In Dell Inc. v. GJF Construction, the rules of suretyship came to Dell’s rescue in a convoluted case involving the recovery of unpaid rent.

Trinity Centre LLC owns a structure bordering the World Trade Center site. In October of 1995, Trinity leased three floors of its building to Plural, Inc., for a term ending on June 30, 2006. In 2002, at Plural’s request, Trinity leased two of Plural’s floors to GJF Construction Corporation until June 30, 2007 -- one year beyond the Plural’s original lease expiration date. This arrangement created a new lease between Trinity and GJF, and amended the existing lease with Plural.

Under the terms of that new agreement, and because GJF was leasing the space at less rent than Plural had originally agreed to pay, Plural paid the difference between the new and old rental amounts each month. The contract also provided that Plural would be responsible for GJF’s unpaid rent. And, if GJF defaulted, Trinity’s rights were assigned to Plural, creating a surety relationship.

On June 28, 2002, Dell executed a guaranty agreement obligating itself to Plural’s lease-related responsibilities. The document provided, among other things, that “Guarantor [Dell] will pay the Landlord [Trinity] any delinquent rent.”

In August of 2004, GJF stopped paying rent and, on February 13, 2005, vacated the space, claiming that the premises were unusable since they had been permeated with toxins after the 9/11 attacks on the World Trade Center.

Because Plural was liable for GJF’s unpaid rent and Dell had guaranteed Plural’s obligations, Trinity filed suit against Dell with the New York County Supreme Court. After paying Trinity $1,358,058.34, Dell then commenced litigation claiming GJF was required to reimburse Dell for the monies remitted to Trinity.

The New York County Supreme Court found that, through the rules of subrogation, Dell had all the rights Trinity would have had to enforce the GJF’s lease. And, because GJF’s liability continued through June of 2007, and Dell had no obligation to mitigate damages, Dell could rightly seek to recover the monies paid to Trinity.

The court dismissed GJF’s claims regarding the site’s toxic conditions since there is no “warranty of habitability” for commercial properties, and GJF leased the premises in “as is condition.” Additionally, GJF’s arguments were foreclosed by the fact that it entered into the lease after the September 11 attacks, and was aware of the conditions which existed at the time of the lease’s execution.

In the absence of a triable issue of fact, Dell’s application for a money judgment in the amount of $1,358,058.34, and for an award of its legal fees and costs, was granted by the Supreme Court.

As this case clearly demonstrates, you can expect hell if you mess with Dell.

To download a copy of the Supreme Court's decision, please use this link: Dell Inc. v. GJF Construction

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Dell Inc. and Dell Marketing USA were represented by Nicholas Caputo of Robinson Brog Leinwand Greene Genovese & Gluck, P.C.. Defendant GJF Construction Corp. was represented by Henry Bergman of Moses & Singer.

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (1)

If a contract of sale provides that a structure is being sold "as is," you'd think a seller would be insulated from suit should problems with the property later arise. Right?

Well, if you said yes, you couldn't be more wrong. (At least as far as the Appellate Term, Second Department is concerned.)

In Marcri v. Vandermark, Macri sued to recover damages he incurred to repair a water leak that was uncovered after the closing.

Although the building was sold "as is," Vandermark had represented in the contract of sale that the water system was in "working order" at the time of closing. In actuality, the seller knew of the leak but didn't bother to disclose its existence to the purchaser.

The City Court of Newburgh, Orange County, relied upon that "as is" language and dismissed the buyer's case. On appeal, the AT2 reversed and awarded Macri $2500.

While finding that the "as is" language precluded a claim for contract breach, nothing prevented the buyer from asserting "fraud" and securing a recovery of the repair costs.

Is that the way "as is," is? 

For a copy of the Appellate Term's decision, please use this link: Marcri v. Vandermark

Posted by Lucas A. Ferrara, Esq. at 12:00 PM | Permalink | TrackBacks (0) | Comments (0)

After signing a contract of sale for the purchase of a house in Thiells, New York, Ivette Matos refused to consummate the transaction and sought to be released from the deal (and have her $35,000 downpayment refunded).

The conflict arose when Matos secured a survey and discovered that there were easements which "'severely' limited" the use of the backyard area.

Although the parties' agreement provided that the property would be sold subject to all "covenants, restrictions, easements, reservations, consents and contracts of record," Matos argued that the sellers had concealed the existence of the easements in question by installing a swing-set and fenced-in dog-run in the impacted areas.

When the sellers would not release her from the deal, Matos claimed to be a victim of "fraud" and brought suit in the Rockland County Supreme Court. 

Both the Supreme Court and the Appellate Division, Second Department, were unsympathetic to Matos's plight and reiterated that a seller has no affirmative duty to disclose the existence of the easement and that "silence" is not akin to "actionable fraud," unless a seller or its agent engages in some form of deception. Since no such misconduct could be established in this case, the AD2 concluded that the suit was appropriately dismissed and that the seller could retain the downpayment as a result of Matos's failure (or refusal) to close in accordance with the contract's terms.

Was Matos lulled into a false sense of confidence that she was purchasing a home with a larger backyard area than was legally permissible?

Did the AD2 swing the wrong way?

You be the judge!

For a copy of the Appellate Division's decision, please use this link: Matos v. Crimmins

Posted by Lucas A. Ferrara, Esq. at 12:00 PM | Permalink | TrackBacks (0) | Comments (0)

On March 1, 2002, the New York State Property Condition Disclosure Act became law. This statute requires a seller of a one- to four-family home to provide the buyer with a Property Condition Disclosure Statement (PCDS) or a $500 credit. (Raw land, new construction, cooperative and condominium units are exempt from this requirement.)

The Act's legislative findings suggest that it was the lawmakers' intention to "increase clarity regarding the nature of property" and to "provide greater certainty to contracts entered into by better informed buys and sellers." In actuality, the Act has fostered confusion and litigation. A case in point is Calvente v. Levy, wherein the purchaser knowingly acquired the property in "as is" condition, yet the seller was still found liable for $1500 in damages attributable to an undisclosed water leak that had occurred prior to the sale.

Apparently, the seller had knowledge of the leak-related occurrence but did not disclose that fact on a PCDS supplied to the seller. (The seller is reported to have checked off "no," in response to the question as to whether there had been any "flooding, drainage or grading problems" with the home.) When later challenged, the seller explained the response as an "anomaly" and pointed to the "as is" provision in the parties' contract.

We are advised that the contract contained the following language:

Condition of Property. Purchaser acknowledges and represents that Purchaser is fully aware of the physical condition and state of repair of the premises and of all other property included in this sale, based on Purchaser's own inspection and investigation thereof, and that Purchaser is entering into this contract based solely upon such inspection and investigation and not upon any information, data, statements or representations, written or oral, as to the physical condition, state of repair, use, cost of operation or any other matter related to the Premises or the other property included in the sale, given or made by Seller or its representatives, and shall accept the same 'as is' in their present condition and state of repair....

Typically, "as is" means that a purchaser is accepting a piece of property in its then current state or form, subject to all latent or patent (visible or hidden) defects and all past incidents and occurrences. In our humble opinion, what previously transpired with the structure had no bearing on an "as is" deal. Yet, both the Justice Court of the Town of Blooming Grove, Orange County, and the Appellate Term, 9th and 10th Judicial Districts, recently concluded to the contrary.

In Calvente v. Levy, the appellate court determined that an "as is" deal did not vitiate or otherwise waive the protections of the disclosure law. As the court observed:

Contrary to defendant's contention, such agreement does not thereby vitiate the Disclosure Statement which the statute requires "shall be attached to the real estate purchase contract"...nor waive the buyer's cause of action specifically provided for under Real Property Law section 465(2)...Adoption of the defendant's position would effectively nullify the statutory remedy afforded to the buyer in the situation where the seller, having provided the buyer with a Disclosure Statement which certifies that "the information...is true and complete to the seller's actual knowledge as of the date signed by the seller," includes statements therein about the property condition which, to the seller's actual knowledge, are misrepresentations. Further, there is nothing in the statute to suggest that the parties' agreement to an "as is" provision in the contract of sale should be deemed inconsistent with a Disclosure Statement, or that the latter is of necessity superseded by an "as is" provision. The statute clearly contemplates the validity of both instruments since it provides that "[n]othing contained in...this disclosure statement is intended to prevent the parties...from entering into...agreements for the sale of real property as is."

This case reinforces the dangers of providing a PCDS. Had the buyer been given the $500 credit, the seller would have had an easier time defeating the post-closing claims and walked away with a savings of at least $1000 (and that's not counting the legal fees and costs that were incurred to defend the case and prosecute the appeal).

Looks like as far as these kinds of transfers are concerned, you can't have your cake and $500, too.

For a copy of the Court's decision in the Calvente case, please click on the following link:
http://www.nycourts.gov/reporter/3dseries/2006/2006_26163.htm

Posted by Daniel Finkelstein, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (6)