Pine Plains Lumber Corp. v. Messina

• Decision Date: 15 January 1981
• Parties: PINE PLAINS LUMBER CORP., Appellant, v. Richard M. MESSINA et al., Respondents, and Mandeville A. Frost, Defendant.
• Court: New York Supreme Court — Appellate Division

Page 381

435 N.Y.S.2d 381

78 A.D.2d 271

PINE PLAINS LUMBER CORP., Appellant, v. Richard M. MESSINA et al., Respondents, and Mandeville A. Frost, Defendant.

Supreme Court, Appellate Division, Third Department.

Jan. 15, 1981.

Rapport & Meyers, P.C., Hudson (Victor Meyers, Hudson, of counsel), for appellant

Richard M. Messina, respondent pro se.

Jerome H. Turk, respondent pro se.

Before MAHONEY, P. J., and SWEENEY, MIKOLL, HERLIHY and MAIN, JJ.

OPINION FOR REVERSAL

MAIN, Justice.

On February 28, 1979, plaintiff Pine Plains Lumber Corporation entered into a written agreement with Hudson Estates, a limited partnership, whereby Hudson agreed to sell and plaintiff agreed to buy, cut, skid and remove timber from land owned by Hudson in the Town of Esopus, Ulster County. Allegedly negotiated by Hudson's attorney, defendant Mandeville A. Frost, and signed for Hudson by one of its general partners, defendant Richard M. Messina, the agreement provided for a purchase price of $40,000 for the timber, subject to adjustment depending upon the actual quantity of timber removed, and upon execution of the agreement plaintiff delivered a $40,000 check to defendant Frost for Hudson. Of this amount, Frost allegedly retained for himself $9,350 as a broker's commission and for legal services while the remaining $30,650 was presumably held for or paid over to Hudson. Significantly, Hudson warranted in the contract that it had "unencumbered title to all timber on the premises free from lien or claim by other, including mortgagee", and prior to and at the time the contract was executed defendants also allegedly made representations to the effect that Hudson had clear title to the timber.

Thereafter, on March 3, 1979, plaintiff commenced timbering operations on the land at an alleged daily cost of $1,000 for lumber crews, and it also allegedly entered into a contract for the resale of the timber at a profit. Its operations were abruptly halted on March 20, 1979, however, when it was served with a temporary restraining order enjoining its removal of timber pending determination of a motion in a mortgage foreclosure action by Highland Vineyards, Inc. to permanently enjoin Hudson from committing waste on the property. Apparently at the time plaintiff's contract with Hudson was executed, Hudson was approximately three years in default in mortgage payments on a principal balance of $400,000 owed to Highland with an additional $100,000 in interest also owed. Additionally, Hudson allegedly owed $30,000 in property tax arrearages and some amount on a second mortgage so that its land was encumbered in a total amount of approximately $700,000.

As a consequence of these developments, plaintiff obtained a temporary restraining order on March 28, 1979 within the cited foreclosure action whereby Hudson, Messina and Frost were enjoined from disposing of any portion of the $40,000 purchase price that plaintiff had paid for the timber. Alleging that it could not pay its debts as they came due, Hudson, on April 5, 1979, filed a petition for an arrangement in Federal District Court under chapter XII of the Bankruptcy Act. ¹ Pursuant to Bankruptcy Rule 703, ² plaintiff then commenced an adversary proceeding in Bankruptcy Court on April 20, 1979, wherein it sought either the return of any portion of the $40,000 purchase price then in possession of Hudson or an order allowing plaintiff to specifically perform the contract and such further relief as would be just and equitable. Following a hearing on plaintiff's claim, the Bankruptcy Court, by order dated June 18, 1979, directed Hudson to segregate $30,650 cash and place it in an interest bearing account pending determination of the claim.

With these circumstances prevailing, plaintiff commenced the instant action on August 28, 1979 against defendants Messina and Jerome H. Turk, who are general partners of Hudson, and attorney Frost, seeking recovery of the $40,000 purchase price it paid as well as an additional $40,000 damages for its actions in reliance upon the agreement and its lost profits. Alleged as theories of recovery were breach of contract, breach of warranty, unjust enrichment and fraud. On October 5, 1979, defendants Turk and Messina moved to dismiss the complaint on various grounds, to wit: that the action was stayed pursuant to Bankruptcy Rule 12-43 and must be dismissed pursuant to CPLR 3211 (subd. (a), pars. 2, 3 or 5); that there was another action pending between the same parties for the same relief (CPLR 3211, subd. (a), par. 4); that the complaint failed to state any cause of action (CPLR 3211, subd. (a), par. 7) because plaintiff failed to allege that partnership property was insufficient to pay its claim or that there was no other effective remedy without resort to the individual partners' assets and, relative to the fraud action, that plaintiff alleged misrepresentations by defendants of future events or opinions and failed to allege that defendants had, at the time the representations were made, a present intent to dishonor; and that CPLR 3211 (subd. (a), par. 10) required dismissal because Hudson was a necessary party which could not be joined because of the automatic stay of any court proceeding against it imposed by Bankruptcy Rule 12-43. In response to this motion, plaintiff cross-moved to amend its complaint to include allegations that Hudson was insolvent and unable to pay its debts.

Ultimately, Special Term granted the motion to dismiss on the grounds that the action was stayed pursuant to the Bankruptcy Law, another action was pending between the parties and the complaint failed to state a cause of action. Holding that Hudson's insolvency was a question before the Bankruptcy Court and not a subject matter over which it should assume...