| Fonda v First Pioneer Farm Credit, ACA |
| 2011 NY Slip Op 05843 [86 AD3d 693] |
| July 7, 2011 |
| Appellate Division, Third Department |
| Philip D. Fonda et al., Respondents, v First Pioneer FarmCredit, ACA, Appellant. |
—[*1] Melvin & Melvin, P.L.L.C., Syracuse (Elizabeth A. Genung of counsel), forrespondents.
Garry, J. Appeal from an order of the Supreme Court (Demarest, J.), entered July 29, 2010 inSt. Lawrence County, which denied defendant's motion for summary judgment dismissing thecomplaint.
Defendant is a mortgagee for plaintiffs' dairy farm in the Town of Lisbon, St. LawrenceCounty. As required by the mortgage, plaintiffs carried fire insurance that named defendant as theinsured. In August 2004, a fire on the property killed livestock and damaged or destroyed severalfarm buildings. The insurer issued payment jointly to defendant and plaintiff Philip D. Fonda forinsurance proceeds of $223,000. Plaintiffs requested that defendant release the funds to be usedfor repairs and equipment purchases, but the parties disagreed as to how the funds should beused, and defendant refused to release them.
In November 2004, plaintiffs commenced this action claiming, as pertinent here, breach ofcontract and violation of Real Property Law § 254, and seeking to compel defendant totender the insurance proceeds to plaintiffs and to pay damages allegedly resulting from the delay.In December 2004, by agreement of the parties, the insurance check was cashed and depositedinto a holding account, and defendant released approximately $80,000 to plaintiffs to be used forwinterization of the damaged buildings. The remaining insurance proceeds were released to [*2]plaintiffs over the next year as the buildings were replaced. InFebruary 2010, defendant moved for summary judgment dismissing the complaint. SupremeCourt denied the motion, and defendant appeals.
Defendant first asserts that it did not violate Real Property Law § 254 (4) (a) byrefusing to advance the insurance proceeds to plaintiffs. That statute provides, in pertinent part,that a mortgagee holding the proceeds of a fire insurance policy pursuant to a mortgage provisionlike the one at issue here must retain the funds in trust until, among other things, the mortgagor"make[s] good the damage by means of such repairs, restoration or rebuilding as may benecessary to restore the buildings to their condition prior to the damage," and submits proof tothe mortgagee that "the damage has been fully made good" (Real Property Law § 254 [4][a]). Only then is the mortgagee obliged to pay the proceeds to the mortgagor (see 4-37Powell on Real Property § 37.24 [2011]). The mortgagee is not prohibited from payinginsurance proceeds to the mortgagor before repairs have been carried out; the statute indicatesthat the mortgagee may elect to do so by providing that the previously-described trust arises"should the mortgagee retain such insurance money instead of paying it over to the mortgagor"(Real Property Law § 254 [4] [a]). However, the statute's plain language cannot be read torequire the mortgagee to advance all or part of the insurance proceeds before repairs havebeen carried out. Here, plaintiffs allege that defendant failed to advance the insurance proceeds tothem for proposed repairs and renovation, but they do not claim that defendant failed toreimburse them for expenses they had already incurred. Accordingly, the cause of action allegingthat defendant violated Real Property Law § 254 should have been dismissed (compareBuilders Affiliates v North Riv. Ins. Co., 91 AD2d 360, 366 [1983]; First Natl. Bank ofScotia v Sterling, 71 AD2d 723, 724 [1979]).
We agree, however, with Supreme Court's refusal to dismiss plaintiffs' breach of contractclaim, finding triable issues of fact as to whether defendant committed anticipatory repudiationand breached the implied covenant of good faith and fair dealing.[FN1]Anticipatory repudiation occurs when a party "attempt[s] to avoid its obligations by advancing anuntenable interpretation of the contract, or . . . communicate[s] its intent to performonly upon the satisfaction of extracontractual conditions" (SPI Communications v WTZA-TVAssoc. Ltd. Partnership, 229 AD2d 644, 645 [1996] [internal quotation marks omitted];see IBM Credit Fin. Corp. v Mazda Motor Mfg. [USA] Corp., 92 NY2d 989, 993[1998]). Such conduct excuses the non-repudiating party from further performance and entitles itto claim damages for total breach (seeO'Connor v Sleasman, 14 AD3d 986, 987-988 [2005]; SPI Communications vWTZA-TV Assoc. Ltd. Partnership, 229 AD2d at 645). Whether such a repudiation tookplace is "a factual determination [and] heavily dependent upon a determination of whether 'abreaching party's words or deeds are unequivocal' " (O'Connor v Sleasman, 14 AD3d at987-988, quoting Norcon Power Partners v Niagara Mohawk Power Corp., 92 NY2d458, 463 [1998]).
Plaintiffs contend that defendant's representative improperly sought to require them to applyapproximately $80,000 from the insurance proceeds to pay down principal on the mortgage [*3]debt and to "scale down" their reconstruction plans accordingly.Defendant asserts that it imposed no such requirement, but merely offered to release part of theinsurance proceeds before repairs were completed if plaintiffs agreed to apply the remainder toreduce the principal. However, in support of their claim, plaintiffs submitted the depositiontranscript of their former counsel, who represented them at the time of the negotiations inquestion. He testified that during the negotiations, defendant's representative advised him that, ifplaintiffs did not agree to reduce the mortgage debt, defendant would neither release anyproceeds in advance nor reimburse plaintiffs for completed repairs, and that the purpose ofimposing this requirement was to enable defendant to maintain leverage and control overplaintiffs' activities.[FN2]Plaintiffs thereby established the existence of triable issues of fact barring summary judgment asto whether defendant unequivocally communicated its intent to require plaintiffs to comply withan extracontractual condition before it would reimburse them for repairs (see O'Connor vSleasman, 14 AD3d at 987-988; seealso Highbridge Dev. BR, LLC v Diamond Dev., LLC, 67 AD3d 1112, 1115 [2009]).Issues of fact arising out of the same alleged conduct also support plaintiffs' claim thatdefendants breached the implied covenant of good faith and fair dealing (see SPICommunications v WTZA-TV Assoc. Ltd. Partnership, 229 AD2d at 645).
We reject defendant's contention that, even if its conduct constituted a breach of contract,dismissal is proper because its conduct did not proximately cause plaintiffs' damages. Plaintiffs'submissions establish the existence of issues of fact as to whether defendant's imposition of thedebt-reduction requirement caused delays in repairs to the farm buildings that exposed theirlivestock and facilities to damage during the harsh winter that followed the fire. Accordingly,Supreme Court properly refused to grant summary judgment dismissing plaintiffs' breach ofcontract claim.
Mercure, J.P., Rose, Lahtinen and Kavanagh, JJ., concur. Ordered that the order is modified,on the law, without costs, by reversing so much thereof as denied defendant's motion forsummary judgment dismissing the cause of action alleging violation of Real Property Law§ 254; motion granted to that extent and said cause of action dismissed; and, as somodified, affirmed.
Footnote 1: We reject defendant's contentionthat the anticipatory repudiation claim was unpreserved (see Bender v Peerless Ins. Co., 36 AD3d 1120, 1121 [2007]); theissue was fully raised by plaintiffs' factual assertions and correctly addressed by Supreme Court.
Footnote 2: Real Property Law § 254(4) (a) provides that a mortgagee need not pay insurance proceeds over to a mortgagor who is indefault, but plaintiffs were not in default.