Opinion
No. 655/12.
2013-02-13
MAD SCIENTISTS BREWING PARTNERS, LLC, Doing Business as Sixpoint Craft Ales, Plaintiff, v. Stephen W. DEPTULA, Julia A. Kaleniak–Deptula, Rocky Sullivan's of Rocky Point Inc., Nilda Hernandez, Amy Kirkman, Nextel/Sprint, Steven Moverly, Maryana Vestic, and Jamie Slater, Defendants.
Novack Burnbaum & Crystal, LLP, New York, for Plaintiff. Thomas C. Monaghan, Esq., Broad Channel, for Defendant.
Novack Burnbaum & Crystal, LLP, New York, for Plaintiff. Thomas C. Monaghan, Esq., Broad Channel, for Defendant.
DAVID SCHMIDT, J.
The following papers numbered 1 to 8 read herein:
+-----------------------------------------+ ¦Papers Numbered ¦ +-----------------------------------------¦ ¦Notice of Motion/Order to Show Cause/¦ ¦ +-------------------------------------+---¦ ¦Petition/Cross Motion and ¦ ¦ +-------------------------------------+---¦ ¦Affidavits (Affirmations) Annexed ¦1–4¦ +-------------------------------------+---¦ ¦Opposing Affidavits (Affirmations) ¦5–7¦ +-------------------------------------+---¦ ¦Reply Affidavits (Affirmations) ¦8 ¦ +-------------------------------------+---¦ ¦Affidavit (Affirmation) ¦ ¦ +-------------------------------------+---¦ ¦Other Papers ¦ ¦ +-----------------------------------------+
Upon the foregoing papers, defendants Stephen W. Deptula and Julia A. Kaleniak–Deptula (collectively, the Deptula defendants) move for an order, pursuant to CPLR 3212(e), granting partial summary judgment dismissing plaintiff's first and second causes of action, which respectively demand specific performance of an option to purchase real property located at 34, 36, and 40 Van Dyke Street in Brooklyn (the Property) and specific performance of a contract of sale for the Property, as against them.
Background
It is not disputed that, at all times herein referenced, the Deptula defendants owned the Property as tenants by the entirety. Beginning in 2004, plaintiff Mad Scientists Brewing Partners, LLC, doing business as Sixpoint Craft Ales, leased space in the Property, wherein it operated a beer brewery. On January 15, 2007, plaintiff, by its president, Shance C. Welch, and defendant Stephen W. Deptula (individually referred to hereinafter as Deptula) entered into a five-year lease (the Lease) for the ground floor of 40 Van Dyke Street (No. 40). In both July 2008 and August 2010, the Lease was amended by oral agreement between Welch and Deptula wherein plaintiff agreed to lease additional space in the Property. Beginning in 2009, Welch and Deptula had conversations regarding the potential sale to plaintiff of No. 40; however, these parties eventually concluded that said parcel could not readily be severed from the remainder of the Property. During all transactions involving the lease of the property and the potential sale of No. 40, Welch dealt primarily with Deptula, and had only passing interactions with defendant Julia A. Kaleniak–Deptula (individually referred to hereinafter as Kaleniak–Deptula).
On April 8, 2011, the Deptula defendants and plaintiff executed a contract of sale for the Property (the Sale Contract). The Sale Contract was signed by both Deptula and Kaleniak–Deptula, though it did not explicitly refer to their status as tenants by the entirety. By the terms of the Sale Contract, the Deptula defendants agreed to convey title in the Property, in fee simple, to plaintiff for the sum of $2,215,000, contingent upon plaintiff securing a commitment for funding or a mortgage loan. The closing date was specified as October 5, 2011, or within 60 days of receipt by plaintiff of a funding commitment. Plaintiff's obligation to close on the Sale Contract was conditioned upon the Deptula defendants' ability to deliver title to the Property free of encumbrances (aside from specified permitted encumbrances). The Sale Contract also provided that the Deptula defendants would pay into escrow any funds, up to $25,000, necessary for curing and removing outstanding code violations. Upon executing the Sale Contract, plaintiff paid $10,200 into an escrow account with the Deptula defendants' attorney (the Down Payment).
Plaintiff obtained a title report for the Property, which indicated numerous code violations and that a new certificate of occupancy would be required to reflect No. 40's new usage as a brewery. Thereafter, plaintiff's attorney sent four letters, dated June 1, July 26, August 11, and September 7, 2011, to the Deptula defendants' counsel demanding that the Deptula defendants cure various code violations. Notwithstanding such demands, it appears that the Deptula defendants did not take any action to cure the code violations on the Property. In August 2011, plaintiff retained FC Consulting Engineer PLLC (FC) to review the violations on the Property and, in January 2012, FC estimated that curing all violations would cost over $35,000.
In late August 2011, plaintiff indicated to the Deptula defendants that it would be ready to close the sale on September 9, 2011. On that date, however, code violations had not been remedied, nor had a certificate of occupancy for No. 40 been obtained. Welch and Deptula agreed to move forward with obtaining a certificate of occupancy for No. 40, with half of the cost being deducted from sale price. On September 10, 2011, Deptula e-mailed Welch offering to terminate the lease of persons living on the second floor of No. 40, so as to allow plaintiff to lease said area for use as office space pending the sale of the Property. Welch agreed to lease the second floor, and requested that plaintiff be granted a long-term lease on that space “to protect [it] in the event there are further difficulties or obstacles for closing.”
On September 13, 2011, plaintiff's attorney wrote to the Deptula defendants' counsel emphasizing that plaintiff had received a mortgage loan commitment for the purchase, and demanding that the Deptula defendants clear the code violations and obtain a certificate of occupancy so that a closing could occur. In the month following, Welch and Deptula began negotiating a long-term lease for the expanded area occupied by plaintiff, though plaintiff states that it concurrently obtained an extension of the mortgage loan commitment to enable the sale to go forward.
On October 16, 2011, plaintiff, by Welch, and Deptula executed an agreement titled “Addendum To Original Commercial Lease Dated January 15, 2007 Between Stephen W. Deptula, Landlord And Mad Scientists Brewing Partners LLC, Tenant” (the Addendum). The Addendum granted a lease to plaintiff for all the space contained within No. 40, as well as certain spaces that plaintiff had already been leasing in other areas of the Property, effective November 1, 2011, through January 31, 2017, with renewal options for three terms of five years each. Clause 2 of the Addendum is titled “Option to Purchase,” and states, in part, “Tenant maintains the exclusive right to purchase the properties at 34, 36, and 40 Van Dyke Street through January 31, 2013 at the agreed-upon price of $2,215,000.” This clause also purportedly grants plaintiff (1) an option to purchase the Property at any time during the lease, after January 2013, for fair market value, and (2) a right of first refusal to purchase the Property. The Addendum obliges plaintiff, as tenant, to pay 50% of any increase in real estate taxes assessed on No. 40 in the year after a new certificate of occupancy is issued. In an e-mail to Welch, Deptula stated that he wanted that clause in the Addendum because he worried that “in the event we don't close,” the issuance of a new certificate of occupancy would result in a significant increase in real estate taxes assessed on No. 40. The Addendum was signed only by Welch and Deptula, and not by Kaleniak–Deptula.
On the same day that plaintiff and Deptula executed the Addendum, Welch sent an e-mail to the Deptula defendants' counsel noting that the Sale Contract had “expired last week,” and demanding return of the Down Payment. On October 20, 2011, plaintiff's attorney wrote to the Deptula defendants' counsel, again demanding return of the Down Payment on the basis that the transaction was “dead” as a result of the Deptula defendants' failure to clear violations on the Property. The Deptula defendants' counsel returned the Down Payment to plaintiff in a letter dated October 17, 2011. During the following months, plaintiff continued to communicate with both FC and a prospective mortgage lender in an effort to bring about the sale of the Property.
On January 9, 2012, plaintiff sent the Deptula defendants a Notice of Exercise of Right to Purchase Premises, demanding that they take all steps necessary to clear title of the Property and convey the Property to plaintiff under the terms of the Addendum and the Sale Contract. When the Deptula defendants refused to recognize plaintiff's purported right to purchase the Property, plaintiff commenced the instant action, on or about January 10, 2012. In its amended complaint, plaintiff seeks specific performance compelling the Deptula defendants to convey the Property to it under both the Sale Contract and the option clause in the Addendum, as well as an injunction barring the Deptula defendants from transferring or encumbering the Property during this action, damages for breach of contract, rescission of any potential mutual discharge of the Sale Contract, a declaration that plaintiff is entitled to cure all defaults of the Deptula defendants under the Lease and Addendum and to withhold the costs of doing so from rent payments, damages for negligent misrepresentation and fraud, damages for lost business opportunities, restitution for unjust enrichment, damages for deceptive acts or practices, and damages premised on the fact that the Deptula defendants leased the second floor of No. 40 to plaintiff for use as an office space, but have not obtained a certificate of occupancy for commercial use of that area. In their answer, the Deptula defendants assert numerous affirmative defenses, as well as a counterclaim for abuse of legal process.
After joinder of issue, the Deptula defendants made the instant motion seeking partial summary judgment dismissing plaintiff's first and second causes of action for specific performance of the Addendum and Sale Contract, respectively. In support of their motion, the Deptula defendants argue that the purported option to purchase in the Addendum is void, as the Deptula defendants own the Property as tenants by the entirety, but the Addendum was subscribed to only by Deptula and not by Kaleniak–Deptula. Kaleniak–Deptula avers that she had no knowledge of the Addendum, or the option clause it contained, at the time of its execution, and that she did not authorize Deptula to sign on her behalf. The Deptula defendants further argue that Kaleniak–Deptula did not ratify the purported purchase option clause and did not take any actions in order to fraudulently induce plaintiff to rely on the purported option. Moreover, the Deptula defendants argue that plaintiff could not show that Kaleniak–Deptula had ratified the option clause because Deptula did not hold himself out as Kaleniak–Deptula's agent in the transaction and ratification of a conveyance of real property must be in a signed writing. For his part, Deptula avers that he understood the purported option clause to be a mere reflection of the fact that he and Welch would attempt to enter into a new contract of sale, and that he never indicated to Welch that he was signing the Addendum on behalf of Kaleniak–Deptula. Therefore, the Deptula defendants assert that, under section 5–703 of the General Obligations Law (the Statute of Frauds) and relevant case law, they, as tenants by the entirety, may not be bound by an option to purchase the Property signed only by Deptula, nor may plaintiff estop them from asserting the Statute of Frauds as a defense. With respect to the second cause of action, the Deptula defendants acknowledge the validity of the Sale Contract, but assert that it was rescinded by mutual agreement of the parties and return of the Down Payment to plaintiff, emphasizing that specific performance should not be awarded on an alleged breach of a contract that has been rescinded.
In opposition, plaintiff argues, among other things, that there are triable issues of fact as to whether Kaleniak–Deptula authorized or ratified the purchase option as executed by Deptula, whether Kaleniak–Deptula's knowledge of the Addendum was sufficient to estop a defense under the Statute of Frauds, and whether plaintiff's agreement to rescind the Sale Contract was induced by fraud or mutual mistake. In connection with its first cause of action, plaintiff argues that, contrary to the Deptula defendants' assertion, it need not show evidence of fraud, in addition to evidence of authorization, ratification, or knowledge and participation, in order raise an issue of fact as to whether the purported option clause is legally valid. In this vein, Welch asserts that although Kaleniak–Deptula generally did not take part in any negotiations or business regarding the lease or sale of the Property, she was in the room during discussion and execution of the Addendum, and did not object to its terms or to Deptula's execution of same. Welch further states that he had no knowledge that the Deptula defendants owned the Property as tenants by the entirety, and that he had no reason to question the legal validity of the purported option clause in the Addendum. With respect to its second cause of action, plaintiff denies that the Sale Contract was rescinded, stating that Welch referred to it as being “expired” only because Deptula had referred to it as such, and Welch asserts that he agreed to give up some rights under that agreement only because he believed that the Addendum preserved and extended plaintiff's right to purchase the Property.
Plaintiff also argues that the Deptula defendants' motion for summary judgment is premature, as discovery has not yet occurred. As plaintiff has extensive personal knowledge of the facts at issue, and has not demonstrated that discovery might lead to facts essential for opposing the motion ( see Deleg v. Vinci, 82 AD3d 1146, 1146–47 [2011] ), the Deptula defendants' motion is not barred on these grounds.
In reply, the Deptula defendants argue, among other things, that plaintiff has failed to raise a triable issue of fact as to whether Kaleniak–Deptula participated in creation of the Addendum or ratified that agreement. In addition, the Deptula defendants contend that the parties rescinded the Sale Contract because they were unable to resolve their disagreement over the sale terms, as well as the continued existence of code violations on the Property. The Deptula defendants reiterate that plaintiff referred to the Sale Contract as “expired” even prior to the rescission, and assert that there was no ambiguity as to the fact that the contract was being mutually rescinded. They argue that plaintiff may not claim it had no knowledge that Kaleniak–Deptula had an interest in the property as she signed the Sale Contract as an owner and such fact was also a matter of public record.
Discussion
A party moving for summary judgment, pursuant to CPLR 3212, must make a prima facie showing, with evidence in admissible form, justifying a grant of judgment as a matter of law and demonstrating a lack of any triable issues of fact (CPLR 3212[b]; Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 [1986] ). Failure to make such a showing requires denial of the motion, regardless of the sufficiency of any opposing papers (Vega v. Restani Constr. Corp., 18 NY3d 499, 503 [2012] ). Where the movant makes a prima facie showing justifying a grant of summary judgment, the burden shifts to the opposing party to produce evidence in admissible form showing the existence of a genuine issue of fact (Alvarez, 68 N.Y.2d at 324). Moreover, in considering a motion for summary judgment, a court must view the evidence in the light most favorable to the opposing party (Vega, 18 NY3d at 503).
It is blackletter property law that real property held as a tenancy by the entirety generally cannot be conveyed, nor may an option to purchase be granted, by only one owner, unless the signer has written authorization to convey on behalf of the other owner ( see Mulonet v. Exxonmobil Oil Corp., 81 AD3d 702, 705 [2011];Lelekakis v. Kamamis, 41 AD3d 662, 664 [2007];Jill Real Estate v. Smyles, 150 A.D.2d 640, 642 [1989];see alsoGeneral Obligations Law § 5–703[1] [requiring a conveyance of real property to occur in a writing subscribed by the seller or an agent with written authorization] ). Nevertheless, a tenant by the entirety may be estopped from invalidating a conveyance under the Statute of Frauds if the non-signing owner had complete knowledge of and actively participated in the conveyance, if the non-signing owner later ratified the contract execution by the signer, or if the absence of the non-signing owner's signature is a product of fraud or misrepresentation ( see Lelekakis, 41 AD3d at 664;Stojowski v. D'Sa, 28 AD3d 645, 645–46 [2006];Jill Real Estate, 150 A.D.2d at 642).
In Jill Real Estate v. Smyles, the Appellate Division, Second Department, found that a wife and tenant by the entirety, who had not signed a contract for sale of her property that had been executed by her husband, was estopped from asserting the Statute of Frauds to invalidate the contract. The Court based its conclusion on the grounds that the wife knew that her husband had posted a “for sale” sign on the property and advertisements in the newspaper, knew that her husband had discussed the sale with the purchaser, accepted a check in connection with the transaction, communicated her name and telephone number to the purchaser, and told the purchaser that she had no ownership interest in the property (150 A.D.2d at 642). Similarly, the Appellate Division, Fourth Department, in Farr v. Newman (18 A.D.2d 54 [1963],affd14 N.Y.2d 183 [1964] ), held that a wife and tenant by the entirety, who was not a signatory on a contract of sale executed by her husband, was estopped from asserting the Statute of Frauds to invalidate the contract on the grounds that she had initially named a price and provided her contact information to the purchaser, she was present when her husband stated that he would accept the purchase offer and did not object, and she accepted the down payment for the purchase (18 A.D.2d at 59–60). The Farr Court stressed that “as a tenant by the entirety, if she did not intend to be bound by the agreement, it was incumbent upon her to announce her interest in the property and indicate her objection to the sale,” ( id.).
In this case, though Kaleniak–Deptula avers that she had no knowledge of the option clause in the Addendum until well after its execution, Welch avers that Kaleniak–Deptula was in the room when the Addendum was discussed and executed and failed to raise any objection to the inclusion of the option clause. Kaleniak–Deptula had signed, and presumably understood the terms of, the Sale Contract, which was the precursor to the purported option, and it is unclear to what extent she and Deptula may have discussed the potential conveyance.
Consequently, that branch of the motion seeking summary judgment dismissing plaintiff's first cause of action is denied as questions of fact exist as to Kaleniak–Deptula's knowledge of and participation in creating the purported option, and as to whether she may thus be estopped from asserting the Statute of Frauds as a bar to its validity.
It is well settled that parties to a contract may rescind that contract by mutual agreement (Schwartzreich v. Bauman–Basch, Inc., 231 N.Y.196, 203 [1921],rearg. denied231 N.Y. 602 [1921] ). A contract of sale is considered rescinded where the prospective purchaser demands return of a down payment, and the prospective seller agrees to return that amount (United Matura Realty v. Reade Indus., 155 A.D.2d 660, 660–61 [1989];see also Day One Express Corp. v. Gracepat Corp., 55 AD3d 366, 367 [2008] ). Once a contract has been rescinded by agreement, a court may not grant specific performance upon the terms of that contract ( see Miles v. Gladstein, 214 A.D.2d 706, 707 [1995] ). However, a mutual rescission of a contract is itself treated as a contract, and where such a rescission was procured by fraud or entered into under mutual mistake of fact, said rescission may be invalidated by the court, in which case the terms of the original contract would be enforced ( see Centro Empresarial Cempresa S.A. v. América Móvil, S.A.B. de C.V., 17 NY3d 269, 276 [2011] [holding that a claim release “may be invalidated ... for any of the traditional bases for setting aside written agreements, namely duress, illegality, fraud, or mutual mistake,' “ quoting Mangini v. McClurg, 24 N.Y.2d 556, 563 (1969) ]; Matter of Gould v. Board of Educ. of Sewanhaka Cent. High School Dist., 81 N.Y.2d 446, 453 [1993] [holding employment resignation based on mutual mistake of fact is a nullity]; Miles, 214 A.D.2d at 707 [noting no evidence that prospective purchasers were fraudulently induced to rescind contract of sale]; United Matura Realty, 155 A.D.2d at 661 [treating a mutual rescission as an independent contract]; Sunlight Funding Corp. v. Singer, 146 A.D.2d 625, 626–27 [1989] [holding modified contract was entered into under mutual mistake of fact and enforcing terms of original contract]; see also10 Richard A. Lord, Williston on Contracts § 29:44 [4th ed 2011] [“(A) subsequent oral agreement to rescind the contract is effectual if the oral agreement fulfills the requisites of a contract at common law.”] ). In order for a court to rescind a contract on the basis of fraudulent inducement, a party seeking rescission must show that the other party made a knowing misrepresentation of material fact, intended to induce the first party to enter into the contract, and that such inducement caused injury to the reliant party ( see Sokolow, Dunaud, Mercadier & Carreras v. Lacher, 299 A.D.2d 64, 70 [2002];see also Jo Ann Homes at Bellmore v. Dworetz, 25 N.Y.2d 112, 118–19 [1969] ). A material misrepresentation of fact may be, in addition to an affirmative statement, a concealment of a fact by a party with superior knowledge, where the transaction without disclosure is inherently unfair ( see Miele v. American Tobacco Co., 2 AD3d 799, 803–04 [2003] ). In order for a court to rescind a contract on the basis of mutual mistake of fact, the party seeking rescission must show that both parties were mistaken as to a material fact at the time the contract was executed; the fact must be so material that it affects the foundation of the agreement ( see Simkin v. Blank, 19 NY3d 46, 52–53 [2012] ).
In this case, plaintiff asserts, quite plausibly, that it would not have given up its rights under the Sale Contract for which it had tendered performance had it not believed that the purchase option in the Addendum would be effective. If Deptula did not share plaintiff's mistake of fact, i.e., he knew at the time of execution that the option clause could not be legally effective in the absence of Kaleniak–Deptula's subscription, it is difficult to see how he could have withheld this information in good faith. Either Deptula's signature to a contract that he knew was partially void or his silence as to that fact might be interpreted as a material misrepresentation intended to induce reliance.
Consequently, questions of fact regarding, among other things, mutual mistake preclude the granting of that part of the Deptula defendants' summary judgment motion seeking dismissal of plaintiff's second cause of action based upon the Sale Contract.
Conclusion
For the foregoing reasons, the motion of defendants Deptula and Kaleniak–Deptula for summary judgment dismissing plaintiff's first and second causes of action is denied in its entirety.
This constitutes the decision and order of the court.