Opinion
00205/2010
05-15-2017
Hempstead Realty, LLC, Petitioner, v. Daniel Sturrup as Trustee of the TESSIE W. WARMERS TRUST NO. 1, ANTONINA WARMERS CASTON, DANIEL STURRUP and ALBERT STURRUP, Respondents.
Counsel for Petitioner: Mary T. Lucere, Esq., 4007 Merrick Road, Seaford, NY 11783 and Solomon & Siris, P.C., 100 Quentin Roosevelt Boulevard, Suite 504, Garden City, NY 11530 Counsel for Respondents: Allan B. Rappleyea, Esq., 35 Market Street, Poughkeepsie, NY 12601
Counsel for Petitioner: Mary T. Lucere, Esq., 4007 Merrick Road, Seaford, NY 11783 and Solomon & Siris, P.C., 100 Quentin Roosevelt Boulevard, Suite 504, Garden City, NY 11530 Counsel for Respondents: Allan B. Rappleyea, Esq., 35 Market Street, Poughkeepsie, NY 12601 Sharon M.J. Gianelli, J.
Background
Petitioner HEMPSTEAD REALTY, LLC (hereinafter HEMPSTEAD REALTY) commenced this proceeding by Order to Show Cause, dated January 6, 2010, under Real PROPERTY Actions and Proceedings Law ("RPAPL") § 1921 (2) seeking to enforce a mortgage credit and cancel and discharge the mortgage given by HEMPSTEAD REALTY to the Tessie W. Warmers TRUST No. 1 ("TRUST") when it purchased the subject commercial real PROPERTY located at 500 Fulton Avenue, Hempstead, New York (hereinafter, "PROPERTY").
By Decision and Order, dated June 24, 2011, the Honorable F. Dana Winslow denied HEMPSTEAD REALTY's request for summary relief.
Thereafter, in November, 2011, RESPONDENTS, DANIEL STURRUP as Trustee of the TESSIE W. WARMERS TRUST NO. 1 ("the TRUST"), ANTONINA WARMERS CASTON ("ANTONINA"), DANIEL STURRUP ("DANIEL") and ALBERT STURRUP ("ALBERT") (hereinafter collectively referred to as "RESPONDENTS") sought summary judgment that HEMPSTEAD REALTY lacked title to the PROPERTY and requested the deed be vacated and annulled. By Order dated March 30, 2012, Justice Winslow determined:
It is undisputed that in violation of the clear language of the Surrogate's Court Order appointing BOEHM successor Trustee, BOEHM failed to file a bond, adequate or otherwise, and there is no evidence in the record that BOEHM filed an affidavit detailing the assets of the TRUST. Accordingly, the Court finds that BOEHM was not authorized to convey title to the PROPERTY which a title search by Petitioner and other due diligence by the Petitioner would have
revealed. (Emphasis added).
Although the Court found that BOEHM was not authorized to convey title to HEMPSTEAD REALTY, it also found that HEMPSTEAD REALTY raised an issue of fact on its claim that the RESPONDENTS ratified the sale and should be estopped from setting the sale aside, citing Matter of Levy, 69 AD3d 630 (2d Dept. 2010).
After discovery was concluded, the parties each moved for summary judgment. By Order dated November 28, 2013, Justice Winslow noted that it was previously determined that BOEHM was not authorized to convey title. The Court determined that "[o]n the basis of [the RESPONDENTS'] submissions in support of [their] motion for summary judgment, the Court finds that they have met their burden as a matter of law establishing that [the RESPONDENTS] failed to ratify the sale of the PROPERTY to [HEMPSTEAD REALTY]," but that "[HEMPSTEAD REALTY] has raised an issue of fact as to whether [the RESPONDENTS'] actions constituted ratification." (Emphasis added). The Court again cited to Matter of Levy, supra, and Cavaliere v Plaza Apartments, Inc., 84 AD3d 712 (2d Dept. 2011). Because the factual issue of ratification remained unresolved, HEMPSTEAD REALTY's claim to an approximate $600,000 mortgage credit was not reached by Judge Winslow.
By Stipulation dated March 25, 2014, the parties agreed that the facts set forth therein, the documents marked as Exhibits therein, as well as the deposition testimony of Peter Petrakis, Antonina Warmers Caston, Daniel Sturrup, Albert Sturrup, and Michael Morrissey and exhibits marked during said depositions, are in evidence for the purposes of the trial in this action. Accordingly, based upon said facts, and the Trial Briefs of the parties, the Court will determine the following: (1) whether the RESPONDENTS' actions constituted ratification of the transaction and, if so, (2) whether Petitioner is entitled to the approximate $600,000 credit against the balance outstanding on the mortgage and to the discharge of the mortgage.
Summary of The Facts
The Stipulation Admitting Facts And Documents dated March 25, 2014 (which consists of 108 paragraphs and 61 documents as well as the deposition transcripts and the exhibits marked during the depositions) is incorporated herein by reference. The Court will specifically refer only to those facts and documents relevant to the determination herein.
The TRUST was created in May, 1961. ANTONINA (50%), DANIEL (25%) and ALBERT (25%) are the sole remaining RESPONDENTS of the TRUST. FREDERIC J. Warmers (hereinafter, "FREDERIC"), the Trustee named in the TRUST, died on December 30, 1998. On May 20, 1999, BOEHM was appointed by the Surrogate's Court, Orange County, as executor and Trustee of FREDERIC's estate. Shortly thereafter, each of the RESPONDENTS executed a Waiver and Consent consenting to BOEHM as successor Trustee of the TRUST.
By Order, dated December 1, 1999 ("1999 Order"), the Surrogate's Court, Nassau County appointed BOEHM as the successor Trustee of the TRUST "upon him qualifying according to law and filing an adequate bond" and providing that "[a]n affidavit detailing the assets should be filed for such purposes." BOEHM did not file a bond or an affidavit of assets.
On April 28, 2003, Antonina T. Campbell (hereinafter, "CAMPBELL"),
ANTONINA's daughter, filed a petition in the Surrogate's Court, Orange County to revoke BOEHM's letters testamentary and letters of Trusteeship and to compel an account in FREDERIC's estate, accusing BOEHM of diverting assets and self-dealing in relation to FREDERIC's estate. ANTONINA was cited and served in CAMPBELL's revocation proceeding.
By Order, dated November 19, 2003, the Surrogate's Court, Orange County revoked BOEHM's letters testamentary and letters of Trusteeship in FREDERIC's estate and appointed CAMPBELL administratrix c.t.a. and temporary Trustee of FREDERIC's estate.
Four months later, in or about March 2004, BOEHM, acting as Trustee of the TRUST, and Panamoka Realty, LLC (hereinafter, "PANAMOKA") entered into a Commercial Real Estate Contract of Sale ("Contract") in connection with the PROPERTY, which contract was subsequently assigned by PANAMOKA to HEMPSTEAD REALTY. Peter Petrakis (hereinafter, "PETRAKIS") is the sole member of HEMPSTEAD REALTY.
On April 27, 2004 the PROPERTY was sold and a deed was delivered to HEMPSTEAD REALTY by BOEHM, acting as successor Trustee of the TRUST, for consideration of $1,550,000, including a $150,000 "service agreement" fee to BOEHM's company, Connelly Industries, Inc. HEMPSTEAD REALTY gave the TRUST the subject $1,158,000 purchase money mortgage on the PROPERTY (hereinafter, "MORTGAGE") as part of the purchase price of $1,400,000.
At closing, HEMPSTEAD REALTY paid to Ronald J. Cohen (hereinafter, "Cohen"), BOEHM's attorney, the sums of $140,000 and $203,571. HEMPSTEAD REALTY also executed the Mortgage Note for $1,158,000 and a Mortgage. At the same time, HEMPSTEAD REALTY also executed an Addendum to Mortgage Note and a Leasing Agent Agreement (with BOEHM) and PETRAKIS executed a personal guarantee.
The executed Contract does not refer to the Addendum to Mortgage Note, but HEMPSTEAD REALTY's transactional attorney, Michael Morrissey, believed that the Mortgage, Note and Addendum were attached to the Contract "because of the importance of the addendum." Morrissey testified that his final draft of the Contract contained language indicating the Mortgage, Mortgage Note with Addendum were attached to the Contract.
On November 18, 2004, ANTONINA, by her counsel, who represents all RESPONDENTS in the instant proceeding, filed a petition in the Supreme Court, Orange County to, inter alia, remove BOEHM as Trustee of the TRUST on the grounds that BOEHM failed to seek or receive court approval for the sale of the PROPERTY to HEMPSTEAD REALTY and diverted TRUST assets for his personal gain. DANIEL and ALBERT submitted letters to her counsel in support of the petition to remove BOEHM as Trustee of the TRUST. However, no other relief regarding the TRUST, the PROPERTY and the MORTGAGE was sought in said proceeding.
BOEHM interposed a Verified Answer with Affirmative Defenses in the Removal Action. In a Sur-Reply Affirmation, BOEHM's counsel argued that BOEHM had been appointed successor Trustee of the TRUST and attached as proof copies of the 1999 Order and ANTONINA's Waiver and Consent. The Removal Action was stayed on
January 17, 2005 when BOEHM filed for bankruptcy.
On January 31, 2005, Cohen, BOEHM's attorney, signed a fax from RESPONDENTS' attorneys, agreeing and consenting to RESPONDENTS' attorneys holding the mortgage payments by HEMPSTEAD REALTY to the TRUST in an escrow account. The purpose of the escrow was to ensure that BOEHM did not divert any further mortgage payments from RESPONDENTS. The fax provided that "[n]o funds will be released and until [BOEHM] is removed or consents to removal as Trustee".
On June 1, 2006, RESPONDENTS commenced a plenary action against Cohen in the Supreme Court, Dutchess County for monetary damages and punitive damages on the grounds that Cohen breached his fiduciary duties to RESPONDENTS and aided and abetted BOEHM in diverting the cash proceeds from the sale of the PROPERTY to BOEHM and to entities that were BOEHM's alter egos. This action settled in January 2010 for the amount of $290,000 paid by or on behalf of Cohen and received by RESPONDENTS.
In 2006, BOEHM was arrested on Grand Larceny charges and, on or about January 31, 2007, BOEHM entered into a plea agreement whereby, inter alia, BOEHM resigned as Trustee of the TRUST, plead guilty to grand larceny for stealing from FREDERIC's Estate and agreed to restitution of over $5,000,000.00.
HEMPSTEAD REALTY made payments under the Mortgage Note and Addendum in the amount of $5,307.50 per month for the period May 1, 2004 through and including January 1, 2007 representing interest only based on $1,158,000 principal balance.
On January 16, 2007, Morrissey, HEMPSTEAD REALTY's transactional attorney, signed a fax from RESPONDENTS' attorneys, consenting to RESPONDENTS' attorneys releasing the mortgage payments they were holding in escrow to RESPONDENTS and agreeing that such release of funds "is not a waiver of any argument [RESPONDENTS'] may have against the validity of the transaction, or the note/mortgage."
On or about January 24, 2007, HEMPSTEAD REALTY unilaterally applied a $691,250 credit to the principal amount due on January 24, 2007; reduced the principal amount to $466,750 and the interest-only monthly payments; and sought to extend the mortgage term by two years, by applying $200,000 of that credit as a principal payment permitted under the Mortgage Note.
By letter dated January 25, 2007, the RESPONDENTS' attorneys rejected HEMPSTEAD REALTY's effort to extend the mortgage by its application of $200,000 of the $691,250 credit claimed by HEMPSTEAD REALTY. By letter dated January 29, 2007, Morrissey, HEMPSTEAD REALTY's attorney, forwarded a $100,000 principal payment by check to the RESPONDENTS attorneys to extend the interest by one year and reduce the claimed principal balance to $366,750.
HEMPSTEAD REALTY made payments on February 1, 2007, March 1, 2007 and April 1, 2007 in the sum of $1,680.93 representing interest only on the claimed principal balance of $366,750.
By letters, dated March 29, 2007 and April 10, 2007, the RESPONDENTS' attorneys returned to HEMPSTEAD REALTY's attorney three mortgage payments, each in the amount of $1,680.93, as insufficient.
By letter, dated April 24, 2007, HEMPSTEAD REALTY's attorney returned the three checks to the RESPONDENTS' attorneys, and "authorize[d] [said firm] to hold them and all future monthly payments in escrow pending resolution of this situation." HEMPSTEAD REALTY made two more payments in the sum of $1,680.93 for May and June, 2007. By email dated June 5, 2007, the RESPONDENTS' attorneys acknowledged receipt of these payments and noted that they would deposit them in an account maintained for the RESPONDENTS and stated that the deposit of same was not a concession that the amounts were correct or that HEMPSTEAD REALTY was not in default. HEMPSTEAD REALTY's attorney confirmed this via reply email. HEMPSTEAD REALTY made payments in the sum of $1,680.93 per month for the period July 1, 2007 through and including January 1, 2008 representing interest-only payments on the claimed principal balance of $366,750.
By letter, dated January 23, 2008, HEMPSTEAD REALTY's attorney corresponded to the RESPONDENTS' attorneys, forwarding $100,000 principal payment extending the mortgage note an additional year and reducing the claimed principal amount of the mortgage to $266,750.00, which reduced the monthly mortgage payment to $1,222.61.
HEMPSTEAD REALTY made payments in the sum of $1,222.61 per month from February 1, 2008 through and including March 1, 2009 representing interest-only payments on the claimed principal balance of $266,750.
Petrakis believed that as a result of the two $100,000 payments the term of the note, which would expire on April 30, 2007, was extended.
By letter dated March 16, 2009, HEMPSTEAD REALTY's attorney tendered a check dated March 9, 2009 in the amount of $266,750.00 in satisfaction of the mortgage loan to the RESPONDENTS' attorneys. Petrakis testified that the payment of the $266,750 reflected his contention that the balance due was reduced by the $691,750 credit claimed.
By letter dated March 29, 2009, the RESPONDENTS' attorneys returned the $266,750.00 check to HEMPSTEAD REALTY's attorney stating that the amount was incorrect and that if HEMPSTEAD REALTY "truly wishes to pay the balance in full, call us for accurate payoff figures."
On April 13, 2009, DANIEL, acting as Trustee of the TRUST, sent HEMPSTEAD REALTY and PETRAKIS a Notice of Demand for Payment in Full, dated April 13, 2009.
RESPONDENTS did not commence any actions or proceedings to set aside the TRUST's sale of the PROPERTY to HEMPSTEAD REALTY or void and vacate HEMPSTEAD PROPERTY's title to the PROPERTY until they asserted counterclaims in the prior proceeding commenced in this Court on August 19, 2009 under Index No. 10091/2009 by HEMPSTEAD REALTY to seek enforcement of the $600,000 credit, which earlier proceeding was dismissed on December 23, 2009 on procedural grounds.
The present proceeding was commenced on January 5, 2010, as aforesaid and the RESPONDENTS also asserted their counterclaims herein, and HEMPSTEAD REALTY asserted defenses to such counterclaims.
On January 29, 2010, DANIEL, as Trustee and beneficiary of the TRUST, sent HEMPSTEAD REALTY a Notice of Election, dated January 29, 2010, under the MORTGAGE to enter and take possession of the PROPERTY.
On April 28, 2010, DANIEL, as Trustee of the TRUST, sent HEMPSTEAD REALTY a Notice of Election, dated April 28, 2010, under the MORTGAGE to enter and take possession of the PROPERTY.
On July 29, 2011, DANIEL, as Trustee of the TRUST, sent HEMPSTEAD REALTY a Notice of Election, dated July 29, 2011, under the MORTGAGE to enter and take possession of the PROPERTY.
Also on July 29, 2011, RESPONDENTS' attorneys sent HEMPSTEAD REALTY's attorney a letter stating that RESPONDENTS' "foreclosure proceeding will be reactivated."
Thereafter, RESPONDENTS' attorneys served a letter, dated August 4, 2011, on Burger King, the tenant at the PROPERTY, demanding, in accordance with the MORTGAGE, that all rents be sent to the TRUST. DANIEL, the Trustee of the TRUST, received a copy of the August 4, 2011 letter served by RESPONDENTS' attorneys on Burger King and did not have any objection to that letter.
Discussion and Ruling
Ratification
"Ratification is the express or implied adoption of the acts of another by one for whom the other assumes to be acting, but without authority[,] * * * [and it] relates back and supplies original authority to execute [an agreement]" (Holm v. C. M. P. Sheet Metal, 89 AD2d 229, 232, 455 N.Y.S.2d 429). Ratification requires "full knowledge of the material facts relating to the transaction, and the assent must be clearly established and may not be inferred from doubtful or equivocal acts or language" (id. at 233, 455 N.Y.S.2d 429)Rocky Point Properties, Inc. v. Sear-Brown Grp., Inc., 295 AD2d 911, 913 (4th Dept. (2002). See also, Holm v. C.M.P. Sheet Metal, Inc., 89 AD2d 229, 232-233 (4th Dept. 1982).
The seminal case concerning the concept of ratification is Rothschild v. Title Guarantee & TRUST Co., 204 NY 458 (1912), wherein the Court of Appeals held: When a party with full knowledge, or with sufficient notice of his rights and of all the material facts, freely does what amounts to a recognition or adoption of a contract or transaction as existing, or acts in a manner inconsistent with its repudiation, and so as to affect or interfere with the relations and situation of the parties, he acquiesces in and assents to it and is equitably estopped from impeaching it, although it was originally void or voidable. Vohmann v. Michel, 185 NY 420, 78 N.E. 156, 113 Am. St. Rep. 921; 2 Pomeroy's Equity Jurisprudence (3d Ed.) §§816-821, 965. Id. 204 NY at 464 (emphasis added).
Circumstances that may imply ratification are the retention of the benefit of the unauthorized transaction with knowledge of the material facts of the agreement (Cologne Life Reins. Co. v. Zurich Reins. (N. Am. ), Inc., 286 AD2d 118, 126—27 [1st Dept 2001] ). Similarly, failure to repudiate an unauthorized agreement when one knows of the material facts concerning the agreement is evidence of ratification (id. ; J. M. Heinike Assocs., Inc. v. Chili Lumber Co., 83 AD2d 751, 752 [4th Dept 1981]; Restatement (Second) of Agency § 94 [1958] ).ADHY Investments Properties, LLC v. Garrison Lifestyle Pierce Hill LLC, 41 Misc 3d 1211(A) (NY Sup. 2013).
The Appellate Division, Second Department has explained ratification as follows:
The essence of ratification "is that the beneficiary unequivocally declares that he does not regard the act in question as a breach of TRUST but rather elects to treat it as a lawful transaction under the TRUST" (see Bogert, Law of TRUSTs and Trustees § 942 [2d ed]). "Confirmation and ratification imply to legal minds, knowledge of a defect in the act to be confirmed, and of the right to reject or ratify it" (Matter of Ryan, 291 NY 376, 417 [1943], quoting Adair v Brimmer, 74 NY 539, 554 [1878]). Ratification is "in essence, a waiver of existing rights" (Matter of Ayvazian, 153 Misc 467, 475 [1934]).Matter of Levy, 69 AD3d 630, 632 (2d Dept. 2010), lv. denied, 14 NY3d 711 (emphasis added). Specifically addressing the concept of implied ratification, the Levy Court noted:
In (Pollitz v. Wabash R. R. Co., 207 NY 113, 100 N.E. 721), the Court of Appeals held that an " implied ratification" occurs where the beneficiary's subsequent conduct "supports the ... reasonable conclusion that he [or she], by his [or her] assent thereto or acquiescence therein, has accepted and adopted" the fiduciary's actions (Pollitz v. Wabash R. R. Co., 207 NY at 129, 100 N.E. 721).Id., 69 AD3d at 632 (emphasis added).
Further, the Court of Appeals in Rothschild made clear that both void and voidable contracts and instruments may be ratified. See, Rosen v. Rosen, 243 AD2d 618 (2d Dept. 1997) (voidable conveyances are subject to ratification); In re Simon's Estate, 44 AD2d 570 (2d Dept. 1974) (executor's improper sale of estate property to co-fiduciary impliedly ratified by beneficiary); De Tata v. Tress, 4 AD2d 748 (2d Dept. 1957), app. dism'd, 3 NY2d 920 (1957) (mortgage based on forged deed, which rendered mortgage void, was ratified). It is also settled that the beneficiaries of a Trust (such as RESPONDENTS in this case) can ratify the unauthorized acts of a Trustee. In re Simon's Estate, supra (executor's improper sale of estate property to co-fiduciary impliedly ratified by beneficiary); Rajamin v. Deutsche Bank National Trust Company, 757 F3d 79 (2d Cir. 2014). In Rajamin, the Second Circuit Court of Appeals, discussing New York law, stated the following:
Under New York law, unauthorized acts by Trustees are generally subject to ratification by the Trust beneficiaries. See King v. Talbot 40 NY 76, 90 (1869) ("[t]he rule is perfectly well settled, that a cestui que Trust is at liberty to elect to approve an unauthorized investment, and enjoy its profits, or to reject it at his option"); Mooney v. Madden, 193 AD2d 933, 933—34, 597 N.Y.S.2d 775, 776 (3d Dep't) ("Mooney ") ("A Trustee may bind the Trust to an otherwise invalid act or agreement which is outside the scope of the Trustee's power when the beneficiary or beneficiaries consent or ratify the Trustee's ultra vires act or agreement...."), lv. dismissed, 82 NY2d 889, 610 N.Y.S.2d 153, 632 N.E.2d 463 (1993); Washburn v. Rainier, 149 A.D. 800, 803—04, 134 N.Y.S. 301, 304 (2d Dep't 1912); Hine v. Hine, 118 A.D. 585, 592, 103 N.Y.S. 535, 540 (4th Dep't 1907); English v. McIntyre, 29 A.D. 439, 448—49, 51 N.Y.S. 697, 704 (1st Dep't 1898) ("where the Trustee has engaged with the Trust fund in an unauthorized
business ... the rule is that the cestui que Trust may ratify the transactions of the Trustee and take the profits, if there are profits"). Moreover, "beneficiary consent may be express or implied from the acceptance of the Trustee's act or agreement and may be given either after or before the Trustee's act...." Mooney, 193 AD2d at 934, 597 N.Y.S.2d at 776. To be an effective ratification, however, "all of the beneficiaries" must "expressly or impliedly" agree. Id., at 933, 597 N.Y.S.2d at 776; see also id. at 934, 597 N.Y.S.2d at 776 (remanding for determination of whether "remainder persons who also [we]re beneficiaries" had "consented ... and/or ratified").Id. at 88 (emphasis added). See also, Matter of Levy, supra.
As of April 2003, one year prior to the sale of the PROPERTY by BOEHM to HEMPSTEAD REALTY, ANTONINA knew that BOEHM was accused of diverting assets and self-dealing in FREDERIC's (her father) estate (see Stipulation, ¶26; Antonina EBT, page 40, lines 9 to 13). ANTONINA's daughter had filed a petition to revoke BOEHM's letters testamentary and letters of Trusteeship and to compel an account and she was represented by the same firm now representing RESPONDENTS in this proceeding (see Stipulation, ¶25; Exhibit 13). BOEHM's letters testamentary and letters of trusteeship in FREDERIC's estate were revoked on November 19, 2003, more than five months prior to the sale of the PROPERTY. In 2003 there was also an action pending to vacate and set aside BOEHM's conveyance of FREDERIC's house and real PROPERTY to himself.
On April 27, 2004, BOEHM sold the PROPERTY to HEMPSTEAD REALTY. Upon learning of the sale in November, 2004, RESPONDENTS retained counsel, whose firm has represented them throughout this proceeding (see Albert EBT, page 44, lines 3 to 8; Antonina EBT, page 58, line 14 to 19). ANTONINA filed a petition to remove BOEHM as Trustee of the TRUST on November 18, 2004, which petition was supported by letters from DANIEL and ALBERT (see Stipulation, ¶¶59 and 60; Exhibit 30). Thus, no later than December, 2004, RESPONDENTS knew that BOEHM had sold the PROPERTY to HEMPSTEAD REALTY, knew that the sale was without court approval, knew that BOEHM kept the "cash" proceeds of sale, knew of the 1999 Order requiring BOEHM to file a bond, knew that BOEHM had failed to file a bond, knew that BOEHM had stolen from FREDERIC's estate and conveyed FREDERIC's house and real PROPERTY to himself, and knew that there was a pending action to vacate and set aside that sale (see also, Stipulation, ¶63; Exhibit 34 and Exhibit B annexed thereto).
Despite knowledge of these significant and material facts, RESPONDENTS failed to take any action against BOEHM prior to the sale and failed to seek to set aside the sale and recover the PROPERTY until August, 2009 despite their knowledge of BOEHM's unauthorized sale of the PROPERTY to HEMPSTEAD REALTY. RESPONDENTS' failure to timely repudiate and seek to rescind the sale is, in and of itself, an acquiescence and ratification of the sale and conveyance to Petitioner. See, Congregation Yetev Lev D'Satmar, Inc. v. 26 Adar N.B. Corp., 219 AD2d 186 (2d Dept. 1996) (plaintiff, which waited twelve years to challenge real PROPERTY conveyance about which it knew or had every reason to know, barred by ratification and laches from seeking to set aside conveyance). See also, Mulitex USA, Inc. v. Marvin, Knitting Mills, Inc., 12 AD3d 169 (1st Dept. 2004).
In addition, on January 31, 2005, Cohen, BOEHM's attorney, consented in writing to RESPONDENTS' counsel holding the mortgage payments by HEMPSTEAD REALTY to the TRUST in escrow. The purpose of the escrow was to ensure that BOEHM did not divert any further mortgage payments from RESPONDENTS. The consent provided that "[n]o funds will be released and until [BOEHM] is removed or consents to removal as Trustee". No other reservation of rights or non-waiver language was included in this agreement.
Eighteen months later, on June 1, 2006, RESPONDENTS, represented by their counsel in this action, commenced the Dutchess County Action, suing Cohen for monetary damages of at least $350,000 and punitive damages of $5,000,000 on the grounds that Cohen breached its fiduciary duties to RESPONDENTS and aided and abetted BOEHM in diverting the cash proceeds from the sale of the PROPERTY to BOEHM and to entities that were BOEHM's alter egos (see Stipulation, ¶66; Exhibit 36). RESPONDENTS ultimately settled the Dutchess County Action for $290,000 paid to the TRUST, which sum was more than the difference between the sale price paid by HEMPSTEAD REALTY ($1,400,000) and the amount of the purchase money Mortgage ($1,158,000).
During this time, RESPONDENTS continued to collect payments on the Mortgage, and took actions consistent with enforcing their rights and remedies under the Mortgage. HEMPSTEAD REALTY made payments under the Mortgage Note and Addendum for the period May 1, 2004 through and including January 1, 2007. On January 16, 2007, HEMPSTEAD REALTY consented to RESPONDENTS' counsel releasing the mortgage payments held in escrow to RESPONDENTS and agreeing that such release of funds "is not a waiver of any argument [RESPONDENTS'] may have against the validity of the transaction, or the note/mortgage."
On or about January 24, 2007, HEMPSTEAD REALTY unilaterally applied a $691,250 credit to the principal amount due on January 24, 2007; reduced the principal amount to $466,750 and the interest-only monthly payments; and sought to extend the mortgage term by two years, by applying $200,000 of that credit as a principal payment permitted under the Mortgage Note. By letter dated January 25, 2007, RESPONDENTS' counsel rejected HEMPSTEAD REALTY's effort to extend the mortgage, but counsel continued to communicate throughout 2007 concerning the mortgage payments and HEMPSTEAD REALTY's claims of credits and extensions.
In March 2009, HEMPSTEAD REALTY attempted to satisfy the Mortgage by tendering a check in the amount of $266,750, which amount reflected $691,750 in credits (see Stipulation, ¶¶90 and 91; Exhibit 51). RESPONDENTS' counsel returned the check as insufficient (see Stipulation, ¶92; Exhibit 52).
RESPONDENTS still did not seek to repudiate or set aside the sale. Instead, RESPONDENTS chose to enforce their rights under the Mortgage: In April, 2009, DANIEL, as Trustee of the TRUST, sent HEMPSTEAD REALTY and PETRAKIS a notice of acceleration stating that "by virtue of this default [HEMPSTEAD REALTY's "failure to pay the Loan as agreed"], notice is hereby given that pursuant to the terms of the Note, the Lender [the TRUST] declares the Loan immediately due and payable" (see Stipulation, ¶93; Exhibit 53).
Since that time, RESPONDENTS served three (3) separate notices of election (see Stipulation, ¶¶96, 97 and 98; Exhibits 54, 55 and 56), their counsel's letters stating that RESPONDENTS' "foreclosure proceeding will be reactivated" (see Stipulation, ¶99; Exhibit 57) and two (2) letters from their counsel to the tenant, Burger King, demanding that all rents be sent to the TRUST, c/o Daniel (see Stipulation, ¶¶100, 101 and 102; Exhibits 59 and 60). Each of these notices and letters indicated that they were done in accordance with or pursuant to the Mortgage and referred to the terms and conditions of the Mortgage (see Exhibits 54 through 60).
The Court finds that the evidence in this proceeding establishes that by their actions RESPONDENTS acquiesced to and ratified the sale of the PROPERTY to HEMPSTEAD REALTY. Early on, RESPONDENTS had knowledge of the sale and knowledge of all material facts bearing on their claim that BOEHM lacked authority to convey the PROPERTY and did so in an act of fraud and self-dealing. Since that time, RESPONDENTS' actions were inconsistent with a repudiation and rejection of the sale.
RESPONDENTS' actions amounted to an implied ratification and adoption of the sale to HEMPSTEAD REALTY. See, Matter of Levy, 69 AD3d at 632. It is apparent from these facts that RESPONDENTS did not seek to set aside the sale until 2009 because they were content with the PROPERTY having been sold for $1,400,000 and were content to collect payments on a purchase money Mortgage of $1,158,000. It was not until HEMPSTEAD REALTY brought a special proceeding in August, 2009 to enforce the $600,000 mortgage credit that RESPONDENTS first sought, by way of counterclaim, to repudiate the validity of the sale and seek to set it aside.
To the extent RESPONDENTS rely on the non-waiver language in the January, 2007 escrow release, the Court finds this reliance misplaced. In January, 2005, BOEHM's attorney, consented to RESPONDENTS' attorney holding the mortgage payments by HEMPSTEAD REALTY to the TRUST in an escrow account. In January, 2007, HEMPSTEAD REALTY's counsel consented to RESPONDENTS' attorney releasing the mortgage payments held in escrow to RESPONDENTS and agreeing that such release of funds "is not a waiver of any argument [RESPONDENTS'] may have against the validity of the transaction, or the note/mortgage."
The claim of non-waiver was not asserted until January, 2007 despite RESPONDENTS' continued acceptance of mortgage payments since January, 2005. This acceptance of the benefits of the mortgage note is inconsistent with a repudiation of the sale. Cf., Congregation Yetev Lev D'Satmar, Inc. v. 26 Adar N.B. Corp., 219 AD2d at 191-192.
RESPONDENTS' counsel did not "reserve" any rights in the January, 2005 fax seeking to hold the payments in escrow. At that time there was no reservation of any claims or issues RESPONDENTS may have had as to the validity of the transaction. Thus, ratification had already taken place, and continued to take place, by counsel's acceptance of mortgage payments and RESPONDENTS' ongoing and repeated efforts to collect the full amount they claim was owed them and to enforce their rights under the Mortgage.
Second, the stated purpose of the 2005 escrow was to ensure that BOEHM did not divert any further mortgage payments from RESPONDENTS and that the mortgage payments would be released to RESPONDENTS when BOEHM was removed or consented to be removed as trustee (see Exhibit 35). Thus, the purpose of the 2005 agreement itself was inconsistent with repudiation. Finally, RESPONDENTS argue that HEMPSTEAD REALTY has not been prejudiced by their failure to promptly repudiate and seek to set aside the sale. However, as noted by the Court in Holm v. C.M.P. Sheet Metal, Inc., supra, unlike the related doctrine of equitable estoppel, a party asserting ratification does not have to show a change of conduct or prejudice. Id., 89 AD2d at 232-233.
Accordingly, the Court finds that RESPONDENTS actions ratified the sale of the PROPERTY and they are estopped from seeking to have HEMPSTEAD REALTY's deed and title set aside.
Mortgage Credit
The second issue before the Court is whether HEMPSTEAD REALTY is entitled to a credit in the sum of SIX HUNDRED THOUSAND DOLLARS ($600,000.00) plus any interest paid to date and any mortgage tax on said credit against the Mortgage and Mortgage Note (the "credit") as set forth in the Addendum to Mortgage Note (see Exhibit 25) and to declare the mortgage recorded at the Nassau County Clerk's office cancelled.
The plain language of the Addendum of Mortgage Note which gives rise to the credit, is set forth in paragraph 2 as follows:
2. In the event that (1) the Leasing Agent does not or is unable to procure a Tenant, that is ready, willing and able to lease the Premises from the Landlord/Purchaser and a new lease executed on or before January 24, 2007 with no less favorable terms than those described herein under Paragraph 1; or (2) Purchaser/Landlord landlord extends the Burger King Lease at fair market value terms then Purchaser/Landlord the Trust shall credit the sum of SIX HUNDRED THOUSAND DOLLARS ($600,000.00) plus any interest paid to date and any mortgage tax on said credit against the Mortgage and Mortgage Note in the amount of ONE MILLION ONE HUNDRED FIFTY EIGHT THOUSAND DOLLARS ($1,158,000.00), dated April ___, 2004. It is agreed that the credit shall be reflective of a change in the original sales price to the Landlord/Purchaser. thereby adjusting the sales price and any interest paid and any mortgage tax on said credit to date under the Commercial Real Estate Contract of Sale, dated March ___, 2004, between the Tessie W. Warmers Trust No. 1, the Trust/Seller and Panamoka Realty, LLC,* individually, having an address of 4007 Merrick Road, Seaford, New York 11783, respectively, the Landlord/Purchaser. The interest component of the Mortgage Note modified to reflect all available credits at the time the credit is applied.*(Panamoka Realty, LLC assigned the contract to HEMPSTEAD REALTY).
Paragraph 2 sets forth two conditions. The first condition, paragraph 2 (1) required BOEHM (not PETRAKIS) to enter into a lease with a new tenant. It is undisputed that BOEHM did not produce a tenant or perform pursuant to the Addendum (see Stipulation ¶42).
The second condition in paragraph 2 (2) is stated in the affirmative and contains three elements. The Court finds based upon the stipulated facts and evidence that HEMPSTEAD REALTY has satisfied all three prongs of this condition as follows:
1. HEMPSTEAD REALTY did the work to renew the lease (see Petrakis EBT, page 38 and 57)
2. Burger King did extend its lease (see Exhibit 40)
3. The Burger King extension for a monthly rent starting at $11,071, was at "fair market value."
HEMPSTEAD REALTY retained an expert in this litigation, Richard J. DiGeronimo, MAI, SRPA, CRA, president of R.D. Geronimo, Ltd. and certified as a Real Estate General Appraiser in New York. The appraisal prepared by R.D. Geronimo Ltd. retrospectively to April 27, 2004 found the renewal rent of Burger King, at $11,067/month was fair market value at $5.77 per square foot, as the market value was between $5.75 to $6.50 per square foot, which conclusion was based upon comparable rentals of similar ground rents (see Exhibit 63, page 35).
RESPONDENTS did not submit any evidence of "fair market value" and the term is not defined in the Addendum. While PETRAKIS testified that it was his opinion that the renewal rent was above fair market value (see Petrakis EBT, page 56, line 5 to line 8), PETRAKIS is not a qualified appraiser.
The plain language of paragraph 2 of the Addendum is unambiguous. "It has long been the rule that when a contract is clear in and of itself, circumstances extrinsic to the document may not be considered (General Phoenix Corp. v. Cabot, 300 NY 87) and that where the intention of the parties may be gathered from the four corners of the instrument, interpretation of the contract is a question of law and no trial is necessary to determine the legal effect of the contract." See, Bethlehem Steel Co. v. Turner Constr. Co., 2 NY2d 456, 460 (1957). The Court finds the contract language to clearly express the intent of the parties to give HEMPSTEAD REALTY an incentive to extend the existing leasehold at a fair market rental to obtain the $600,000 credit and, thus, not have to repay the full $1,158,000 Mortgage.
Additionally, RESPONDENTS cannot avoid implementation of this paragraph of the Addendum due to their actions in seeking to enforce their right and remedies under the Mortgage as set forth above. RESPONDENTS sought to enforce the terms of the Mortgage by sending numerous notices to HEMPSTEAD REALTY (see Exhibits 53, 54, 55, 56 and 57) as well as seeking to enforce the assignment of rents provision of the Mortgage by serving Burger King with a demand letter in an attempt to seize the rent (see Exhibit 58 and 59). These notices were served after the commencement of the 2009 prior litigation and this litigation (see Stipulation ¶94) and several months after HEMPSTEAD REALTY tendered payment of the principal balance due under the Mortgage Note to RESPONDENTS.
Based upon the foregoing, the Court finds that HEMPSTEAD REALTY is entitled to the credit in the sum of SIX HUNDRED THOUSAND DOLLARS ($600,000.00) plus any interest paid to date and any mortgage tax on said credit against the Mortgage and Mortgage Note. However, the Court cannot determine whether HEMPSTEAD RELATY is entitled to an Order directing the Nassau County Clerk to cancel the mortgage dated April 27, 2004 on the papers submitted since there is no agreement by the parties as to the amount owed on the Mortgage Note and as any additional credits HEMPSTEAD REALTY is entitled to pursuant to paragraph 2 (2) of the Addendum to the Mortgage Note.
Accordingly, for the reasons stated above, the Court finds that:
(1) RESPONDENTS' actions constituted ratification of the transaction; and
(2) Petitioner is entitled to the $600,000 credit against the balance outstanding on the mortgage note.
Counsel for the parties shall appear for conference on June 16, 2017 at 9:30 am for purposes of resolving the remaining issues: (1) the total amount owed pursuant to the Mortgage Note;
(2) the total amount of Petitioner's credit for any interest paid to date and any mortgage tax on said credit against the Mortgage; and
(3) whether Petitioner is entitled to an order cancelling and discharging of record the Mortgage Note and Mortgage.
The foregoing constitutes the Decision and Order of the Court. ____________________________ Hon. Sharon M.J. Gianelli J.S.C. DATED:May 15, 2017 Mineola, NY