U.S. Bank Natl. Assn. v 23rd St. Dev., LLC

[*1] U.S. Bank Natl. Assn. v 23rd St. Dev., LLC 2009 NY Slip Op 52093(U) [25 Misc 3d 1214(A)] Decided on August 27, 2009 Supreme Court, New York County Lehner, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 27, 2009
Supreme Court, New York County

U.S. Bank National Association, a National Banking Association, Plaintiff,

against

23rd Street Development, LLC, Michael Yanko and Eran Conforty, Defendants.



600140/09

Edward H. Lehner, J.

The basic legal issue presented on this motion by plaintiff for summary judgment pursuant to CPLR 3213 is whether defendants have raised a triable issue of fact by their assertion that an official of the plaintiff bank orally agreed to an extension of the maturity date of the note sued upon herein.

This action is based on a note dated July 20, 2007 in the principal amount of $18,669,692.38 (the "Note") executed by defendant 23rd Street Development LLC ("Development"), guaranteed by defendants Michael Yanko and Eran Conforty (the "Guarantors"), and payable on April 19, 2008. Pursuant to provisions set forth in section 1.9 of the Loan Agreement executed at even date with the Note, Development was granted the option to extend the maturity date to October 19, 2008 upon the existence of certain conditions. By amendment to the Loan Agreement made as of May 15, 2008, plaintiff and Development agreed that "[n]otwithstanding the failure of all conditions specified in Section 1.9," the maturity date would be extended to July 19, 2008. When payment was not made by that date, plaintiff sent Development and the Guarantors a notice of default.

On this motion plaintiff seeks a judgment against Development for the said principal amount of the Note plus interest, and judgment against the Guarantors for $14,019.232.50 "representing the principal amount of the Note guaranteed" plus interest on the principal amount of the Note.

Defendants have cross-moved to consolidate this action with a mortgage foreclosure action pending in this court before Justice Rakower in which the plaintiff herein is suing on behalf of itself and two other banks, the mortgagor is an entity in which the Guarantors have an ownership interest, and the action relates to the construction of a hotel at 653 Eleventh Avenue (Index No. 117015/08)(the "Eleventh Avenue Action"). However, subsequent to the oral argument of the present motion, Justice Rakower granted summary judgment to the plaintiff in the Eleventh Avenue Action dismissing the cross-claims and affirmative defenses, and appointed a referee to compute the amount owing on the mortgage. [*2]

In his opposing affidavit, Yanko asserts that Alan R. Milster, a vice-president of plaintiff, told him that "we didn't need to worry about the pending maturity of the notes (and) that the Bank would extend the loan on commercially reasonable terms" (¶ 18), "for an additional year" (¶ 22). However, Yanko makes no claim specifying that any of such alleged oral promises were made at any time after May 2008.

In his reply affidavit, Milster does not specifically deny the oral promises allegedly made by him, but refers to his letters to Development of July 18, 2008 and July 21, 2008, in which he advised Development that it was not entitled to rely on any oral statements purportedly made by plaintiff "to refrain from exercising any of its rights under the Loan Agreement, the Notes, the Mortgages or any other Loan Documents." Plaintiff acknowledges that after declaring the Note in default it did engage in negotiations relating to a possible extension of the Note, and that the parties hereto entered into what plaintiff refers to as a "Pre-Negotiation Agreement" under date of August 20, 2008. Therein the parties agreed that no modification of the loan "shall constitute a legally binding agreement until reduced to written documentation which is signed by all necessary parties" and that plaintiff may terminate the negotiations for "any reason or no reason," and defendants acknowledged that none of them "has any defense, setoff, claim, counterclaim or cause of any kind or nature whatsoever with respect to the Loan Documents." When negotiations failed to resolve the controversy, this action ensued.

With respect to the claim of an oral modification of the maturity date of the Note, it specifically provides that plaintiff "shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies, and no waiver of any kind shall be valid unless in writing and signed by" plaintiff. Also, as noted above, the Pre-Negotiation Agreement similarly bars an oral modification of the loan documents.

When an agreement "contains a clause requiring any modification of the terms of such (agreement) to be in a writing signed by the (plaintiff), an oral modification is generally precluded" [Joseph P. Day Realty Corp. v. Jeffrey Lawrence Associates, Inc., 270 AD2d 140 (1st Dept. 2000)]. See also, No.1 Funding Center, Inc. v. H & G Operating Corporation, 48 AD3d 908 (3rd Dept. 2008); Cohen Fashion Optical v. V & M Optical, Inc., 51 AD3d 619 (2nd Dept. 2008). In Rose v. Spa Realty Associates, 42 NY2d 338 (1977), it was held that exceptions to the foregoing principle will be applied in situations where a party can show "partial performance ... unequivocally referrable to the oral modification," as well as when the plaintiff "has induced another's significant and substantial reliance upon an oral modification," in which case an estoppel may be invoked to bar a party from enforcing the "no oral modification" clause.

As stated in Shondel J. v. Mark D., 7 NY3d 320, 326 (2006), the purpose of estoppel "is to prevent someone from enforcing rights that would work injustice on the person against whom enforcement is sought and who, while justifiably relying on the opposing party's actions, has been misled into a detrimental change of position." Here, in light of the facts asserted, including the July letters from Milster and the provisions of the Pre-Negotiation Agreement, defendants have not shown that they were "misled" or that they "significantly and justifiable relied on (the alleged oral promise to their) disadvantage," and thus "an essential element of estoppel is lacking." [Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Management, L.P., 7 NY3d 96, 106 (2006)]. See also, Towers Charter & Marine Corporation v. Cadillac Insurance Company, 894 F.2d 516, 522 (2nd Cir. 1990). [*3]

To permit enforcement of the alleged oral agreement, defendants principally rely on the Court of Appeals decision in Nassau Trust Company v. Montrose Concrete Products Corp., 56 NY2d 175 (1982). There, neither the subject note nor mortgage prohibited oral modification of the terms thereof, but an extension agreement provided that it "may not be changed or terminated orally." In opposing the motion for summary judgment, the mortgagor argued that the bank's officers had orally agreed "to waive any default in payment," and it introduced a letter signed by one of the officers granting "an extension of payment until January 31, 1979 pursuant to our conversation this afternoon' (and) also agreed to consider granting (the mortgagor) an additional extension for a period of time necessary to complete a closing' on the mortgaged property" (p. 180). In finding a triable issue, the court differentiated between an oral modification, which would be barred by GOL § 15-301(1), and a waiver, which is not referred to in said section, but which "to the extent that it has been executed, cannot be expunged or recalled ..., but not being a binding agreement, can, to the extent that it is executory, be withdrawn, provided the party whose performance has been waived is given notice of withdrawal and a reasonable time after notice within which to perform" (p. 184). The court, in finding a triable issue of fact, stated that "foreclosure was instituted without notice or any reasonable opportunity (for defendant) to cure its defaults or conclude a negotiated sale of the mortgaged premises" (p. 186).

The holding in this case is, however, of no aid to defendants. Here, the Note and Pre-Negotiation Agreement, as compared to that in Nassau Trust, also bars waivers where there is no writing, which provision is enforceable. See, Tower's Charter & Marine Corporation v. Cadillac Insurance Company, supra, at p. 522. Further, from Milster's July letters and the Pre-Negotiation Agreement, defendants were on notice that they could not rely on the alleged prior oral promises. Moreover, the claim in Yanko's affidavit that Milster agreed to extend the loan for a year and on "commercially reasonable terms" would not be deemed a waiver, but rather a modification and hence, as indicated in Nassau Trust, defendants would "have proved (themselves) out of court" (p. 187).

But, even if defendants had any viable defense to this action, it would be barred by reason of the aforesaid waiver of defenses agreed to in the Pre-Negotiation Agreement. See, Red Tulip, LLC v. Neiva, 44 AD3d 204, 209 (1st Dept. 2007).

With respect to post-August 20, 2008 negotiations, as in Massachusetts Mutual Life Insurance Company v. Gramercy Twins Associates, 199 AD2d 214, 217 (1st Dept. 1993), the acknowledged "promise to negotiate can not be equated with a promise to finalize an agreement on a (revised Note, as the) parties never had more than an agreement to agree (and) plaintiff never waived its right to commence (an action), even crediting the oral assurances attributed to plaintiff's agents, beyond the time negotiations actually continued." See also, Heller Financial, Inc. v. Apple Tree Realty Associates, 238 AD2d 198 (1st Dept. 1997). Moreover, here the Pre-Negotiations Agreement specifically stated that negotiations could be terminated "for any reason or no reason."

The cross-motion of defendants to consolidate this action with the Eleventh Avenue action is denied. The grant of summary judgment in that action, thus limiting the litigation to a determination of the amount owing on the mortgage, warrants denial of the application. But even if such motion had not been granted, there is no basis for such relief as plaintiffs and defendants in that action are different from the parties herein and there are no common issues of law or fact. [*4]

In view of the foregoing, plaintiff's motion for summary judgment against defendants is granted. Settle order setting forth the claimed principal owing by each defendant, the dates from which interest is payable, and the rates thereof.

Dated: August 27, 2009________________

J.S.C.