River Terrace Assoc., LLC v Bank of N.Y.

[*1] River Terrace Assoc., LLC v Bank of N.Y. 2005 NY Slip Op 51915(U) [10 Misc 3d 1052(A)] Decided on April 13, 2005 Supreme Court, New York County Moskowitz, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on April 13, 2005
Supreme Court, New York County

River Terrace Associates, LLC, Plaintiff,

against

Bank of New York and BNY Capital Markets, Inc., Defendants.



603745/2002

Karla Moskowitz, J.

This dispute is part of the lingering aftermath of the terrorist attacks on the World Trade Center ("WTC") on September 11, 2001.

River Terrace Associates, LLC ("River Terrace") and The Bank of New York ("BNY") entered into a Loan Commitment and Fee Letter ("Loan Commitment") with BNY and its affiliate BNY Capital Markets, Inc, (referred to collectively with BNY as "BNY") on January 19, 2001 for 83 million dollars, to fund the development and construction of a residential rental building ("the building") at 20 River Terrace in Battery Park City. River Terrace planned the building, near the WTC, as the first environmentally "green" residential building in the United States. River Terrace paid BNY $1,336,500 in loan fees and $922,417.93 closing costs for the Loan Commitment.

River Terrace began construction of the building in April 2001. On June 8, 2001, River Terrace entered into a Credit Agreement ("Credit Agreement") dated June 1, 2001, with BNY, as agent and lending bank, and five other banks ("the Participant banks"[FN1]) for $83 million. The terms of the Credit Agreement required River Terrace to spend $32 million of its own money [*2]before it could draw on the $83 million loan. In addition, the Credit Agreement required the absence of a default event before River Terrace could draw on its line of credit. Under the Credit Agreement, the occurrence of a "Material Adverse Change" was a default event. The Credit Agreement defined "Material Adverse Change" as, inter alia, "a material adverse change . . . in the Premises or the business, operations, financial condition, prospects, liabilities or capitalization of the Borrower." (Credit Agreement § 1.01 attached as Ex. 6 to the moving affidavit of Leo T. Crowley, sworn to July 14, 2004 ["Crowley Aff"]). The Credit Agreement also required River Terrace to "at all times maintain in full force and effect the Interest Rate Protection Agreements or one or more interest rate swap, cap or collar agreements or similar arrangements reasonably satisfactory to Agent providing for the transfer or mitigation of interest rate risks." (Credit Agreement § 9.12[a]).

On June 8, 2001, River Terrace and BNY entered into several other agreements along with the Credit Agreement, including: (1) a Project Loan Mortgage and Security Agreement in the principal amount of $6,579,000; (2) a Building Loan Mortgage and Security Agreement in the principal amount of $5,000,000; and (3) an Interest Rate Protection Agreement ("Collar Agreement") under which River Terrace, as borrower, paid monthly installments to BNY totaling $315,508. The Collar Agreement also provided that River Terrace's default under the Credit Agreement would constitute a cross-default under the Collar Agreement. River Terrace's leasehold interest in the property secured all the agreements. It is undisputed that River Terrace chose to enter into the Collar Agreement with BNY after considering various forms of agreements and with advice from an outside derivatives consultant.

By September 2001, River Terrace had spent $17 million of its own funds, leaving $15 million that it would have to spend before drawing on its credit with BNY and the Participant banks. Construction on the property continued until the attacks on the WTC on September 11, 2001 ("9/11").

Various appraisals of the property immediately after 9/11 demonstrated that the market value of the building had decreased. For example, an appraisal of the property Cushman and Wakefield completed on January 29, 2002 estimated the rent at $44 per square foot by March 2003, as opposed to $55 per square foot Cushman and Wakefield had determined a year earlier. (Compare Exs U and T attached to the opposition affidavit of Leo T. Crowley sworn to September 10, 2004 [Crowley Opp. Aff.]). BNY's February 27, 2002 internal appraisal of the Cushman and Wakefield report concluded that "some of the appraisers' analysis and conclusions are not reasonable" (Crowley Opp. Aff. Ex. V) and found the current market rent even lower. An internal Northwestern Mutual memorandum from March 2002 estimated post-9/11 rents as between $40 and $42 per square foot and noted that "rents have been affected severely," but also noted that "the overall apartment market in Manhattan remains very tight. People are definitely moving back to the area." (Crowley Opp. Aff. Ex. W).

The events of 9/11 caused a delay of construction for some time. On January 14, 2002, River Terrace advised BNY that construction would resume in March 2002 and requested confirmation that BNY would commit to fund the original loan amount. (Crowley Aff. Ex. 12) In an internal memorandum dated January 31, 2002 Roger Rofe, a vice-president at BNY involved in the River Terrace transaction stated: Our analysis of the market indicated that an $83MM loan is no longer [*3]supportable. Instead, we propose that the loan amount be reduced to $70 MM, subject to all of the lenders remaining in the transaction and reducing their commitment pro rata. . . We recommend that the Bank consider moving forward with the construction loan at a revised loan amount of $70 MM.

(Affirmation of Hyman Hacker ("Hacker Aff. Dated August 20, 2004, Ex. 13).

BNY responded to River Terrace on or about February 1, 2002, by telephone, informing it that, because of the 9/11 tragedy, the projected rents on the building were no longer adequate to support the loan amount of $83 million. BNY proposed reducing the funding to $70 million for the building's construction. (Hacker Aff. Ex.9: 491-492; Ex. 11: 150-151).

One week later, BNY, the Participant Banks and River Terrace met with representatives from the Battery Park City Authority ("BPCA") to discuss concessions that BPCA would provide to ensure the continued viability of the project. (Hacker Aff. Ex. 9: 498-502, Ex. 11: 160). On February 14, 2002, River Terrace asked BNY that River Terrace "be informed by all the lenders" that River Terrace could receive the full $83 million loan, reminding BNY and the Participant banks that construction was to resume in March 2002 and stressing the need to resume construction in order to avoid additional costs and delays. (Hacker Aff. Ex. 14). BNY responded on February 28, 2001, in a letter ("2/28 letter") advising that, because of the events of 9/11, "a Material Adverse Change . . . may have occurred.". (Hacker Aff. Ex. 15). BNY again proposed the lower loan amount of $70 million stating "we are prepared to discuss with you a credit facility . . .of $70 million." (Id.) A March 15, 2002 internal memorandum of Apple Bank, one of the Participant Banks, indicated it viewed its pro rata commitment as "null and void." (Crowley Aff. Ex. M). Numerous discussions between BNY and River Terrace followed and, by May 23, 2002, BNY formally proposed a new, revised loan amount of $75 million to River Terrace. (Hacker Aff. Ex. 19). River Terrace had entered into negotiations with the BPCA to make up the difference between the original $83 million loan and the revised $75 million loan. BPCA and New York City were willing to help bridge the gap, but they conditioned their assistance on River Terrace's ability to obtain alternative financing via Liberty Bonds through the New York State Housing Finance Agency ("HFA"). The Liberty Bond Program was part of New York State's efforts to revitalize Lower Manhattan after the events of 9/11.

On May 14, 2002, River Terrace applied for $120 million in Liberty Bond financing. (Hacker Aff. Ex. 16). On or about May 24, 2002, HFA approved River Terrace for the Liberty Bonds and River Terrace forwarded $20,000 to HFA as a deposit for the funding. (Id.)

River Terrace informed BNY of the Liberty Bond approval on May 28, 2002, asking BNY if it would "provide the required credit enhancement for the bonds." (Crowley Aff. Ex. 18). River Terrace also informed BNY that it intended to draw on the Credit Agreement funds if the Bond Proceeds were not available by September. (Id.) BNY responded on June 3, 2002, stating that it would continue to review the request and that River Terrace had until July 1 to execute all documents on the amended loan or BNY would "terminate the existing arrangements and require that the [Collar Agreement] be cash settled." (Hacker Aff. Ex. 21). It is undisputed that River Terrace ceased making any payments under the Collar Agreement after July 3, 2002. On August 1, 2002, BNY retracted its refusal to fund the full amount of the original $83 million loan, explaining that the surprisingly rapid clean-up of the WTC site, government incentives, [*4]improved transportation and concessions that River Terrace had obtained from the BPCA had all made the project "more viable" at the original loan amount. ( Hacker Aff. Ex. 23).

River Terrace then commenced River Terrace Associates, LLC v. The Bank of New York and BNY Capital Markets, Inc, Index No. 603745/2002 ("Action 1") seeking, inter alia, to rescind the Credit Agreement and the Collar Agreement and to recover the fees it paid in connection with them. BNY thereafter commenced The Bank of New York v. River Terrace Associates, LLC, et. al, 604001/2002 ("Action 2") to foreclose on River Terrace's leasehold interest because River Terrace had stopped payments the Collar and Credit Agreements required. BNY also commenced The Bank of New York v. Apple Bank for Savings, et al, Index No. 601203/2003 for breach of contract against the Participant Banks arising from their alleged failure to indemnify BNY under the Credit Agreement (Action No. 3).

In a decision and order dated September 30, 2003, the court denied BNY's motion to dismiss Action No. 1 because, inter alia, the documentary evidence BNY proferred did not show that the Collar Agreement and the Credit Agreement were separate contracts and there were issues of fact in need of discovery regarding whether BNY had repudiated the Credit Agreement. Discovery in Action No. 1 and Action No. 2 is now closed. River Terrace now moves in Action No. 1 for partial summary judgment (motion seq. no. 8). It seeks a determination as a matter of law that: (1) BNY repudiated its obligations to River Terrace in connection with the Credit Agreement; (2) that by virtue of BNY's repudiation, River Terrace is entitled to rescind both the Collar Agreement and the Credit Agreement and (3) River Terrace is entitled to recover restitution damages. BNY has moved in Action No. 2 for summary judgment as well (mot. seq. no. 2) to foreclose on the Collar Agreement. The court has consolidated these two summary judgment motions for disposition in this decision and order filed under Index No. 603745/2002

DISCUSSION

I.Did the Parties Intend to Integrate the Collar Agreement and The Credit Agreement?

A critical threshold issue is whether the Collar Agreement and the Credit Agreement are integrated contracts. If they are not, BNY wins summary judgment for that part of its lawsuit seeking to foreclose on the Collar Agreement. In general, whether the court should construe individual writings as "mutually dependent" or instead treat them as "distinct agreements" is a question of fact involving the intent of the parties (Rudman v Cowles Communications, Inc., 30 NY2d 1, 13). The intent of the parties viewed in the surrounding circumstances determines whether contracts are separable or entire. (id., citing Ripley v Intl. Railway of Central America, 8 N Y 2d 430, 437-438; see also, Natl. Union Fire Ins. Co. of Pittsburgh, Pa. v Williams, 223 AD2d 395, 396).

Here, the parties executed both agreements on the same day. Both contracts relate to the same funding for the same underlying construction project. The purpose of the Collar Agreement was to cap the interest on the Credit Agreement. The Credit Agreement required interest rate protection as the Collar Agreement did. Most important, the contracts contain cross-default provisions whereby River Terrace's default under one agreement constituted a default under the other. Courts have found that agreements are integrated as a matter of law with far less than the indicia present here. (See, e.g. Nancy Neale Enterprises v. Eventful Enterprises, Inc, 260 AD2d 453; Commander Oil Corp., v. Advance Food Service Equipment, 991 F2d 49 [2d Cir. 1993] [asset purchase agreement and lease were component parts of a single business [*5]transaction to purchase business and lease premises]; Carvel Corp v. Diversified Management Group, 930 F2d 228, 232 [2d Cir 1991] [contemporaneous promissory notes and distributorship agreement were part of the same transaction where sole purpose of the promissory notes was to make payments under the distributorship agreement]).

In opposition, BNY claims that the contracts relate to different transactions: one for interest rate protection and the other, a loan. This elevates form over substance. Both agreements relate to the same project. The interest rate protection was for the very loan the Credit Agreement contemplated.

BNY also points out that River Terrace could have entered into an interest rate protection agreement with a different bank. This is irrelevant. First, River Terrace did not enter into an interest rate protection agreement with a different bank. More important, the Credit Agreement actually required River Terrace to obtain some sort of interest rate protection as in the Collar Agreement, and that agreement was subject to BNY's approval. Thus, the Collar Agreement actually enabled the Credit Agreement. (Cf. Elite Promotional Marketing, Inc. v. Stumacher, 8 AD3d 525 [court read agreements together where record showed, after bench trial, that contract was conditioned upon execution of the other agreement and were part of the same transaction].

BNY argues that the parties are different under the two agreements because only the Credit Agreement involves the Participant Banks. However, the two main parties are involved in both agreements. (See, e.g. Nancy Neale Enterprises, Inc v. Eventful Enterprises, Inc., supra [where agreements were part of the same transaction and the parties were "for all practical purposes, the same entities" the court read the agreements together]).

BNY notes that the agreements do not contain cross-defaults with respect to its own responsibilities, but, as River Terrace aptly points out, neither agreement addresses BNY's default in the first instance. Accordingly, the court finds, as a matter of law, that the parties intended to read together the Credit Agreement and the Collar Agreement.

II. Did BNY Repudiate the Credit Agreement?

River Terrace claims that BNY repudiated the Credit Agreement. River Terrace points to the 2/28 letter embodying BNY's response to River Terrace's request that BNY and the Participant Banks be ready to fund the full loan amount. That letter stated, inter alia: (1) a material adverse change may have occurred, (2) BNY was only prepared to discuss (not even lend) a reduced loan amount of $70 million and (3) the 2/28 letter was "not a commitment to lend." River Terrace also points to the internal BNY memorandum dated January 31, 2002 indicating that BNY intended to reduce the loan. The record also reflects that, by March 15, 2002, at least one of the Participant Banks considered its obligations under the Credit Agreement null and void.

The record also shows that in March 2002, River Terrace tried to convince BNY that the loan was still viable at $83 million. (See Hacker Aff. Ex 27 and 28). The parties then negotiated reducing the loan amount. On May 23, 2002, BNY's vice-president Roger Rofe wrote to River Terrace's Vincent Albanese informing him that BNY had "received oral approvals from all of the [Participant] Banks to move forward. . .with the commitment reduced to $75 million." (Hacker Aff. Ex. 19) On May 28, 2002, River Terrace wrote to BNY to inform it that construction was to start up again shortly, that it intended to draw on the Credit Agreement if the Liberty Bond proceeds were not forthcoming and to request an answer as to whether BNY and any of the other [*6]lenders would guarantee the Liberty Bonds for which River Terrace was applying.

In a June 3, 2002 letter, BNY stated that it was investigating the Liberty Bond Program and how BNY could participate in it. BNY also threatened that, if the closing for the amended loan at the reduced amount did not occur by July 1, 2002, BNY "would no longer plan to amend the loan and instead would terminate the existing arrangements and require the Interest Rate Swaption Collar be cash settled." (Hacker Aff. Ex. 21). In a letter dated June 25, 2002, River Terrace's Albanese wrote to BNY stating that River Terrace was pleased that BNY was to submit a term sheet for "restructuring the existing credit facility to provide the credit enhancements of Liberty Bonds for the project" but that as River Terrace had not yet received BNY's term sheet or approval of the ground lease amendment, it would not be possible to close on July 1, 2002. (Crowley Aff. Ex. 9).

By August 1, 2002, apparently having received BNY's term sheet, River Terrace requested BNY to agree "to rescind the Agreements, cancel of record the mortgages affecting the project and return to [River Terrace] all fees and other amounts paid to the Bank in connection with the Agreements." (Hacker Aff. Ex. 22). The reasons River Terrace gave for this request were that BNY had wrongfully repudiated the Credit Agreement in refusing to fund the full amount of the loan, forcing River Terrace to seek alternative funding.

Also, on August 1, 2002, although it is unclear which letter came first, BNY informed River Terrace that because of, among other things, the quick cleanup at the WTC site, the project was "now viable" at the original loan amount and that BNY was not going to declare a Material Adverse Change. This letter also apprized River Terrace that River Terrace had failed to pay a $50,000 annual administration fee and three bills from BNY's attorneys for legal services in connection with the construction loan. (Hacker Aff. Ex. 23)

BNY claims that it never repudiated the loan agreement. BNY claims it was only seeking to modify the agreement because of the events of 9/11 and that River Terrace did not treat the loan as repudiated until months after BNY's 2/28 letter.

Before a party may invoke the doctrine of anticipatory repudiation, "there must be a definite and final communication of the intention to forego performance before the anticipated breach may be the subject of legal action." (Rachmani Corp. v. 9 East 96th Street Apartment Corp., 211 AD2d 262). Here, although BNY did state in the 2/28 letter that it was not committing to lend, BNY had a right, under the Credit Agreement, to declare a Material Adverse Change. It is possible that the 2/28 letter meant to communicate that BNY remained in the process of evaluating the situation and was merely letting River Terrace know that in all likelihood it would have to declare a Material Adverse Change in the near future. Given that there were several appraisals indicating that the value of River Terrace's project had decreased materially in the wake of 9/11, whether BNY's conduct amounts to a repudiation is all the more questionable. Thus, there are open questions of fact regarding whether or not BNY repudiated by:(1) sending the 2/28 letter, (2) failing to state for months whether it was going to declare a Material Adverse Change and (3) pressuring River Terrace to accept a reduced loan amount. These questions, taken in the context of the circumstances surrounding the project at the time, preclude this court from determining as a matter of law that BNY repudiated the Credit Agreement. (See O'Connor v. Sleasman, 788 NYS2d 518, 519 {14 AD3d 986} [where defendant required numerous modifications before he would complete the contract, and where [*7]plaintiff immediately declared the contract to be in breach, the court found issues of fact concerning anticipatory repudiation]; Stewart v. Sternberg, 137 AD2d 592 [issues of fact existed as to whether letter was a repudiation of earlier contract or was a counter-offer to defendant's proposed contract of sale]; About.com v. TargetFirst.com, 2003 WL 942134 [SDNY March 10, 2003] [whether plaintiff's refusal to pay defendant for certain internet advertising based on plaintiff's reading of the term "sold" in the contract constituted anticipatory repudiation was issue of fact].

G.G.F. Properties, LLC, v. Yu Mi Hong, 284 AD2d 427 is not to the contrary. In that case the court found anticipatory repudiation where the purchaser demanded a reduction in the purchase price of certain condominiums and the seller "vehemently rejected" that demand. Here, it is not clear that BNY did anything it was not permitted to do under the contract. (Cf. Streets of London, Inc., v. Londontown Corp., 1997 WL 151464 [SDNY April 1, 1997] aff'd 162F3d 1148 [2d Cir. 1998] [disapproval of plaintiff's product and direction to work with new designer was not anticipatory repudiation but rather a "reinforcement of defendant's contractual right to be involved in the oversight of plaintiff's tie designs"]) Further, because River Terrace participated in negotiations to reduce the amount of the loan, whether it "vehemently rejected" BNY's attempt to reduce the loan amount remains an issue for the trier of fact to determine. Accordingly, whether or not BNY repudiated

the Credit Agreement (and by association the Collar Agreement as the two are integrated) through a definite and final communication is an issue of fact for trial.

III.Was River Terrace Entitled to Adequate Assurances?

River Terrace further theorizes that it was entitled to adequate assurances that BNY would fund the full loan amount and that BNY's failure to provide adequate assurances also constituted repudiation of the contract. The doctrine of adequate assurances primarily applies in cases involving the Uniform Commercial Code. (See Sterling Power Partners L.P., v. Niagara Mohawk Power Corp., 239 AD2d 191). Citing Norcon Power Partners, L.P. v. Niagra Mohawk Power Corp, 92 NY2d 458, River Terrace argues that the doctrine of adequate assurances has expanded beyond the sales contract and that the circumstances of this case warrant application of the doctrine. In particular, River Terrace points to the Credit Agreement's requirement that River Terrace spend $33 million of its own funds before drawing on the loan. River Terrace claims that given BNY's expressions of doubt about funding the full amount of the loan, River Terrace was entitled to adequate assurances before it expended additional amounts of its own funds.

River Terrace's arguments, while cogent, are misplaced. Although the Court of Appeals did extend the doctrine of adequate assurances outside the context of the Uniform Commercial Code in Norcon, the Court noted the similarity between the sale of goods and the situation in Norcon involving the sale of electricity. (Id. at 468). This case concerns a loan agreement that is quite different from a sales contract.

Also, the Court of Appeals in Norcon was careful to point out that it was not extending the doctrine of adequate assurances wholesale to every contract. (Id. at 467). It limited the application of the doctrine to "the type of long-term commercial contact between corporate entities. . .which is complex and not reasonably susceptible of all security features being anticipated, bargained for and incorporated in the original contract." (Id at 468). Norcon involved 25-year contract and nearly limitless liability from the falling cost of electricity that [*8]neither party had anticipated. This case, unlike Norcon, involves a period of a few months. Also, by providing for what would happen in the event of a Material Adverse Change, the parties did negotiate and provide for what happened on 9/11. Thus, there is no reason here to apply the doctrine of adequate assurances. If River Terrace believes it is aggrieved because BNY did not declare a Material Adverse Change, but instead pressured River Terrace to accept a reduced loan amount, River Terrace has its remedies. It can sue, as it has, for breach of contract under a theory of anticipatory repudiation or perhaps for breach of the covenant of good faith and fair dealing. Further, although there was no right to demand or duty to provide adequate assurances in this context, "the failure to provide assurances after a demand can be presented to the jury as evidence of an anticipatory repudiation." (O'Shanter Resources, Inc., v. Niagra Mohawk Power Corp., 915 FSupp 560, 566 [WDNY 1996]).

Because River Terrace was not entitled to adequate assurances under the facts the parties have presented to the court, the court need not consider whether River Terrace made a valid request for adequate assurances. However, nowhere in River Terrace's letters does it clearly ask for "adequate assurances" sufficient to put BNY on notice that it was requesting assurances as the case law requires. (See e.g., Beeche Systems Corp, v. D.A. Elia Constr. Corp., 164 BR 12, 17 (N.D.NY 1994).

III.Did River Terrace Elect to Continue the Contract?

BNY contends that if the court reads the Credit Agreement and the Collar Agreement together, then River Terrace's continued payments under the Collar Agreement constituted an election of remedies. River Terrace contends, without much support, that it was not required to elect remedies. This is not correct. "Under New York law, an anticipatory breach, like any other breach, gives the non-breaching party two mutually exclusive options. He may elect to treat the contract as terminated and exercise his remedies, or continue to treat the contract as valid." (In re Randall's Island Family Golf Ctrs, Inc., 261 BR 96, 101 (Bankr. SDNY 2001), aff'd 272 BR 521 [SDNY 2002]. See also, Inter-Power of New York Inc., v. Niagra Mohawk Power Corp., 259 AD2d 932). However, there is no set time to make an election after learning of an alleged breach as how much time is reasonable depends upon the facts and circumstances of each case, in particular "the nature of the performance to be rendered under the contract." (See Bigda v. Fischbach Corp., 898 FSupp 1004, 1012-1013 [SDNY 1995]).

BNY contends that the following uncontested facts show that River Terrace elected to continue the contract: (1) River Terrace's continued payments under the Collar Agreement; (2) River Terrace's continuing to negotiate with BNY about amending the terms of the Credit Agreement; and (3) River Terrace's failure to give BNY notice of breach or termination after BNY sent the 2/28 letter.

As evidence that River Terrace elected to treat the Credit Agreement as continuing, BNY points to the May 28, 2002 letter in which River Terrace stated that if it did not receive funding from the Liberty Bonds by the end of September, it would request advances under the Credit Agreement. (Crowley Aff. Ex. 18). River Terrace also sent a letter, dated June 25, 2002 that thanked BNY for its willingness to submit to River Terrace "a term sheet shortly for restructuring the existing credit facility to provide for credit enhancement of Liberty Bonds for the project." (Crowley Aff. Ex 19). However, one fails to see how the June 25, 2002 letter constitutes an election when it is clear from the letter that River Terrace had made other arrangements to fund [*9]the project.

River Terrace's continued negotiations with BNY are not dispositive. This is because the non-repudiating party may "refuse, for a time, to acquiesce in the repudiation, and urge the repudiator to perform without waiving any of his rights." (Randall's Island, supra , 261 BR at 101-102). It is possible to view River Terrace's continued payments as part of its negotiations with BNY to resolve the situation under both the Credit Agreement and the Collar Agreement. (See Quiroga v. Fall River Music, Inc., 1998 WL 851574 at *32-33 [SDNY 1998] [evidence of settlement negotiations aimed at reaching a new agreement was consistent with the fact that the original agreement was repudiated and treated as such]).

River Terrace contends that it did not elect to continue the contract. It explains its continued payments under the Collar Agreement as under protest because it was afraid that BNY would declare it in default under the Collar Agreement and try to cash in on the termination fee. River Terrace also contends that it continued to negotiate with BNY in an effort to persuade BNY to perform and retract its repudiation. River Terrace claims that it could not treat the Credit Agreement as valid and effective as it was clear from BNY's 2/28 letter that BNY would not fund the $83 million. River Terrace points out that its suspension of construction in March 2002, because of the lack of financing, not because of 9/11, and its seeking alternative financing are proof that it did not continue to treat the Credit Agreement as valid and effective.

Finally, the record is replete with examples of River Terrace's complaints about how BNY's refusal to fund the full amount of the loan was causing it hardship. For example, on June 5, 2002, River Terrace complained to BNY that it had to seek financing with Liberty Bonds because the Bank "declined to advance the full amount of the loan." (Hacker Reply Aff. Ex. 36). Indeed, that River Terrace was seeking financing elsewhere is actually consistent with it treating the contract as repudiated, as is River Terrace's cessation of payments under the Collar Agreement in the summer of 2002. Although River Terrace did negotiate with BNY for a reduced loan amount and although it continued to pay under the Collar Agreement until July 2002, River Terrace also changed its position by pursuing alternative financing and suspending construction. Also, no benefits under the Collar Agreement accrued to River Terrace because interest rates at the time had fallen below the floor the Collar Agreement set.

Thus, there are conflicting issues of fact concerning whether River Terrace's continued negotiations with BNY and payment under the Collar Agreement constituted an election to continue the contract. Whether these facts, taken together, indicate that River Terrace elected to continue the contract is for the trier of fact to weigh and decide. This is certainly appropriate given that BNY's time for performance had not yet arisen and because River Terrace did not receive any benefits from its agreements with BNY. River Terrace never received any loan advances under the Credit Agreement; and the Collar Agreement became unnecessary as interest rates had fallen below the floor the Collar Agreement set.

IV.Is River Terrace Entitled To Restitution Damages?

BNY insists that, should River Terrace prevail on the issue of anticipatory repudiation, River Terrace is nonetheless not entitled to restitution damages. BNY argues that BNY's actions do not evidence a "breach that is so substantial and fundamental as to defeat the purpose of the contract" thereby entitling River Terrace to restitution. BNY points out that it was willing to lend $75 million so that if it breached at all, it "cannot be considered a complete failure to [*10]perform." (BNY Opp. Mem at 24). BNY also implies that the sole reason River Terrace is suing for restitution damages is because it has no direct breach of contract damages. As BNY explains, and River Terrace does not dispute, the terms of the Liberty Bond financing were so favorable to River Terrace that it has actually saved more money than it would have had it borrowed the $83 million from BNY.

River Terrace argues that it received absolutely no benefit under either the Credit Agreement or the Collar Agreement, but rather "paid the defendants substantial fees and necessarily incurred substantial expenses in reliance upon BNY's commitment to fund an $83 million construction loan." (River Terrace Reply Mem. at 21). River Terrace further argues that BNY's repudiation resulted in a complete failure of consideration because River Terrace did not receive any benefits under the agreements even though it paid substantial fees and that therefore the standard measure of damages for breach of contract is inadequate. River Terrace argues that BNY's theory of damages asks this court to ignore the substantial sums that River Terrace paid for the loan that BNY repudiated and to allow BNY to retain funds as a windfall profit on a contract it repudiated.

In an event of total breach, restitution is appropriate. (Abdul v. Subbiah, 289 AD2d 105). In this case, with the backdrop of 9/11, the court is unwilling to rule as a matter of law that BNY's taking what was perhaps an unreasonable amount of time to determine a Material Adverse Change and pressuring River Terrace to accept a reduced loan amount, was not a total breach. Although it is true that River Terrace may actually have paid less money with the Liberty Bond financing than had the transaction with BNY gone through, to disallow restitution at this juncture would overlook the substantial sums River Terrace paid to BNY for a loan that the trier of fact may find BNY completely repudiated and would allow BNY to retain fees for which it may have done nothing.

Accordingly it is

ORDERED, that River Terrace's motion for partial summary judgement in Index 603745/2002 is denied; and it is further

ORDERED, that BNY's motion for summary judgment in Index No. 604001/2002 is denied; and it is further

ORDERED THAT the parties are to attend a pre-trial conference on July 28, 2005 at 2:30 p.m. in the courtroom, room 248, 60 Centre Street.

Dated: April 13, 2005

/s/ Karla Moskowitz

J.S.C. Footnotes

Footnote 1: The other banks are: Apple Savings Bank, Roslyn Savings Bank, Washington Mutual Bank, FA, Westdeutsche ImmobilienBank, and Hamburgische Landesbank-Girozentrale.