Bank of New York Mellon Trust Co. v. Morgan Stanley Mortgage Capital, Inc.
821 F.3d 297
| 2d Cir. | 2016Background
- Morgan Stanley sold a $81M mortgage (City View Loan) into a securitized Trust for which BNY served as Trustee; Centerline (later C-III) was Special Servicer and Wells Fargo was Master Servicer.
- The loan went into default after environmental problems (methane, regulatory actions) caused Wal‑Mart to vacate and rent/occupancy collapse; Special Servicer investigated starting Nov 2008.
- On Feb 16, 2009 Centerline’s Director drafted a memorandum concluding a material breach of Morgan Stanley’s Environmental Conditions representation; counsel agreed notice should be sent.
- Centerline sent a formal notice of breach and a request to cure to Morgan Stanley on March 18, 2009 (including a 90‑day cure trigger); Morgan Stanley disputed breach and later asserted the notice/request were untimely.
- District court held the MLPA required a “notice to cure” within three business days as a condition precedent and found, as a matter of law, the March 18 notice/request was untimely, granting summary judgment for Morgan Stanley; BNY appealed.
- Second Circuit vacated and remanded: it held the three‑day request‑for‑cure is not an express condition precedent but a promise (subject to substantial performance), and timeliness cannot be resolved as a matter of law on the record.
Issues
| Issue | Plaintiff's Argument (BNY) | Defendant's Argument (Morgan Stanley) | Held |
|---|---|---|---|
| Whether the MLPA’s request‑for‑cure (and its 3‑business‑day timing) is an express condition precedent to Seller’s duty to cure/repurchase | The Servicer’s failure to request cure within three business days does not bar recovery because the cure obligation is triggered by notice and/or request should be viewed flexibly; different wording in contract terms indicates non‑identical duties | The MLPA makes the request‑for‑cure ("notice to cure") a condition precedent; strict three‑day compliance is required before Seller’s repurchase obligation arises | Court held: Request‑for‑cure is not an express condition precedent but a promise; the 90‑day cure obligation is triggered by notice of breach, and the three‑day requirement relates to the Servicer’s promise to request cure and is reviewed for substantial performance |
| Whether the timeliness of the March 18, 2009 request/notice can be decided as a matter of law (i.e., whether notice/request were untimely) | BNY: even if there was some delay, substantial performance or reasonable investigation (including chain‑of‑command review) can excuse strict timing; the three‑day deadline should not bar remedies where cure would have been futile | Morgan Stanley: the Servicer was aware well before March 18 (imputed corporate knowledge) and strict compliance is required for an express condition precedent; no reasonable jury could find timely performance | Court held: Timeliness and substantial performance are fact questions; record does not permit rejecting substantial performance as a matter of law, so summary judgment for Morgan Stanley was improper |
Key Cases Cited
- Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685 (N.Y. 1995) (conditions precedent must be expressed in unmistakable language; doubtful language construed as promise)
- Israel v. Chabra, 537 F.3d 86 (2d Cir. 2008) (New York law disfavors treating ambiguous contractual duties as conditions precedent)
- Jacob & Youngs, Inc. v. Kent, 230 N.Y. 239 (N.Y. 1921) (substantial performance doctrine; deviations may be excused and damages assessed)
- Giuffre Hyundai, Ltd. v. Hyundai Motor Am., 756 F.3d 204 (2d Cir. 2014) (notice‑and‑cure provisions need not be enforced strictly where cure would be futile)
- IDT Corp. v. Tyco Grp., S.A.R.L., 13 N.Y.3d 209 (N.Y. 2009) (parties’ clear intent and contract structure can establish an express condition even absent talismanic words)
- Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028 (N.Y. 1979) (whether notice is sent "as soon as reasonably possible" is typically a question of fact)