Friar v. Vanguard Holding Corp.

• Court: New York Supreme Court — Appellate Division
• Writing for the Court: Before HOPKINS; LAZER; HOPKINS, J. P., and O'CONNOR; MARGETT; MARGETT
• Citation: Friar v. Vanguard Holding Corp., 78 A.D.2d 83, 434 N.Y.S.2d 698 (N.Y. App. Div. 1980)
• Decision Date: 15 December 1980
• Parties: Wilbur FRIAR, on behalf of himself and all other persons similarly situated, Respondent, v. VANGUARD HOLDING CORP., Appellant.

Page 698

434 N.Y.S.2d 698

78 A.D.2d 83

Wilbur FRIAR, on behalf of himself and all other persons similarly situated, Respondent, v. VANGUARD HOLDING CORP., Appellant.

Supreme Court, Appellate Division, Second Department.

Dec. 15, 1980.

Sheppard Daniels, East Meadow (Suozzi, English, Cianciulli & Peirez, P. C., Mineola, J. Irwin Shapiro and Robert M. Calica, Mineola, of counsel), for appellant.

Russ, Weyl & Levitt, Massapequa (Jeffrey Levitt, Massapequa, of counsel), for respondent.

Before HOPKINS, J. P., and LAZER, MARGETT and O'CONNOR, JJ.

LAZER, Justice.

This action is the legacy of events which occurred at a real estate title closing at which the seller unwillingly complied with the mortgage lender's demand that he pay a recently imposed mortgage recording tax. He now seeks recovery of the $61 paid over, punitive damages and certification of the suit as a class action on behalf of all sellers who were compelled or induced to pay the new mortgage tax by the same lender. The appeal is by the lender who seeks to reverse an order of Special Term which denied its motion to dismiss the complaint and which granted class action certification. The issues are significant.

I

In October, 1978 the plaintiff contracted to sell his one-family home subject to the purchasers obtaining a mortgage loan commitment. The commitment subsequently was issued by the defendant Vanguard Holding Corporation (Vanguard), but during the interim between the execution of the contract of sale and Vanguard's issuance of the commitment, the Legislature enacted subdivision 1-a (par. (a)) of section 253 of the Tax Law (L.1978, ch. 788, § 19, eff. Jan. 1, 1979) which imposed a special additional mortgage recording tax of one-quarter of 1% upon mortgage transactions. The statute provided that where the mortgaged premises contained six or less dwelling units, the lender was obliged to pay the tax and could not pass it on to the borrower "directly or indirectly." ¹

In disbursing the mortgage proceeds at the title closing held at its office, Vanguard charged the plaintiff with payment of the additional mortgage tax by deducting the sum of $122 from the amount payable to him. According to the plaintiff, Vanguard responded to his objections by representing that the provisions of the Tax Law required that the tax be paid by the seller. When plaintiff persisted in his refusal to accept the deduction, Vanguard refused to close the mortgage loan. With the buyers' belongings already in his house and the sale about to disintegrate, plaintiff agreed to pay half the tax, the real estate broker paid the balance.

Plaintiff then commenced this action asserting three causes of action. In the first, recovery of the $61 is sought on the ground that at the time plaintiff paid the money he was:

"under economic duress tantamount to extortion and would have suffered considerable economic injury in an amount greater than the tax if the closing had not taken place, or would have been in the situation of litigation, the fees of which would have been greater than the tax, all of which was known by defendant."

The second cause of action avers that Vanguard's acts were willful and malicious and "were part of a far-flung scheme to defraud the public at large" for which punitive damages of $25,000 are demanded. In the third cause, plaintiff proposes that the action be brought on behalf of all persons who sold residential property within the meaning of subdivision 1-a of section 253 of the Tax Law where the closing took place after January 1, 1979 and Vanguard was the mortgage lender.

Upon receipt of the answer, plaintiff moved pursuant to CPLR 902 for class action certification and Vanguard countered with a cross motion inter alia to dismiss the complaint for failure to state a cause of action. Special Term denied the cross motion on the grounds that the allegations of economic duress and malice were sufficiently pleaded and granted class action certification. On this appeal, Vanguard contests the legal validity of plaintiff's claim for recovery of his $61, his right to plead a separate cause of action for punitive damages, and argues that the requisite class action criteria have not been met.

II

In debating the merits of the first cause of action, the parties focus upon the doctrine of "economic duress" as expounded in Austin Instrument v. Loral Corp., 29 N.Y.2d 124, 324 N.Y.S.2d 22, 272 N.E.2d 533. Vanguard attacks the sufficiency of plaintiff's claim of "economic duress tantamount to extortion" by arguing that it is inapplicable here because no underlying contractual relationship existed between the parties as required by the pertinent authorities (Austin Instrument v. Loral Corp., supra; Bethlehem Steel Corp. v. Solow, 63 A.D.2d 611, 405 N.Y.S.2d 80; see, also, Muller Constr. Co. v. New York Tel. Co., 40 N.Y.2d 955, 956, 390 N.Y.S.2d 817, 359 N.E.2d 328; Oleet v. Pennsylvania Exchange Bank, 285 App.Div. 411, 137 N.Y.S.2d 779). Plaintiff confronts this contention by asserting that he was a third-party beneficiary of Vanguard's commitment to the purchasers and therefore in a contractual relationship with Vanguard. While plaintiff's theory of third-party beneficiary is palpably meritless, Vanguard's assertion that a claim of duress can only be made by parties in contractual privity is similarly flawed.

In Austin Instrument, supra, Chief Judge FULD described economic duress or business compulsion as stemming from a threat by a party to an agreement to breach it unless the other party complied with some further demand. The threat itself was insufficient to establish such duress, however, unless it also appeared "that the threatened party could not obtain the goods from another source of supply and that the ordinary remedy of an action for breach of contract would not be adequate" (Austin Instrument v. Loral Corp., supra, 29 N.Y.2d pp. 130-131, 324 N.Y.S.2d 22, 272 N.E.2d 533). As Vanguard postulates, plaintiff has made "no showing of a prior contractual relationship or a showing that plaintiff had any obligation or duty to deal with (defendant)" (see Bethlehem Steel Corp. v. Solow, supra ) and it is apparent that his cause of action does not sound in economic duress or business compulsion as those terms are now used in this State.

Our inquiry is not thus concluded, however, unless we believe that the Austin Instrument formulation has abolished the right to resort to common law quasi-contractual or restitutive remedies to recover for duress or coercion. To find as Vanguard demands would be to violate the precept that redress may be sought for every substantial wrong (see Battalla v. State of New York, 10 N.Y.2d 237, 240, 219 N.Y.S.2d 34, 176 N.E.2d 729; Suffolk Housing Servs. v. Town of Brookhaven, 91 Misc.2d 80, 89, 397 N.Y.S.2d 302, mod. on other grounds 63 A.D.2d 731, 405 N.Y.S.2d 302), for even if plaintiff could prove his claims he would be without legal recourse. The dispositive question is whether plaintiff's claim falls within a quasi-contractual mold.

The doctrine of quasi-contract embraces a wide spectrum of legal actions resting

"upon the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another * * * (I)t is not a contract or promise at all * * * (but) an obligation which the law creates, in the absence of any agreement, when and because the acts of the parties or others have placed in the possession of one person money, or its equivalent, under such circumstances that in equity and good conscience he ought not to retain * * * and which ex aequo et bono belongs to another. Duty, and not a promise or agreement or intention of the person sought to be charged, defines it. It is fictitiously deemed contractual, in order to fit the cause of action to the contractual remedy" (Miller v. Schloss, 218 N.Y. 400, 407 (113 N.E. 337); see, generally, Keener, A Treatise on the Law of Quasi-Contracts (1893); Woodward, The Law of Quasi-Contracts; Corbin, Quasi-Contractual Obligations, 21 Yale L.J. 531).

Although restitutive remedies originally were not available in some areas of the law due to lack of precedent or perceived principle, abolition of the ancient forms of action freed the courts to apply such remedies (Perillo, Restitution in a Contractual Context, 73 Colum.L.Rev. 1208, 1222; see, also, Dobbs, Handbook on the Law of Remedies (1973), p. 239). Quasi-contract then became the vehicle through which the courts developed "a fairly detailed system of awarding restitution in cases where neither tort nor contract necessarily existed" (Dobbs, supra, p. 235).

The restitutory remedy applicable to the instant facts is an action for moneys had and received. Although originally an action for recovery of a debt,

"it * * * gradually expanded as a medium for recovery upon every form of quasi-contractual obligation in which the duty to pay money is imposed by law, independently of contract, express or implied-in-fact * * *

"Its use to recover upon rights equitable in nature to avoid unjust enrichment by the defendant at the expense of the plaintiff, and its control in every case by equitable principles, established by Lord Mansfield in Moses v. Macferlan ² * * * have long been recognized" (Stone v. White, 301 U.S. 532, 534, 57 S.Ct. 851, 852, 81 L.Ed. 1265).

The broad flexibility of Lord Mansfield's formulation has long been recognized and followed in this State (Bradkin v. Leverton, 26 N.Y.2d 192, 309 N.Y.S.2d 192, 257 N.E.2d 643; Grombach Prods. v. Waring, 293 N.Y. 609, 59 N.E.2d 425; Miller v. Schloss, supra; Schank v. Schuchman, 212 N.Y. 352, 358, 106 N.E. 127; Chapman v. Forbes, 123 N.Y. 532, 536, 26 N.E. 3; Schwinger v. Hickok, 53 N.Y. 280, 281, 286; Eddy v. Smith, 13 Wend. 488; Forest-Fehlhaber v. State of New York, 74 A.D.2d 272, 275, 428 N.Y.S.2d 64; Town of Bleecker v. Balje, 138 App.Div. 706, 123 N.Y.S. 809; Seeber v. People's Bldg. Loan & Sav. Assn., 36 App.Div. 312, 55 N.Y.S. 364; Nacional Financiera,...