Court Opinion

ID: 5487733
Source: CourtListenerOpinion
Date Created: 2022-01-10 02:18:54.746196+00
Date Added: 2024-06-11T08:33:42.693807
License: Public Domain

Graffeo, J. (dissenting).
I respectfully dissent because I disagree that the liquidated damages provision in the parties’ contract vitiates the prejudgment interest provided in CPLR 5001 (a).
In a breach of contract action, an award of prejudgment interest is required under CPLR 5001 (a) (“[i]nterest shall be recovered upon a sum awarded because of a breach of performance of a contract”) and the accrual of interest is mandatory (see Matter of Syquia v Board of Educ. of Harpursville Cent. School Dist., 80 NY2d 531, 536 [1992] [legislature’s use of the term “shall” implies “duty, not discretion”]; see also Gizzi v Hall, 309 AD2d 1140, 1142 [3d Dept 2003]). As the majority correctly recognizes, “interest is not a punishment arbitrarily levied upon a culpable party” but compensation intended to *120make whole the party aggrieved (Mohassel v Fenwick, 5 NY3d 44, 51 [2005]; Spodek v Park Prop. Dev. Assoc., 96 NY2d 577, 581 [2001]).
It is common for parties contracting for the sale of real property to agree to limit a seller’s damages to the amount of the buyer’s down payment (see e.g. Beagle Devs., LLC v Long Is. Beagle Club No. II, Inc., 63 AD3d 607, 608 [1st Dept 2009]; Hegner v Reed, 2 AD3d 683, 684-685 [2d Dept 2003]). The primary objective of this practice is to eliminate the purchaser’s exposure to more costly potential damages (see Federal Realty Ltd. Partnership v Choices Women’s Med. Ctr., 289 AD2d 439, 441 [2d Dept 2001]). Liquidated damages clauses therefore are designed to foreclose causes of action seeking damages for expectation (“benefit of bargain” or lost profits) and reliance (“expenditures made in preparation for performance or in performance”) that would otherwise be available to a seller or vendor (see St. Lawrence Factory Stores v Ogdensburg Bridge & Port Auth., 13 NY3d 204, 208 [2009]). Before today, such contractual provisions were not interpreted to bar recovery of statutorily-mandated interest. Indeed, courts awarded prejudgment interest in similar cases in the past (see Gargano v Rubin, 200 AD2d 554, 556 [2d Dept 1994]; Shubert v Sondheim, 138 App Div 800, 806 [1st Dept 1910]; Downtown Harvard Lunch Club v Racso, Inc., 201 Misc 1087, 1092 [Sup Ct, NY County 1951]; Norris v McMechen, 135 Misc 361, 363 [Sup Ct, Warren County 1930]). Prejudgment interest should not be viewed as an addition to stipulated damages as the majority seems to imply, but rather, should be viewed as representing compensation “for the different and distinct wrong of not paying the agreed sum when it was due” (Downtown Harvard Lunch Club, 201 Misc at 1092). Thus, in the absence of specific terms in the contract excluding prejudgment interest, I would not infer limitations on statutory interest in generic liquidated damages provisions.
Here, the parties’ agreement stated that in the event of D’Addario’s default, Embassy would be entitled to retain all amounts paid by D’Addario as a deposit.* Yet, the stipulation did not mention statutory interest, much less exclude it. Nor *121does it follow that the parties intended to exempt interest simply because they used the words “sole remedy” and “sole obligation” in the contract. Such language is frequently used in contractual damages clauses to restrict a party’s potential remedies and has no bearing on the availability of statutory interest. Similarly, contrary to the majority’s assertion, the phrase “no further rights or causes of action” plainly refers to the foreclosure of claims for other categories of damages, not prejudgment interest. In short, nothing in this boilerplate language suggests that the parties contemplated that interest would not accrue if D’Addario chose to contest Embassy’s claim to the down payment.
The entitlement to interest under CPLR 5001 (a) should also not depend on whether the down payment was placed in an escrow account managed by Embassy’s counsel during the four-year pendency of this litigation. Under the terms of the parties’ agreement, the attorney could not transfer the down payment to Embassy unless both Embassy and D’Addario agreed to release the funds. By refusing Embassy’s demand for disbursement, D’Addario effectively restrained Embassy’s use of the money for the remaining duration of the action. That refusal constituted a distinct and separate wrong not covered by the liquidated damages provision and prejudgment interest should have been awarded.
Accordingly, I would modify the Appellate Division order by reversing so much of it as vacated the Supreme Court’s judgment granting Embassy statutory interest, order that portion of the judgment reinstated and otherwise affirm.
Judges Ciparick, Read and Smith concur with Chief Judge Lippman; Judge Graffeo dissents in a separate opinion in which Judge Pigott concurs.
Order affirmed, with costs.

 The contract provided as follows:
"If {D'Addario] defaults, the entire damages which [Embassy] will thereby sustain cannot be exactly determined; therefore, it is agreed that in the event of any default by [D'Addario], all *121amounts paid by [D’Addario] as a deposit pursuant to this Contract shall be considered as liquidated damages for such failure or refusal of [D’Addario] to consummate this transaction or for any non-compliance, non-performance, breach or default by [D’Addario], and shall become the exclusive property of, and be permanently retained by [Embassy] as [Embassy’s] sole remedy and [D’Addario’s] sole obligation in any and all events. . . . [Embassy] shall retain such amounts as liquidated damages and no further rights or causes of action shall remain against [D’Addario] . . . .”