Shell Oil Co. v. McGraw
| Decision Date | 30 May 1975 |
| Citation | 368 N.Y.S.2d 610,48 A.D.2d 220 |
| Parties | SHELL OIL COMPANY, Appellant-Respondent, v. Lawrence McGRAW and Josephine McGraw, Respondents-Appellants, Tax Commission of the State of New York et al., Defendants. |
| Court | New York Supreme Court — Appellate Division |
Costello, Cooney & Fearon, Syracuse (Donald L. Nicholas, Syracuse, of counsel), for appellant-respondent.
Lombardi, Devorsetz, Stinziano & Smith, Syracuse (Yaffee & Yaffee, Victor J. Hershdorfer, Syracuse, of counsel), for respondents-appellants.
Before MOULE, J.P., and CARDAMONE, SIMONS, MAHONEY and GOLDMAN, JJ.
Plaintiff agreed to lease defendants' land in Camillus, New York for a gas station site. The cost of constructing the station was to be loaned to defendants by Shell and the debt satisfied by rental paid under the lease. In furtherance of this arrangement, the parties executed a financing agreement by which plaintiff was to loan up to $112,037.00 in periodic advances upon the condition precedent that defendants submit proof satisfactory to Shell that all bills for labor and materials were fully paid. Under paragraph 9 of the agreement the advances were secured by a mortgage which was executed and recorded. Upon failure of the defendants to satisfy any condition precedent, paragraph 10 of the financing agreement permitted termination before the full principal had been advanced, upon giving defendants appropriate notice. In such event the defendants became liable for the full amount of the advances together with all interest due. If the full principal was advances together with all interest terminated and a promissory note, secured by a partial assignment of rent and by the same mortgage, took the place of the financing arrangement.
Prior to payment in full by Shell it terminated the financing agreement and accelerated the debt pursuant to paragraphs 9 and 10. It did so because defendants had allowed various suppliers and subcontractors to remain unpaid and mechanic's liens to be filed against the property. Also, various state and federal tax liens totalling $14,108.68 (and an additional one of $3,594.18 filed in May, 1972) had been filed against the property from 1968--1971. By letter of October 12, 1971 Shell warned defendants to satisfy the suppliers and sub-contractors' claims. Nevertheless, on November 19, 1971 the first mechanic's lien was filed, soon to be followed by several others. In February, 1972 the parties met with the defendants and officers of defendants' bank and tried unsuccessfully to clear the title before closing the transaction. By defendants' records there were unpaid charges, exclusive of taxes, amounting to $39,586. (The station had been completed and Shell had taken possession under the lease on November 2, 1971.) When defendants did not satisfy these claims, Shell sent a letter of March 7, 1972 declaring the financing agreement terminated and demanding payment of all advances and interest in 30 days. In August, 1972 it commenced this foreclosure action. Shell claims $110,827.33.
Special Term concluded that Shell did not effectively exercise its right to terminate the financing agreement, and that Shell had been guilty of inequitable conduct in withholding rental payments after it took possession in November and in failing to assist defendants to solve their financial problems. It is alleged, but not proved, that Shell was also guilty of delaying advances to the detriment of defendants and that Shell waived any default by allowing the station to be completed and taking possession after it had knowledge of the unpaid claims.
We disagree with Special Term's conclusion that Shell ineffectively exercised its express contractual right to terminate the financing agreement upon defendants' failure to pay suppliers and sub-contractors. We find no bad faith on the part of Shell in doing so (see Van Valkenburgh, Nooger & Neville v. Hayden Pub. Co., 30 N.Y.2d 34, 43, 330 N.Y.S.2d 329, 331, 281 N.E.2d 142, 143). Defendants had been continually certifying that the debts were paid or would be paid. They did so again in November, 1971 when the construction was completed. Thereafter mechanic's liens were filed and while Shell had knowledge of some unpaid claims earlier, it was not...
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