to the railway, these changes did not alter the nature of the right to the railway as a whole, nor did it interfere with the servient owner's ownership of the land. Id.

At a trial in Garden Homes, then, the easement holder would be more likely to succeed if the easement holder could establish that the effluent discharge had increased only in frequency, but not in the land area adversely affected by the discharge.

Shareholder Husband Has Claim Against Purchaser of Property from Shareholder Wife

Hu v. Lowbet Realty Corp.

NYLJ 11/15/12

Supreme Ct., Kings Cty.

(Demarest, J.)

In corporate shareholder's special proceeding to wind up the affairs of a corporation, shareholder sought to include claims against purchaser of real property and title insurer arising out of the allegedly fraudulent sale of a building owned by the corporation. The court granted shareholder's motion with respect to purchaser, but not with respect to title insurer.

The sole asset of the corporation was the subject four-story, 19-unit apartment building. Shareholder bought all 200 shares in the corporation in 1980. Five years later, he married Liu, who subsequently acquired 50 shares, giving her a 25% interest in the corporation. The couple separated in 1995, and shareholder moved to China, while his wife continued to live in the building and exercise full control over the corporation. In 2000, the Secretary of State issued a proclamation dissolving the corporation pursuant to Tax Law section 203-a. In a divorce action commenced in 2006, the court issued a temporary restraining order prohibiting either spouse from dissipating or transferring the corporation's assets. In 2011, shareholder brought this action, pursuant to Business Corporation Law (BCL) section 1108, to wind up affairs of the corporation. The court granted a TRO directing that neither party remove assets without further direction of the court, but the wife, purporting to act on the corporation's behalf, nevertheless conveyed title to the building for $1,600,000. The wife then defaulted in the proceeding, and the court determined, upon inquest, that shareholder owns 75% of the corporation's shares. She left the country, despite (or perhaps because of) issuance of a warrant for her arrest. Shareholder then moved to include claims against the purchaser for rescission of the sale based on fraud and against the title agent and the title insurer premised on negligence for failure to discover the wife's fraud.

The court held that shareholder was entitled to include claims against the purchaser. The court first rejected purchaser's argument that such claims could be advanced only in a plenary action, not in this proceeding to wind up the corporation's affairs. The court then rejected the argument that the court should not rescind the sale because purchaser was a bona fide purchaser for value from a person who had apparent authority to act on the corporation's behalf. The court emphasized that under BCL section 909(b), a sale of “substantially all the assets of a corporation” requires the approval of two-thirds of the shareholders, and precludes the argument that the wife had apparent authority to action on the corporation's behalf. Because the deed was void for lack of the wife's authority, the deed could not transfer title. As to the title insurer and title agent, however, the court held that shareholder's claims against them could not stand because they were not in privity with shareholder and therefore owed no duty of care to him.

COMMENT

A corporation may rescind a contract for sale of real property that constitutes all or substantially all of its assets when the contract has been executed without shareholder approval, unless the sale was made in the corporation's regular course of business. BCL ' 909(a). In Vig v. Deka Realty Corp., 143 A.D.2d 185, the Second Department held unenforceable a contract for sale of the corporation's only property, executed by its president without shareholder approval, based upon a finding that the corporation was not actually engaged in the business of selling real estate. The court rejected the purchaser's argument that the president had apparent authority to convey, finding instead that purchasers are on notice of the limitations BCL ' 909(a) places on corporate officers. Id. at 186. Compare Soho Gold, Inc. v. 33 Rector Street Ltd., 227 A.D.2d 314 (1st Dep't 1996) (ordering specific performance of a contract for sale executed by corporation without shareholder approval where property did not constitute all or substantially all corporate assets).

BCL Section 909(c) expressly provides that an action to set aside a deed for failure to comply with section 909(a) must be commenced within one year of the conveyance. See also Apt v. 6222 Const. Corp., 10 Misc.3d 1073(A) (Sup Ct, Richmond County 2006) (shareholder's claim to set aside deed for failure to comply with BCL ' 909(a) time-barred after one year). The statutory time limit strongly suggests that deeds executed in violation of section 909(a) are only voidable, not void, and claims made under the statute have almost invariably been claims for rescission against the purchaser from the corporation.

Lowbet is unique in applying the statute to invalidate a conveyance against a bona fide purchaser, invoking the established rule that a void deed, such as a forged deed, conveys nothing, and provides no protection to bona fide purchasers. See Karan v. Hoskins, 22 A.D.3d 638 (2nd Dep't 2005). Perhaps the Lowbet court, in holding the deed void, was influenced by the fact that wife's conveyance appeared fraudulent and not merely unauthorized, as she had violated a previous court order restraining her from acting in any capacity on behalf of the corporation when she made the conveyance.

Dominant Owner Required To Maintain Easement

Gates v. AT & T Corp.

NYLJ 12/6/12, p. 21, col. 3

AppDiv, Third Department

(3-2 decision; majority opinion by Garry, J; opinion dissenting in part by McCarthy, J.)

In an action by servient owner alleging breach of an obligation to maintain a roadway easement, dominant owner appealed from Supreme Court's grant of summary judgment to the servient owner. A divided Appellate Division affirmed, holding that the language of the easement required dominant owner to maintain the easement to prevent harm to the servient land from improper drainage.

In 1949, servient owner's predecessor conveyed a parcel of land to AT&T for construction of a communications tower, and simultaneously granted a roadway easement to AT&T to provide access to the tower. The easement agreement gave AT&T the right to build a paved road over what had previously been a dirt road, but also provided that the right to maintain the road would not impose a duty on the grantee “to conform to a maintenance standard higher than that previously observed by the [g]rantors, except that the [g]rantee in constructing [the] new road shall provide drainage facilities in order that the adjacent lands of the [g]rantors will not be flooded out ' ” In 2000, AT&T transferred the property and the easement to American Towers, and servient owner subsequently brought this action, contending that American Towers had failed to maintain the road, causing drainage problems that made some of the neighboring farmland unusable. Servient owner sought either damages or a declaration that American Towers had abandoned the easement. Supreme Court granted summary judgment to servient owner on the issue of liability, and American Towers appealed.

In affirming, the Appellate Division majority first agreed with American Towers that servient owner could not compel American Towers to maintain the easement in a condition superior to that in which it had previously been maintained. But the majority also noted that American Towers had introduced no evidence to rebut servient owner's contention that the deteriorated state of the easement had caused harm to the neighboring farmland. As a result, the majority concluded that servient owner was entitled to summary judgment. The dissenting justices read the easement agreement differently, concluding that the agreement only required AT&T to provide drainage facilities upon building the road, but that the agreement did not impose any ongoing obligation to maintain those drainage facilities.

Continuing Nuisance Claim Not Time-Barred

Pilatich v. Town of New Baltimore

NYLJ 12/5/12, p. 21, col. 1

AppDiv, Third Dept.

(Kavanaugh. J.).

In a farmer's private nuisance action against the town and a neighboring landowner, the farmer appealed from Supreme Court's grant of summary judgment, on statute of limitations grounds, to the town and neighbor. The Appellate Division reversed and reinstated the complaint, holding that the farmer's claim for a continuing nuisance was not time-barred.

Between 1991 and 1994, neighbors built a stone wall at the entrance of their driveway to deter vehicles from driving over their lawn. They also installed iron pipes running from the far end of the wall along the road in front of their parcel. Farmer's land lies across the road from neighbors' land, and farmer contends that the wall and the pipes, together with new paving and road material the town added to the road, have made it impossible for large trucks to use the driveway leading to his farm. In 2010, the farmer brought this action seeking damages, as well as removal of the wall and pipes. Supreme Court denied neighbors' motion to dismiss, but subsequently granted summary judgment to the neighbors on the ground that the farmer's claim was time-barred. The farmer appealed.

In reversing, the Appellate Division cited the rule that a continuing nuisance gives rise to successive causes of action each time a wrong is committed. Because the farmer's claim is premised on ongoing damage caused by the wall and iron posts, his claim for damages suffered during the three years immediately preceding the commencement of the action would not be time-barred. As a result, neighbors were not entitled to summary judgment.

Standing Issues Preclude Summary Judgment on Foreclosure Claim

Deutsche Bank National Trust Co. v. Haller

NYLJ 11/16/12, p. 33, Col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action to foreclose a mortgage, mortgagor appealed from Supreme Court's grant of summary judgment to mortgagee bank, and from Supreme Court's denial of mortgagor's own summary judgment motion. The Appellate Division modified to deny both summary judgment motions, holding that questions of fact remained about mortgagee's standing to bring the action.

In January 2008, mortgagors defaulted on a mortgage they had executed in favor of Ameriquest. In August 2008, Deutsche Bank, as trustee for the security holders in the Ameriquest mortgage, brought this foreclosure action, alleging that it was the owner of the note and the mortgage based on a written assignment. One of the mortgagors contended that Deutsche Bank lacked standing, but then entered into a forbearance agreement with Deutsche Bank, agreeing to a new schedule of payments. Mortgagor subsequently defaulted on the forebearance agreement, leading Deutsche Bank to move for summary judgment. Mortgagor cross-moved for summary judgment, challenging Deutsche Bank's standing. Supreme Court granted summary judgment to Duetsche Bank, and mortgagor appealed.

In modifying, the Appellate Division noted that when a mortgagor questions a mortgagee's standing, the mortgagee must demonstrate that it was the holder both of the mortgage and the underlying note at the time the complaint was filed. Here, the bank did not demonstrate that the note had been physically delivered to it before filing of the complaint, nor did it demonstrate that the note was endorsed over to it before filing of the complaint. The court conceded that, in support of its summary judgment motion, the bank had produced a copy of the note with an endorsement to the bank, the court emphasized that because the endorsement was undated, the bank had not established that the note had been endorsed before the filing of the complaint. The court also held that an assignment of the note by CitiResidential Lending, purportedly acting on behalf of Ameriquest, did not supply sufficient proof because there was no evidence that Citi had authority to act on Ameriquest's behalf.

At the same time, the court held that mortgagor was not entitled to summary judgment because questions of fact remained about the endorsement, the assignment, and physical delivery of the note. As a result, Supreme Court properly denied summary judgment to mortgagor.

Listing Broker May Show Multiple Properties to Prospective Purchaser

Douglas Elliman, LLC v. Tretter

NYLJ 11/20/12, p. 24, col. 1

Court of Appeals

(memorandum opinion)

In an action by broker to recover a commission, seller appealed from the Appellate Division's order awarding summary judgment to the broker. The Court of Appeals affirmed, holding that the seller had raised no material issues of fact about whether broker was acting as a dual agent.

Sellers retained Prudential Douglas Elliman to sell their co-op apartment. Lockwood served as the broker for the exclusive listing, which provided for a 6% commission. Four months later, a bidder made an oral offer acceptable to sellers. Meanwhile, Lockwood met the ultimate buyer of the apartment at an open house in sellers' apartment, and showed buyer a number of other apartments, including other apartments in sellers' building. When the initial bidder's offer fell through, Lockwood communicated buyer's offer to seller. The offer was for $100,000 less than the initial bidder's offer, but Douglas Elliman agreed to reduce its commission to 5% if sellers accepted the offer. They did so, and the buyer paid $1.4 million at closing, $70,000 of which was held in escrow. Douglas Elliman then brought this action to recover the $70,000, and sellers asserted that Douglas Elliman was not entitled to a commission because it had breached its fiduciary duty to seller by acting as a dual agent for buyers and showing competing apartment to buyers. Both parties moved for summary judgment and Supreme Court denied both motions, holding that questions of fact existed about whether Lockwood was acting as a dual agent. The Appellate Division, with one justice dissenting, modified to grant broker's summary judgment motion, and sellers appealed.

In affirming, the Court of Appeals held that because sellers and brokers did not specifically agree that broker would decline prospective purchasers' requests to see other apartments, Lockwood had no duty to refrain from showing other apartments to prospective purchasers. A contrary result, the court indicated, would unreasonably restrain brokers from cultivating other clients at open houses. The court concluded that sellers had not raised a material issue of fact about whether Lockwood was acting as a dual agent in the transaction.

COMMENT

Although real estate brokers owe various fiduciary duties to their principals, the Court of Appeals in Sonnenschein v. Douglas Elliman-Gibbons & Ives, 96 N.Y.2d 369, established that once negotiations have commenced between a seller and potential buyer, a broker who shows property to a potential buyer does not ' absent an express agreement with the seller ' owe seller a duty to refrain from showing additional properties to the potential buyer. In Sonnenschein itself, when broker brought potential buyers to seller's attention, seller signed a letter agreement promising to pay a commission if the sale closed. When the potential buyers bought another apartment shown to them by another agent at the same broker, seller sued the broker for breach of fiduciary duty. In holding that the broker was entitled to summary judgment, the court first questioned whether the letter agreement between seller and broker was sufficient to establish that broker was seller's agent. The court then indicated that even if the commission agreement had established a broker/principal relationship, the broker would have been free to show its other listed properties to the potential buyer. The court reasoned that otherwise, brokers would be unreasonably restrained from representing similar properties, because of a fear of breaching a fiduciary duty to some seller when buyers select one property over another. Moreover, if broker were not free to show multiple properties, the seller's interests in marketing property to various purchasers would be frustrated, as would and the buyer's interests in examining
multiple properties.

Douglass Elliman LLC makes clear that the Sonnenschein rule applies even to listing brokers who enter into an exclusive listing agreement with the seller ' absent a restriction in the exclusive listing agreement with seller. The court also rejected seller's argument that a seller's broker acts as a dual agent, and forfeits the right to a commission, by showing additional properties to potential buyer.

When a broker does act as a dual agent, broker jeopardizes its right to a commission if the broker does not receive the informed consent of both seller and buyer. Thus, in Queens Structure Corp. v. Jay Lawrence Associates, Inc., 304 A.D.2d 736, the Second Department affirmed the trial court's denial of summary judgment to a broker seeking to collect a consulting fee that the buyer had agreed to pay, noting that there were questions of fact about whether the broker had acted as a dual agent when broker entered into the consulting agreement with the prospective buyer while also representing the sellers.

If Forfeiture of Down Payment Is the Exclusive Remedy for Breach, Seller May Not Recover Statutory Interest

J. D'Addario & Co., Inc. v. Embassy Industries, Inc.

NYLJ 11/20/12, p. 22, col. 1

Court of Appeals

(4-2 decision; majority opinion by Lippman, Ch. J; dissenting opinion by Graffeo, J.)

In an action by contract vendee to recover its down payment, seller prevailed at trial, and then appealed from the Appellate Division's reversal of Supreme Court's award of statutory interest on the amount of the down payment. The Court of Appeals affirmed, holding that a contract provision making forfeiture of the down payment the exclusive remedy for breach of the contract precluded any award of statutory interest.

In 2006, seller agreed to sell the subject property to contract vendee for $6,500,000. Contract vendee paid $650,000 into escrow. The contract required the escrow funds to be deposited into an interest bearing account, and provided that if purchaser defaulted, seller would retain the deposit at liquidated damages “and no further rights or causes of action shall remain against Purchaser … ” Seller later scheduled a time-is-of-the-essence closing, and contract vendee did not show up, purporting to terminate based on seller's inability to certify that groundwater contamination had been addressed. Seller then declared contract vendee to be in default and retained the down payment. When contract vendee brought this action to recover the down payment, seller counterclaimed alleging default by contract vendee. After a non-jury trial, Supreme Court awarded seller the down payment plus statutory 9% interest, for a total of $877,406. The Appellate Division modified to vacate the award of interest, and seller appealed.

In affirming, the Court of Appeals majority held that statutory interest is generally mandatory, not, as the Appellate Division had suggested, within the discretion of the trial court. But the majority also held that parties to a contract can stipulate to eliminate the right to statutory damages, and concluded that in this case, the parties had done so. Judge Victoria A. Graffeo, dissenting for herself and Judge Eugene Pigott, disagreed about the effect of the liquidated damages provision in this case. She emphasized that the stipulation did not mention statutory interest, and concluded that statutory interest represented compensation for the wrong of not paying the agreed sum when due.

Prescriptive Easement Limited to Actual Use

Garden Homes Mobile Home Park Co v. Patel

NYLJ 11/16/12, p. 33, col. 6

AppDiv, Second Dept.

(memorandum opinion).

In landowner's action for a declaration that it has a prescriptive easement over neighboring land, neighbor appealed from Supreme Court's grant of summary judgment declaring that landowner had established an easement to maintain pipes over neighbors' land for the discharge of effluent. The Appellate Division reversed, holding that questions of fact about the extent of landowner's use precluded summary judgment.

Landowner's evidence established that landowner had maintained pipes over neighbors' land for the prescriptive period, and that the use of the pipes was adverse, open and notorious, and continuous. On that basis, Supreme Court awarded landowner summary judgment on its easement by prescription claim.

In reversing, the Appellate Division pointed to material in landowner's submission raising issues about whether the actual use of neighbors' land was enlarged within the prescriptive period. The court held that because landowner had not established the extent of its actual use during the prescriptive period, landowner was not entitled to summary judgment.

COMMENT

A prescriptive easement holder may not generally expand the easement beyond the purpose of the use and the physical boundaries established during the prescriptive period. For example, in Dermody v. Tilton, 85 A.D. 3d 1682the court found that when a prescriptive easement holder had used right of way for egress and ingress during the prescriptive period, the easement holder did not acquire a right to improve, construct upon, maintain, or use the land generally for enjoyment. Similarly, in Vitiello v. Merwin, 87 A.D.3d 632, the court held that the dominant estate owner could not widen a roadway beyond the width used during the prescriptive period.

However, if the dispute involves not purpose or physical boundaries, but frequency of use, an easement holder is entitled to use the easement in conformity with the most robust use established during the prescriptive period, and may even be entitled to expand the frequency of the easement's use. For example, in Vitiello, even though the court rejected the physical expansion of the easement, it allowed the easement holder's increased usage because the increased frequency still conformed to the most frequent use that had taken place during the prescriptive period. Id. Moreover, in Bremer v. Manhattan Railway Co., the Court of Appeals found that a railroad company that had established a prescriptive easement to operate an elevated railway could increase the frequency of the trains it operated beyond what was established during the prescriptive period because the increased operations were not an increased use of the easement. 191 N.Y. 333. In Bremer, the court found that even though the railroad company increased the frequency of its trains, the length of its trains, changed the type of trains that ran, and added a third rail to the railway, these changes did not alter the nature of the right to the railway as a whole, nor did it interfere with the servient owner's ownership of the land. Id.

At a trial in Garden Homes, then, the easement holder would be more likely to succeed if the easement holder could establish that the effluent discharge had increased only in frequency, but not in the land area adversely affected by the discharge.

Shareholder Husband Has Claim Against Purchaser of Property from Shareholder Wife

Hu v. Lowbet Realty Corp.

NYLJ 11/15/12

Supreme Ct., Kings Cty.

(Demarest, J.)

In corporate shareholder's special proceeding to wind up the affairs of a corporation, shareholder sought to include claims against purchaser of real property and title insurer arising out of the allegedly fraudulent sale of a building owned by the corporation. The court granted shareholder's motion with respect to purchaser, but not with respect to title insurer.

The sole asset of the corporation was the subject four-story, 19-unit apartment building. Shareholder bought all 200 shares in the corporation in 1980. Five years later, he married Liu, who subsequently acquired 50 shares, giving her a 25% interest in the corporation. The couple separated in 1995, and shareholder moved to China, while his wife continued to live in the building and exercise full control over the corporation. In 2000, the Secretary of State issued a proclamation dissolving the corporation pursuant to Tax Law section 203-a. In a divorce action commenced in 2006, the court issued a temporary restraining order prohibiting either spouse from dissipating or transferring the corporation's assets. In 2011, shareholder brought this action, pursuant to Business Corporation Law (BCL) section 1108, to wind up affairs of the corporation. The court granted a TRO directing that neither party remove assets without further direction of the court, but the wife, purporting to act on the corporation's behalf, nevertheless conveyed title to the building for $1,600,000. The wife then defaulted in the proceeding, and the court determined, upon inquest, that shareholder owns 75% of the corporation's shares. She left the country, despite (or perhaps because of) issuance of a warrant for her arrest. Shareholder then moved to include claims against the purchaser for rescission of the sale based on fraud and against the title agent and the title insurer premised on negligence for failure to discover the wife's fraud.

The court held that shareholder was entitled to include claims against the purchaser. The court first rejected purchaser's argument that such claims could be advanced only in a plenary action, not in this proceeding to wind up the corporation's affairs. The court then rejected the argument that the court should not rescind the sale because purchaser was a bona fide purchaser for value from a person who had apparent authority to act on the corporation's behalf. The court emphasized that under BCL section 909(b), a sale of “substantially all the assets of a corporation” requires the approval of two-thirds of the shareholders, and precludes the argument that the wife had apparent authority to action on the corporation's behalf. Because the deed was void for lack of the wife's authority, the deed could not transfer title. As to the title insurer and title agent, however, the court held that shareholder's claims against them could not stand because they were not in privity with shareholder and therefore owed no duty of care to him.

COMMENT

A corporation may rescind a contract for sale of real property that constitutes all or substantially all of its assets when the contract has been executed without shareholder approval, unless the sale was made in the corporation's regular course of business. BCL ' 909(a). In Vig v. Deka Realty Corp., 143 A.D.2d 185, the Second Department held unenforceable a contract for sale of the corporation's only property, executed by its president without shareholder approval, based upon a finding that the corporation was not actually engaged in the business of selling real estate. The court rejected the purchaser's argument that the president had apparent authority to convey, finding instead that purchasers are on notice of the limitations BCL ' 909(a) places on corporate officers. Id. at 186. Compare Soho Gold, Inc. v. 33 Rector Street Ltd., 227 A.D.2d 314 (1st Dep't 1996) (ordering specific performance of a contract for sale executed by corporation without shareholder approval where property did not constitute all or substantially all corporate assets).

BCL Section 909(c) expressly provides that an action to set aside a deed for failure to comply with section 909(a) must be commenced within one year of the conveyance. See also Apt v. 6222 Const. Corp., 10 Misc.3d 1073(A) (Sup Ct, Richmond County 2006) (shareholder's claim to set aside deed for failure to comply with BCL ' 909(a) time-barred after one year). The statutory time limit strongly suggests that deeds executed in violation of section 909(a) are only voidable, not void, and claims made under the statute have almost invariably been claims for rescission against the purchaser from the corporation.

Lowbet is unique in applying the statute to invalidate a conveyance against a bona fide purchaser, invoking the established rule that a void deed, such as a forged deed, conveys nothing, and provides no protection to bona fide purchasers. See Karan v. Hoskins, 22 A.D.3d 638 (2nd Dep't 2005). Perhaps the Lowbet court, in holding the deed void, was influenced by the fact that wife's conveyance appeared fraudulent and not merely unauthorized, as she had violated a previous court order restraining her from acting in any capacity on behalf of the corporation when she made the conveyance.

Dominant Owner Required To Maintain Easement

Gates v. AT & T Corp.

NYLJ 12/6/12, p. 21, col. 3

AppDiv, Third Department

(3-2 decision; majority opinion by Garry, J; opinion dissenting in part by McCarthy, J.)

In an action by servient owner alleging breach of an obligation to maintain a roadway easement, dominant owner appealed from Supreme Court's grant of summary judgment to the servient owner. A divided Appellate Division affirmed, holding that the language of the easement required dominant owner to maintain the easement to prevent harm to the servient land from improper drainage.

In 1949, servient owner's predecessor conveyed a parcel of land to AT&T for construction of a communications tower, and simultaneously granted a roadway easement to AT&T to provide access to the tower. The easement agreement gave AT&T the right to build a paved road over what had previously been a dirt road, but also provided that the right to maintain the road would not impose a duty on the grantee “to conform to a maintenance standard higher than that previously observed by the [g]rantors, except that the [g]rantee in constructing [the] new road shall provide drainage facilities in order that the adjacent lands of the [g]rantors will not be flooded out ' ” In 2000, AT&T transferred the property and the easement to American Towers, and servient owner subsequently brought this action, contending that American Towers had failed to maintain the road, causing drainage problems that made some of the neighboring farmland unusable. Servient owner sought either damages or a declaration that American Towers had abandoned the easement. Supreme Court granted summary judgment to servient owner on the issue of liability, and American Towers appealed.

In affirming, the Appellate Division majority first agreed with American Towers that servient owner could not compel American Towers to maintain the easement in a condition superior to that in which it had previously been maintained. But the majority also noted that American Towers had introduced no evidence to rebut servient owner's contention that the deteriorated state of the easement had caused harm to the neighboring farmland. As a result, the majority concluded that servient owner was entitled to summary judgment. The dissenting justices read the easement agreement differently, concluding that the agreement only required AT&T to provide drainage facilities upon building the road, but that the agreement did not impose any ongoing obligation to maintain those drainage facilities.

Continuing Nuisance Claim Not Time-Barred

Pilatich v. Town of New Baltimore

NYLJ 12/5/12, p. 21, col. 1

AppDiv, Third Dept.

(Kavanaugh. J.).

In a farmer's private nuisance action against the town and a neighboring landowner, the farmer appealed from Supreme Court's grant of summary judgment, on statute of limitations grounds, to the town and neighbor. The Appellate Division reversed and reinstated the complaint, holding that the farmer's claim for a continuing nuisance was not time-barred.

Between 1991 and 1994, neighbors built a stone wall at the entrance of their driveway to deter vehicles from driving over their lawn. They also installed iron pipes running from the far end of the wall along the road in front of their parcel. Farmer's land lies across the road from neighbors' land, and farmer contends that the wall and the pipes, together with new paving and road material the town added to the road, have made it impossible for large trucks to use the driveway leading to his farm. In 2010, the farmer brought this action seeking damages, as well as removal of the wall and pipes. Supreme Court denied neighbors' motion to dismiss, but subsequently granted summary judgment to the neighbors on the ground that the farmer's claim was time-barred. The farmer appealed.

In reversing, the Appellate Division cited the rule that a continuing nuisance gives rise to successive causes of action each time a wrong is committed. Because the farmer's claim is premised on ongoing damage caused by the wall and iron posts, his claim for damages suffered during the three years immediately preceding the commencement of the action would not be time-barred. As a result, neighbors were not entitled to summary judgment.

Standing Issues Preclude Summary Judgment on Foreclosure Claim

Deutsche Bank National Trust Co. v. Haller

NYLJ 11/16/12, p. 33, Col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action to foreclose a mortgage, mortgagor appealed from Supreme Court's grant of summary judgment to mortgagee bank, and from Supreme Court's denial of mortgagor's own summary judgment motion. The Appellate Division modified to deny both summary judgment motions, holding that questions of fact remained about mortgagee's standing to bring the action.

In January 2008, mortgagors defaulted on a mortgage they had executed in favor of Ameriquest. In August 2008, Deutsche Bank, as trustee for the security holders in the Ameriquest mortgage, brought this foreclosure action, alleging that it was the owner of the note and the mortgage based on a written assignment. One of the mortgagors contended that Deutsche Bank lacked standing, but then entered into a forbearance agreement with Deutsche Bank, agreeing to a new schedule of payments. Mortgagor subsequently defaulted on the forebearance agreement, leading Deutsche Bank to move for summary judgment. Mortgagor cross-moved for summary judgment, challenging Deutsche Bank's standing. Supreme Court granted summary judgment to Duetsche Bank, and mortgagor appealed.

In modifying, the Appellate Division noted that when a mortgagor questions a mortgagee's standing, the mortgagee must demonstrate that it was the holder both of the mortgage and the underlying note at the time the complaint was filed. Here, the bank did not demonstrate that the note had been physically delivered to it before filing of the complaint, nor did it demonstrate that the note was endorsed over to it before filing of the complaint. The court conceded that, in support of its summary judgment motion, the bank had produced a copy of the note with an endorsement to the bank, the court emphasized that because the endorsement was undated, the bank had not established that the note had been endorsed before the filing of the complaint. The court also held that an assignment of the note by CitiResidential Lending, purportedly acting on behalf of Ameriquest, did not supply sufficient proof because there was no evidence that Citi had authority to act on Ameriquest's behalf.

At the same time, the court held that mortgagor was not entitled to summary judgment because questions of fact remained about the endorsement, the assignment, and physical delivery of the note. As a result, Supreme Court properly denied summary judgment to mortgagor.