CPLR 3211(a)(1); CPLR 3211(c); Specific Performance; Breach of Contract; Condition Precedent; Rule of Perpetuities; EPTL § 9-1.1(a)(2); Measuring Lives; Contract Interpretation
By: Christopher Atlee F. Arcitio | Editor-in-Chief
Approximately twenty-five years ago, Plaintiff and Defendant agreed to purchase a building by forming one 50-50 general partnership and two limited liability companies (collectively “the companies”) and serving as principals to the companies. Throughout the years, Plaintiff and Defendant purchased four properties through the companies. Later, Plaintiff sought to retire and dissolve the partnership by splitting up the businesses and dividing the properties. Defendant, therefore, obtained appraisal values for each property as of 2011. The parties agreed to use the 2011 values to divide the properties. The parties subsequently drafted an agreement that dictated the manner and terms in which the properties were to be divided. In addition to converting the partnership into a limited liability company, the parties acknowledged the appraisal values and appraisal dates of each property (“paragraph 3”) and promised to use their best efforts to consummate the transaction “as soon as advised by both parties’ [Certified Public Accountants]” (“paragraph 7”).
After effectuating the partnership’s conversion, the parties began exchanging several emails with Defendant’s accountant to inquire about the projected time frame for the split of the properties. The accountant advised the parties that the conversion needed two years from the year 2013 to avoid tax liabilities. Thus, Defendant’s accountant chose the first date of 2015 as the earliest date to consummate the transaction. The transaction, however, was not consummated on such date for two reasons: (1) Defendant indicated he was awaiting results for one appraisal result; (2) Defendant’s son advised Plaintiff that Defendant did not intend to abide by the agreement and close on the property transfers.
In response, Plaintiff commenced a lawsuit seeking specific performance, a declaratory judgment, and damages for breach of contract on the basis that Plaintiff has performed in accordance with the agreement and Defendant has refused to consummate the transaction. Defendant subsequently moved to dismiss under CPLR 3211(a)(1), based upon documentary evidence, alleging: (1) the agreement was unenforceable because paragraph 7 was a condition precedent that was not fulfilled; (2) the agreement reflected an equal division, but the two and a half years changed the values of the properties; (3) the agreement had no closing date and depended on an event that never happened; (4) paragraph 7 violated the Rule of Perpetuities. In opposition, Plaintiff moved to chart a course for summary judgment pursuant to CPLR 3211(c), by converting Defendant’s motion to dismiss to a motion for summary judgment.
The Court denied Defendant’s motion to dismiss the complaint and granted summary judgment to Plaintiff. First, the Court opined that paragraph 7 was not a condition precedent. As a general rule, it must clearly appear from the agreement itself that the parties intended a provision to operate as a condition precedent. In addition to the need for unambiguous language, a Court will look to the parties’ conduct to determine if the parties intended such language to be a condition precedent. Here, the Court found no clear language in the agreement itself that the parties intended paragraph 7 to operate as a condition precedent. In the eyes of the Court, the language simply operated as a timing mechanism to determine the date of transfer. Moreover, the parties began performing subsequent to the agreement, another fact that supported the conclusion that paragraph 7 was not a condition precedent.
Second, the Court was not persuaded that the change in the properties’ values defeated the parties’ intent in the agreement. A Court cannot write into a contract conditions the parties did not insert by adding or excising terms under the guise of construction, nor may it construe the language in such a way as would distort the contract’s apparent meaning. Here, paragraph 3 clearly demonstrated that Defendant expressly agreed to use the 2011 appraisal values. While the values appreciated in value, Defendant assumed the risk in agreeing to delay the transfer. Therefore, the Court did not allow Defendant’s motion to defeat the agreement.
Third, the Court held that the agreement’s absence of a closing date did not invalidate the agreement. Where no closing date is specified and the time for the transfer of property is indefinite, a reasonable time is implied and the contract remains enforceable. Here, the chain of emails reflected parties’ agreement to wait two and a half year for the sole purpose of avoiding tax consequences. Thus, the Court was permitted to infer a reasonable time for the closing date. The Court also noted that Defendant’s accountant actually specified a closing date on an email—January 1, 2015.
Fourth, the Court held that paragraph 7’s requirement to receive advice from both parties’ accountants did not violate the Rule of Perpetuities. EPTL § 9-1.1(a)(2) mandates that every present or future estate is void if the condition is a longer period than the lives in being (the “measuring lives requirement”) at the creation of the estate. Here, the agreement did not violate the Rule of Perpetuities because it was the parties who were to be advised by their accountants and the allocation of the properties was to be made to the parties within their lifetime, thereby satisfying the “measuring lives” requirement.
Gee v. Zee Ying Wing, Delta Property Associates, LLC, and Delta II Properties, LLC, Index No. 503182/15, 10/14/15 (Demarest, J.).