| Richard A. Hutchens CC, L.L.C. v State of New York |
| 2009 NY Slip Op 00613 [59 AD3d 766] |
| February 5, 2009 |
| Appellate Division, Third Department |
| Richard A. Hutchens CC, L.L.C., Appellant, v State of New Yorket al., Respondents. |
—[*1] Andrew M. Cuomo, Attorney General, Albany (Owen Demuth of counsel), forrespondents.
Rose, J. Appeal from a judgment of the Court of Claims (Collins, J.), entered October 31,2007, which granted defendants' motion for summary judgment dismissing the claim.
The contract underlying this dispute is an agreement (hereinafter the option agreement)between claimant, a residential land developer, and defendant New York State CanalCorporation which granted claimant an exclusive option to acquire easements for thedevelopment of certain residential projects along the Erie Canal. The option agreement wasexecuted in 2001 and, in accordance with a condition precedent set forth in its terms, becameeffective when approved by the Comptroller in May 2002. The option agreement expresslyprohibited claimant from assigning or transferring "all or any part of [claimant's interest] withoutthe Canal Corporation's prior written consent." In August 2002, claimant entered into anagreement with Heather Associates (hereinafter the Heather agreement) that made Heather "theexclusive canal-side residential developer" for certain locations. The Heather agreementexpressly referred to the option agreement between claimant and the Canal Corporation, and it isundisputed that claimant never sought the Canal Corporation's consent prior to executing theHeather agreement.
By letter dated January 2, 2003, claimant notified the Canal Corporation that it had [*2]entered into an agreement that authorized Heather to developcanal-side residential communities. After it learned that Heather had purchased rights fromclaimant to develop housing along defendant State of New York's canals, the Canal Corporationasked claimant to clarify the agreement and reminded claimant that the option agreementprohibited any assignment without its consent. Claimant initially denied that the agreementaccomplished any transfer, but finally provided a redacted version of the Heather agreement tothe Canal Corporation in July 2003. By letter dated September 22, 2003, the Canal Corporationnotified claimant that the Heather agreement violated the prohibition in the option agreementagainst assignment or subcontracting. The parties thereafter engaged in further correspondencewhereby claimant attempted to deny and/or cure the alleged defaults and the Canal Corporationrequested more information about the transaction with Heather.
On October 17, 2003, the Comptroller wrote to defendant New York State ThruwayAuthority, of which the Canal Corporation is a subsidiary, stating that he was rescinding hisapproval of the option agreement for reasons unrelated to claimant's agreement with Heather.Claimant received a copy of this letter on October 20, 2003. In the spring of 2004, claimantcontinued to correspond with the Canal Corporation as if the option agreement were still ineffect until May 7, 2004, when the Canal Corporation issued a letter terminating the optionagreement based on, among other things, claimant's unauthorized transfer of its interests toHeather in contravention of the antiassignment term of the option agreement. The terminationletter also noted that the Comptroller had rescinded his approval of the option agreement onOctober 17, 2003, but that event was not listed as a reason for termination.
After claimant commenced this action seeking damages for the alleged unlawful terminationof the option agreement, defendants successfully moved for summary judgment dismissing theclaim. The Court of Claims held that the claim was untimely and, alternatively, that claimant'sassignment constituted a breach as a matter of law. Claimant appeals and we affirm.
We turn first to the threshold issue of the timeliness of the claim. Under the Court of ClaimsAct, breach of contract claims must be filed "within six months after the accrual of such claim,"but if a notice of intention to file a claim is served, then the filing period is extended to two yearsafter accrual (Court of Claims Act § 10 [4]). "A claim accrues when damages. . . become ascertainable" (Waters of Saratoga Springs v State of NewYork, 116 AD2d 875, 877 [1986], affd 68 NY2d 777 [1986] [citation omitted]).Defendants argue that any damages sustained by claimant became ascertainable on October 20,2003, when claimant received notice of the Comptroller's rescission of approval of the optionagreement. That, however, was not the triggering event.
In our view, claimant's time to commence the instant action should be measured from theCanal Corporation's May 7, 2004 termination letter. Thus, we find that claimant's notice of intentto make a claim filed on July 19, 2004 was timely (see Inter-Power of N.Y. v State of NewYork, 230 AD2d 405, 408 [1997]). Although the Comptroller unequivocally rescindedapproval of the option agreement in his October 17, 2003 letter, the nature and extent of anyresulting damages was unclear to claimant because it was uncertain whether rescission alonewould terminate the option agreement. The Comptroller's approval was a condition precedentunder the option agreement, but that condition had been met and the agreement made noprovision for a subsequent rescission. Further, the Comptroller's letter was directed not toclaimant, but to the Canal Corporation's parent corporation, and the Canal Corporationresponded by defending its [*3]actions and the validity of theoption agreement. Importantly, when the Canal Corporation did terminate the option agreement,it did so pursuant to the terms of the agreement itself and for reasons other than the Comptroller'srescission. Further, because claimant's challenges to the Comptroller's authority to revokeapproval of the option agreement are untimely, we will address only those arguments byclaimant that go to the propriety of the Canal Corporation's stated reasons for terminating theoption agreement.
Turning to the merits, we agree with the Court of Claims that defendants are entitled tosummary judgment since they established that the Heather agreement was an unauthorizedassignment which, pursuant to the terms of the option agreement, justified defendants'termination as a matter of law (see e.g. Winegrad v New York Univ. Med. Ctr., 64 NY2d851, 853 [1985]). First, it is undisputed that the option agreement clearly and expressly prohibitsassignments. In addition, the option agreement incorporates by reference the "Standard Clausesfor New York State Canal Corporation Contracts" (hereinafter standard clauses) which likewiseprovide that the contract "may not be assigned, and no part or portion may be subcontracted [or]assigned, transferred, conveyed, sublet or otherwise disposed of without the previous consent, inwriting, of [the Canal Corporation]." The terms of the option agreement, coupled with theincorporated standard clauses, provided a "clear and unambiguous prohibition" againstassignments and subcontracts without the Canal Corporation's consent (Special Prods. Mfg. vDouglass, 159 AD2d 847, 849 [1990]).
Defendants also established that claimant made an assignment to, or subcontract with,Heather without the Canal Corporation's consent. By its terms, the option agreement grantsclaimant the exclusive option to acquire easements so that claimant could develop canal-sideresidential communities. In the Heather agreement, however, claimant granted to Heather theexclusive right to develop such communities in six named counties. On appeal, claimant arguesthat whether the Heather agreement constituted an assignment presents a question of factsufficient to withstand summary judgment in defendants' favor, but points to no disputed fact.Instead, claimant contends that the Heather agreement transfers only a portion of claimant'sinterest under the option agreement and, therefore, was not a true assignment. This argumentignores the express terms of the option agreement, which clearly state that claimant "shall notassign, mortgage, lease or otherwise transfer or encumber, directly or indirectly, all or anypart of [claimant's] interest in this Agreement or in the Options, Rights of First Refusal orSites without the Canal Corporations's prior written consent" (emphasis added). Claimant'sargument that development would be impossible without assignment or subcontracting is alsounavailing inasmuch as the option agreement does not prohibit all assignments, but only thosemade without prior written consent, which claimant did not attempt to obtain.
Claimant argues, alternatively, that defendants waived their right to object to the Heatheragreement. "[W]aiver 'should not be lightly presumed' and must be based on 'a clearmanifestation of intent' to relinquish a contractual protection" (Fundamental Portfolio Advisors, Inc. vTocqueville Asset Mgt., L.P., 7 NY3d 96, 104 [2006], quoting Gilbert Frank Corp. vFederal Ins. Co., 70 NY2d 966, 968 [1988]). Claimant argues that because the CanalCorporation had notice as early as the spring of 2002 that claimant was working with Heather, itsfailure to object until 2003 evinced consent. It is not disputed, however, that the fact thatclaimant had executed a written contract with Heather was not revealed until January 2003 and,despite the Canal Corporation's stated concerns about that agreement and repeated requests forfurther information, claimant did not disclose the details of that agreement until July 2003.Contrary to claimant's arguments, the Canal Corporation's awareness that claimant was working[*4]with Heather in some capacity is insufficient to raise aquestion of fact as to whether the Canal Corporation waived its contractual rights under theantiassignment clauses of the option agreement. A party to an agreement who believes it hasbeen breached does not waive the breach by electing to continue the agreement and give noticeof its concerns to the other contracting party (see Capital Med. Sys. v Fuji Med. Sys.,U.S.A., 239 AD2d 743, 746 [1997]). Here, the Canal Corporation's requests for moreinformation about the Heather agreement convey concern rather than consent. Also unavailing isclaimant's suggestion that the Canal Corporation's October 2, 2003 letter responding toclaimant's belated request for approval of the Heather agreement reflects "tacit approval" of thatagreement. The letter expressly states that the request is "not a waiver of the default notice datedSeptember 22, 2003 or of any of the Canal Corporation's rights or remedies under the [o]ption[a]greement, all of which are reserved." Finally, claimant's failure to seek prior written consent isundisputed, rendering untenable its argument that the Canal Corporation's approval wasunreasonably withheld.
Equally unavailing is claimant's argument that the exclusive remedy for breach of theantiassignment clause is nullification of that clause, as opposed to rescission of the entireagreement. Claimant bases this argument on the language of the antiassignment clause foundwithin the standard clauses incorporated into the option agreement, which states that "anyattempts to assign the contract without the [Canal] Corporation's written consent are null andvoid." However, another provision of the standard clauses states that "nothing in these standardclauses shall limit the effect of any provisions of the [option agreement] that are more favorableto the [Canal] Corporation than the terms of these clauses" and it is apparent, when the optionagreement is read as a whole, that the antiassignment provision is a material term of thatagreement. Indeed, the agreement emphasized the importance of the identity of the developer,stating "the qualifications and identity of the Developer and Richard A. Hutchens as its principal,are essential inducements to the Canal Corporation" and that "the identity and qualifications ofthe Developer and its principals are the basis for the Agreement." Further, claimant's breach wasa "[t]ermination [e]vent" as defined by the option agreement. Claimant "failed to comply withany non-monetary covenant, term, condition or obligation under this Agreement," and apparentlymade no attempt to cure within 30 days of the Canal Corporation's notice of default.Accordingly, claimant's assignment of rights under the option agreement constituted a materialbreach for which defendants could elect rescission as a remedy (see Parker v Hoppe, 257NY 333, 341-342 [1931]; Manning v Manning, 97 AD2d 910, 911 [1983]).
Peters, J.P., Kane and Kavanagh, JJ., concur; Spain, J., not taking part. Ordered that thejudgment is affirmed, without costs.