| NYCTL 1996-1 Trust v EM-ESS Petroleum Corp. |
| 2008 NY Slip Op 09826 [57 AD3d 304] |
| December 16, 2008 |
| Appellate Division, First Department |
| NYCTL 1996-1 Trust, and The Bank of New York, as CollateralAgent and Custodian for the NYCTL 1996-1 Trust, Respondents, v EM-ESS PetroleumCorp. et al., Defendants, and Joseph Stern, Appellant. |
—[*1] Phillips Lytle LLP, Rochester (Mark J. Moretti of counsel), for respondents.
Order, Supreme Court, Bronx County (Dianne T. Renwick, J.), entered on or about February20, 2008, which, to the extent appealed from as limited by the briefs, denied the motion ofJoseph Stern, the successful bidder in a foreclosure sale, to compel the Referee to transfer thedeed without charging him the postsale interest and property taxes that accrued during the delayof more than eight years in closing, affirmed, without costs.
Stern purchased an abandoned gas station at a foreclosure sale on June 8, 1999. Hesubsequently learned that the New York State Department of Environmental Conservation (DEC)had designated the property an "oil spill site" and that, although DEC had expendedapproximately $1.5 million in cleanup costs, substantial cleanup remained to be completed.Stern's title insurance company refused to insure the property until it was free of any current orfuture liens or obligations associated with the cleanup. The Referee who conducted the auctionoffered to return Stern's deposit, because the oil contamination had not been disclosed at orbefore the auction. Stern elected instead, however, to pursue a settlement with DEC for theeventual cost of the cleanup. The cleanup proceeded over the course of several years, and in2007, a closing was tentatively scheduled. It was not held, however, because the parties could notresolve their dispute as to whether Stern was required to pay the property taxes and interest onthe purchase price accrued between the date of the auction and the date of delivery of the deed(April 9, 2008). Stern then brought the instant motion.
Real Property Actions and Proceedings Law § 1354 (2) provides that "[t]he officerconducting the sale shall pay out of the proceeds all taxes, assessments, and water rates which areliens upon the property sold." Contrary to Stern's contention, the word "sale" in the statute refersto the auction sale, not to the delivery of the deed; hence, Stern, the purchaser, is required to paythe taxes that became liens on the property after the auction (Wagner v White, 225 AppDiv 227 [1929]).[*2]
The Referee's terms of sale recited the payment of 10% ofthe purchase price at the time of Stern's bid with the balance to be paid on July 8, 1999 "when theReferee's deed will be ready for delivery" at the Referee's office. Therefore, it is beyond cavil thatJuly 8, 1999, the date on which the deed was to have been delivered, was the closing date. Underthe terms of sale, the Referee reserved the right to unilaterally conduct another foreclosure saleupon Stern's failure to comply with any of the terms of sale, including the closing date. The termsof sale also provided for Stern's payment of interest on the entire purchase price in the event ofhis failure to close the deal on the date specified "unless the Referee shall deem it proper toextend the time for the completion of said purchase." As noted above, the closing was postponedbecause Stern was not ready to close on the date specified. Stern contends that the Refereewaived the payment of interest by acquiescing in his request for an adjournment of the closingpending completion of the environmental cleanup.
A referee's terms of sale which comports with a judgment of foreclosure is treated as acontract (cf. Crisona v Macaluso, 33 AD2d 569 [1969]). Hence, upon Stern's failure toclose on July 8, 1999, the Referee had the option to cancel the transaction and conduct anothersale or grant an adjournment subject to Stern's payment of interest. As Stern would have it, theReferee waived interest and deemed it proper to extend the closing date, within the meaning ofthe contract, simply by granting his request for an adjournment. As a practical matter, a salestransaction cannot be adjourned without the consent of both the buyer and the seller.Nevertheless, under Stern's interpretation, interest would have been waived whether the closingwas adjourned at his instance or that of the Referee. Such a construction would render the interestprovision meaningless because it could not be invoked in either event. Contracts should beconstrued to give force and effect to their provisions and not in a manner so as to render themmeaningless (Yoi-Lee Realty Corp. v 177th St. Realty Assoc., 208 AD2d 185, 190[1995]). Under a proper construction, interest would be waived where the closing is adjourned atthe Referee's instance. CPLR 5001 (a), the provision cited by the motion court, is inapplicablebecause the instant dispute does not involve a sum of money awarded upon a judgment. We willnot, however, disturb the five percent rate of interest fixed by the court considering that Stern andplaintiff's counsel agreed to an even higher rate of interest by letters dated September 25 andOctober 9, 2007. Concur—Lippman, P.J., Mazzarelli, Buckley and DeGrasse, JJ.
McGuire, J., dissents in part as follows: I agree with the majority that Supreme Courtcorrectly concluded that Stern, the successful bidder at the auction, is responsible for taxes thatwere assessed on the property after the auction but before the closing. I disagree, however, thatwe should affirm that aspect of Supreme Court's order that, in effect, directed Stern to payinterest on the amount of his bid for the period between the auction and the closing. Rather, Iwould modify the order to the extent of remanding the matter to Supreme Court for a hearing onthe issue of whether Stern should pay interest and, if so, the amount of that interest.
Stern purchased a tract of land at an auction held on June 8, 1999. The tract was sold by aReferee pursuant to a judgment of tax foreclosure and sale. Stern and the Referee entered into amemorandum of sale on the date of the auction that stated the terms of sale. One of the terms is[*3]that "[t]he Referee is not required to send any notice to thepurchaser; if purchaser neglects to call at the time and place . . . specified to receivehis deed, he will be charged with interest thereafter on the whole amount of his purchase,unless the Referee shall deem it proper to extend the time for the completion of saidpurchase" (emphasis added).
Following the auction, Stern learned that the State had undertaken environmentalremediation efforts on the tract; a gas station had previously operated there and the soil wascontaminated with petroleum. According to Stern, he wanted to wait to close on the propertyuntil the State both had completed its remediation efforts and determined whether to seekreimbursement from him for all or part of the costs of the cleanup. Apparently, one of Stern'sprimary concerns was that he could not obtain title insurance against liabilities associated withthe environmental cleanup efforts until those efforts were complete. Stern's claim that he wantedto forestall the closing for these reasons is corroborated by a June 16, 2005 letter by the formercounsel to plaintiff, the company prosecuting the tax foreclosure action. In the letter, counselstated that he had informed plaintiff and the Referee of Stern's concerns regarding the cleanupefforts on the tract. Counsel also stated that he "advised [Stern] that he may at his option wait forthe determination by [the] State" and that Stern "told [counsel] [that] [Stern] will wait for thefinal outcome by the State . . . and close the sale at the time when the cleanup ha[s]been completed and [the] State decide[s] whether it would pursue [Stern] for reimbursement ofany part of the fines or lien[s] imposed against the property."
According to the Referee,
"[she] did not grant any extensions to close based upon an environmental oil spill. Instead,the former counsel to the Plaintiff gave the successful bidder the option to wait until there wassome sort of resolution regarding the oil spill prior to closing. This problem was not discloseduntil after the public auction sale. At that time the successful bidder could have elected not toproceed with the terms of sale and his deposit would have been returned under these particularset of circumstances. Instead, the successful bidder elected to negotiate a settlement associatedwith the costs of the clean-up.
"It was never contemplated that this issue would take several years to be resolved. No closingwas ever scheduled by the Referee, or any attempt to close by the Plaintiff's counsel or counselfor the successful bidder until April, 2007, until it appeared that the spillage problem wasresolved to the successful bidder's satisfaction. By letter dated April 20, 2007, the referee sent aletter declaring time was of the essence to close."
While the Referee's April 20 letter stated that Stern was to comply with the terms of salecontained in the memorandum of sale and complete the sale within 30 days, she subsequentlyextended Stern's time to close pending his receipt of a response to his letter to plaintiff's counselobjecting to paying interest on the amount of the bid. By a subsequent letter, the Referee statedthat Stern's time to close had expired and that she was not consenting to extend the time to closeto resolve Stern's objection to her directive that he pay at the closing tax obligations that wereassessed after the auction. She went on to state that Stern and plaintiff should amicably resolvethe tax issue and schedule a mutually agreeable date for the closing.
After Supreme Court denied Stern's motion to compel the Referee to deliver the deed to thetract to him free of any charges for interest and taxes assessed after the auction, and grantedplaintiff's cross motion to compel the Referee to complete the sale pursuant to the terms of sale,[*4]the parties entered into a stipulation. The stipulation providedthat (1) the closing would occur and Stern would pay the balance of the amount due on his bid,and (2) Stern would place in escrow the amount of the interest and taxes assessed after theauction pending the resolution of his appeal from the order.
The relevant language of the terms of sale with respect to Stern's obligation to pay interest onthe amount of his bid states that "[t]he Referee is not required to send any notice to the purchaser;if purchaser neglects to call at the time and place . . . specified to receive his deed,he will be charged with interest thereafter on the whole amount of his purchase, unless theReferee shall deem it proper to extend the time for the completion of said purchase"(emphasis added). Based on the evidence in the record, an issue of fact exists regarding whetherthe Referee extended the time for the completion of the purchase. Stern averred that the Refereeextended the time for closing the sale by acquiescing in his request that the closing be conductedafter the State's cleanup efforts were completed and the State determined whether it would seekfrom Stern reimbursement for the costs of those efforts. Stern's position is buttressed by the letterof plaintiff's former counsel indicating that the Referee was aware of Stern's concerns regardingthe state of the tract and that both plaintiff and Stern were content to conduct the closing after theState completed its work on the tract and made a decision regarding whether to seekreimbursement from Stern. Notably, the Referee never scheduled a closing date and, prior toApril 2007, did not seek to compel the parties to conduct the closing. The Referee's averment thatshe "did not grant any extensions to close based upon an environmental oil spill" does not requirethe rejection of Stern's contention that the Referee acquiesced in his request that the closing beconducted after the State's remediation efforts were completed and it had determined whether toseek reimbursement from Stern.
In concluding that a hearing is not warranted on the issue of whether the Referee extendedthe time to conduct the closing, the majority finds that the closing was scheduled for July 8, 1999and that Stern "failed to close" on that date. To be sure, the terms of sale provide that the balanceof the purchase price was supposed to be tendered to the Referee at her office on July 8, 1999.However, nothing in the record sheds any light on why a closing was not conducted on that dateand the Referee averred that "[n]o closing was ever scheduled by [her]" and no "attempt [wasmade] to close by the Plaintiff's counsel or counsel for the successful bidder until April, 2007."Indeed, plaintiff does not even suggest that a closing was scheduled for July 8, 1999. Thus,whether July 8, 1999 was a closing date, and if so, whether the Referee "deem[ed] it proper toextend the time" for conducting the closing are factual issues that cannot be resolved on thisrecord.
The majority's assertion that, "upon Stern's failure to close on July 8, 1999, the Referee hadthe option to cancel the transaction and conduct another sale or grant an adjournment subject toStern's payment of interest" is manifestly wrong. The plain meaning of the terms of sale showthat the Referee had a third option under the agreement, one that would relieve Stern of theobligation to pay interest: "deem it proper to extend the time" to conduct the closing. For thisreason, contrary to the majority's claim, Stern is not committed to the proposition that the Refereewaived interest "simply by granting his request for an adjournment."
According to the majority, "[u]nder a proper construction" of the interest provision, "interestwould be waived where the closing is adjourned at the Referee's instance." The majority thusimproperly rewrites the relevant clause of the interest provision. Although the clause specifiesthat the purchaser will be charged interest "unless the Referee shall deem it [*5]proper to extend the time for the completion of [the] purchase," themajority's "proper construction" reads it as if it stated "unless the Referee shall have adjournedthe completion of the purchase." This is error (see Matter of Salvano v Merrill Lynch, Pierce,Fenner & Smith, 85 NY2d 173, 182 [1995] ["The court's role is limited to interpretation andenforcement of the terms agreed to by the parties; it does not include the rewriting of theircontract and the imposition of additional terms"]).
Supreme Court relied on CPLR 5001 (a) to support its conclusion that Stern should payinterest on the amount of his bid for the period between the auction and the closing. CPLR 5001,however, is wholly inapplicable to the issue of whether Stern must pay interest. That statutedictates when a court may award interest on a verdict or decision on a cause of action.Here, however, interest is not being sought on a verdict or decision but on the amount of Stern'sbid. Thus, the issue of interest on the amount of the bid must be resolved by reference to thecontract between the parties.
Accordingly, I would remand the matter for a hearing on the issue of whether "the Referee. . . deem[ed] it proper to extend the time for the completion of [the] purchase" and,if not, the amount of interest that has accrued under the terms of sale. [See 19 Misc 3d240.]