Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca2-14-02619/USCOURTS-ca2-14-02619-0/pdf.json

Parties Involved:
Bank of New York Mellon Trust Company, N.A.
Appellant
Morgan Stanley Mortgage Capital, Inc.
Appellee

Document Text:

1

14‐2619‐cv   

Bank of New York Mellon Trust Company, N.A. v. Morgan Stanley Mortgage Capital, Inc.

In the 

United States Court of Appeals 

For the Second Circuit 

________________

August Term, 2015

(Argued:  August 19, 2015      Decided: April 27, 2016)

Docket No. 14‐2619‐cv

________________                                   

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., Trustee for the

Registered Certificate Holders of Morgan Stanley Capital I Inc. Commercial

Mortgage Pass‐Through Certificates Series 2007‐IQ14, Acting by and Through  

C‐III Asset Management LLC, As Special Servicer,

Plaintiff‐Appellant,

—v.—  

MORGAN STANLEY MORTGAGE CAPITAL, INC.,

    Defendant‐Appellee.

________________                                  

Before:

CABRANES, RAGGI, and WESLEY, Circuit Judges.

________________                                  

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On appeal from an award of summary judgment entered in favor of

defendant Morgan Stanley Mortgage Capital, Inc. in the Southern District of

New York (McMahon, J.), on a claim of breach of contract, plaintiff Bank of New

York Mellon Trust Company, N.A. argues that the district court erred in

(1) identifying a contractual duty to give “notice to cure” within three business

days of becoming aware of a material breach as a condition precedent to

defendant’s remedy obligations; and (2) concluding, as a matter of law, that

plaintiff’s communication of notice of breach and request for cure was untimely,

thereby absolving defendant of any obligation to repurchase without considering

whether plaintiff’s request demonstrated substantial performance.        

VACATED AND REMANDED.

Judge WESLEY dissents in a separate opinion.

________________                                 

DAVID A. BARRETT (Joshua J. Libling, on the brief), Boies, Schiller &

Flexner LLP, New York, New York, for Plaintiff‐Appellant.

STEVEN G. KOBRE (Steven W. Perlstein, Josef M. Klazen, Lara

Levinson, on the brief), Kobre & Kim LLP, New York, New

York, for Defendant‐Appellee.

________________                                 

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REENA RAGGI, Circuit Judge:

In this breach‐of‐contract action, plaintiff Bank of New York Mellon Trust

Company, N.A. (“BNY” or “Trustee”) appeals an award of summary judgment

in favor of defendant Morgan Stanley Mortgage Capital, Inc. (“Morgan Stanley”)

entered on June 17, 2014, in the United States District Court for the Southern

District of New York (Colleen McMahon, Judge).    BNY argues that the district

court erred in concluding, as a matter of law, that Morgan Stanley was not

contractually obliged to repurchase a mortgage loan allegedly issued in breach of

a contract representation because (1) the Trustee’s duty to give “notice to cure”

within three business days of becoming aware of a material breach was a

condition precedent to the seller’s repurchase obligation, Bank of N.Y. Mellon Tr.

Co. v. Morgan Stanley Mortg. Capital, Inc., No. 11 Civ. 0505 (CM) (GWG) (“BNY

I”), 2013 WL 3146824 (S.D.N.Y. June 19, 2013); and (2) that condition was not

performed within the specified three days, but two to four weeks later, see Bank

of N.Y. Mellon Tr. Co. v. Morgan Stanley Mortg. Capital, Inc., No. 11 Civ. 0505

(CM) (GWG) (“BNY II”), 2014 WL 2745011 (S.D.N.Y. June 16, 2014).   

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For reasons explained herein, we conclude that the contract at issue did

not require notice to cure as a condition precedent to Morgan Stanley remedying

breach.    Indeed, the phrase “notice to cure” does not appear in the contract.  

Rather, the contract contains distinct provisions for giving notice of breach and

making request for cure, neither of which is cast in the express language of

condition.  To the extent a condition precedent might be inferred from the fact

that notice of breach is a necessary trigger for the 90‐day cure period, that

rationale would pertain only to the giving of that notice, not to its timeliness, and

much less to request for cure, which performs no triggering role.  Thus, request

for cure is not a condition precedent to Morgan Stanley’s remedy obligations,

and the timeliness of a request for cure, as well as of a notice of breach, is

properly construed as a promise and reviewed for substantial performance.   

On review of the record, we further conclude that the notice of breach and

request for cure in this case cannot be held untimely as a matter of law,

particularly when reviewed for substantial performance.  Accordingly, we vacate

the award of summary judgment in favor of Morgan Stanley, and we remand the

case to the district court for further proceedings consistent with this opinion.   

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I. Background

A. The Mortgage Loan Purchase Agreement

The contract at issue is a May 1, 2007 Mortgage Loan Purchase Agreement

(“MLPA”), pertaining to an $81 million mortgage loan that Morgan Stanley

issued to City View Center, LLC (the “City View Loan”) on December 29, 2006,

for the purchase of a retail center in Garfield Heights, Ohio (the “City View

Property”).  Pursuant to the MLPA, Morgan Stanley sold the City View Loan to

Morgan Stanley Capital I, Inc., which, pursuant to a Pooling and Servicing

Agreement (“PSA”) of the same date, placed the City View Loan into Morgan

Stanley Capital I Trust 2007‐IQ14 (the “Trust”), then valued at nearly five billion

dollars.  The Trust was later securitized and sold to investors.

The PSA designated BNY as trustee of the Trust and, thus, the entity

entitled to enforce various agreements, including the MLPA here at issue. The

PSA also designated Wells Fargo National Association (“Wells Fargo”) as a

Master Servicer, responsible for administering the Trust’s loans and collecting

payments, and Centerline Servicing Inc. (“Centerline”) as Special Servicer,

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responsible for servicing any defaulted loans.1   On May 30, 2007, Trustee BNY

granted the Master and Special Servicers authority to act on its behalf when

servicing and administering the Trust’s loans.  

B. City View’s Default on the Loan  

On September 9, 2008, Master Servicer Wells Fargo informed Special

Servicer Centerline that the City View Loan would likely go into default within

60 days because (1) City View had received numerous notices of lease default

from Wal‐Mart, the anchor tenant of the City View Property, based on methane

gas intrusion into the store; (2) the Ohio Attorney General had filed a complaint

against City View (and others) for regulatory violations on the City View

Property, including the failure to control the migration of combustible gases; and

(3) the Ohio Agency for Toxic Substances & Disease Registry had determined

that conditions at the City View Property amounted to an urgent public hazard.  

On September 15, 2008, Wal‐Mart in fact closed its City View Property store and,

                                              

1 On May 10, 2010, pursuant to transactions not relevant here, C‐III Asset

Management LLC replaced Centerline as the Trust’s Special Servicer.    For

purposes of this appeal, we need only refer herein to the “Special Servicer,”

without regard to the specific entity then serving in that capacity.

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soon after, canceled its lease.  On November 8, 2008, City View defaulted on a

mortgage‐loan payment.  Four days later, Wells Fargo transferred the City View

Loan to Centerline for special servicing.

C. Notice of Breach and Request for Cure     

Upon transfer, Centerline’s Director of Special Servicing, Jennifer Wilkicki,

began investigating Morgan Stanley’s possible breach of the MLPA.2    On

February 16, 2009, Wilkicki sent a document captioned “Representation and

Warranty Claim” to Centerline’s Associate General Counsel, Jenna Unell.  That

four‐page document appears to be a draft notice of breach to the Seller in that its

opening sentence states as follows: “The Special Servicer believes it has

discovered a Material Breach of the Seller’s Representations and Warranties and

hereby provides notice as required by the governing Pooling and Servicing

                                              

2 As the district court detailed, Wilkicki was not then totally unfamiliar with the

City View Loan.    Prior to securitization, Centerline (and its predecessor) had

acted as Interim Servicer at Morgan Stanley’s behest.    Centerline’s parent

company was then evaluating whether to invest in the Trust, and Wilkicki was

among the Centerline employees who conducted due diligence.  See BNY I, 2013

WL 3146824, at *3, *25.  The district court explained why the Trustee cannot be

charged with knowledge obtained by Centerline when not acting on its behalf,

see id. at *25–29, and the parties do not argue otherwise on this appeal.  Thus, we

do not discuss that further.   

  

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Agreement.”    J.A. 896.    The document proceeds to identify

“Representation/Warranty (12)” as the provision breached insofar as Morgan

Stanley had represented that it had “no knowledge of any material and adverse

environmental condition or circumstance” affecting the City View Property not

disclosed in a referenced Environmental Report when it had, in fact, learned

otherwise.  Id. (internal quotation marks omitted).3  The document supports this

conclusion by citing Morgan Stanley’s January 5, 2007 Closing Counsel

Transaction Summary, which acknowledged the Environmental Report’s failure

                                              

3 Representation 12 is entitled “Environmental Conditions” and states as follows:

   

(i) With respect to the Mortgaged Properties securing the

Mortgage Loans . . . an environmental site assessment, or an update

of a previous such report, was performed with respect to each

Mortgaged Property in connection with the origination or the

acquisition of the related Mortgage Loan, a report of each such

assessment (or the most recent assessment with respect to each

Mortgaged Property) (an “Environmental Report”) has been

delivered to the Purchaser, and the Seller has no knowledge of any

material and adverse environmental condition or circumstance

affecting any Mortgaged Property that was not disclosed in such

report.

J.A. 473 (emphasis in original).

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to address the fact that the City View Property was subject to state regulation as

a “closed land fill” and that the property had received “numerous ‘notices of

violation’ issued by the Ohio Environmental Protection Agency.”    Id.4    The

document also details “additional facts . . . to demonstrate the material and

adverse effect” the noticed breach had on “the interests of the holders of the

Certificates in the Mortgage Loan.”   Id.; see id. at 897–98.   Among these were

Wal‐Mart’s departure from the City View Property and its cessation of rent

payments, as a result of which other tenants exercised co‐tenancy clauses

resulting in terminated leases, reduced rents, or discontinued rent payments.  

The document also explains that this left City View with insufficient operating

income, causing it to discontinue loan payments to the Trust, which now faced

the legal expenses of petitioning “the federal court to place a receiver at the

property,” proceeding against defaulting tenants, and appealing the rejection of

City View’s insurance claim.    Id. at 898.    Attributing the catalogued adverse

effects to Morgan Stanley’s breach of Representation 12, the document

                                              

4 On this appeal, we express no view as to the merits of the Servicer’s (and,

therefore, Trustee BNY’s) breach conclusion.    We consider only whether BNY

failed to satisfy an MLPA condition precedent for securing a remedy for breach.

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concluded, “[t]he Mortgage Loan should be repurchased pursuant to the terms

and conditions set forth in the PSA and the applicable MLPA.”  Id.  

Three days later, on February 19, 2009, Unell advised Wilkicki that she had

reviewed pertinent materials and agreed “that there [was] evidence that [Morgan

Stanley] knew that there were material environmental conditions or

circumstances affecting the Property that were not disclosed in the Phase I

report.”    Id. at 1266.    Unell asked Wilkicki to call her “to discuss further,”

concluding, “I think that the breach notice should be sent.”  Id.    

A breach notice was sent approximately one month later, on March 18,

2009.  In the interim, Wilkicki secured an appraisal, which on February 27, 2009,

valued the City View Property at $22.3 million, a steep decline from the $103.4

million appraisal of two years earlier.  Another appraisal, confirming the $22.3

million valuation, was received on March 13, 2009.  

Between receipt of these two appraisals, on March 3, 2009, Wilkicki sent

Unell a more formally worded draft breach notice and request for cure, and

solicited her comments.   On March 13, Unell emailed Wilkicki her edits to the

draft notice.    The next day, Wilkicki sent the revised draft to her supervisor,

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Chris Crouch, who approved it on March 16 and directed Wilkicki to send it on

to Centerline’s President, Paul Smyth, “for go ahead to release.”    Id. at 1347.   

After receiving Smyth’s authorization for release, Wilkicki sent Morgan Stanley a

formal notice of breach and request for cure on March 18, 2009.    Tracking

language in the MLPA and PSA, the notice stated that if the material breach were

not corrected or cured within 90 days of receipt, Morgan Stanley would be

contractually obligated to repurchase or to replace the City View Loan.  It is, in

fact, undisputed on this appeal that the breach was one that could not be cured.       

Approximately two months later, by letter dated May 11, 2009, Morgan

Stanley replied that it disagreed with Centerline’s “characterization of the facts

and circumstances” and “intend[ed] to vigorously defend its underwriting and

disclosures made in the PSA and the Mortgage Loan.”  Id. at 1093.  Thus, it did

not repurchase or replace the City View Loan.     

On September 24, 2010, the Special Servicer sent Morgan Stanley a “Second

and Supplemental Notification of Material Breach.”  In addition to alleging more

facts to support the earlier noticed breach of Representation 12, it asserted a

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breach of Representation 27, the MLPA’s No Material Default Representation.5  

In its December 22, 2010 reply, Morgan Stanley reiterated its intent to defend its

representations, and asserted that the Special Servicer’s March 18, 2009 and

September 24, 2010 letters were, in any event, deficient because they

“constitute[d] late notice.”  Id. at 1096.   

D. District Court Proceedings

On January 25, 2011, BNY filed this lawsuit against Morgan Stanley for

breach of the MLPA.  Following amended pleadings and discovery, both parties

moved for summary judgment.    On June 19, 2013, the district court granted

Morgan Stanley partial summary judgment on BNY’s breach claim as to the No

                                              

5 In Representation 27, Morgan Stanley warrantied that, to its knowledge, there

was “no material default, breach, violation or event of acceleration (and no event

which, with the passage of time or the giving of notice, or both, would constitute

any of the foregoing) under the documents evidencing or securing the Mortgage

Loan” that would materially and adversely affect the value of the mortgage loan

or property.    J.A. 478–79.    The Special Servicer asserted that Morgan Stanley

breached this representation because, by December 2006, at the latest, it knew

that Wal‐Mart was claiming lease default, and yet Morgan Stanley represented in

May 2007 that there was no material default underlying the City View Loan.  See

id. at 781–82.  

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Material Default Representation provision.6   That ruling is not at issue on this

appeal.    As to the claimed breach of the Environmental Conditions

Representation, the district court granted BNY summary judgment on Morgan

Stanley’s waiver defense, but concluded that “many issues of disputed fact”

precluded a general award in favor of BNY.   BNY I, 2013 WL 3146824, at *30.  

Although the district court agreed with Morgan Stanley that timely “notice to

cure” was a “condition precedent” to any buyback obligation for breach of the

Environmental Conditions Representation, it decided that further discovery was

needed to determine when the Special Servicer became aware of that alleged

breach.  Id. at *16–17; see id. at *19–22.   

After discovery closed, the district court determined, as a matter of law,

that BNY’s “Special Servicer became aware of a material breach of the

Environmental Representation more than three business days before March 18,

2009,” making its breach notice on that date untimely, thereby failing to satisfy

                                              

6 The district court concluded that the Special Servicer had possession of all facts

necessary to investigate and bring a claim for breach of this representation by

March 16, 2009, making its September 24, 2010 notice of breach untimely.    See  

BNY I, 2013 WL 3146824, at *23.  This conclusion is not challenged on appeal and,

thus, we do not discuss it further.

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that condition precedent to Morgan Stanley’s repurchase obligation.    BNY II,

2014 WL 2745011, at *7–9.    Accordingly, on June 17, 2014, the district court

entered summary judgment in favor of Morgan Stanley on the Environmental

Representation breach claim.  

This timely appeal followed.

II. Discussion

This appeal presents two questions for de novo review:   (1) whether the

MLPA’s request‐for‐cure obligation is a condition precedent that must be timely

performed by the Servicer before Morgan Stanley has any obligation to cure or to

repurchase a noticed defective loan; and (2) whether it can be determined as a

matter of law on the existing record that the request for cure in this case was

untimely.    See Lynch v. City of New York, 737 F.3d 150, 156 (2d Cir. 2013)

(reviewing award of summary judgment de novo and upholding only if “there is

no genuine issue of material fact” and “moving party is entitled to judgment as a

matter of law”); Phillips v. Audio Active Ltd., 494 F.3d 378, 384 (2d Cir. 2007)

(interpreting contract de novo).  We answer both questions in the negative and,

therefore, vacate the award of summary judgment in favor of Morgan Stanley

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and remand the case to the district court for further proceedings consistent with

this opinion.

A. MLPA Section 5’s Remedies Provision

The district court derived the condition precedent it identified—an   

obligation to give “notice to cure” within three business days of the Servicer

becoming aware of a material breach—from MLPA Section 5, titled “Remedies

Upon Breach of Representations and Warranties Made by the Seller.”  Thus, we

begin by examining the relevant text, which states as follows:  

[I]f there is a breach of any of the representations and warranties

required to be made by the Seller regarding the characteristics of

the Mortgage Loans and/or the related Mortgaged Properties . . . and

. . . [such] breach, either (i) materially and adversely affects the

interests of the holders of the Certificates in the related Mortgage

Loan, or (ii) both (A) the . . . breach materially and adversely affects

the value of the Mortgage Loan and (B) the Mortgage Loan is a

Specially Serviced Mortgage Loan . . ., [1] the party discovering such

. . . Material Breach shall promptly notify, in writing, the other party

. . . .   [2] Promptly (but in any event within three Business Days)

upon becoming aware of any such . . . Material Breach, the Master

Servicer shall, and the Special Servicer may, request that the Seller,

not later than 90 days from the Seller’s receipt of the notice of such

. . . Material Breach, cure such . . . Material Breach . . . .

[3] The Seller hereby covenants and agrees that, if any such . . .

Material Breach cannot be corrected or cured in all material aspects

within the above cure period[], the Seller shall, on or before the

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termination of such cure period[], either (i) repurchase the affected

Mortgage Loan . . . from the Purchaser or its assignee at the  

Purchase Price as defined in the Pooling and Servicing Agreement,

or (ii) if within the two‐year period commencing on the Closing

Date, at its option replace, without recourse, any Mortgage Loan . . .

to which such defect relates with a Qualifying Substitute Mortgage

Loan.  If such . . . Material Breach would cause the Mortgage Loan to

be other than a “qualified mortgage” (as defined in the Code), then

notwithstanding the previous sentence, such repurchase or

substitution must occur within 90 days from the earlier of the date

the Seller discovered or was notified of the breach or defect.

J.A. 454–55 (emphasis added).7   

In fact, the quoted language identifies three obligations (corresponding to

the inserted highlighted numbers).    First, a notice‐of‐breach obligation, which

requires any party—whether the Trustee, Master Servicer, Special Servicer, or

even the Seller—“discovering” a material breach of representation promptly to

notify the other party of its discovery of such breach.  Second, a request‐for‐cure

obligation, which requires the Master Servicer, and permits the Special Servicer,

                                              

7 Section 2.3(a) of the PSA contains similar, but not identical, breach and recourse

language.    See J.A. 121–22.    The district court focused on the language in the

MLPA as it was the only contract to which Morgan Stanley was a party.    As

neither party challenges that approach on appeal, we do the same without

considering any language discrepancies between the MLPA and the PSA.

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promptly, but in any event within three business days of “becoming aware” of

the material breach, to request that the Seller cure breach within 90 days of the

receipt of notice.    Third, a cure‐or‐repurchase obligation, which requires the

Seller either (a) to cure the material breach within 90 days of receiving notice, or

(b) if the breach cannot be cured, to repurchase or to replace the defective

mortgage loan.   

As this parsing demonstrates, Section 5 nowhere references “notice to

cure.”  We understand the district court to have used that phrase as a shorthand

reference for both the notice‐of‐breach and request‐for‐cure obligations,

concluding that where, as in this case, the Servicer is the party “discovering” the

material breach, it can be said to have become “aware” of the breach (triggering

its request‐for‐cure obligation) at the same time it “discovered” it (triggering its

notice‐of‐breach obligation).  See BNY I, 2013 WL 3146824, at *20.  As we explain

in the next section of this opinion, that reasoning is not without some force in

explaining how a common trigger date applies to these two MLPA obligations in

the circumstances of this case.    See infra pp. 30–32.    But, it does not support

merging the provisions for purposes of condition‐precedent review.    Indeed,

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Morgan Stanley defends the district court’s identification of a condition

precedent only by reference to the request‐for‐cure obligation.  Accordingly, we

here decide whether request for cure is a condition precedent to Morgan

Stanley’s obligation to cure or repurchase.    

B. Request for Cure Is Not a Condition Precedent to Cure or

Repurchase

Under New York law, which controls our construction of the MLPA, a

condition precedent is “an act or event, other than a lapse of time, which, unless

the condition is excused, must occur before a duty to perform a promise in the

agreement arises.”  Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86

N.Y.2d 685, 690, 636 N.Y.S.2d 734, 737 (1995) (internal quotation marks omitted).  

Conditions precedent are not readily assumed.  While specific, talismanic words

are not required, the law nevertheless demands that conditions precedent be

“‘expressed in unmistakable language.’”  Id. at 691, 636 N.Y.S.2d at 737 (quoting

Restatement (Second) of Contracts § 229, cmt. a, at 185).  Thus, “[i]n determining

whether a particular agreement makes an event a condition[,] courts will

interpret doubtful language as embodying a promise or constructive condition

rather than an express condition.”  Id.; see Unigard Sec. Ins. Co. v. N. River Ins.

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Co., 79 N.Y.2d 576, 581, 584 N.Y.S.2d 290, 292 (1992); see also Israel v. Chabra,

537 F.3d 86, 93 (2d Cir. 2008) (citing Oppenheimer in acknowledging New York

courts’ caution when interpreting contract clause as condition precedent).  

Applying these principles here, we conclude that, under the MLPA, the

Servicer’s obligation to request cure within three business days of becoming

aware of a material breach is not unmistakably cast as a condition precedent to

Morgan Stanley’s cure‐or‐repurchase obligation, and, therefore, must be  

construed as a promise.   

Certainly, the MLPA does not caption or otherwise label the request‐for‐

cure provision as a “condition precedent” to Section 5 remedies, as one might

expect sophisticated parties to do if that were their intent.  See, e.g., Lindenbaum

v. Royco Prop. Corp., 165 A.D.2d 254, 259, 567 N.Y.S.2d 218, 220 (1st Dep’t 1991)

(concluding that contract clearly imposed condition precedent where, under

heading “Conditions of Loan Approval,” parties expressly noted that certain

“conditions must be satisfied prior to the issuance of Closing Instructions”

(emphasis omitted)).   

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Nor does MLPA Section 5 employ any recognized “linguistic conventions”

of condition—such as “‘if,’ ‘on condition that,’ ‘provided that,’ ‘in the event that,’

and ‘subject to,’”—to make plain that Morgan Stanley’s remedy obligations do

not arise unless and until the Servicer requests cure.  Israel v. Chabra, 537 F.3d at

93 (quoting Ginett v. Comput. Task Grp., 962 F.2d 1085, 1100 (2d Cir. 1992))

(identifying notice obligation introduced by underscored phrase “provided,

however,” as condition precedent to immediately preceding guaranties); see

Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d at 691, 636

N.Y.S.2d at 737 (recognizing “if” and “unless and until” as “unmistakable

language of condition”).    

The failure to couch the request‐for‐cure provision in the explicit language

of condition is particularly significant here because the sophisticated drafters

elsewhere employed precisely such language to establish undoubted conditions

precedent.    See, e.g.,    J.A. 448 (providing in MLPA for certain actions “in the

event that . . . the Mortgage Loans . . . are held to be the property of the Seller”

(emphasis added)); id. at 450 (providing in MLPA for agent or designee to

exercise purchaser’s rights “provided the Purchaser has provided the Seller with

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prior notice of the identity of such designee or agent” (emphasis added)); see also

id. at 264 (stating in PSA that “successor master servicer must assume all of the

obligations of the terminated Master Servicer . . . as a condition precedent to its

becoming Master Servicer hereunder” (emphasis added)); id. at 341 (stating in

PSA that, “as a condition precedent to the indemnification provided for in this

Section,” indemnitee must “notify the applicable Indemnifying Party in writing”

of commencement of any action (emphasis added)).8   

Indeed, even within MLPA Section 5, its drafters employed the

unmistakable language of condition in detailing Morgan Stanley’s repurchase

obligation.  See id. at 455 (stating that Seller “covenants and agrees that, if any

                                              

8  There is no indication that BNY played any part in drafting the MLPA.  Rather,  

Morgan Stanley appears to have drafted this document, as the same Morgan

Stanley Vice President signed the agreement on behalf of both Morgan Stanley

and Morgan Stanley Capital I, Inc., the sole contracting parties.    See J.A. 465.  

While BNY, as the named Trustee, is a party to the PSA, there is no indication in

the record as to its role in drafting that agreement.   In any event, because the

point is not raised, we have no occasion to consider whether any ambiguities in

MLPA provisions are properly construed against Morgan Stanley as drafter.  See

Village of Ilion v. County of Herkimer, 23 N.Y.3d 812, 820, 993 N.Y.S.2d 648, 652

(2014).  It suffices that the law requires ambiguous provisions to be construed as

promises rather than conditions precedent.    See Oppenheimer & Co. v.

Oppenheim, Appel, Dixon & Co., 86 N.Y.2d at 691, 636 N.Y.S.2d at 737.    

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such . . . Material Breach cannot be corrected or cured in all material aspects

within the [90‐day] cure period[], the Seller shall . . . either (i) repurchase the

affected Mortgage Loan . . . or (ii) . . . replace, without recourse, any Mortgage

Loan” (emphasis added)).  In short, Section 5 makes plain that Morgan Stanley is

required to repurchase or replace a defective loan only if it is unable to cure the

defective representation within the 90‐day period afforded by the MLPA.  There

is no comparable contract language, however, that conditions this remedy

obligation on a request for cure, much less on such a request being made within

three business days.  See Realtime Data, LLC v. Melone, 104 A.D.3d 748, 750–51,

961 N.Y.S.2d 275, 277–78 (2d Dep’t 2013) (invoking canon expressio unius est

exclusio alterius to conclude that contract language conditioning employee

bonus “upon” sale of assets implies that bonus does not apply to distributions

otherwise based); see also International Fid. Ins. Co. v. County of Rockland, 98 F.

Supp. 2d 400, 412 (S.D.N.Y. 2000) (recognizing that “[s]ophisticated lawyers . . .

must be presumed to know how to use parallel construction and identical

wording to impart identical meaning when they intend to do so, and how to use

different words and construction to establish distinctions in meaning”).   

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Thus, the very contract language employed by the parties undermines our

dissenting colleague’s conclusion that Morgan Stanley cannot be expected to cure

breaches of which it has been notified but for which it has not received a formal

request for cure.    See Dissenting Op., post at 4–8.    In fact, its obligation to

repurchase is conditioned only on its inability to cure within the 90‐day cure

period.  And, as the MLPA makes clear, that cure period is triggered exclusively

by “the Seller’s receipt of the notice of . . . Material Breach,” not the Servicer’s

request for cure.  J.A. 454 (emphasis added).   

While New York courts have construed some triggering events as

conditions precedent, they have done so only when the trigger is necessary to a

party’s ability to perform the obligation at issue.  See, e.g., ALJ Capital I, L.P. v.

David J. Joseph Co., 15 Misc. 3d 1127(A), 2007 WL 1218355, at *2, *5 (Sup. Ct.

Mar. 13, 2007) (holding notice of disallowance a condition precedent to

defendant’s repayment obligation because notice was necessary to afford

defendant opportunity to cure disallowance within cure period, upon failure of

which plaintiff could demand repayment), aff’d 48 A.D.3d 208, 208, 851 N.Y.S.2d

154, 155 (1st Dep’t 2008); see also Assured Guar. Mun. Corp. v. DB Structured

Case 14-2619, Document 110-1, 04/27/2016, 1759195, Page23 of 42
24

Prods., Inc., 33 Misc. 3d 720, 731, 742–44, 927 N.Y.S.2d 880, 887–88, 895–97 (Sup.

Ct. July 25, 2011) (assuming that notice of breach triggering 60‐day cure period

was condition precedent to repurchase obligation in holding notice adequate);

Morgan Guar. Tr. Co. v. Bay View Franchise Mortg. Acceptance Co., No. 00 Civ.

8613 (SAS), 2002 WL 818082, at *4–5 (S.D.N.Y. Apr. 30, 2002) (applying New York

law in recognizing request to cure as condition precedent where it was exclusive

trigger for 30‐day cure period, which, if not met, gave rise to repurchase

obligation).   

Even if the MLPA’s notice‐of‐breach provision might be construed as a

condition precedent because it is the necessary trigger for the cure period

afforded Morgan Stanley,9 its request‐for‐cure provision serves no comparable

essential function without which Morgan Stanley could not understand or

perform its cure obligation.    Because we are not free to “rewrite into

a contract conditions the parties did not insert by adding or excising terms under

                                              

9 We need not decide this question because, as earlier noted, Morgan Stanley

defends the district court’s judgment only by reference to the contract’s request‐

for‐cure obligation.

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25

the guise of construction,” Slamow v. Del Col, 174 A.D.2d 725, 726, 571 N.Y.S.2d

335, 336 (2d Dep’t 1991), we here conclude simply that whatever triggering

rationale might apply to notice of breach, it does not extend to request for cure.  

The plain language of the MLPA obligates Morgan Stanley to cure or to

repurchase a noticed defective loan within 90 days of the receipt of a notice of

breach.  The obligation makes no mention of receipt of a request for cure.10           

                                              

10 Judge Wesley deems it implausible that Morgan Stanley would be obligated to

cure in the absence of a request.  He maintains that because the Special Servicer

was under no obligation to request cure, its request for cure provided essential

signaling and demand functions.    See Dissenting Op., post at 4–7, 7 n.4.    The

conclusion is undermined not only by the MLPA’s express assignment of the

signaling function to notice of breach, but also to its assignment of a mandatory

request‐for‐cure obligation to the Master Servicer.  See J.A. 454 (explaining that,

upon becoming aware of any material breach, Master Servicer must, and Special

Servicer may, request cure).    We need not parse the difference between the

Master Servicer’s and the Special Servicer’s request‐for‐cure obligations further

because, in any event, the MLPA has not unequivocally identified request for

cure as a condition precedent.  Thus, in the situation here, where Morgan Stanley

is alleged to have breached its cure‐or‐repurchase obligation and the Servicer is

alleged to have breached its obligation to request cure within three days, the law

considers two broken promises (three, when one considers Morgan Stanley’s

alleged breach of Representation 12) and compensates the parties accordingly,

taking into account, among other things, the issue of substantial performance.  

See, e.g., Schwartz v. Pierce, 57 A.D.3d 1348, 1350–51, 870 N.Y.S.2d 161, 163–65

(3d Dep’t 2008) (affirming damages award where jury found both parties to be in

breach of contract).

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26

Thus, when the district court held that “sending a notice to cure is

unmistakably required to trigger the cure period and the buyback obligation,”

BNY I, 2013 WL 3146824, at *17 (emphasis added), it could only have been

referring to the MLPA’s notice‐of‐breach obligation, the exclusive trigger for the

90‐day period.    That same conclusion pertains to the district court’s statement

that, because the MLPA’s repurchase provision “expressly refers back to the

notice to cure,” Morgan Stanley’s obligation to repurchase is “dependent on that

notice.” Id. (alteration and internal quotation marks omitted).    What the

repurchase provision expressly refers back to is “the date the Seller discovered or

was notified of the breach or defect,” J.A. 455; it nowhere mentions “notice to

cure.”  The district court went on, however, to conclude that “notice to cure” was

a condition precedent that had to be performed within three business days:  “The

notice to cure is a condition precedent to the repurchase obligation, and the

parties plainly bargained for the ‘three day’ provision in the contract.”  BNY I,

2013 WL 3146824, at *21.    We disagree.    Even if the first part of the quoted

sentence might find support in the MLPA’s notice‐of‐breach obligation, the

parties did not plainly bargain to subject notice of breach to the three‐day

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27

limitation applicable only to request for cure.  Indeed, when it recited that “[t]he

MLPA gave the Special Servicer three days to send out notice of any breach,”

BNY II, 2014 WL 2745011, at *3, the district court misstated the contract.    

In sum, because (1) the obligation to request cure within three business

days is neither framed in conditional language nor a necessary trigger for

Morgan Stanley’s remedy obligations; (2) notice of breach is, in fact, the exclusive

trigger for the 90‐day period within which Morgan Stanley was obligated to cure

or to repurchase; and (3) the timeliness of notice of breach is not contractually

limited to three days, we conclude that the MLPA cannot be construed to make

either notice of breach within three business days or request for cure conditions

precedent to Morgan Stanley’s remedy obligations.  See Oppenheimer & Co. v.

Oppenheim, Appel, Dixon & Co., 86 N.Y.2d at 691, 636 N.Y.S.2d at 737.  Rather,

timely request for cure is properly construed as a promise, which on remand

should be reviewed only for substantial performance.  See Israel v. Chabra, 537

F.3d at 93.

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C. The Timing of the Servicer’s Request for Cure Cannot Preclude a

Finding of Substantial Performance as a Matter of Law  

The district court determined, as a matter of law, that the Servicer’s March

18, 2009 communication to Morgan Stanley of notice of breach and request for

cure was untimely.  See BNY II, 2014 WL 2745011, at *9.  We here conclude that

the timing of the Servicer’s request for cure cannot preclude a finding of

substantial performance as a matter of law.   In explaining this conclusion, we

first examine the reasoning informing the district court’s timeliness analysis,

some of which we accept, but other parts of which are at odds with the plain

language of the MLPA.   

As already detailed, the MLPA requires a party to give notice of breach

promptly upon discovering a material breach of representation.  It also requires a

Servicer to act promptly in requesting cure after becoming aware of the breach.  

But it is only as to the latter obligation that the MLPA cabins promptness to three

business days.    The district court, however, appears to have concluded that

where, as here, the Servicer is the discovering party, notice of breach is not

prompt if not made within three days.  See id. at *3 (“The MLPA gave the Special

Servicer three days to send out notice of any breach.”); id. at *9 (holding that,

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29

because Servicer’s notice to Morgan Stanley was not sent within three business

days of what court found to be “absolute, drop‐dead date” for awareness of

breach, “breach notice was therefore untimely”).  In view of the Servicer’s having

discovered the breach, the district court concluded that (1) any difference in the

obligations’ triggering words—“discovering,” and “becoming aware of”—was

“of no moment,” BNY I, 2013 WL 3146824, at *20; (2) awareness, like discovery,

occurs only at the conclusion of an investigation of the suspected breach,

provided the investigation is concluded within a reasonable time, see id. at *19–

21; (3) the Servicer had reasonably concluded its investigation and, thus, become

“aware” of Morgan Stanley’s alleged breach (a) by “February 16, when Wilkicki

prepared her memorandum” to Unell, or certainly (b) “by February 19, when

Unell agreed with Wilkicki’s assessment and instructed her to send the breach

notice,” but in no event later than (c) “February 27, when the draft appraisal

came in,” BNY II, 2014 WL 2745011, at *9.  Thus, the Servicer’s delay of some two

weeks after the last of these dates to transmit a request for cure was held

untimely as a matter of law.   

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30

BNY faults this reasoning on several grounds.    We focus here on the

argument it derives from the well established principle that, where contract

provisions use different language, courts must assume the parties intended

different meanings.  See Frank B. Hall & Co. of N.Y. v. Orient Overseas Assocs.,

48 N.Y.2d 958, 959, 425 N.Y.S.2d 66, 67 (1979).  Thus, BNY argues, “discovering”

breach must mean something different from “becoming aware” of breach, with   

“awareness” necessarily coming after “discovery”—indeed, after communication

of the notice of breach triggered by discovery—to avoid the absurdity of

requiring a Servicer to request cure (within three business days of awareness)

before requiring the party discovering the breach to give notice (subject to an

undefined promptness obligation), thereby triggering the cure period.   

BNY’s argument makes sense when the Servicer is not the party

discovering the breach.    In that circumstance, it will generally only be upon

receipt of the discoverer’s notice of breach that the Servicer acquires the

awareness necessary for it to request cure.  Further, to the extent the discoverer

conducted an investigation of the breach that the Servicer has no need to

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31

duplicate, the latter can reasonably be expected to make its request for cure

within three business days of receiving the notice of breach.   

But, when the Servicer is the party discovering breach, we cannot

categorically conclude, as BNY urges, that it does not become aware of the

breach until it transmits its own notice of breach to others.  Dictionary definitions

may admit the possibility of discovery without awareness.  Compare Webster’s

Third New Int’l Dictionary 656 (2002) (defining “discover” as “to obtain for the

first time sight or knowledge of” or “to detect the presence of”), with id. at 152

(defining “aware” as “marked by realization, perception, or knowledge”).11  The

conclusion, however, does not transfer here, where, as the district court correctly

observed, the law charges a party with discovery of breach only after it has had a

reasonable opportunity to investigate and confirm its suspicions—in short, when

it effectively becomes aware, rather than simply suspicious, of breach.    The

reason the law thus delays discovery of a breach is to avoid creating an incentive

for litigation before a party knows that it has suffered injury.  See BNY I, 2013

                                              

11 Thus, Columbus can be said to have discovered the Americas without being

aware that they were new continents, while Vespucci can be said to have been

aware that the Americas were new continents without having discovered them.   

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32

WL 3146824, at *19 (collecting cases); id. at *21 (acknowledging that, in complex

circumstances, confirming investigation can take several months).

We therefore decline to hold as a matter of law that a Servicer who

discovers a breach cannot be charged with awareness until it transmits notice.  

The fact that the Servicer in this case simultaneously transmitted its request for

cure with its notice of breach does not necessarily mean that the former was filed

within the requisite three business days.  Rather, the timeliness of both notice of

breach and request for cure may depend, as the district court recognized, on

whether they were sent promptly after the Special Servicer reasonably concluded

its investigation of breach.   

Where we depart from the district court is in its conclusion that notice of

breach, as well as request for cure, had to be communicated within three

business days to be deemed prompt.  As already discussed, the MLPA imposes a

three‐day limitation on the word “promptly” only as to requests for cure.  The

absence of such a limitation from the notice‐of‐breach obligation indicates that

the word is to be construed more flexibly in light of the totality of circumstances.  

See United States Fid. & Guar. Co. v. Annunziata, 67 N.Y.2d 229, 233, 501

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33

N.Y.S.2d 790, 792 (1986) (recognizing that where condition included in one

provision is omitted from another, it “must be assumed to have been intentional

under accepted canons of contract construction”); Sterling Inv’r Servs., Inc. v.

1155 Nobo Assocs., LLC, 30 A.D.3d 579, 581, 818 N.Y.S.2d 513, 516 (2d Dep’t

2006) (same).

We further conclude that the district court could not identify the

reasonable conclusion date for the Special Servicer’s breach investigation—or

even three possible conclusion dates—as a matter of law.  Where the promptness

of breach discovery is questioned, resolution depends on an assessment of the

totality of circumstances, necessarily including the credibility of witnesses and

the weight particular evidence will bear.  Such matters are generally determined

by the trier of fact rather than the court, particularly when the ultimate question

is reasonableness.   See Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028,

1030, 416 N.Y.S.2d 539, 541 (1979) (noting that “question whether a notice . . . has

been sent ‘as soon as is reasonably possible’ is a question of fact which depends

on all the facts and circumstances, especially the length of and the reasons for the

delay,” and that “[i]t is only in the exceptional case that it may be decided as a

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34

matter of law”); Deso v. London & Lancashire Indem. Co. of Am., 3 N.Y.2d 127,

129, 164 N.Y.S.2d 689, 691 (1957) (explaining that “reasonableness of a delay” in

timely written notice is usually question for jury); Vale v. Vt. Mut. Ins. Grp., 112

A.D.3d 1011, 1013, 977 N.Y.S.2d 117, 120 (3d Dep’t 2013) (stating that where

party fails to comply with condition precedent requiring timely notice, delay

may be excused if reasonable, which will generally be “question of fact for a

jury”).    Thus, while the district court identified February 27, 2009, the date

Wilkicki received a draft appraisal for the City View Property, as “the absolute,

drop‐dead date” for a reasonable investigation to have concluded, a factfinder

might determine that where, as here, the investigating party is not an individual

but a corporate entity, some degree of chain‐of‐command review is part of a

reasonable investigation, and the entity should be permitted to undertake such

review before it is charged with discovering or becoming aware of the breach.  

Were the jury to so find in this case, it could extend the investigation’s conclusion

date to March 16, 2009, when Centerline’s president was first asked to authorize

the notice of breach and request for cure based on the investigation of his

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35

subordinates.    In that event, the March 18, 2009 transmittal would have been

prompt even under a three‐business‐day limitation.12  

Of course, even if a factfinder were to include chain‐of‐command review

within a reasonable breach‐investigation period, disputes might persist as to

whether other events—e.g., commissioning the initial or review appraisals—

unreasonably prolonged the investigation.    While the district court dismissed

                                              

12 Judge Wesley disagrees, observing that, under New York law, a corporation is

charged with the knowledge of its agents.  See Dissenting Op., post at 12.  But

none of the cited cases reach that conclusion in the context of a corporate entity

conducting a breach investigation, much less one doing so as the agent of a

trustee.  New  York University v. First Financial Insurance Co., 322 F.3d 750 (2d

Cir. 2003), does not offer “precisely this situation,” Dissenting Op., post at 17

n.12, because that case involved neither an agent acting on behalf of a trustee nor

a breach investigation similar in nature or scope to the one at issue here.  Instead,

an insurer was there charged with its investigative agent’s knowledge of breach

as of the date the insured conceded certain facts to the agent that effectively

admitted the breach precluding recovery under the insurance contract.  See New

York Univ. v. First Fin. Ins. Co., 332 F.3d at 753 & n.2.  Here, Morgan Stanley did

not similarly confirm its breach of the MLPA to Wilkicki.  As already noted, in

such circumstances, the law affords a reasonable time for investigation of breach

to avoid creating an incentive for premature litigation.   That concern supports

including some chain‐of‐command review within a reasonable investigation,

rather than demanding action as soon as any corporate agent reaches a

conclusion regardless of his authority to act on it for the corporation.    See

Kirschner v. KPMG LLP, 15 N.Y.3d 446, 465, 912 N.Y.S.2d 508, 517 (2010)

(acknowledging that, generally, only acts within scope of agents’ authority are

“presumptively imputed to their principals”).   

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36

Wilkicki’s explanations for these appraisals as implausible, when we view the

record in the light most favorable to BNY, we cannot conclude that a reasonable

factfinder was precluded as a matter of law from reaching any other conclusion.  

Thus, the dispute cannot be resolved on summary judgment.  See, e.g., Dillon v.

Morano, 497 F.3d 247, 253–54 (2d Cir. 2007) (vacating award of summary

judgment where permissibility of defendant’s conduct turned on explanation for

it, which necessarily involved credibility determination that was question for

jury).

Further, because request for cure is not a condition precedent, even if a

factfinder were to conclude that the time for reasonable investigation of breach

ended more than three business days before March 18, 2009, it would still have to

decide the question of substantial performance.   

“Substantial performance is performance, the deviations permitted being

minor, unimportant, inadvertent, and unintentional.”    Cramer v. Esswein, 220

A.D. 10, 11, 220 N.Y.S. 634, 634 (2d Dep’t 1927) (internal quotation marks

omitted); see Bernard v. Las Ams. Commc’ns, Inc., 84 F.3d 103, 108 (2d Cir. 1996);

Callanan Indus., Inc. v. Smiroldo, 100 A.D.2d 717, 718, 474 N.Y.S.2d 611, 612 (3d

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37

Dep’t 1984).  Such deviations “will sometimes be atoned for by allowance of the

resulting damage.”    Jacob & Youngs, Inc. v. Kent, 230 N.Y. 239, 241 (1921)

(Cardozo, J.).   

The question of substantial performance is usually one “of fact and should

be decided as a matter of law only where the inferences are certain.”    Merrill

Lynch & Co. v. Allegheny Energy, Inc., 500 F.3d 171, 186 (2d Cir. 2007) (collecting

cases, including Hadden v. Consol. Edison Co. of N.Y., 34 N.Y.2d 88, 96, 356

N.Y.S.2d 249, 255 (1974) (assessing substantial performance on basis of several

factors such as absolute and relative magnitude of default, its effect on contract’s

purpose, willfulness, and degree to which injured party was benefited under

contract)).  Thus, while BNY points to a number of factors supporting substantial

performance, we do not here decide the question in its favor as a matter of law.  

We conclude only that the record does not permit substantial performance to be

rejected as a matter of law.    See Jacob & Youngs, Inc. v. Kent, 230 N.Y. at 243

(explaining that substantial performance is question of degree, which, “if there is

doubt,” must be answered by “triers of the facts”).

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38

In reaching that conclusion, we reiterate certain undisputed facts.    First,

BNY did transmit a request for cure to Morgan Stanley; thus, the only

performance issue is timeliness.    Second, the delay in transmittal, even on the

district court’s findings, was in the range of two to four weeks.    Third, the

noticed breach of representation was not curable, regardless of the date when

BNY can be charged with awareness of the breach.

These circumstances strongly support substantial performance insofar as

delay in requesting a cure that was never possible would likely be deemed

trivial.  As this court recently had occasion to note, “[w]hen contracting parties

agree to a notice‐and‐cure provision, it is reasonable to assume that they do so

with the assumption that the breaches which would be used to terminate the

contract would be curable breaches.”  Giuffre Hyundai, Ltd. v. Hyundai Motor

Am., 756 F.3d 204, 210 (2d Cir. 2014) (internal quotation marks omitted)

(emphasis in original).    Thus, “New York common law will not require strict

compliance with a contractual notice‐and‐cure provision if providing an

opportunity to cure would be useless.”  Id. at 209 (collecting cases).   

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39

Morgan Stanley attempts to distinguish Giuffre and the cases cited therein

on the ground that they considered the propriety of actions taken by parties who,

instead of providing opportunity to cure, terminated contracts or commenced

actions for damages.  It submits that the futility of cure here is no excuse for the

Servicer’s failure timely to request cure because that “is the only mechanism for

Morgan Stanley’s obligation to be triggered.”   Appellee Br. 46.   The argument

fails because, as we have already concluded, notice of breach, not request for

cure, is the singular trigger for Morgan Stanley’s remedy obligations.  Further, it

is by no means evident that the timeliness of notice is essential to this trigger

because the 90‐day cure period would not begin to run until notice was received

and any harm to Morgan Stanley from a delay in notice could offset its remedy

obligations.  See 63 N.Y. Jur. 2d, Guaranty & Suretyship § 134 (2006) (stating that

where giving notice within specified time is not condition precedent to liability,

“consequence of not giving such notice may be to relieve or exonerate” the party

entitled to notice “only to the extent of the damage sustained by reason of the

omission”); see also Jacob & Youngs, Inc. v. Kent, 230 N.Y. at 241.    Thus, the

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impossibility of cure is properly recognized as a factor that here could weigh in

favor of substantial performance on remand.   

Accordingly, because the timeliness of the Special Servicer’s request for

cure should not have been determined as a matter of law and because a

reasonable jury could find that, even if there was some delay in requesting cure,

the Special Servicer substantially performed this MLPA obligation, these

questions of timeliness and substantial performance cannot be decided in favor

of Morgan Stanley on summary judgment but must be presented to the factfinder

at trial.   

III. Conclusion

To summarize, we conclude as follows:

1. “Notice to cure” is not a phrase that appears in the MLPA and, thus,

cannot be identified as a condition precedent to Morgan Stanley’s MLPA cure‐or‐

repurchase obligation.

2. The request‐for‐cure obligation that the MLPA imposes on the

Special Servicer is properly construed as a promise rather than as a condition

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41

precedent because it neither employs the linguistic conventions of condition nor

serves as a trigger for the cure period at issue.

3. Even if the MLPA’s notice‐of‐breach obligation could be construed

as a condition precedent because it triggers the 90‐day cure period—a matter we

need not decide as no party advances the argument—that rationale would not

extend to the timeliness of the notice, which has no triggering effect, much less to

a three‐day time limitation, which does not cabin the notice‐of‐breach obligation

as it does the request‐for‐cure obligation.

4. The fact that the notice‐of‐breach obligation arises upon a party’s

“discovering” breach while the request‐for‐cure obligation arises upon a

Servicer’s “becoming aware” of the breach does not admit the categorical

conclusion, urged by BNY, that the time for requesting cure cannot run before

notice of breach is given, particularly where, as here, the Servicer is the party

discovering breach.

5. Under New York law, a reasonable time for investigation is afforded

before a party can be said to have discovered or become aware of a breach.

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6. Questions of fact as to the reasonableness of time taken to

investigate the alleged breach of the MLPA’s Environmental Conditions

Representation preclude finding, as a matter of law, that request for cure was

untimely, particularly when reviewed for substantial performance.

The judgment of the district court is, therefore, VACATED, and the case is

REMANDED for further proceedings consistent with this opinion.  

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