| Simar Holding Corp. v GSC |
| 2011 NY Slip Op 06346 [87 AD3d 688] |
| August 23, 2011 |
| Appellate Division, Second Department |
| Simar Holding Corp., Plaintiff, v GSC et al.,Defendants/Third-Party Plaintiffs-Respondents. Brooklyn Heights Management, Inc., et al.,Third-Party Defendants-Appellants. |
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Katten Muchin Rosenman LLP, New York, N.Y. (Brian L. Muldrew, Steven Shiffman, andGregory Johnson of counsel), for defendants/third-party plaintiffs-respondents.
In an action, inter alia, for specific performance of a contract for the sale of real propertydated October 22, 2003, the third-party defendants appeal, as limited by their brief, from so muchof an order of the Supreme Court, Kings County (F. Rivera, J.), dated May 10, 2010, as granted,in effect, that branch of the defendants/third-party plaintiffs' cross motion which was forsummary judgment on the first cause of action in the third-party complaint to rescind a contractfor the sale of real property dated September 15, 2003, on the ground of unconscionability.
Ordered that the order is reversed insofar as appealed from, on the law, with costs, and thatbranch of the defendants/third-party plaintiffs' cross motion which was for summary judgment onthe first cause of action in the third-party complaint to rescind a contract for the sale of realproperty dated September 15, 2003, on the ground of unconscionability is denied.
In August 2003, the defendant/third-party plaintiff GSC owned certain real property in theBrooklyn Heights section of Brooklyn, upon which a five-story brownstone building wassituated. The defendant/third-party plaintiff Jane Doe was the sole owner of GSC at that time andlived in one of the individual residential units in the building. Due to unpaid taxes on the realproperty, a tax lien had been imposed and a foreclosure sale had been scheduled. On September15, 2003, Jane Doe, on behalf of GSC, entered into a contract for the sale of the property(hereinafter the contract) with the third-party defendant Brooklyn Heights Management, Inc.(hereinafter BHM), by its principal, Kobe Manor. The contract provided, among other things,that the purchase price would be $401,500, with an additional $25,000 to be paid on thecondition that Jane Doe vacated the premises prior to December 1, 2003. The contract furtherprovided that the purchase price was to be reduced by the undetermined amount required byBHM to satisfy the outstanding tax obligations on the property. Approximately one month later,on October 22, 2003, Jane Doe, on behalf of GSC, allegedly entered into another contract for thesale of the same property (hereinafter the second contract), this time with the plaintiff SimarHolding Corp.
Simar Holding Corp. commenced an action against GSC, inter alia, for specific [*2]performance of the second contract. BHM, through the third-partydefendant New Horizon Equities Corp., allegedly paid the sum of $120,000 to Simar HoldingCorp. to discontinue its action against GSC, and the action was discontinued by order of theSupreme Court dated May 5, 2009. Prior to the discontinuance of the action, GSC and Jane Doe(hereinafter together the third-party plaintiffs) commenced a third-party action against BHM,New Horizons Equities Corp., and Manor (hereinafter collectively the third-party defendants)seeking, among other things, to rescind the contract on the ground of unconscionability. Thethird-party defendants counterclaimed, inter alia, for specific performance of the contract and torecover damages for breach of contract.
The third-party defendants appeal from so much an order dated May 10, 2010, as granted, ineffect, that branch of the cross motion of the third-party plaintiffs which was for summaryjudgment on the first cause of action in the third-party complaint to rescind the contract on theground of unconscionability. We reverse the order insofar as appealed from.
"In general, an unconscionable contract has been defined as one which is so grosslyunreasonable as to be unenforcible because of an absence of meaningful choice on the part of oneof the parties together with contract terms which are unreasonably favorable to the other party"(King v Fox, 7 NY3d 181, 191[2006]; see Gillman v Chase Manhattan Bank, 73 NY2d 1, 10 [1988]). "This definitionreveals two major elements which have been labeled by commentators, procedural andsubstantive unconscionability" (State of New York v Wolowitz, 96 AD2d 47, 67 [1983];see Carvel Corp. v Rait, 117 AD2d 485, 490-491 [1986]). "The procedural element ofunconscionability concerns the contract formation process and the alleged lack of meaningfulchoice; the substantive element looks to the content of the contract, per se" (State of NewYork v Wolowitz, 96 AD2d at 67; see Lawrence v Graubard Miller, 11 NY3d 588, 595 [2008];Gillman v Chase Manhattan Bank, 73 NY2d at 10-11). Examples of proceduralunconscionability "include, but are certainly not limited to, high pressure commercial tactics,inequality of bargaining power, deceptive practices and language in the contract, and animbalance in the understanding and acumen of the parties" (State of New York vWolowitz, 96 AD2d at 67). "Examples of unreasonably favorable contractual provisions arevirtually limitless but include inflated prices, unfair termination clauses, unfair limitations onconsequential damages and improper disclaimers of warranty" (id. at 67-68).
"A determination of unconscionability generally requires a showing that the contract wasboth procedurally and substantively unconscionable when made" (Gillman v ChaseManhattan Bank, 73 NY2d at 10; see Gendot Assoc., Inc. v Kaufold, 56 AD3d 421, 423 [2008]).However, "procedural and substantive unconscionability operate on a 'sliding scale'; the morequestionable the meaningfulness of choice, the less imbalance in a contract's terms should betolerated and vice versa" (State of New York v Wolowitz, 96 AD2d at 68; see MasterLease Corp. v Manhattan Limousine, 177 AD2d 85, 89 [1992]). "The determination ofunconscionability is a matter of law for the court to decide" (Industralease Automated &Scientific Equip. Corp. v R. M. E. Enters., 58 AD2d 482, 488 [1977]; see LaidlawTransp. v Helena Chem. Co., 255 AD2d 869, 870 [1998]; Master Lease Corp. vManhattan Limousine, 177 AD2d at 87; State of New York v Wolowitz, 96 AD2d at68). "Where there is doubt . . . as to whether a contract is fraught with elements ofunconscionability, there must be a hearing where the parties have an opportunity to presentevidence with regard to the circumstances of the signing of the contract, and the disputed terms'setting, purpose and effect" (Davidovits v De Jesus Realty Corp., 100 AD2d 924, 925[1984]; see Master Lease Corp. v Manhattan Limousine, 177 AD2d at 87; State ofNew York v Wolowitz, 96 AD2d at 68-69). However, "[w]here the significant facts germaneto the unconscionability issue are essentially undisputed, the court may determine the issuewithout a hearing" (Scott v Palermo, 233 AD2d 869, 870 [1996]). Thus, on a motion forsummary judgment, "[t]he question . . . then is whether the record presents an issueas to the existence of unconscionability which should not be resolved without a hearing"(State of New York v Wolowitz, 96 AD2d at 69).
Contrary to the Supreme Court's determination, the third-party plaintiffs failed todemonstrate that, at the time of the signing of the contract, Jane Doe suffered from psychiatricdisorders such that Manor's position as a real estate entrepreneur created an "imbalance in theunderstanding and acumen of the parties" (id. at 67). Moreover, a hearing was necessaryto determine whether the procedures employed by Manor in soliciting the sale of the property,along [*3]with Jane Doe's lack of legal representation throughoutthe negotiating process (see Pippis vPippis, 69 AD3d 824 [2010]; Rivera v Vickers, 72 AD2d 807 [1979]; Matterof Friedman, 64 AD2d 70, 86-87 [1978]), served to deprive her of a "meaningful choice" inentering into the contract (State of New York v Wolowitz, 96 AD2d at 67). Furthermore,on the issue of substantive unconscionability, the third-party plaintiffs failed to prove thepurchase price for the property, since the documents submitted in support of, in effect, the crossmotion for summary judgment did not establish the amount owed on the tax lien. Moreover, asthere was a dispute as to the appraised value of the property, a hearing was necessary todetermine if the purchase price was unconscionably low. Accordingly, the Supreme Court erredin granting, in effect, that branch of the third-party plaintiffs' cross motion which was forsummary judgment on the first cause of action in the third-party complaint to rescind the contracton the ground of unconscionability since the third-party plaintiffs did not establish theirentitlement to judgment as a matter of law. Rivera, J.P., Florio, Austin and Cohen, JJ., concur.