Sotheby's, Inc. v. Mao

• Decision Date: 02 May 2019
• Docket Number: 7561–7562,Index 652283/15
• Citation: 100 N.Y.S.3d 27,173 A.D.3d 72
• Parties: SOTHEBY'S, INC., Plaintiff-Appellant-Respondent, v. Christophe MAO, et al., Defendants-Respondents-Appellants.
• Court: New York Supreme Court — Appellate Division

173 A.D.3d 72

100 N.Y.S.3d 27

SOTHEBY'S, INC., Plaintiff-Appellant-Respondent,

v.Christophe MAO, et al., Defendants-Respondents-Appellants.

7561–7562

Index 652283/15

Supreme Court, Appellate Division, First Department, New York.

Decided on May 2, 2019

Stroock & Stroock & Lavan LLP, New York (Charles G. Moerdler, Ernst H. Rosenberger, Julie G. Matos and Kayley R. McGrath of counsel), and Cahill Cossu Noh & Robinson LLP, New York (John R. Cahill and Paul S. Cossu of counsel), for appellant-respondent.

Thomas, M. Lahiff, New York, for respondents

Cross appeals from an order of the Supreme Court, New York County (Shirley Werner Kornreich, J.), entered on or about March 1, 2017, which granted defendants' motion for summary judgment dismissing the amended complaint, and denied defendants' motion for summary judgment on the counterclaim.

David Friedman, J.P., Rosalyn H. Richter, Marcy L. Kahn, Jeffrey K. Oing, Peter H. Moulton, JJ.

FRIEDMAN, J.P.

The primary issue on this appeal is whether a party to a contract may, by orally waiving the other party's accrued obligation to render a performance when due under the contract (but not the performance itself), extend its time under the statute of limitations in which to sue for breach of contract without complying with General Obligations Law § 17–103. We answer this question in the negative.

This action arises out of a revolving credit agreement that provided for the financing by plaintiff Sotheby's, Inc. of the purchase by defendant Chambers Fine Art LLC (CFA) of contemporary Chinese fine art for resale. Under the agreement (entitled "Secured Revolving Loan and Sale Agreement"), dated June 29, 2006 (the 2006 agreement), CFA was permitted to draw down on the loan in increments of not more than $ 500,000 (up to a maximum of $ 5 million) from time to time as it located art to purchase. Interest was to accrue at fluctuating rates based on the prime rate announced by a designated bank in New York (the prime rate plus one percent until the entire principal amount of the loan became due; the prime rate plus four percent thereafter). The agreement contains no set repayment schedule but requires CFA, "[w]ithin two business days after [it] collect[s] and receive[s] the sale price of any item of the Property [i.e., art purchased with Sotheby's funds], ... [to] remit the gross sale proceeds ... to a joint [bank] account," with the remitted funds to be applied as specified in the agreement. CFA's principal, defendant Christophe Mao, executed a guarantee of all of CFA's obligations under the 2006 agreement.

The 2006 agreement provides that all of CFA's indebtedness becomes due and payable on the earlier of a specified maturity date (June 29, 2009) or "the occurrence of an Event of Default (as defined below)." The agreement further provides that, upon the occurrence of such an "Event of Default,"

"then, the outstanding principal amount of the Loan together with accrued interest thereon and all other outstanding indebtedness and obligations of [CFA] to Sotheby's shall become immediately due and payable, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or notice of any other kind, all of which are hereby waived by [CFA]" (emphasis added).

The record establishes, and it is undisputed, that an "Event of Default" within the meaning of the 2006 agreement occurred two business days after December 28, 2007 (if not before), thereby triggering CFA's obligation to repay the entire outstanding balance of the loan on that date. Specifically, on February 2, 2007, CFA purchased, with $ 250,000 drawn from Sotheby's, a painting by the prominent artist Liu Xiaodong entitled "Swimming Pool on the Top of the Building" (SPTB). On December 20, 2007, CFA sold SPTB for $ 350,000, and the sale settled on December 28, 2007. The parties agree that CFA did not remit the proceeds of the sale of SPTB to the joint bank account specified in the 2006 agreement within two business days after receiving the funds or at any time thereafter. The 2006 agreement defines the term "Event of Default" to include, inter alia, a "default in the payment of any principal of or interest on the Loan or any other amount payable by [CFA] to Sotheby's hereunder as and when the same shall become due and payable." The term "Event of Default" is defined also to include a "breach [by CFA], or fail[ure] [by CFA] to perform when due, any agreement, covenant or obligation to be performed by [CFA] pursuant hereto." Accordingly, the undisputed failure by CFA to remit the proceeds of the sale of SPTB within two business days after December 28, 2007, as required by the 2006 agreement, constituted an "Event of Default" thereunder.¹

CFA's purchase of SPTB in February 2007 was the last one it made with funds provided by Sotheby's under the 2006 agreement. Thereafter, CFA neither borrowed additional funds under the agreement nor made any additional payments into the designated joint bank account. The parties have stipulated that, of the total principal amount of $ 2,166,000.00 that Sotheby's disbursed to CFA under the 2006 agreement, $ 2,142,455.70 has not been repaid.

After February 2007, the parties had intermittent communications concerning the disposition of the inventory CFA had purchased with Sotheby's funds. The financial crisis of 2008 caused a serious downturn in the market for contemporary Chinese fine art, and CFA was left holding a substantial inventory of unsold art that it had purchased with Sotheby's funds within the first year after the parties entered into the agreement. Sotheby's made no demand for repayment on June 29, 2009, the date on which, by the terms of the 2006 agreement, repayment of the loan would have become due absent any prior "Event of Default." In March 2010, Sotheby's sent Mao at CFA an email suggesting possible ways to try to dispose of the art and stating that "[t]he goal is to work our way to a position where at the end of the year we have cut the current outstanding amount significantly." Mao responded, in an email dated April 1, 2010, that he did not "see how there is any sort of outstanding debt" because, in his view at the time, "we all agreed that this arrangement would be a joint venture and not a loan from Sotheby's to [CFA]."

By letters to CFA and Mao, respectively, both dated March 8, 2011, Sotheby's demanded repayment of the full principal amount of the loan, with accrued interest. In response, CFA, through Mao, sent Sotheby's a letter, dated April 6, 2011, setting forth a "proposal to deal with the amounts claimed by Sotheby's." Mao proposed that the 2006 agreement be "replaced and extinguished" by a promissory note in the principal amount that Sotheby's had demanded ($ 2,142,455.70), which "amount will not be subject to interest" and would be payable in quarterly installments over five years, with the debt being secured by the art previously purchased with Sotheby's funds. As part of this proposal, Mao stated that he was also "willing to give Sotheby's a second security interest in my apartment," subject to his co-owner's consent. The proposal was never implemented.

Sotheby's commenced this action against CFA, Mao and Chambers 2010, Inc. (another entity owned by Mao) on June 25, 2015. As relevant to this appeal, Sotheby's asserts a cause of action against CFA for breach of the 2006 agreement and a cause of action against Mao for breach of his guarantee of CFA's obligations under the 2006 agreement.² Defendants' answer raised the affirmative defense of the statute of limitation and asserted a counterclaim for breach of contract. In the order appealed from, Supreme Court granted defendants' motion for summary judgment dismissing the complaint as barred by the statute of limitations, but denied defendants' motion for summary judgment on their counterclaim.³ On Sotheby's appeal and defendants' cross appeal, we modify only to dismiss the counterclaim on a search of the record, and otherwise affirm.

In addressing the issue of the timeliness of Sotheby's claims, we begin by taking note of the Court of Appeals' longstanding recognition—reiterated in its recent decisions—that "the statute of limitations is not only a personal defense but also expresses a societal interest or public policy of giving repose to human affairs" ( Deutsche Bank Natl. Trust Co. v. Flagstar Capital Mkts., 32 N.Y.3d 139, 151, 88 N.Y.S.3d 96, 112 N.E.3d 1219 [2018] [internal quotation marks omitted]; see also Ajdler v. Province of Mendoza, 33 N.Y.3d 120, 130, 99 N.Y.S.3d 749, 123 N.E.3d 233, 2019 N.Y. Slip Op. 02151, 2019 WL 1282028, *4 n. 6 [March 21, 2019] ["Our statute of limitations doctrine serves the objectives of finality, certainty and predictability"] [internal quotation marks and alterations omitted] ). That policy, the Court further noted in Deutsche Bank, "becomes pertinent where the contract not to plead the statute [of limitations] is in form or effect a contract to extend the period as provided by statute or to postpone the time from which the period of limitations is to be computed " ( 32 N.Y.3d at 152, 88 N.Y.S.3d 96, 112 N.E.3d 1219 [internal quotation marks omitted], quoting John J. Kassner & Co. v. City of New York, 46 N.Y.2d 544, 551, 415 N.Y.S.2d 785, 389 N.E.2d 99 [1979], quoting 1961 Rep of N.Y. Law Rev Commn at 97–98, reprinted in 1961 McKinney's Session Laws of N.Y. at 1871).

To govern the resulting "subtle interplay ... between the freedom to contract and New York public policy" ( Deutsche Bank, 32 N.Y.3d at 143, 88 N.Y.S.3d 96, 112 N.E.3d 1219 ), the legislature enacted General Obligations Law § 17–103 ("Agreements waiving the statute of limitation"), the first paragraph of which provides:

"A promise to waive, to extend, or not to plead the statute of limitation applicable to an action arising out of a contract express or implied in fact or in law, if made after the accrual of the cause of action and made, either with or without consideration, in a writing signed by the promisor or

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