Er-Loom Realty, LLC v Prelosh Realty, LLC

[*1] Er-Loom Realty, LLC v Prelosh Realty, LLC 2009 NY Slip Op 51689(U) [24 Misc 3d 1231(A)] Decided on April 3, 2009 Supreme Court, Bronx County Thompson, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 3, 2009
Supreme Court, Bronx County

Er-Loom Realty, LLC and Airlu Realty, LLC, Plaintiffs,

against

Prelosh Realty, LLC and Broja Realty, LLC, Defendants.



23343/04



DelBello Donnellan Weingarten

Wise & Wiederkehr, LLP

Attorney for Plaintiffs

One Norther Lexington Avenue

White Plains, New York 10601

BY:PATRICK M. REILLY, ESQ.

Borah Goldstein Altschuler

Nahins & Goidel, P.C.

Attorneys for Defendants

377 Broadway

New York, New York 10013-3993

BY:DAVID R. BRODY, ESQ.

Kenneth Thompson, J.

Plaintiffs' motion for an Order pursuant to CPLR § 3212 dismissing Defendants' affirmative defenses and counterclaims, and granting Plaintiffs specific performance upon the First Cause of Action in the Complaint, and Defendants' cross-motion for an Order pursuant to CPLR § 3212 dismissing Plaintiffs' First Cause of Action for specific performance and dismissing Plaintiffs' Second Cause of Action for damages are consolidated for decision.

Plaintiff motion for an Order pursuant to CPLR § 3212 dismissing Defendants' affirmative defenses and counterclaims, and granting Plaintiffs specific performance upon the First Cause of Action in the Complaint is granted.

Defendants' cross-motion for an Order pursuant to CPLR § 3212 dismissing Plaintiffs' First Cause of Action for specific performance and Plaintiffs' Second Cause of Action for damages is denied.

Factual Background

Toma Rukaj ("Toma"), now deceased, and his wife Lena Rukaj ("Lena"), were principals of Defendant LLCs, Prelosh Realty and Broja Realty. Each owned a 50% interest in [*2]each Defendant LLC, which owned buildings located at 2965 Valentine Avenue and 2940 Grand Concourse ("the Buildings"). (Defs' Aff. at ¶ 10). Peter Rukaj ("Peter"), the son of Toma and Lena, formed Plaintiff LLCs, Er-Loom Realty and Airlu Realty for the purposes of taking ownership of the Buildings. (Id. at ¶ 11.)

Toma and Peter began discussing Peter's possible purchase of the Buildings from his father in an installment sale in 2001. (Pls' Aff. at ¶ 13.) The intent of the discussion was to provide a net income to Toma of approximately $16,500.00 a month for thirty years. (Id.)

Peter and Toma arrived at an agreement in September 2001, whereby Peter would purchase the Buildings once Toma re-financed them with thirty-year fixed mortgages. (Id. at ¶ 14.) Peter proceeded to manage the Buildings at this time, which included leasing units, collecting rents, maintaining the Buildings, paying bills, taxes and other expenses. (Id. at ¶ 15.)

Toma re-financed the Buildings in July 2002 and obtained thirty-year fixed mortgages from Greystone Mortgage Services Corp. ("Greystone"), totaling $2 million, with the total monthly mortgage payment being approximately $13,161.00. (Id. at ¶ 16.) Attorneys for Toma and Peter also began preparing contracts for sale of the Buildings at this time. (Id. at ¶ 17.) The initial sale price of the Buildings was to be $4.25 million total, which Peter would pay in monthly installments of $29,661.00, representing the $13,161.00 Greystone mortgage payment and the $16,500.00 monthly installment to Toma. (Id.)

Peter started making the monthly installment payments in September 1, 2002, when the first mortgage payment was due to Greystone. (Id. at ¶ 21.) He claims that he sent the monthly mortgage payment to Greystone, and paid his father the $16,500.00 installments via check. (Id.)

Due to family concerns regarding inheritance issues, Peter agreed to increase the purchase price of the Buildings from $4.25 million to $5 million. (Id. at ¶¶ 24 & 25.) This represented an increase in the net monthly installment to Toma from $16,500.00 to $17,000.00 per month. (Id. at ¶ 25.)

On December 18, 2002, Toma, his wife Lena, their attorney Joel Rabine, Peter, his attorney Marc Winston, and Peter's sister Angelina Delic met in Mr. Rabine's office to sign an agreement regarding the Buildings. (Id. at ¶ 26.) It was agreed at this meeting that the sales of the Buildings would be structured either with wrap around mortgages with Greystone's consent, or else with installment notes secured by the personal guarantees of Peter and his wife. (Id. at ¶ 32; see also Pls' Aff. at Ex. I.) He and his father also agreed that the sale would go forward and title would be conveyed once the parties knew which scenario Greystone would consent to. (Id. at ¶ 32.)

Toma and Peter executed a hand-written agreement on December 18, 2002, whereby the parties agreed to sign the typed contracts for sale of the Buildings ("Agreement"). [*3](See Pls' Aff. at Ex. I.) The Agreement incorporated by reference the terms of the separate typed contracts of sale, Price Riders, and other schedules regarding the sale of the Buildings. (Id.) The Price Riders provided that the monthly installment payments would be $30,161.00, which consisted of $13,161.00 to cover the mortgage payments to Greystone and $17,000.00 net to Toma. (Pls' Aff. at ¶ 36.) Peter provided two checks for the down payment and Toma provided monies to be held in escrow for the purpose of paying the real property transfer tax at the December 18, 2002 meeting. (Id. at ¶ 38; Pls' Aff. at Ex. N & O.)

After signing the Agreement, Peter continued making the monthly installment payments and increased the amount so that his father netted $17,000.00 a month. (Pls' Aff. at ¶ 40.) He also made payments to retroactively cover the agreed upon monthly increase for the preceding months since September 2002. (Id.)

Peter claims that he contacted Greystone in 2003 to determine if it would consent to the recording of the wrap around mortgages in the Buildings. (Id. at ¶ 45.) He states that Greystone considered the proposed transactions in detail in 2003 and into 2004, and that Greystone tentatively consented to the wrap around mortgages. (Id.)

Counsel to the parties exchanged letters in April 2004, demanding performance of the Agreement on Peter's behalf and denying the existence of a valid contract or agreement on behalf of Lena. (Pls' Aff. at Ex. T & U.)

Peter commenced this cause of action seeking specific performance of the Agreement and damages on or about October 1, 2004. Defendants in turn interposed an Answer, wherein they allege, inter alia, that the Agreement is void or voidable given that Toma Rukaj was mentally incompetent at the time he executed the Agreement. Toma died in Spring 2006. (Lena Rukaj Aff. at ¶ 11.) Defendants previously moved to dismiss Plaintiffs' complaint pursuant to CPLR § 3211 (1) and (7). In denying Defendants' motion, Judge Katz found the Agreement at issue to be enforceable. (Pls' Aff. at Ex. B.)

Plaintiffs' Motion

Plaintiffs are now seeking specific performance of the Agreement. They are also seeking to dismiss Defendants' affirmative defenses, that the Agreement is unenforceable because: 1) Toma was mentally incompetent at the time it was executed; 2) it is impossible to perform; 3) Plaintiffs should have known that Toma was mentally incompetent; 4) Plaintiffs failed to fulfill the terms and conditions set forth therein; 5) is a void and unenforceable premised on laches; 6) it constitutes a contract of adhesion; 7) there was a lack of consideration; 8) its terms are unconscionable; and 9) Plaintiffs compelled Toma to execute the Agreement.

Defendants' Cross-Motion

Defendants oppose Plaintiffs' application and cross-moved to dismiss Plaintiffs' claims for monetary damages and for specific performance of the Agreement on the grounds that:

the Agreement was not an effective contract of sale given Lena Rukaj, as a 50% member of Defendant LLCs, did not consent to the sale of the Buildings;

the Agreement was cancelled pursuant to its terms given that Plaintiffs did not obtain Greystone's consent to the sale in a timely manner;

there was no partial performance on Plaintiffs part given that the monies paid to Toma Rukaj were rightfully his; and

Toma Rukaj was incapacitated and incompetent at the time the Agreement was signed.

a.Capacity and Competence

"A party's competence is presumed and the party asserting incapacity bears the burden of proving incompetence. Persons suffering from a disease such as Alzheimer's are not presumed incompetent and may execute a valid deed." Feiden v. Feiden, 151 AD2d 889; see also A. A. Sutain, Ltd. v. Montgomery Ward & Co., 22 AD2d 607, 61. "Rather, it must be demonstrated that, because of the affliction, the individual was incompetent at the time of the challenged transaction." Gala v. Magarinos, 245 AD2d 336. "It has been stated that the inquiry is whether the person's mind was so affected as to render him wholly and absolutely incompetent to comprehend and understand the nature of the transaction." Feiden, 151 AD2d at 889.

Defendants claim that Toma Rukaj was suffering from Alzheimer's disease on December 18, 2002, thus, he was incompetent and incapable of comprehending or understanding the transaction. (Defs' Aff. at ¶ 70.) As such, it is their burden to establish this contention. In that regard, Defendants provide the non-party deposition of Anglina Delic—Toma's daughter and Peter's sister—and the hearing testimony of a Dr. Mark Williams Albers. (Defs' Aff. at Ex. A & D.)

The doctor's testimony is irrelevant on the issue of Toma's mental capacity to contract on December 18, 2002. The doctor admits that he did not see Toma for the first time until January 9, 2003, and that "[p]rior to that, everything I say is speculation." (Defs' Aff. at Ex. D at 140:25; 141:2-3.)

Plaintiffs' sister was asked at her deposition "[a]t the meeting at Rabine's office on December 18th of 2002, did you or anybody else in your presence say to anyone there that your father didn't understand the nature of this transaction?" (Defs' Aff. at Ex. A at 48:14-17.) She answered, "I don't recall." (Id. at 48:18.) To which she was asked "[y]ou don't recall one way or the other?" (Id. at 48:19.) She answered "[n]o." (Id. at 48:20.) She opined later on, however, that her father [*4]did not "understand what was going on" during the December 18, 2002, meeting in which the Agreement was signed. (Id. at Ex. A, at 54:18-22.)

To obtain summary judgment, it is necessary that a movant establish his cause of action or defense sufficiently to warrant the court as a matter of law in directing judgment in his favor, and he must do so by tender of evidentiary proof in admissible form.

Zuckerman v. City of NY, 49 NY2d 557, 597. (citations omitted).

This Court finds the uncorroborated testimony of an interested non-party witness, Ms. Delic, insufficient to carry Defendants' burden as to their claims that Toma Rukaj was incapacitated and mentally incompetent to execute the Agreement. Indeed, although Lena Rukaj provides an affidavit in support of Defendants' cross-motion, it utterly fails to address the issue of her husband's mental faculties at the time of the transaction in question. As such, Defendants' First and Third affirmative defenses are dismissed.

b.Consent to Sell

Defendants claim that Toma Rukaj's signature alone was insufficient to consummate the sale of the Buildings. (Defs' Aff. at ¶¶ 29-36.) They claim that Toma and Lena Rukaj were 50% members of the Defendant LLCs, therefore, Lena needed to sign the Agreement to make it binding on the LLCs. (Lena Rukaj Aff. at ¶ 3.) Defendants admit that there was no Operating Agreement in place, which delineated the duties and obligations of the LLCs. (Defs' Aff. at ¶ 31; FN 3.) Thus, they claim, there should have been a vote regarding the proposed sale. (Defs' Aff. at ¶ 36.)

"In the event that there is not a formal written Operating Agreement' on the company, or such agreement does not address certain business matters, there are numerous sections in the [Limited Liability Company Law] that set forth default provisions applicable to the limited liability company." In re Spires v. Lighthouse Sol., LLC., 4 Misc 3d 428, 434 (Sup. Ct. Monroe Cty., May 6, 2004).

Unless the articles of organization of a limited liability company provide that management shall be vested in a manager or managers, every member is an agent of the limited liability company for the purpose of its business, and the act of every member, including the execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business of the limited liability company, binds the limited liability company, unless (i) the member so acting has in fact no authority to act for the limited liability company in the particular matter and (ii) the person with whom he or she is dealing has knowledge of the fact that the member has no such authority. [*5]

NY Limited Liab. Co. Law § 412(a); see also Merrell-Benco Agency, LLC v. HSBC Bank USA, 20 AD3d 605, 607 (holding that "a party lender may assume that a member of a member-managed LLC has the authority to bind the LLC").

Therefore, given the absence of an Operating Agreement, which addresses the transaction at hand, coupled with the fact that Defendant LLCs were member managed by Toma and Lena Rukaj, Toma Rukaj acted with the requisite authority to bind the LLCs to the Agreement. The fact that Lena did not sign the Agreement is of no moment. Thus, Defendants have failed to meet their burden of showing that there was no effective contract of sale.

c.Cancellation

According to paragraph 53 of the aforementioned Price Riders incorporated by reference into the Agreement, Plaintiffs are buying the Buildings subject to a mortgage and that such mortgage requires the consent of Greystone in order for Plaintiffs to close on the Buildings. (Pls' Aff. at Ex. J.) The provision states that "Purchaser shall apply forthwith for such approval and take all steps diligently, truthfully, completely, and necessary to obtain such consent in an expeditious fashion," and that "if such consent is not obtained within 90 days of the date thereof, then either party may cancel this contract unless such 90 day period is extended by Seller." (Id.)

Defendants purported to cancel the Agreement based on this provision by letter dated September 4, 2007, returning the monies Plaintiffs placed in escrow. (Defs' Aff. at ¶¶ 37-46; Ex. F.) Plaintiffs in turn replied by letter dated September 7, 2007, wherein they explain that paragraph 53 was irrelevant given that the Buildings could be transferred intra-family without the need for consent from Greystone, and that the Agreement allowed for the transaction to move forward without this consent. (Defs' Aff. at Ex. I.)

The objective in any question of the interpretation of a written contract, of course, is to determine what is the intention of the parties as derived from the language employed. At the same time the test on a motion for summary judgment is whether there are issues of fact properly to be resolved by a jury. In general the courts have declared on countless occasions that it is the responsibility of the court to interpret written instruments. This is obviously so where there is no ambiguity. If there is ambiguity in the terminology used, however, and determination of the intent of the parties depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence, then such determination is to be made by the jury.

Hartford Accident & Indem. Co. v. Wesolowski, 33 NY2d 169, 171-72 (citations omitted).

The Court finds that the language of paragraph 53 is unambiguous as to the issue of canceling the contract based on this issue of consent. The Court finds that the 90 days referenced in paragraph 53 was not to run until after the contract of sales were actually executed. Furthermore, the Court finds that the language of the Agreement obviates the need for consent [*6]given that it allows for Plaintiffs to purchase the properties by providing personal guarantees in lieu of a mortgage. Therefore, Defendants have failed to meet their burden establishing that the Agreement was cancelled pursuant to its own terms. Furthermore, this Court is dismissing Defendants' Fourth affirmative defense, as this issue of cancellation is the only argument that can reasonably be inferred to pertain to Defendants' claim that "Plaintiffs fail[ed] to fulfill the terms and conditions set forth therein."

d.Partial Performance

Plaintiffs claim that they have been paying both the monthly mortgage payment due to Greystone and the negotiated amount of $17,500.00 to Toma since September 1, 2002. (Pls' Aff. at ¶ 40.) Plaintiffs claim that these payments were made pursuant to the Agreement, and in anticipation of eventually taking ownership of the Buildings pursuant to the Agreement. (See id. at ¶¶ 31, 39.) Defendants counter that the monies paid to cover the mortgage and to Toma represented income generated by "the income of the Buildings," which Toma and Lena owned. (Defs' Aff. at ¶ 58.) Therefore, Toma and Lena could not have ratified the Agreement by accepting monies that were already theirs. (Id. at ¶ 59.)

"In an appropriate case, a court of equity may indeed give effect to an otherwise unenforceable oral contract where there has been part performance and the acts performed are unequivocally referrable' to the agreement." Cunnison v. Richardson Greenshields Secur., Inc., 107 AD2d 50, 54; see also NY Gen. Oblig. Law § 5-703.

Defendants annex excerpts of Peter Rukaj's January 26, 2007 Deposition, which show that the monies paid out by Peter to Greystone and his father were not entirely drawn from income derived from the Buildings. (See Def's Aff. at Ex. B.) Peter testified that the properties operated at loss, thus, he had to come "out of [his] pocket" and use "income from the other property" to cover the monthly losses of the Buildings. (See Defs' Aff. at Ex. B at 569:16-23.)

This Court finds that Plaintiffs had to supply additional monies above and beyond what the Buildings were generating with the intention of adhering to the Agreement, and in anticipation of the execution of the sale of the Buildings. Therefore, Plaintiffs' efforts to make these payments were "unequivocally referable" to the agreement. Thus, Plaintiffs partially performed under the Agreement by making the scheduled mortgage payments to Greystone and forwarding the agreed upon monthly payment of $17,000.00 to Toma.

e.Impossibility

The Court is dismissing Defendants' Second affirmative defense for impossibility of performance. "The excuse of impossibility of performance is generally limited to the destruction of the means of performance by an act of God or by law." Diag. Mobile Imaging Inc. v. Salamanca Dis. Hosp., 191 AD2d 974. Defendants have failed to proffer any evidence that their performance of the Agreement is impossible under this standard.

[*7]f.Laches

This Court is dismissing Defendants' Fifth affirmative defense based on laches. "Delay is not the sole, nor necessarily the determinative, element of the laches equation. . . . The essential element of laches is delay prejudicial to the opposing party." Heywood Burns, et al. v. Egan, 117 AD2d 38 (citations omitted). Defendants have failed to proffer any evidence in admissible form to show that Plaintiffs have so delayed in vindicating their rights under the Agreement that prejudice to the Defendants has resulted.

g.Unconscionability and Adhesion

This Court is dismissing Defendants' Sixth and Eighth affirmative defenses regarding adhesion and unconscionability. "An unconscionable contract is one which is so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be unenforcible according to its literal terms." Sablosky v. Edward S. Gordon Co., 73 NY2d 133, 138 (citations omitted). Adhesion "claims are judged by whether the party seeking to enforce the contract has used high pressure tactics or deceptive language in the contract and whether there is inequality of bargaining power between the parties." Id. at 139. Defendants have not shown that the Agreement is grossly unreasonable or that any pressure tactics or deceptive language occasioned its execution.

h.Inadequate Consideration

This Court is dismissing Defendants' Seventh affirmative defense based on inadequate consideration.

So long as it is something of real value in the eye of the law, whether or not the consideration is adequate to the promise is generally immaterial in the absence of fraud. The slightest consideration is sufficient to support the most onerous obligation; the inadequacy, is for the parties to consider at the time of making the agreement, and not for a court when it is sought to be enforced. It is competent for the parties to make whatever contracts they may please, so long as there is no fraud or deception or infringement of law.

Mencher v. Weiss, 306 NY 1, 15-16.

Plaintiffs claim that the intentions of the parties were that Peter would purchase the Buildings from Toma in an installment sale after Toma acquired new thirty-year mortgages on the Buildings and Peter would pay the monthly mortgage to Greystone and $17,000.00 a month to his father. It is undisputed that Peter made the monthly mortgage payments to Greystone and that he made the agreed upon monthly payments of $17,000.00. Therefore, the Court finds that Toma's acquisition of the thirty-year mortgages and Peter's monthly payment of $17,000.00 carry real value, such that these actions may constitute sufficient consideration to render the Agreement enforceable.

i.Compulsion

This Court is dismissing Defendants' Ninth affirmative defense/counterclaim as Defendants have failed to proffer any evidence in support of their claim that Plaintiffs compelled Toma Rukaj to execute the Agreement. The evidence shows that Toma was represented by counsel at the December 18, 2002 meeting. Moreover, Toma's wife Lena and his daughter, Ms. Delic were also present. Although Defendants claim that Toma had suffered a series of strokes and had been diagnosed as having Alzheimer's Disease, the evidence fails to support that he was incompetent at the time he executed the Agreement. Therefore, the record is devoid of any evidence that this Court may look to regarding whether Plaintiffs compelled Toma Rukaj to sign the subject Agreement.

Damages

"A member of a limited liability company is not a proper party to proceedings by or against a limited liability company, except where the object is to enforce a member's right against or liability to the limited liability company." NY Limited Liab. Co. Law § 610.

Therefore, Peter Rukaj must seek compensation for his claimed personal losses on behalf of the LLC in the name of the LLC. Thus, Defendants' argument that damages are inappropriate because Peter Rukaj losses were personal to him and not Plaintiff LLCs, and because "it was specifically contemplated that the Plaintiffs would not operate at a profit" (id. at ¶ 66) are of no moment

"While breach of contract damages are intended to place a party in the same position as he or she would have been in if the contract had not been breached, the damages may not be merely speculative, possible or imaginary, but must be reasonably certain and directly traceable to the breach, not remote or the result of other intervening causes." Wenger v. Alidad, 265 AD2d 322, 323.

Peter testified in his November 3, 2006 Deposition that he: "invested [his] own personal monies into the [Buildings]" (Defs' Aff. at Ex. B at 270:25; 271:1-2); had to put his personal money into the account of one of the Defendant LLCs to cover its expenses (id. at 274:11-20); estimates that he spent $100,000 out of his pocket on the Buildings; and estimates his "sweat equity" in the Buildings to be $800,000 to $900,000 (id. at 280:4-21.)

The Court finds that the monies expended by Plaintiffs in anticipation of obtaining possession of the Building—and in furtherance of their obligations under the Agreement—would subject Defendants to possible damages should they breach the contract and fail to sign the contracts of sale as agreed.

The foregoing shall constitute the decision and order of this Court. [*8]

Dated: _________________J.S.C.

APPEARANCES:

DelBello Donnellan Weingarten

Wise & Wiederkehr, LLP

Attorney for Plaintiffs

One Norther Lexington Avenue

White Plains, New York 10601

BY:PATRICK M. REILLY, ESQ.

Borah Goldstein Altschuler

Nahins & Goidel, P.C.

Attorneys for Defendants

377 Broadway

New York, New York 10013-3993

BY:DAVID R. BRODY, ESQ.