30 Broad, LLC v Lawrence
Annotate this CaseDecided on July 7, 2006
Supreme Court, New York County
30 Broad, LLC, Plaintiff,
against
Charles Lawrence, Defendant.
600094/06
APPEARANCES:
For Plaintiff:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
(Edward P. Grosz)
For Defendant:
Itskowitz & Harwood
305 Broadway, 7th Floor
New York, New York 10007
(Daniel F. Spitalnick)
Bernard J. Fried, J.
Plaintiff landlord seeks to recover unpaid rent from defendant, on the basis that defendant is a former tenant's guarantor. Defendant Charles Lawrence is the president and majority owner of the erstwhile tenant, nonparty West Egg, LLC. According to plaintiff, West Egg's lease contains defendant's personal guaranty that he will perform West Egg's obligations under the lease. Defendant alleges that the guaranty does not bind him, as he signed the lease on behalf of his company only, and not on his personal behalf. Defendant moves to dismiss the complaint, pursuant to CPLR 3211 (a) (7) and 3016 (b), and asks for sanctions against plaintiff.
Plaintiff alleges that, at first, defendant refused to guarantee West Egg's lease. Plaintiff would not lease the space without defendant's personal guaranty, however, so defendant agreed. The parties engaged in extensive negotiations over the language of the guaranty and exchanged several versions of the lease. None of the leases, including the final version, had a space for a guarantor to sign. Plaintiff alleges that this omission was due to error.
The lease was for a term of 10 years, at $135,000 a year. Less than one year into the lease, West Egg defaulted on the rent and plaintiff obtained a judgment for unpaid rent in the [*2]amount of $102,623.94.
The part of the lease entitled Guaranty consists of several paragraphs. It provides that "[i]n order to induce Landlord to enter into this Lease and in consideration of Landlord's entering into this Lease, Charles Lawrence (the Guarantor') hereby guaranties ... observance of all the ... conditions of this Lease provided to be kept ... by Tenant" (Article 42.01). The Guarantor's liability "is coextensive with that of Tenant and also joint and several" (Article 42.03 [a]). "This Guaranty and Guarantor's obligations hereunder are and shall at all times continue to be absolute, present, primary and unconditional in all respects ..." (Article 42.03 [i]).
Defendant's signature, on page 69, appears thus: TENANT:WEST EGG, LLCBy____________________ Name: (Charles Lawrence) Title: (President and CEO) Employer I.D. No. (***)
Defendant wrote his initials on the signature line. His name, title, and the employer number are handwritten in the spaces indicated.
Plaintiff alleges that defendant knew that the signature page was incorrect, because the parties had agreed that he would personally guarantee the lease. Plaintiff further alleges that it would not have entered into the lease if defendant had not agreed to the personal guaranty, and that defendant induced plaintiff to enter into the lease by falsely promising to enter into a guaranty.
The first cause of action in the complaint sounds in breach of contract. The second asks for costs and attorneys' fees, pursuant to the guaranty provision in the lease. The third asks for reformation of the lease. The fourth cause of action sounds in estoppel. The fifth requests a declaratory judgment. The sixth cause of action sounds in fraud.
In determining a CPLR 3211 motion, the court accepts the allegations in the complaint as true (Wiener v Lazard Freres & Co., 241 AD2d 114, 120 [1st Dept 1998]). Dismissal of a complaint pursuant to 3211 (a) (7) is warranted only if the facts as alleged fail to fit within any cognizable legal theory (id.). Where a complaint alleges fraud, CPLR 3016 (b) requires that wrongful conduct must be stated in detail.
Defendant contends that the statute of frauds bars the complaint. The statute of frauds provides that a promise to answer for the debt or default of another must be in writing and subscribed by the party to be charged (General Obligations Law § 5-701 [a] [2]). Defendant contends that his signature shows that he signed the lease as West Egg's officer and not in his individual capacity. Therefore, he did not personally guarantee West Egg's debts under the lease.
Officers of a corporation are not liable on its contracts, unless they purport to bind themselves in their personal capacities (PNC Capital Recovery v Mechanical Parking Sys., Inc., 283 AD2d 268, 270 [1st Dept 2001]). Whether defendant so intended cannot be determined at this stage of the proceeding, given the language of the guaranty, including the fact that defendant is named therein (see Gerald Syndicate v Negev Home Made Foods, 198 AD2d 92 [1st Dept [*3]1993]; RCA Records, Div. of RCA Corp. v Wiener, 166 AD2d 221 [1st Dept 1990]); McDonagh Real Estate & Dev. Ltd. v Kwilecki, 158 AD2d 372, 373 [1st Dept 1990]; Paribas Properties, Inc. v Benson, 146 AD2d 522, 525 [1st Dept 1989]). The complaint is adequate to withstand a defense based on the statute of frauds.
The thrust of a demand for reformation is that the parties' written agreement does not accurately set forth the agreement that they reached (Chimart Assoc. v Paul, 66 NY2d 570, 573 [1986]). Accordingly, neither the parol evidence rule nor the statute of frauds would generally bar proof of the actual agreement. The party arguing for reformation must show that the parties came to an understanding, but, in reducing it to writing, through mutual mistake or through mistake on one side and fraud on the other, omitted some provision agreed upon, or inserted one not agreed upon.
Plaintiff alleges that the parties agreed on defendant's guaranty, but unintentionally omitted the guarantor's signature line from the lease. The proposed leases support plaintiff's contention that the parties agreed on the guaranty. These allegations adequately state a cause of action for reformation based on mutual mistake.
Reformation based on unilateral mistake requires a showing that "the parties have reached agreement and, unknown to one party but known to the other (who has misled the first), the subsequent writing does not properly express that agreement" (id. at 573; William P. Pahl Equip. Corp. v Kassis, 182 AD2d 22, 29 [1st Dept 1992]). Unilateral mistake involves fraud. The only fraud alleged here is that defendant did not inform plaintiff that the lease, which plaintiff prepared, did not have a place for a guarantor's signature. Defendant's conduct, as alleged here, was not fraudulent. Plaintiff does not allege that defendant engaged in any other deception about the lease. Unilateral mistake is not alleged here.
The fraudulent inducement cause of action appears to be based on alternative theories: that defendant made a guaranty or that he did not make a guaranty. Plaintiff alleges that defendant induced plaintiff into leasing the premises to West Egg by falsely promising to guaranty the lease. Defendant then made the guaranty, but did not perform it. To state a claim of being fraudulently induced to enter a contract, a plaintiff must allege that the misrepresentation was one of then-present fact, which was extraneous to the contract and involved a duty separate from or in addition to that imposed by the contract (Hawthorne Group, LLC v RRE Ventures, 7 AD3d 320, 323-324 [1st Dept 2004]). An allegation that defendant lied about his or her intention to perform the contract does not state a cause of action for fraud (id.). It states a cause of action for breach of contract (Rochelle Assoc. v Fleet Bank of New York, 230 AD2d 605, 606 [1st Dept 1996]). Plaintiff's pleadings run afoul of all of these principles. Plaintiff alleges no more than that defendant did not intend to perform the guaranty when he made it.
Nor does plaintiff state a fraud claim to the extent that it is alleging that defendant did not enter into a guaranty, but that defendant used the promise of entering into a guaranty to induce plaintiff to enter into the lease. An action for fraud will lie if the promisor did not intend to keep his promise when he made it (Sabo v Delman, 3 NY2d 155, 160 [1957]). However, a party may not establish fraudulent intent solely from the non-performance of the future event (Abelman v Shoratlantic Dev. Co., Inc., 153 AD2d 821, 822 [2d Dept 1989]). The defrauded party must allege specific facts showing that the promisor intended not to honor his obligations at the time the promise was made (id.; Pope v New York Property Ins. Underwriting Assn., 112 AD2d 984, [*4]985 [2d Dept], affd in part 66 NY2d 857 [1985]). The complaint is totally devoid of any such allegations. Moreover, plaintiffs' vague and conclusory allegations fail to satisfy the standard of specificity set by CPLR 3016 (b).
Plaintiff argues that defendant should be estopped from using the statute of frauds as a defense. Estoppel precludes a party from denying or asserting the contrary of certain statements which he or she has induced another to believe and to act on in a particular manner. Equitable estoppel arises when a party knowingly engages in conduct that amounts to a false representation or concealment of material facts, with the intention that such conduct will be acted upon by the other party (BWA Corp. v Alltrans Express U.S.A., Inc., 112 AD2d 850, 853 [1st Dept 1985]). Promissory estoppel arises when a party makes a clear and unambiguous promise to another party, who reasonably relies upon the promise, and is injured by reason of his or her reliance (Ripple's of Clearview, Inc. v Le Havre Assoc., 88 AD2d 120, 122 [2d Dept 1982]). The injury resulting from either conduct must be of the sort properly described as unconscionable (American Bartenders School, Inc. v 105 Madison Co., 59 NY2d 716, 718 [1983]; Melwani v Jain, 281 AD2d 276, 277 [1st Dept 2001]).
In this case, defendant's assertion that he would guaranty the lease is not a false representation of a fact, and the alleged injury, the loss of rent, is not unconscionable. Also, contrary to plaintiff's argument, the doctrine of part performance does not apply. An agreement that would otherwise be unenforceable, because of the statute of frauds, may become enforceable if the party seeking enforcement has performed part of the agreement. For part performance to bar the defense of the statute of frauds, plaintiff's actions must be "unequivocally referable" to the agreement alleged (Anostario v Vicinanzo, 59 NY2d 662, 664 [1983]). It is not enough "that the oral agreement gives significance to plaintiff's actions" (id.). Rather, the actions alone must be " unintelligible or at least extraordinary'", explainable only with reference to the alleged agreement (id., citing Burns v McCormick, 233 NY 230, 232 [1922]). Plaintiff's lease of the space to West Egg is not unequivocally referable to the promised guaranty. Defendant is not estopped from raising the statute of frauds.
Defendant's motion does not argue specifically against the cause of action for a declaratory judgment, but addresses it as part of the overall complaint. The objective of a declaratory judgment is primarily to still speculation as to an appropriate course of future conduct, without incurring the penalties of a present misstep (see Klostermann v Cuomo, 61 NY2d 525, 538-539 [1984]). "A cause of action for a declaratory judgment is unnecessary and inappropriate when the plaintiff has an adequate, alternative remedy in another form of action, such as breach of contract" (Apple Records, Inc. v Capitol Records, Inc., 137 AD2d 50, 54 [1st Dept 1988]). Therefore, this cause of action is dismissed.
The declaratory judgment claim in this case is unnecessary, as it seeks a declaration of the same rights and obligations as will be determined under the contractual causes of action. In addition, the parties' relationship does not implicate a future relationship.
Defendant's motion is denied as to the first, second, and third causes of action. It is granted as to the fourth, fifth, and sixth causes of action. Sanctions will not be awarded pursuant 22 NYCRR 130-1.1 (c) (1), as the complaint is not frivolous.
In conclusion, it is
ORDERED that defendant's motion to dismiss is granted as to the fourth, fifth, and sixth [*5]causes of action, and is otherwise denied; and it is further
ORDERED that defendant is directed to serve an answer to the complaint within 20 days after service of a copy of this order with notice of entry; and it is further
ORDERED that a conference will be held on this action on August 1, 2006, at 10:00 a.m. in Part 60.
Date: _____________________
ENTER:
_________________________
J.S.C.
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