holding that the statute of limitations accrues from time of breachSummary of this case from Erdman v. HSBC Auto Finance
Argued April 28, 1993
Decided June 10, 1993
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, Myriam J. Altman, J.
Sullivan Cromwell, New York City (John L. Hardiman of counsel), and Fried, Frank, Harris, Shriver Jacobson, New York City (Debra M. Torres of counsel), for appellants.
Stroock Stroock Lavan, New York City (Joseph L. Forstadt, Charles G. Moerdler and Randy L. Shapiro of counsel), for respondent.
The determinative issue on this appeal is whether the plaintiff's breach of contract cause of action is barred by the Statute of Limitations. We hold that it is and thus reverse the order of the Appellate Division, grant defendants' motion to dismiss and answer the certified question in the negative.
Plaintiff real estate broker and defendant bank agreed in writing in 1980 that all inquiries for the sale of the defendant's building, located at 2 Wall Street, New York, New York, would "be referred to [Ely-Cruikshank], and all negotiations connected therewith [would] be conducted solely by or under the direction of [Ely-Cruikshank]". The contract also provided that either party could terminate the entire agreement, for any reason, at any time after January 31, 1981, with 30 days' notice. Defendant exercised that termination right effective November 30, 1983. It thereafter directly sold its building to RREEF USA Fund-II, Inc., on February 1, 1984. On January 26, 1990, Ely-Cruikshank sued for damages allegedly flowing out of several causes of action, including the breach of contract action at issue on this appeal. Ely-Cruikshank alleged that prior to terminating the brokerage agreement, the bank had secretly negotiated the building sale and thus deprived plaintiff of its right to negotiate and earn a commission pursuant to its exclusive rights under the agreement.
Supreme Court granted defendants' motion to dismiss, stating that the agreement had terminated prior to the sale and under the terms of the agreement plaintiff was not entitled to a commission for a sale which was consummated after termination of the agreement. The Appellate Division, with a two-Justice dissent, modified the order of the Supreme Court by reinstating plaintiff's first cause of action for breach of contract. The Appellate Division relied exclusively on the Statute of Limitations, which it held began to run on February 1, 1984, when the building was sold. The Appellate Division granted leave to appeal on a certified question.
Generally, any Statute of Limitations begins to run when a cause of action accrues (CPLR 203 [a]). In New York, a breach of contract cause of action accrues at the time of the breach (Edlux Constr. Corp. v State of New York, 252 App. Div. 373, 374, affd 277 N.Y. 635; see also, Kassner Co. v City of New York, 46 N.Y.2d 544, 550). "[T]he Statute runs from the time of the breach though no damage occurs until later" (6 Williston, Contracts § 2004, at 5641 [rev ed 1938], quoted in McLaughlin, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C203:1, at 143). As this Court recently observed in Kronos, Inc. v AVX Corp., "settled law marks accrual [for an action sounding in contract] from the contractual breach" ( 81 N.Y.2d 90, 94; contrast, Phoenix Acquisition Corp. v Campcore, Inc., 81 N.Y.2d 138, 143 [installment obligations "warrant different considerations and results under the Statute of Limitations' microscope"]). Since "[n]ominal damages are always available in breach of contract actions" (Kronos, Inc. v AVX Corp., supra, at 95 [citations omitted]), all of the "`elements necessary to maintain a lawsuit and obtain relief in court'" (dissenting opn, at 406) were present at the time of the alleged breach in this case.
Ely-Cruikshank's primary argument that its breach of contract cause of action should be measured from the date of the sale of the building fails because that is not the point at which any alleged breach occurred. In demarcating the sale as the time of the breach, the dissent misconstrues the plaintiff's cause of action and ignores critical facts. Ely-Cruikshank alleged that the bank secretly negotiated the sale of the building prior to terminating the contract, thus depriving it of the right to negotiate and earn a commission under the exclusive right-to-sell clause of the contract. Ely-Cruikshank did not, and could not, allege that the bank breached the contract by selling the building after it had properly terminated the contract. As noted, the contract gave both parties the unconditional right to terminate it unilaterally. It also explicitly limited Ely-Cruikshank's right to commissions "[u]pon and after termination of [the] Agreement" to "any pending negotiation for a lease," not a sale. Thus, even if the bank had notified Ely-Cruikshank of the pending negotiations, the bank would still have retained the right to terminate the contract and Ely-Cruikshank would not have been entitled to a commission on the subsequent sale regardless of its degree of participation in the negotiations. Thus, the alleged breach, if any, occurred when the bank purportedly failed to reveal its preliminary discussions with RREEF prior to the termination of the brokerage agreement.
Ely-Cruikshank's alternative argument that the defendant bank terminated the brokerage agreement in bad faith and thus breached the covenant of good faith which is implied in every contract is also unavailing (see, Kirke La Shelle Co. v Armstrong Co., 263 N.Y. 79, 87). Assuming without deciding that the bank breached an implied covenant of good faith, we conclude that such alleged breach occurred on or about the concededly effective termination of the agreement. Thus, the six-year Statute of Limitations on the breach of contract cause of action, measured from either the termination-of-agreement date or the earlier "secret-negotiations" date, had already expired by the time the lawsuit was started. Either way, the action was untimely commenced.
The dissent's heavy reliance on Ely-Cruikshank's lack of knowledge ignores this Court's own precedents and the policy considerations relating to the Statute of Limitations. We have stated that "[e]xcept in cases of fraud where the statute expressly provides otherwise, the statutory period of limitations begins to run from the time when liability for wrong has arisen even though the injured party may be ignorant of the existence of the wrong or injury" (Schmidt v Merchants Desp. Transp. Co., 270 N.Y. 287, 300, rearg denied 271 N.Y. 531). Thus, "[k]nowledge of the occurrence of the wrong on the part of the plaintiff is not necessary to start the Statute of Limitations running in [a] contract [action]" (Varga v Credit-Suisse, 5 A.D.2d 289, 292, affd no opn 5 N.Y.2d 865; see also, Brick v Cohn-Hall-Marx Co., 276 N.Y. 259; Wood v Young, 141 N.Y. 211, 217).
The dissent nevertheless charges that permitting the statute to run when the plaintiff is unaware of the breach "presents difficulties," is harsh and "manifestly unfair", and creates "`an obvious injustice'" (dissenting opn, at 404, 406). These objections appear to be calling for a remarkable form of discovery postponement of the running of Statute of Limitations affecting contract causes of action. Moreover, this novel notion would be entirely dependent on the subjective equitable variations of different Judges and courts instead of the objective, reliable, predictable and relatively definitive rules that have long governed this aspect of commercial repose of disputes. To extend the highly exceptional discovery notion to general breach of contract actions would effectively eviscerate the Statute of Limitations in this commercial dispute arena.
Moreover, the "difficulties" and "injustice" conjured up by the dissent do not overcome important policy considerations. "Indeed, we have noted that Statutes of Limitation are `statutes of repose' representing `"a legislative judgment that * * * occasional hardship * * * is outweighed by the advantage of barring stale claims"'" (Hernandez v New York City Health Hosps. Corp., 78 N.Y.2d 687, 698 [emphasis in original] [citations omitted]). By their nature, they are somewhat harsh and seemingly unjust. In any event, there is no injustice on the facts of this case, since although Ely-Cruikshank may have been unaware of the alleged secret negotiations in November 1983, it became aware of their existence at least as early as February 1984 at a time when it still had over five years left before the Statute of Limitations barred its breach of contract action.
Because the disposition of this case turns entirely on the application of settled breach of contract Statute of Limitations principles, we do not reach Ely-Cruikshank's other arguments addressed to the merits of the dispute.
Accordingly, the order of the Appellate Division should be reversed, with costs, defendants' motion to dismiss the complaint granted and the certified question answered in the negative.
Chief Judge KAYE and Judges SIMONS and TITONE concur with Judge BELLACOSA; Judge HANCOCK, JR., dissents and votes to affirm in a separate opinion in which Judge SMITH concurs.
Order reversed, etc.
The majority has dismissed plaintiff's action as time-barred, holding that for purposes of the limitations period, the contract cause of action "accrued" at a time when plaintiff not only could not commence an action for breach of contract, but also had no way of knowing that a breach had occurred. The unnecessarily rigid rule which the majority has adopted for time of accrual under CPLR 203 (a) is contrary to established New York case law and, as demonstrated in this case, leads to manifestly unfair consequences by cutting short the limitations period within which a party would otherwise be permitted to commence an action. The harsh result of the majority's holding — foreclosing plaintiff's rights even though it did not have six years in which to bring suit — seems particularly inappropriate here. For it was due solely to defendant's successful efforts to maintain secrecy to avoid a commission, that plaintiff did not learn of defendant's negotiations with RREEF until the sale occurred. I, therefore, dissent.
The majority, I submit, has misconstrued the plaintiff's first cause of action. The action is for breach of contract for failure to pay a real estate commission on the sale of defendant Bank's office building at 2 Wall Street. The commission allegedly became due under a commission schedule in a management agreement containing an "exclusive right to sell" clause by which defendant agreed that all inquiries for sale of the building "shall be referred to [plaintiff], and all negotiations connected therewith shall be conducted solely by or under the direction of [plaintiff]." According to plaintiff's allegations, defendant Bank's termination of the management agreement containing the "exclusive right to sell" clause and replacing it with another agreement omitting such clause were part of a "machiavellian procedure * * * designed to deprive Ely-Cruikshank Co., Inc. of its [commission] rights". Applying the accepted rule that a cause of action does not accrue until its enforcement becomes possible, the Appellate Division reached the only logical conclusion: that enforcement of plaintiff's claim for the commission was not possible "until the sale of the premises, when the duty to pay the plaintiff's commission arose" (Ely-Cruikshank Co. v Bank of Montreal, 185 A.D.2d 182, 183; see, Schochet v Public Natl. Bank, 220 App. Div. 201, 203-204).
In its decision today, this Court ignores the critical facts that plaintiff's suit is for the collection of a commission and that, without the Bank's sale to RREEF, there could be no suit because nothing could be owed. The Court's analysis is that the Bank's breaches of contract in conducting secret negotiations with RREEF and deceptively terminating the February 1, 1980 management agreement — allegedly done to avoid payment of a commission — occurred beyond the six-year limitation period. This conduct started the statute running and, according to the majority's analysis, it makes no difference that the negotiations with RREEF and the illegal purpose of the termination were kept secret from plaintiff or that defendant could have had no duty to pay a commission unless and until the illicit negotiations culminated in a sale. Contrary to the majority view this result is not compelled by "settled breach of contract Statute of Limitation principles" (majority opn, at 404).
The general rule is well established and easily stated. The Statute of Limitations begins to run "from the date that the cause of action `accrue[s],' a concept borrowed from substantive law and signifying the existence of all the factual elements necessary to maintain a lawsuit and obtain relief in court" (1 Weinstein-Korn-Miller, N Y Civ Prac ¶ 201.02, at 2-10 — 2-11; see, e.g., Aetna Life Cas. Co. v Nelson, 67 N.Y.2d 169, 175; Cary v Koerner, 200 N.Y. 253, 259 ["The time when `the cause of action has accrued,' as that term is used in those provisions of the Code of Civil Procedure limiting the periods within which actions must be commenced, means the time when the plaintiff first became enabled to maintain the particular action in question"]). The rationale of the rule is obvious: to start the Statute of Limitations running before the plaintiff can bring an action on the claim would deprive the plaintiff of the full statutory period in which to commence the action. Application of the general rule presents difficulties, however, when a technical or theoretical breach of contract occurred at a time when barred by the Statute of Limitations but the fact that a breach has taken place does not become known until a later time within the statutory period (see, 1 Weinstein-Korn-Miller, N Y Civ Prac ¶ 203.01, at 2-84; McLaughlin, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C203:1, at 144 ["there is an obvious injustice in permitting a statute to run on a cause of action of which the plaintiff is unaware"]).
Here, the Appellate Division majority was correct in sustaining plaintiff's cause of action under the general rule for date of accrual — i.e., when all the factual elements necessary to maintain the lawsuit and obtain relief come into existence (see, 1 Weinstein-Korn-Miller, N Y Civ Prac ¶ 201.02, at 2-10). Plaintiff's action for the recovery of a commission obviously could not have been maintained until the commission was due. The defendant's efforts to deprive its agent of its right to a commission by canceling the contract are of no effect (see, e.g., Sibbald v Bethlehem Iron Co., 83 N.Y. 378, 391; O'Connell v Rao, 70 A.D.2d 982, 983, lv denied 48 N.Y.2d 609; Restatement [Second] of Contracts § 205 ["Duty of Good Faith and Fair Dealing"], comment e, at 102; see also, Patterson v Meyerhofer, 204 N.Y. 96, 100; Wakefield v Northern Telecom, 769 F.2d 109, 114). Thus, plaintiff's right to a commission under the "exclusive right to sell" clause remained intact and ripened into a cause of action for breach of contract when the commission came due on the sale of the building. Prior to that time any claim to sue for commission would clearly have been subject to dismissal.
Assuming for the sake of argument that the critical breach (the failure to perform the duty to pay the commission) were to be ignored and that the alleged breaches of the "exclusive right to sell" clause and the improper termination could somehow be isolated and viewed separately, the reasoning of the Appellate Division majority would still be correct. As the majority at the Appellate Division properly noted, the "mere allegations of a breach of contract are insufficient to sustain a complaint in the absence of allegations of fact showing damage" (Ely-Cruikshank Co. v Bank of Montreal, 185 A.D.2d 182, 183, supra [emphasis added]). Thus, because the complaint was dismissable as insufficient, there was no right to relief. Under the general rule that a cause of action accrues when there is some right to relief, the cause of action could not have accrued solely as a consequence of defendant's conduct in conducting the secret negotiations with RREEF and illicitly terminating the management agreement (see, 1 Weinstein-Korn-Miller, N Y Civ Prac ¶ 201.02, at 2-10).
The Appellate Division's analysis follows the established proposition that in the absence of allegations of fact showing damage, a complaint for breach of contract must be dismissed as insufficient (see, Reade v Sullivan, 259 App. Div. 229; Gordon v De Laurentiis Corp., 141 A.D.2d 435 ["the pleadings must set forth facts showing the damage upon which the action is based" (id., at 436)]; Calabria v Associated Hosp. Serv., 459 F. Supp. 946, 949 [SD NY] [applying New York law]). The Appellate Division's reasoning and the result it reaches are consistent with other decisions (see, Bauer v Roman Catholic Diocese, 91 A.D.2d 730, 731 [action for breach of agreement to pay retirement benefits into investment fund during plaintiff's employment did not accrue until plaintiff's termination or later when benefits became due]; Brooklyn Union Gas Co. v Interboro Surface Co., 87 A.D.2d 833 [breach of contract action against insurance agents for failure to obtain insurance did not accrue until insurer refused to provide a defense to plaintiff]).
The majority's reliance on Edlux Constr. Corp. v State of New York ( 252 App. Div. 373, affd 277 N.Y. 635) and Kassner Co. v City of New York ( 46 N.Y.2d 544) misses the central question of this case, i.e., whether plaintiff could successfully have pleaded a cause of action for breach of contract without pleading any damages and thus have had a right to obtain relief at any time prior to the sale of the building. Neither Edlux nor Kassner are concerned with the sufficiency of the allegations in the complaint. Rather, Edlux involved a question on appeal from a judgment of the Court of Claims as to when the contract was finally completed and Kassner concerned an appeal from a summary judgment on a similar question.
The case of Ryan Ready Mixed Concrete Corp. v Coons ( 25 A.D.2d 530), cited by the Appellate Division majority, illustrates the point. There, plaintiff sued defendant insurance brokers for breach of a contract to procure insurance for two successive years. Defendants allegedly breached the agreement by misinforming the insurer of plaintiff's loss experience and by failing to procure any insurance for the second year. If measured from the date of these breaches, the six-year Statute of Limitations had run. The Court, however, held that the statute did not begin to run until after plaintiff had sustained losses and the insurer had disclaimed coverage. The Court stated:
"Although many cases hold that in a contract action the statute starts to run from the breach of the contract [citations omitted], there are cases in which the breach and the accrual of the cause of action are not simultaneous. The statute commences to run from the time when the plaintiff is first enabled to bring his action (Cary v. Koerner, 200 N.Y. 253, 259; Edlux Constr. Corp. v. State of New York, 252 App. Div. 373). It is well established that allegations of a breach of contract are not sufficient to sustain a complaint in the absence of allegations of fact showing damage [citations omitted]. It follows that a breach of contract action against defendants would not lie prior to the insurer's disclaimer (at the earliest) because no damages could be shown" (id., at 530).
The question before us is whether the plaintiff's cause of action should be dismissed on motion under CPLR 3211 (a) (5). We are not concerned with actual proof but solely with the sufficiency of the allegations. In rejecting the reasoning of the Appellate Division majority and the Appellate Divisions in Bauer (supra), Brooklyn Union Gas (supra) and Ryan Ready Mixed Concrete (supra) the Court adopts a simplistic rule which starts the Statute of Limitations running in a breach of contract action from the date of the earliest actions that could constitute a breach of some part of the contract although, at the time of these actions, no damage of any kind could have been alleged. As noted, the rule leads to "an obvious injustice" (see, McLaughlin, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C203:1, at 144).
In my view, the doctrine which the Court has now established is unnecessary and furthers no policy considerations underlying the Statute of Limitations. Beyond that, it ignores the fact that the sometimes difficult determinations of when a cause of action accrues for Statute of Limitations purposes require an analysis of the substantive law pertaining to the particular cause of action at issue (see, 1 Weinstein-Korn-Miller, N Y Civ Prac ¶ 201.02, at 2-10; ¶ 203.01, at 2-84, 2-85). Here, the Appellate Division majority correctly analyzed the substantive law in actions for breach of contract by noting that plaintiff's cause of action for breach of an agreement to pay a commission was subject to dismissal until the commission was owed (see, Reade, supra; Gordon v De Laurentiis Corp., supra; Calabria, supra).
I cannot accept the Court's holding which ignores the substantive law pertaining to plaintiff's claim and adopts a rule making a contract cause of action accrue at a time not only when no damage could be alleged, but when plaintiff had no way of knowing that any breaches of the contract were occurring, let alone that such unknown breaches might ultimately entitle plaintiff to sue for a commission. I, therefore, respectfully dissent.