Chemical Bank of Rochester v. Haskell
| Decision Date | 01 June 1979 |
| Citation | 68 A.D.2d 347,417 N.Y.S.2d 541 |
| Parties | , 26 UCC Rep.Serv. 952 CHEMICAL BANK OF ROCHESTER, Respondent-Appellant, v. John HASKELL, Appellant-Respondent. Paddy CHAYEFSKY, as a Limited Partner in Quarry Square Associates, a New York Limited Partnership, suing individually and on behalf of all others similarly situated, Appellant-Respondent, v. CHEMICAL BANK OF ROCHESTER, Respondent-Appellant. Halsey F. SHERWOOD and Arthur Giliotti, as Limited Partners in Quarry Square Associates, a New York Limited Partnership, suing individually and on behalf of all others similarly situated, Appellants-Respondents, v. CHEMICAL BANK OF ROCHESTER, Respondent-Appellant. |
| Court | New York Supreme Court — Appellate Division |
Lacy, Katzen, Jones & Ryen, Rochester, for respondent-appellant; Richard B. Callen, Rochester, of counsel.
Before DILLON, P. J., and HANCOCK, SCHNEPP, DOERR and MOULE, JJ.
Appellants, John Haskell, Paddy Chayefsky, Halsey F. Sherwood and Arthur Giliotti, together with John F. Kelly and Edward Fine (not parties to the instant actions) are limited partners in Quarry Square Associates ("Quarry"), a limited partnership organized for the purpose of developing an apartment complex in Buffalo, New York. Stanndco Developers, Inc. ("Stanndco"), a real estate development corporation which organized the partnership, is a Class A general partner of Quarry. Stanndco conducted its business by purchasing land, obtaining financing, searching out investors, forming limited partnerships and then establishing itself as general managing partner responsible for the construction and operation of the projects. David J. Quigley, Anthony J. Caldarone and Charles F. Laiosa, major shareholders in Stanndco, are Class B general partners of Quarry.
The limited partners signed the articles of partnership of Quarry in December 1972. Their individual capital contribution consisted of the payment of cash and the execution and delivery of three negotiable notes payable to Quarry which contained identical terms and were due December 1, 1973, December 1, 1974 and June 1, 1975. On February 13, 1973 Sherwood and Giliotti signed an amendment to the limited partnership agreement under which their notes were returned and payment of the balance of their capital contribution was conditioned upon the completion of certain percentages of construction of the apartment complex. At the behest of Quigley, Stanndco's Chief Executive Officer, Sherwood and Giliotti re-executed and delivered their notes to Quarry on March 26, 1973 ostensibly for its credit files. On May 25, 1973 the Chemical Bank of Rochester ("Chemical"), formerly known as the State Bank of Hilton, purchased the notes at a discount. Upon Stanndco's endorsement and delivery of the notes to Chemical, the bank then delivered to Stanndco a bank draft for the purchase price. The draft was payable to the order of Stanndco. By letters dated July 26, 1973 Chemical notified the individual makers that it had purchased the notes.
When the December 1973 notes came due Haskell defaulted while Chayefsky, Sherwood and Giliotti made payment. In January 1974 mortgage foreclosure proceedings against the project were instituted, a receiver appointed, and the mortgage eventually foreclosed. Subsequently the project was completed by the mortgagee. In February 1974 Stanndco filed a petition in bankruptcy. Haskell, Chayefsky, Sherwood and Giliotti then defaulted on the remainder of the notes held by the bank. Kelly and Fine paid their obligations on the notes.
Action No. 1 was instituted by Chemical against Haskell pursuant to CPLR 3213 to recover $63,000 with interest on his three outstanding notes and reasonable attorneys fees. Action No. 2 was instituted by Chayefsky, as a limited partner in Quarry suing individually and on behalf of all others similarly situated, against Chemical seeking a declaration of his rights, cancellation of the notes and a judgment ordering repayment of the amount of the first note which he paid in December 1973. Sherwood and Giliotti brought a similar action requesting the same relief. In these actions Chemical interposed a counterclaim for the unpaid principal amount of the notes due December 1, 1974 and June 1, 1975 in addition to interest and legal fees. The cases were tried together and judgment was entered in favor of Chemical for the amounts stated in the notes plus interest from the date of default and attorneys fees. The court found that Chemical was the holder in due course of all the notes in question and took free of all defenses raised by the makers.
On appeal the appellant-makers argue that Chemical is not a holder in due course and is subject to the defenses of fraud, misrepresentation and failure of consideration and that the award of attorneys fees was improper. Sherwood and Giliotti further posit the defense of fraud in the factum. Chemical argues that appellants failed to prove a valid defense to the enforcement of the notes, that it is a holder in due course, and that the award of attorneys fees was inadequate. In reply appellants argue that the endorsement of the notes by Stanndco to Chemical without the written consent or ratification of the limited partners violated section 98 of the Partnership Law and the Partnership Agreement, and constitutes a complete defense even if Chemical is a holder in due course.
We hold that Trial Term was correct in dismissing the defenses of fraud and misrepresentation. As appellants conceded at the conclusion of their proofs, no credible testimony supporting the defenses of misrepresentation or fraud was presented at trial.
At the same time the court allowed appellants to amend their pleadings to conform to the evidence by adding the defense of failure of consideration. Appellants argue that the abandonment of the Quarry project deprived them of the following benefits: (1) their equity interest in the apartment complex, (2) the reasonable expected appreciation of the project and profits upon eventual sale, (3) rental income from apartment units, (4) immediate tax advantages in the form of deductions during construction of interest on interim financing money and other expenses of construction, and (5) continuing tax advantages in the form of deductions of depreciation allowances and other benefits commonly arising from tax shelters. They urge that the continued construction of the project to completion was an express or implied condition precedent to payment of the notes and maintain that the abandonment of the project and the bankruptcy of Stanndco made it impossible to fulfill these conditions.
This defense has no merit as applied to appellants Chayefsky and Haskell because they received an equity interest in Quarry in consideration for the execution and delivery of their notes. Neither the bankruptcy of Stanndco nor non-completion of the project releases them from their obligations. It cannot be inferred from the proofs that continued solvency or completion of the construction was intended by the parties to operate as a condition precedent to the payment of the notes (see 10 N.Y.Jur. Contracts, § 252).
However, upon the execution of the amended articles of limited partnership by Sherwood and Giliotti, payment of their contribution was expressly conditioned upon completion of certain percentages of construction of the apartment complex. This condition precedent was not met when the specified percentages were not completed. This failure may be asserted as a valid defense by Sherwood and Giliotti against Quarry and Stanndco. The defense remains viable even though this condition was not expressed in the negotiable instruments they executed. Their defense of fraud in the factum, however, is meritless and was properly dismissed by the Trial Court. There is no proof that they were ignorant of the contents of the negotiable notes which they executed on March 26, 1973 following the execution of the amended agreement on February 13, 1973 or that they did not intend to sign them. The notes, which are clearly legible on their face, do not condition payment upon the completion of construction.
On appeal appellants further contend as a complete defense that the notes were transferred in violation of the Partnership Law. This argument was not specifically articulated by appellants before the Trial Court and generally this court will not consider questions not raised at trial. However, since the issue was litigated, the interests of justice mandate our consideration of this argument. We are not confined to a review of the particular grounds upon which the Trial Court acted (Carmody-Wait 2d, §§ 70:302; 72:126), and if necessary we are empowered to make original findings of fact overruling those made by the Trial Court and to render judgment accordingly (Carmody-Wait 2d, § 72:158).
The facts relating to this defense are not in dispute. In the spring of 1973 Quigley, Chairman of the Board, and Chief Executive Officer of Stanndco, sought a loan for Stanndco from Chemical. Following his initial contact, in a letter to the bank dated May 1, 1973 he described the financial structure of Quarry, the status of the project and the capital contribution of each limited partner. He outlined in detail the due dates and amounts of each note and stated, "Stanndco would like to borrow $315,000 with these notes as collateral." There was evidence that during this period of time Stanndco, which was involved in various construction projects, was experiencing financial difficulty. Chemical rejected this offer and agreed to purchase the notes, which had a face value of $315,000, at a discount. Upon receipt of the endorsed notes it delivered a bank draft in the amount of $274,390.32 payable to the order of Stanndco which was received and deposited by Stanndco in its account at the Central Trust Company. Although none of...
To continue reading
Request your trial
-
Executive House Realty v. Hagen
...did not include authority to transfer those assets for purposes other than partnership business. (Chemical Bank of Rochester v. Haskell, 68 A.D.2d 347, 352-3, 417 N.Y.S.2d 541.) Plaintiffs have shown their legal ownership of the property and the exercise of unauthorized dominion by Hagen. (......
-
Chemical Bank of Rochester v. Haskell
...in due course and in that capacity took the notes free of all defenses raised by the makers. The Appellate Division reversed, 68 A.D.2d 347, 417 N.Y.S.2d 541, based on its conclusion that Chemical did not act in good faith in purchasing the notes. Chemical In 1972 defendants became involved......