651 N.Y.S.2d 490 | N.Y. App. Div. | 1996
—Order, Supreme Court, New York County (Beatrice Shainswit, J.), entered April 29, 1996, which denied defendant’s motion for summary judgment dismissing the complaint and granted plaintiff’s cross-motion to amend the complaint, unanimously reversed, on the law, with costs and disbursements, the motion granted and the cross-motion denied. The Clerk is directed to enter judgment in favor of defendant dismissing the complaint.
On February 4, 1992, defendant, plaintiff and LRA entered into a Bankruptcy Court "so ordered” stipulation, which provided that LRA would have 60 days within which to negotiate a "consensual deal” with either plaintiff or defendant with respect to the mortgage. Should the negotiations fail, the stipulation provided, defendant would become a mortgagee in possession and receive the lock box proceeds. The ensuing negotiations included a contemplated sale of defendant’s mortgage. Although plaintiff brought several potential purchasers to defendant’s attention, none of their offers were acceptable, even though defendant was willing to sell at a substantial discount.
In July 1995, almost four years after the remaining letter of credit proceeds had been applied to principal rather than interest, as plaintiff alleges the proceeds should have been applied, and more than three years after the loan assignment to Toledo, plaintiff commenced this action alleging that defendant breached the modification agreement by applying the remaining letter of credit proceeds to principal reduction and by failing to exercise its "best efforts” to notify plaintiff of the contemplated loan assignment to Toledo in May 1992. As a result of these breaches, plaintiff claims, it has been damaged in an amount "presently unknown, but which is believed to be in excess of $25,000,000”.
Defendant moved for summary judgment dismissing the complaint primarily on the ground that, as a matter of law, plaintiff sustained no damages by virtue of defendant’s purported breach of the modification agreement. Defendant argued that until plaintiff repaid the $42,000,000 it owed and for which the mortgaged property, worth no more than $20,000,000 by plaintiff’s own account, was the sole source of repayment, the threshold for plaintiff’s sustaining any damages had not been crossed. Plaintiff cross-moved for leave to serve an amended complaint adding new causes of action based on defendant’s alleged misuse of the lock box proceeds and its improper use of funds received upon consummation of the modification agreement to satisfy the obligations of another borrower. Without addressing the argument that, as a matter of law, plaintiff had not sustained any damages, the IAS Court denied summary judgment. We reverse.
"In the absence of any allegations of fact showing damage, mere allegations of breach of contract are not sufficient to
In opposing summary judgment, plaintiff advanced three theories of damages, none of which has any factual support in the record and all of which are contravened by well recognized principles of contract law. Plaintiff alleges that, but for defendant’s misapplication of the remaining $1,500,000 letter of credit proceeds and "misappropriation” of the lock box proceeds, plaintiff, using those funds, would have been able to negotiate a "workout” with Toledo and avoid foreclosure. Plaintiff also contends that had defendant exercised its "best efforts” to notify plaintiff of the contemplated sale of the loan to Toledo, plaintiff would have been able to locate a purchaser willing to refinance the loan on terms beneficial to it. Finally, plaintiff alleges that the loan would not have been in default at the time of the commencement of the foreclosure action but for defendant’s misapplication of the $1,500,000 letter of credit proceeds to principal rather than interest.
Initially, we note that the diminished value of the property—no more than $20,000,000 by plaintiff’s own admission— coupled with the documented substantial default that would have nonetheless existed even if all the remaining letter of credit proceeds had been applied to unpaid interest and taxes demonstrates the fallacy of plaintiff’s "workout” theory. It is clear that the property’s net operating income was inadequate to service the $42,000,000 debt at the time of the alleged misapplication and that foreclosure was inevitable, if not on the basis of the arrears documented in the record, then certainly on the basis of the principal remaining unpaid after maturity.
Plaintiff’s argument that it was entitled to use the letter of credit proceeds as leverage to negotiate a workout with Toledo or to improve the property so as to increase net operating income is belied by section 1.06 of the modification agreement, which provides, in pertinent part, that the letter of credit proceeds shall be reassigned to plaintiff only "[u]pon payment in full of the Loan.” Since it is undisputed that the loan could not be paid in full upon maturity, plaintiff was not entitled to receive the letter of credit proceeds. Moreover, while plaintiff could direct defendant to apply the letter of credit proceeds in accordance with the order of priority provided in section 1.14
Plaintiff’s claim that defendant, in breach of section 2.11 of the modification agreement, failed to exercise its "best efforts” to notify plaintiff of the contemplated sale of the loan to Toledo is not supported by the record. Indeed, both plaintiff and defendant as well as LRA were under a Bankruptcy Court order to attempt to negotiate a resolution to the loan and lease defaults, including the possible sale of the loan. During and after the 60-day negotiating period, plaintiff brought potential buyers to defendant, all of whom were rejected. Not only did plaintiff know that defendant was attempting to sell the loan, it was actively involved in attempting to purchase the loan through third parties at or about the time that defendant assigned the loan to Toledo.
Contrary to the IAS Court’s holding, nothing in section 2.11 required defendant to identify the purchaser. The only requirement is that defendant "use its best efforts to notify the Borrower of any contemplated sale or assignment by the Lender.” The IAS Court’s reading of the section adds a completely new obligation to an agreement that is clear and unequivocal. Presumably, such an obligation would be satisfied if, without ever telling plaintiff that it contemplated a sale of the loan, defendant notified plaintiff immediately before signing the contract of sale that it was assigning the loan to Toledo. Here, defendant gave plaintiff at least 60 days notice before the actual sale that it contemplated selling the loan, thus affording plaintiff adequate time to negotiate with defendant and to bring potential purchasers into the discussion. As the record discloses, defendant did, in fact, negotiate with interested potential purchasers brought to it by plaintiff. Thus, defendant complied with both the letter and spirit of section 2.11.
In any event, plaintiff has failed to demonstrate that it was
Finally, as to plaintiff’s argument that the loan would not have been in default had the $1,566,839 remaining letter of credit proceeds been applied to interest due under the loan rather than principal, the loan, as the record discloses, would still have been in default when this foreclosure action was commenced. As of that date, plaintiff’s default in interest payments amounted to at least $2,318,251, so that even if the approximate $1,500,000 letter of credit balance had been applied to interest and the other undisputed amounts due and owing as of August 31, 1992, plaintiff would still be in default in the amount of $751,412. The record also discloses that the property’s net operating income for the months of June through August 1992 was insufficient to cover this shortfall.
As to plaintiff’s cross-motion, since the two additional causes of action as to which leave to amend was granted lack merit because the funds were properly applied and, in any event, plaintiff could not have been damaged thereby, leave to amend should have been denied. The lock box proceeds were properly applied, as mandated by sections 1.09 and 1.14 (b) of the modification agreement, to past due interest installments. As to the second proposed cause of action, of the $1,378,696 in funds wired by LRA to defendant upon consummation of the modification agreement, $175,000 was applied to the personal obligations of a third party as partial consideration for defendant’s release of that party’s guarantee of the loan and in payment. Defendant’s expenses in negotiating and consummating the modification agreement were also paid and the balance, $1,120,030, credited to the outstanding interest then due and owing. These funds were also applied in accordance with the terms of the modification agreement and the payments