| Village of Philadelphia v FortisUS Energy Corp. |
| 2008 NY Slip Op 00923 [48 AD3d 1193] |
| February 1, 2008 |
| Appellate Division, Fourth Department |
| Village of Philadelphia, Appellant, v FortisUS Energy Corporation,Respondent, et al., Defendants. |
—[*1] Menter, Rudin & Trivelpiece, P.C., Syracuse (Julian B. Modesti of counsel), fordefendant-respondent.
Appeal from an order of the Supreme Court, Jefferson County (Hugh A. Gilbert, J.), enteredDecember 26, 2006. The order, among other things, granted the motion of defendant FortisUSEnergy Corporation for summary judgment dismissing the second amended complaint against it.
It is hereby ordered that the order so appealed from is unanimously modified on the law bydenying the motion in part and reinstating the claims in the second cause of action for anequitable mortgage and a vendor's lien against defendant FortisUS Energy Corporation and asmodified the order is affirmed without costs.
Memorandum: Plaintiff entered into an agreement (1985 agreement) with Long Lake EnergyCorporation (Long Lake) pursuant to which plaintiff agreed to sell property to Long Lake locatedalong the Indian River for the construction and operation of a hydroelectric project. The 1985agreement set forth a purchase price for the property as well as "other consideration," withspecified amounts due upon the signing of the agreement, at the time of the closing, and uponcompletion of the proposed construction. The remainder of the purchase price was to be paid in50 annual payments, as set forth in a payment schedule. The 1985 agreement also provided that itwas binding upon the parties and their respective heirs, executors, distributees, legalrepresentatives, successors and assigns, and that any transfer or assignment of either party'sinterest would be valid only if, prior to such transfer or assignment, the prospective successor ininterest or assignee agreed in writing to be bound by the terms of the agreement. The 1985agreement, which was recorded, also provided that the annual payment provision would survive,inter alia, a transfer of title.
In addition to the above provisions, the 1985 agreement provided that the parties agreed thatLong Lake intended to assign all of its rights and obligations under the agreement to defendantPhiladelphia Corporation (PC), and Long Lake and PC entered into an assignment agreementpursuant to which PC agreed to accept Long Lake's obligations under the 1985 agreement.Although in November 1985 a deed was filed conveying the property from plaintiff to PC, theproperty was never transferred to Long Lake. In 1999 defendant FortisUS Energy [*2]Corporation (FortisUS) purchased the property from PC'ssuccessor. It is undisputed that FortisUS did not agree to be bound by the terms of the 1985agreement and, indeed, the record before us establishes as a matter of law that FortisUS did nothave actual notice of that agreement. Plaintiff commenced this action upon being informed byFortisUS that it was not bound to make any payments to plaintiff pursuant to the 1985 agreement,and Supreme Court granted the motion of FortisUS for summary judgment dismissing the secondamended complaint against it.
We reject plaintiff's contention that the 1985 agreement was a covenant that ran with theland. "[T]hree conditions . . . must be met in order for a covenant to run with theland: (1) it must appear that grantor and grantee intended that the covenant should run with theland; (2) it must appear that the covenant is one touching or concerning the land with which itruns; [and] (3) it must appear that there is privity of estate between the promisee or partyclaiming the benefit of the covenant and the right to enforce it, and the promisor or party whorests under the burden of the covenant" (328 Owners Corp. v 330 W. 86 Oaks Corp., 8 NY3d 372, 382-383[2007] [internal quotation marks omitted]; see Neponsit Prop. Owners' Assn. v EmigrantIndus. Sav. Bank, 278 NY 248, 254-255 [1938], rearg denied 278 NY 704 [1938])."The key inquiry is whether the covenant in purpose and effect substantially alters the legal rightsthat would otherwise flow from the ownership of the land, and are connected with the land"(City of New York v Delafield 246 Corp., 236 AD2d 11, 24 [1997], lv denied 91NY2d 811 [1998]; see Neponsit Prop. Owners' Assn., 278 NY at 258).
We agree with FortisUS that the 1985 agreement did not run with the land because it did nottouch and concern the land. "[A] covenant to pay a sum of money is a personal affirmativecovenant which usually does not concern or touch the land" (Neponsit Prop. Owners'Assn., 278 NY at 256). There was no restriction on the use of the property (see Orange &Rockland Util. v Philwold Estates, 52 NY2d 253, 263 [1981]) but, rather, there was only arequirement that the owner of the property pay an annual amount to plaintiff for 50 years. The1985 agreement did not require the owner of the property to use it as a hydroelectric plant and,pursuant to the 1985 agreement, the owner was entitled to use the property however it wished,provided that it made the required payments to plaintiff.
We agree with plaintiff, however, that the court erred in granting that part of the motion forsummary judgment dismissing the claims in the second cause of action for an equitable mortgage"and/or" a vendor's lien against FortisUS, and we therefore modify the order accordingly. Anequitable mortgage is appropriate where there is unequivocal evidence that the parties intended tocreate a mortgage (see Tornatore vBruno, 12 AD3d 1115, 1117-1118 [2004]; see also Mailloux v Spuck, 87 AD2d736, 737 [1982], lv denied 56 NY2d 507 [1982]), and a vendor's lien, which "is usuallyimplied from circumstances[,] . . . is a pure invention of equity to protect those whohave parted with real estate without security" (Zeiser v Cohn, 207 NY 407, 414 [1913]).Nevertheless, neither an equitable mortgage nor a vendor's lien will be enforceable against a bonafide purchaser (see Atlantic Trust Co. v Holdsworth, 50 App Div 623 [1900],affd 167 NY 532 [1901]; Seymour v McKinstry, 106 NY 230, 239 [1887];Hopper v Hopper, 103 AD2d 911, 913 [1984]).
Here, FortisUS failed to meet its burden of establishing as a matter of law that plaintiff is notthe holder of either an equitable mortgage or a vendor's lien. FortisUS failed to establish thatthere was no intent by plaintiff and Long Lake to create a mortgage on the property when theyentered into the 1985 agreement, and, with respect to both remedies, FortisUS did not establishas a matter of law that it was a bona fide purchaser. Indeed, the record establishes that, prior topurchasing the property, FortisUS had in its possession various documents to place it on inquirywith respect to the existence of an agreement between plaintiff and Long Lake (see generally487 Elmwood v Hassett, 83 AD2d 409, 412-413 [1981], appeal dismissed 55 NY2d1037 [1982]). Although FortisUS submitted evidence that a title search did not reveal theexistence of the 1985 [*3]agreement because title to the propertynever passed from plaintiff to Long Lake, plaintiff raised an issue of fact in that respect bysubmitting the affidavit of an expert who averred that his preliminary title search for the propertyrevealed the 1985 agreement. There is thus a triable issue of fact whether FortisUS hadconstructive notice of the 1985 agreement, based both on the documents in its possession prior tothe purchase and the adequacy of its title search (see generally Terwilliger v Van Steenburg, 33 AD3d 1111, 1115[2006]; Beckmann v 71 Speeder Rd.,LLC, 28 AD3d 1053 [2006]; Fairmont Funding v Stefansky, 301 AD2d 562,564 [2003]). Present—Gorski, J.P., Martoche, Smith, Centra and Green, JJ.