Case Name: Manufacturers and Traders Trust Company, Respondent-Appellant, v. Edward H. Cottrell et al., Appellants-Respondents, et al., Defendants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1979-12-21
Citations: 71 A.D.2d 538
Docket Number: 
Parties: Manufacturers and Traders Trust Company, Respondent-Appellant, v Edward H. Cottrell et al., Appellants-Respondents, et al., Defendants.
Judges: 
Reporter: Appellate Division Reports
Volume: 71
Pages: 538–547

Head Matter:
Manufacturers and Traders Trust Company, Respondent-Appellant, v Edward H. Cottrell et al., Appellants-Respondents, et al., Defendants.
Fourth Department,
December 21, 1979
APPEARANCES OF COUNSEL
Duke, Holzman, Yaeger & Radlin (Edwin P. Yaeger of counsel), for appellants-respondents.
Diebold & Millonzi (F. James Kane, Jr., and Robert I. Millonzi of counsel), for respondent-appellant.

Opinion:
OPINION OF THE COURT
SCHNEPP, J.
Plaintiff bank, the Manufacturers and Traders Trust Company, seeks to foreclose its mortgage dated March 14, 1975 in the principal amount of $2,068,500 and executed by Edward H. Cottrell and Kenford Company, Inc. The mortgage constitutes a first lien on real property situate in the Towns of Lancaster and West Seneca, New York. Plaintiff claims that the mortgage interest which became due on December 31, 1977, pursuant to a modifying agreement dated March 3, 1976, was not paid and that by reason of this default it is entitled to maintain this action which it instituted in October, 1978. Defendants-appellants ("defendants"), Edward H. Cottrell, the Kenford Company and four other corporations apparently owned and controlled by Cottrell, assert by way of affirmative defenses and counterclaims that plaintiff is estop ped from foreclosing the mortgage because of its fraudulent conduct in inducing defendant Cottrell to sign the March 3, 1976 contract and its breach of express and implied agreements to forbear demanding payment of the mortgage in full until an orderly liquidation of the Lancaster real property could be achieved. In addition, defendants seek to recover damages. Plaintiff contends that the terms of the agreement prevent defendants from interposing defenses and counterclaims to this foreclosure action and that they are not barred by res judicata principles.
Special Term, Erie County Court, measuring the conduct of the parties by the standards established in the March 3, 1976 agreement, granted plaintiffs motion to strike the answer and for summary judgment as to the Lancaster property. It denied, however, the motion for summary judgment with respect to the foreclosure sought against the West Seneca property, concluding that the defenses and counterclaims were not relinquished because the agreement related only to the Lancaster property. This appeal by defendants and cross appeal by plaintiff followed.
A brief review of the facts is necessary for the determination of the questions posed on this appeal. In 1975 plaintiff instituted an action to foreclose this mortgage and the defendants responded with a number of affirmative defenses and counterclaims. On March 3, 1976 a settlement was entered into between plaintiff and Cottrell, the purpose of which was to give Cottrell an opportunity over a three- to-five-year period to liquidate the mortgaged Lancaster real property in an orderly fashion in order to obtain the necessary funds to discharge the mortgage debt. Under the agreement the 1976 mortgage interest was payable by December 31, 1977, and the interest for the years 1977 and 1978 was payable respectively by December 31 of the following year. Plaintiff had the right to approve all sales of the real property and agreed not to withhold its approval unreasonably, to provide mortgage releases and to extend mortgage financing to credit-worthy buyers. Under the agreement plaintiff could institute foreclosure proceedings upon written notice if a default occurred, in which event Cottrell had the right to give the bank a deed in lieu of foreclosure. Cottrell agreed, however, that neither he nor his controlled corporations "will interpose any defense against such foreclosure, nor assert any counterclaim against the Trust Company". On the basis of a stipulation then entered into by the parties, the 1975 foreclosure action was discontinued without prejudice to the plaintiff, and the affirmative defenses and counterclaims of the defendants were "discontinued on the merits pursuant to an agreement between the plaintiff and Edward H. Cottrell". It is undisputed that the interest due on December 31, 1977 remains unpaid.
According to Cottrell's uncontroverted sworn statement, during December, 1977 he advised an officer of plaintiff of his inability to pay the December 31, 1977 interest and offered to deed the property to the bank. He was told that the bank preferred to see the property sold and that it recommended that the negotiations continue to reach a firm agreement for its sale. In a letter dated March 2, 1978 to the bank, Cottrell recognized the existing right of the bank to foreclose the mortgage, while expressing his understanding that the agreement of March 3, 1976 continued in full force and effect. On May 9, 1978 Cottrell submitted to the bank a land development agreement arranged with Patrick Marrano Associates, Inc. ("Marrano"). Under this proposal, for which bank financing was required, a portion of the Lancaster property was to be subdivided and developed. On May 12, 1978 at a meeting with bank officials concerning the approval and financing of this agreement, Cottrell was advised that the plaintiff would not discuss the proposal, that Cottrell was in default of the March 3, 1976 agreement, and that, if he failed to make a $1,000,000 payment of principal on the loan by July 1, 1978, the bank would begin foreclosure proceedings.
Defendants claim that, if the March 3, 1976 contract was valid, it was in full force and effect at the time they submitted the Marrano agreement and that the bank, therefore, was obligated to consider its terms in good faith. Plaintiff claims that the March 3, 1976 contract and its responsibilities terminated on December 31, 1977.
In our opinion the pleadings and proofs submitted on this motion, construed in a light most favorable to defendants, establish that a triable issue of fact exists as to (1) whether the bank by its conduct induced Cottrell to believe that it would ignore the default in the payment of interest due on December 31, 1977 and afford him further opportunity to liquidate the Lancaster properties and (2) whether Cottrell acted reasonably in reliance on this belief to his prejudice, thereby estopping plaintiff from foreclosing its mortgage without first making a demand for the total amount of interest in arrears (Marine Midland Bank-Western v Center of Williams-ville, 48 AD2d 764; see, also, 14 Carmody-Wait 2d, NY Prac, Mortgage Foreclosure, § 92:49-92:51; 1 Wiltsie, Mortgage Foreclosure [5th ed], § 172).
The affirmative determination of this threshold issue may well raise other issues of fact perceived in its shadow that may have a substantial impact on the rights and liabilities of the parties, e.g., has the plaintiff breached its obligations under the March 3, 1976 agreement. Summary judgment should not be granted where there is any doubt as to the existence of a triable issue (Rotuba Extruders v Ceppos, 46 NY2d 223, 231; Phillips v Kantor & Co., 31 NY2d 307).
The first affirmative defense and counterclaim, however, must be dismissed for legal insufficiency. True, defendants' allegation that Cottrell was fraudulently induced to enter into the agreement of March 3, 1976, standing alone, cannot be deemed insufficient as a matter of law. "[A] contractual promise made with the undisclosed intention not to perform it constitutes fraud" (Sabo v Delman, 3 NY2d 155, 162). A contract thus procured is voidable at the option of the defrauded party and unenforceable (24 NY Jur, Fraud & Deceit, § 10; Restatement, Contracts, § 476; see, also, Channel Master Corp. v Aluminum Ltd. Sales, 4 NY2d 403). The intention, however, not to perform the agreement of March 3, 1976 must have existed at the time that it was entered into (Adams v Clark, 239 NY 403; 24 NY Jur, Fraud & Deceit, § 56). Ordinarily, a fraudulent intent not to perform an agreement cannot be inferred merely from the fact of nonperformance (Adams v Clark, supra; Restatement, Torts 2d, § 530, comment d; 24 NY Jur, Fraud & Deceit, § 57). In the instant case defendants point merely to the asserted failure of the plaintiff to consider the Marrano sale proposal in good faith as required under the terms of March 3, 1976 agreement. This evidence, by itself, is not enough to create a triable issue as to the fraudulent intent of the bank. The failure to perform constitutes a breach of contract (Wegman v Dairylea Co-op., 50 AD2d 108, 113; see, also, Lanzi v Brooks, 54 AD2d 1057, affd 43 NY2d 778).
We have considered also the legal sufficiency of the second affirmative defense and counterclaim which claims an estoppel based on the alleged breach by the plaintiff of the March 3, 1976 contract. Because of the possible existence of factual issues, we do not summarily dismiss this defense and counterclaim (Rotuba Extruders v Ceppos, supra). This is not to say, however, that plaintiff will be indefinitely estopped from foreclosing its mortgage. During the 22 months of forbearance from March 3, 1976 to December 31, 1977, a $10,000 sale of real property was approved by the plaintiff and the net proceeds applied to the mortgage pursuant to the agreement. Defendants have not tendered any other sums to apply to the principal or interest owing on the mortgage. They maintain that an indefinite forbearance on the part of the plaintiff is required while the Lancaster property is liquidated. At the most, defendants should be afforded a reasonable time to pay the total interest in arrears during which the plaintiff will be required to forbear assertion of its rights under the mortgage (Marine Midland Bank-Western v Center of Williamsville, 48 AD2d 764, supra). Any other right of the defendants is limited to a claim for damages suffered by reason of the breach (see Restatement, Contracts, § 357; 12 Williston, Contracts [3d ed], § 1454). However, if it is determined that the plaintiff did not impliedly agree to ignore the default, it could not have breached the contract and thus would have an absolute right to foreclose the mortgage.
Finally, a finding that plaintiff breached the agreement of March 3, 1976 would have other implications. Plaintiff claims that the earlier judgment is res judicata and defendants are barred in this action from raising defenses or counterclaims. Defendants claim that their promise not to reassert defenses and counterclaims was dependent upon plaintiff's promise to assist in the orderly liquidation of the Lancaster property and that plaintiff's breach of that agreement constitutes a failure of consideration for defendants' promise. In short, the stipulation should be vacated in the event it is found that plaintiff breached the agreement. It would be inequitable under this circumstance to permit enforcement of the stipulation of discontinuance in the prior foreclosure action upon which a judgment was entered. It may be argued that this relief may be obtained only by way of motion or plenary action in the court where the judgment dismissing the first foreclosure action was entered. However, there is no reason why relief from the discontinuance cannot be given here if it is found that plaintiff breached the agreement (see Matter of Horton, 51 AD2d 856). We note that Teitelbaum Holdings v Gold (48 NY2d 51) does not stand adverse to this proposition.
Accordingly, the order and judgment of Special Term should be reversed and plaintiffs motion should be denied except as stated herein.