Greenpoint Group, LLC v Zions First Natl. Bank

[*1] Greenpoint Group, LLC v Zions First Natl. Bank 2011 NY Slip Op 51921(U) Decided on October 18, 2011 Supreme Court, Kings County Schmidt, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 18, 2011
Supreme Court, Kings County

Greenpoint Group, LLC, Plaintiff,

against

Zions First National Bank, Defendant.



542/08

David I. Schmidt, J.

Upon the foregoing papers, defendant Zions First National Bank (Zions) moves for an order, pursuant to CPLR 3212, granting summary judgment dismissing the complaint. Plaintiff Greenpoint Group, LLC (Greenpoint) cross-moves for an order, pursuant to CPLR 3212, granting summary judgment on its complaint.

Greenpoint commenced this action to reform the terms of a mortgage note, particularly the interest rate stated therein, and to recover any excess interest paid by Greenpoint pursuant to the note prior to reformation. The note was issued by Zions in conjunction with Greenpoint's purchase of certain real property located at 263-265 and 269-277 Freeman Street and 242-252 Eagle Street in Brooklyn. In its initial commitment letter, dated March 8, 2006 (first commitment letter), Zions offered to provide a loan to Greenpoint in the amount of $2,225,000 (Loan 1) supplemented by an SBA 504 loan in the amount of $1,833,400 (Loan 2). The interest rates were to be based on the following: Loan 1: Seattle Federal Home Loan Bank five year advance rate (Index) + 2.75%, adjusting every five years. Interest will be calculated on an actual/360-day accrual basis. Payments will also be adjusted every five years with changes in the Index, if necessary. Loan 2: Lowest New York Prime Rate as reported in the Wall Street Journal (Index) + 2.00%, adjusting quarterly. Payment will also be adjusted quarterly, if necessary. Interest will be calculated on an actual/360 accrual basis.

Additionally, the first commitment letter provided that a loan origination fee of 1.35% would be charged on Loan 1 and a 1.00% loan origination fee would be charged on Loan 2. The first commitment letter further provided: This commitment will not be binding unless signed and returned to this office within fifteen (15) days. If the loan is not closed (or otherwise [*2]extended in writing) in full compliance with the terms and conditions of this commitment letter on or before June 3, 2006, [Zions'] obligations hereunder will cease.

Greenpoint declined to accept the terms of the commitment. Zions subsequently offered a new commitment for a loan with an interest rate and loan origination fees more favorable to Greenpoint. The new commitment letter, dated July 6, 2006 (second commitment letter), proposed that the interest rate be calculated based on the following: Loan 1: Federal Home Loan Bank of Seattle five year advance rate (Index) + 1.25%, fixed for the first two years. At the end of the first two years, the rate will convert to the same index (5-Yr. FHLB) plus 2.75%, adjusting every five years thereafter for the life of the loan. Interest will be calculated on an actual/360-day accrual basis. Payments will also be adjusted every five years with changes in the Index, if necessary.Loan 2: Lowest New York Prime rate as reported in the Wall Street journal [sic] (Index) + 2.00%, adjusting quarterly. Payment will also be adjusted quarterly, if necessary. Interest will be calculated on an actual/360-day accrual basis. (The New York Prime rate + 2.00% is only for the bridge loan that is to be paid off by the funding of the SBA debenture).

Additionally, the second commitment letter proposed that the loan origination fee of 1.35% would remain on Loan 1, but that no fee would be charged on Loan 2. The second commitment letter provided that "[i]f the loan is not closed (or otherwise extended in writing) in full compliance with the terms and conditions of this commitment letter on or before August 30, 2006,[FN1] [Zions'] obligations hereunder will cease." The second commitment letter was timely accepted and signed by Greenpoint's members, Alex Sandler and Michael Kustanovich.

On or about August 7, 2006, Jason Robinson, a loan officer in Zions' real estate securitization department, sent a "modification of approved loan terms memorandum" to John D'Arcy, executive vice president of Zions. The memorandum stated the following: Purpose:

1) The purpose of this memo is to request an extension for the approval of the above mentioned loan. The approval expired on 6/3/2006. An extension of 3 months to 9/3/06 is requested to allow time for this loan to close and fund. The borrower's attorney has apparently been extremely busy and has taken longer than expected to arrange for the closing on the subject property. The loan is expected to close with in [sic] the next ten days.

2) To change the Zion's Bank 1st loan amount from $2,225,000 to $2,225,180 to match the SBA Authorization. Presentation Modifications:General Terms[*3]No changeCollateralNo changeCost Analysis/Sources & UsesNo change

According to the handwritten notations on the face of the memorandum, Mr. D'Arcy approved the changes requested on August 11, 2006. On August 28, 2006, Mr. D'Arcy initialed his approval of the further extension of the closing period from September 3, 2006 to September 30, 2006.

The closing was thereafter held on September 26, 2006. At the closing, Greenpoint, by its members, signed a note in the amount of $2,225,180.00 which stated an "Initial Rate" of 8.050%. This interest rate was subsequently discovered by Greenpoint not to have been calculated in accordance with the formula contained in the second commitment letter which it accepted and signed but rather that contained in the unsigned first commitment letter. Greenpoint seeks reformation of the terms of the note to conform to the terms of the second commitment letter on grounds which include "mutual mistake." In its motion for summary judgment dismissing the complaint, Zions claims, among other things, that the second commitment letter by its terms expired on August 30, 2006, nearly a month before the closing, that Greenpoint had an opportunity to review the terms of the note days prior to the closing and that Greenpoint signed the note voluntarily and is therefore bound by the terms therein.

Generally, a party that signs a document is conclusively bound by its terms absent a valid excuse for having failed to read it (see Da Silva v Musso, 53 NY2d 543, 550-551 [1981]; Daniel Gale Assoc. v Hillcrest Estates, 283 AD2d 386, 387 [2001]). Nonetheless,

"[i]t is the general rule that where a written instrument fails to conform to the agreement between the parties in consequence of the mutual mistake of the parties however induced, or of the mistake of one party and fraud of the other, a court will reform the instrument so as to make it conform to the actual agreement between the parties" (Janowitz Bros. Venture v 25-30 120th St. Queens Corp., 75 AD2d 203, 214 [1980]). This principle "is applicable where the parties have a real and existing agreement on particular terms and subsequently find themselves signatories to a writing which does not accurately reflect that agreement" (Harris v Uhlendorf, 24 NY2d 463, 467[1969]). "To reform a written instrument based upon mutual mistake. . . the proponent of reformation must show, by clear and convincing evidence, not only that mistake. . . exists, but exactly what was really agreed upon between the parties'" (Lacoparra v Bellino, 296 AD2d 480, 481 [2002], quoting Backer Mgt. Corp. v Acme Quilting Co., 46 NY2d 211, 219 [1978]). A party need not establish that the parties entered into the contract because of the mutual mistake, only that the "material mistake. . .vitally affects a fact or facts on the basis of which the parties contracted" (Janowitz Bros., 75 AD2d at 214).

There is no dispute that the second commitment letter constituted a binding agreement between the parties when it was signed by Greenpoint's members. The primary argument by Zions in support of its summary judgment motion is that the second commitment letter, by its terms, expired on August 30, 2006. However, the August 7, 2006 memorandum from Mr. Robinson to Mr. D'Arcy demonstrates that Zions intended to extend the date in which [*4]Greenpoint may close until September 30, 2006. While the memorandum makes reference to an "approval" expiring on June 3, 2006, which would correspond to the first commitment letter, the memorandum cannot be deemed to incorporate the terms of the first commitment letter as such was never signed and accepted by Greenpoint, and Mr. Robinson testified at his examination before trial (EBT) that it was not the policy of Zions to make loans based on unsigned commitment letters (Robinson EBT Transcript at 17). Even if Mr. Robinson was under the belief that the first commitment letter was signed, such letter would be superceded by the second commitment letter according to the latter agreement's express terms. Accordingly, the court finds that the expiration date of the second commitment letter was duly extended by Zions until September 30, 2006 and that the second commitment letter was therefore still binding upon Zions at the time of closing.

Zions' intent to offer a loan in accordance with the second commitment letter is demonstrated by E-mail communications (the contents of which are not disputed) exchanged between Mr. Robinson and other employees of Zions in the days before the closing, wherein it was recognized that the loan origination fees to be charged would be 1.35% of Loan 1 and 0% of Loan 2. In the mortgage closing statement submitted by Zions in its moving papers, a loan origination fee of 1.00% was charged against Loan 2 while a loan origination fee of 0.53% was charged against Loan 1. Ostensibly, it was determined that while the second commitment letter did not require a loan origination fee against Loan 2, a 1.00% fee should nonetheless be charged on this loan as originally authorized by the Small Business Administration in order to avoid potential problems with funding. Notably, however, the loan origination fee was reduced on Loan 1 and the total amount of fees disbursed ($30,040.00) is equal to 1.35% of the amount of Loan 1 and 0% of the amount Loan 2. This disbursement of loan origination fees is therefore in harmony with the terms of the second commitment letter and evidences Zions' intent to fashion the loan according to the terms of said agreement. Had it been Zions' intent to provide "financing pursuant to the terms of the First Loan Commitment" as stated in the affidavit of Zions' vice president, Anthony Hull,[FN2] a loan origination fee of 1.35% would have been applied at the closing to Loan 1 in addition to the 1.00% applied to Loan 2.

The court thus finds that the documentation submitted clearly and convincingly demonstrates the intent of both parties to enter into a loan transaction conforming to the terms of the second commitment letter, including the interest rate agreed to therein, and that the execution of the mortgage note which sets forth a higher interest rate is the result of a mutual mistake. Accordingly, Greenpoint is entitled to reformation of the note to reflect the interest rate contained in the second commitment letter, and to reimbursement of any sums paid in excess of those which would have been due had the correct interest rate been applied from the outset.

As a result, Greenpoint's cross motion is granted and Zions' motion for summary judgment is denied.

Settle order on notice.

ENTER,

J.S.C. Footnotes

Footnote 1:The original expiration date of June 19, 2006 was crossed out and replaced in handwriting with August 30, 2006.

Footnote 2:Mr. Hull's affidavit, dated November 28, 2008, was submitted by Zions on a prior motion to dismiss the action.