| Fairway Prime Estate Mgt., LLC v First Am. Intl. Bank |
| 2012 NY Slip Op 06879 [99 AD3d 554] |
| October 16, 2012 |
| Appellate Division, First Department |
| Fairway Prime Estate Management, LLC,Appellant, v First American International Bank, Respondent. |
—[*1] Cozen O'Connor, New York (Melissa F. Brill of counsel), for respondent.
Order, Supreme Court, New York County (Bernard J. Fried, J.), entered on or about April 4,2011, which granted defendant's motion to dismiss the amended complaint pursuant to CPLR3211 (a) (7), unanimously modified, on the law, the motion denied as to plaintiff's breach ofcontract claim, and otherwise affirmed, without costs.
In 2007, plaintiff, a developer, obtained a loan from United Commercial Bank (UCB) topurchase land located at 42-18/28 Bowne Street in Flushing, Queens, for the purpose of buildinga mixed residential and commercial use condominium on the property upon obtaining additionalcapital for the construction. On or about August 27, 2008, plaintiff received a commitment letterfrom defendant First American International Bank in which the bank committed to an aggregateloan of $10 million, which would include the original UCB land loan of $2.38 million, to beconverted into a participation in the total $10 million, at an interest rate of prime plus 1.5%, witha minimum interest rate of 7.5%, subject to certain conditions. One of the conditions was "asatisfactory appraisal report from an appraiser acceptable to the Bank indicating the value of the'newly built' Premises of an amount of at least $25,100,000.00 as Gross Sell Out Market Value,and $22,400,000 as Discounted Net Sell Out Value, which appraisal is reasonably satisfactory tothe Bank" (emphasis omitted). Capital Appraisal Services, Inc. had provided such an appraisal.
On September 24, 2008, the New York City Council passed a zoning resolution for the areain which the subject property was located that decreased the maximum amount of buildablesquare footage allowed to a level below the amount plaintiff planned to use. Therefore, inOctober 2008, the parties agreed to extend the commitment through March 31, 2009 to allowplaintiff time to obtain a variance from the Board of Standards and Appeals (BSA).
On January 27, 2009, the BSA granted plaintiff a variance. Plaintiff immediately adviseddefendant that the variance had been obtained and delivered a copy of the BSA resolution todefendant. On February 23, 2009, plaintiff's lawyer sent the resolution and other documents todefendant's lawyer so that the parties could schedule a closing. However, plaintiff alleges,defendant avoided closing, instead demanding a further extension agreement authorizing it toobtain a new appraisal to replace the first appraisal, which was dated August 15, 2008.
Plaintiff's owner, Henry Zheng, asserts that on or about March 24, 2009, he met with [*2]Dick Liao, defendant's vice-president and department manager forTrade Finance and Commercial Lending. According to Zheng's affidavit, Liao told Zheng that "I[Zheng] could do things the easy way, or the hard way. He . . . sa[id] the easy wayto make sure the Loan would take place would be for me to sign[ ] a document on behalf of[plaintiff], agreeing to extend the time to make the Loan . . . He . . .told me that if I did not, [defendant] would make it very difficult or impossible for the Loan totake place and I should not look forward to fighting with a bank." Zheng also asserts that Liaoexplained to him that defendant "was under significant pressure because of the deterioration inthe credit markets," and that Liao told him "that no bank was still doing construction financing,but . . . assured [him that defendant] would go forward with [the] Loan, if [he]signed the document on behalf of [plaintiff]." Liao was aware that if Zheng did not sign thedocument, plaintiff and Zheng "would . . . lose millions of dollars [they] hadinvested toward development of the subject property." Zheng felt he had no choice but to sign theMarch 23, 2009 extension agreement, because otherwise he would forfeit the loan. Notably, theextension agreement provided that "[a]ll other terms and conditions remain unchanged."
On April 1, 2009, Capital Appraisal issued a "restricted" appraisal, i.e., one that "[did] notinclude discussions of the data, reasoning, and analysis that were used in the appraisal process,"estimating that, as of April 1, 2011, the gross sellout market value of the condominium would be$25 million, and the discounted net sellout value would be $21,300,000.
In or about May 2009, plaintiff completed the foundation for the property, as requested bydefendant.
Defendant never terminated the August/September 2008 commitment (as extended inOctober 2008 and March 2009) in the manner required by its terms. Instead, on June 10, 2009,defendant sent plaintiff a new commitment letter, bearing the same loan number as the originalcommitment but decreasing the amount of the loan from $10 million to $8.38 million andimposing a number of onerous new conditions that had to be met within 45 days, including anadditional bank balance totaling $2,000,000 to be used for the project and the inclusion in thegeneral contractor's contract of a personal completion guarantee. Defendant allegedly toldplaintiff that the new terms were "take it or leave it." Plaintiff did not countersign and return theletter within the imposed deadline, and defendant refused to lend the funds previously agreed to.
Plaintiff sued for breach of contract and fraud, and defendant moved to dismiss thecomplaint. The motion court granted defendant's motion and dismissed plaintiff's amendedcomplaint. With regard to the fraud claim, it found that the claim was duplicative of the contractclaim, and as to the contract claim, it held that the pleaded facts failed to establish that plaintiffhad satisfied the contract's condition precedent that an appraisal report indicate that thediscounted net sellout value of the property be at least $22.4 million, in view of CapitalAppraisal's second appraisal report, dated April 1, 2009, estimating that, as of April 1, 2011, thediscounted net sellout value would be $21,300,000.
We agree with the motion court's dismissal of plaintiff's fraud claim. "A claim for fraudulentinducement of contract can be predicated upon an insincere promise of future performance onlywhere the alleged false promise is collateral to the contract the parties executed; if the promiseconcerned the performance of the contract itself, the fraud claim is subject to dismissal asduplicative of the claim for breach of contract" (HSH Nordbank AG v UBS AG, 95 AD3d 185, 206 [1st Dept 2012][emphasis omitted]).
However, we conclude that plaintiff pleaded a viable cause of action for breach of contract.Although the second appraisal's values are very slightly lower than the amounts [*3]required by the contract's condition precedent—an appraisedgross sellout market value of $25 million, compared to the required valuation of $25,100,000,and a discounted net sellout value of $21,300,000, compared to the required valuation of$22,400,000—there are several reasons for finding that the appraisal does not establish thefailure of a condition precedent as a matter of law.
First, the appraisal itself is subject to question, given its "restricted" nature and the appraisedvalues' variation by less than 5% from the contract requirements. Such factors as the appraisal'smargin of error and the "data, reasoning and analysis" that the appraiser used to arrive at itsconclusions must be examined to determine whether reliance on those valuations is justified.
Second, "[a] party to a contract cannot rely on the failure of another to perform a conditionprecedent where he has frustrated or prevented the occurrence of the condition" (ADC Orange, Inc. v Coyote Acres,Inc., 7 NY3d 484, 490 [2006]). If, as plaintiff alleges, defendant delayed closing on thecommitment despite plaintiff's satisfaction of all pre-conditions, including a timely appraisalwithin the dictated range, solely in order to avoid its contractual obligation by justifying its laterinsistence on a new appraisal, then defendant may be said to have frustrated or preventedplaintiff's compliance with that condition precedent. Furthermore, since "all contracts imply acovenant of good faith and fair dealing in the course of performance" (511 W. 232nd OwnersCorp. v Jennifer Realty Co., 98 NY2d 144, 153 [2002]), the timing and circumstances ofdefendant's insistence on obtaining a new appraisal may support plaintiff's claim of a breach ofthe implied covenant of good faith.
Even if the second appraisal alone established a failure of the condition precedent, however,defendant's moving papers failed to establish as a matter of law that it effectively terminated itsloan obligation in the manner required by the contract. If it failed to effectively terminate thecontract, then defendant may have remained bound by its terms (see Maxton Bldrs. v LoGalbo, 68 NY2d 373 [1986]).
Because plaintiff has since found alternative financing, the question of whether specificperformance is available for a contract to lend money is moot. Defendant's argument thatplaintiff's damages are speculative is also refuted by the financing that plaintiff has obtained.Concur—Saxe, J.P., Sweeny, Moskowitz, Freedman and Manzanet-Daniels, JJ. [PriorCase History: 31 Misc 3d 1211(A), 2011 NY Slip Op 50566(U).]