326 East 85
Realty LLC, 328 EAST 85 REALTY LLC, and 420 EAST 89 REALTY LLC, as
Tenants in Common, Petitioner [Landlord],
against
Hairy Monk Corp. d/b/a Johnny Foxes, Respondent
[Tenant], -and- XYZ Corp., Respondents [Undertenants].
|
089849/2013
David B. Cohen, J.
Recitation, as required by CPLR § 2219(a), of the papers considered in
reviewing the underlying motion:
PapersNumber
Notice of Motion and annexed Exhibits and Affidavits...................1
Notice of Cross-Motion and annexed Exhibits and Affidavits.........2
Affirmation in Reply .3
Other..................................................................................................
CPLR£§ 2219 (a)
CPLR£§ 2219 (a)
Upon the foregoing cited papers, the decision/order on these cross motions
for Summary Judgment is as follows:
On November 26, 2013, the parties entered into a surrender agreement (the
"Surrender [*2]Agreement") for respondent to surrender
its lease to petitioner. The Surrender Agreement set forth the terms and conditions of the
surrender of the leased property, including 2 payments of $475,000.00 by petitioner to
respondent. The first payment was to be made promptly, and was in fact tendered in a
timely manner. The second payment was to be deposited with the escrow agent and made
to respondent upon its vacatur of the premises by July 31, 2014. In addition, petitioner
agreed to remit to respondent the security deposit of $48,378.00 by December 31, 2013.
The Surrender Agreement also states that should petitioner fail to remit to respondent the
security deposit, it would be required to pay the sum of $500 per day as liquidated
damages.
Paragraph 14 of the Surrender Agreement, sets forth the conditions relating
to the return of the security deposit and provides:
The sum of Forty-Eight Thousand Three Hundred and Seventy Eight Dollars
($48,378.00) in full settlement of any lease security for the Premises in accordance with
the Lease together with any interest which may have been earned thereon shall be
remitted by Owner to Tenant by December 31, 2013 by a certified check, bank check,
wire, or attorney's escrow check payable to the order of Tenant or Tenant's designee.
Owner shall pay to Tenant the additional sum of Five Hundred Dollars ($500.00) per day
as liquidated damages for each day that Owner fails to tender the security deposit to
Tenant.
On December 16, 2013, petitioner deposited the $48,378.00 with the escrow
agent who promptly mailed a letter to respondent's attorney stating that the security
deposit had been deposited with the escrow agent. On or about July 31, 2014, respondent
vacated the leased property and the escrow agent made the second $475,000 payment
and, at that time, also returned the security deposit. At no time from January 1, 2014
through October 2014 did respondent seek, in any way, the return of the security deposit
that respondent knew was being held by the escrow agent, and not subject to any
conditions.
On October 29, 2014, respondent filed the instant motion, styled as a
summary judgment motion seeking a judgment in the amount of $106,000. Respondent
argues that in the event petitioner failed to tender the security deposit by December 31,
2013, it would be required to pay $500 per day until tendered. The payment was remitted
212 days late and, thus, respondent owes petitioner $106,000 per the liquidated damages
clause in the agreement.
Petitioner argues that the $500 per day late fee is in essence a penalty and is
not enforceable. Additionally, petitioner argues that the security deposit was in fact
tendered to the escrow agent, who failed to make the required payment in error.
Petitioner also contends that respondent was aware that the escrow agent had received
the money and was holding it, yet never made any attempt to obtain the money from the
escrow agent and is now barred from seeking any further judgment due to the doctrine of
laches.
Petitioner's argument that it did in fact remit the money to respondent by
sending the money to the escrow agent is without merit. Paragraph 14 clearly states that
the money was to be remitted to respondent, which petitioner failed to do. When
respondent did not receive the funds by January 1, petitioner did not comply with its
obligation under the Surrender Agreement.
Nonetheless, the $500 per day clause is an unenforceable penalty and, thus,
respondent is not entitled to summary judgment. "A contractual provision fixing damages
in the event of breach will be sustained if the amount liquidated bears a reasonable
proportion to the probable loss, and the amount of actual loss is incapable or difficult of
precise estimation. If, however, the amount fixed is plainly or grossly disproportionate to
the probable loss, the provision calls for a penalty and will not be enforced" (Truck
Rent—A—Ctr. v. Puritan Farms 2nd, 41 NY2d 420 [1977]; see JMD Holding Corp., v. Congress
Financial Corp., 4 NY3d 373 [2005]). Although, petitioner failed to prove that
at the time the parties entered into the Surrender Agreement the losses were fixed or
easily ascertainable, on its face, an effective interest rate greater than 365% per annum is
certainly grossly disproportionate to the probable loss associated with not having
possession of these funds, is not a reasonable measure of the anticipated [*3]probable harm and is not enforceable. The amount
stipulated to as liquidated damages, of $500 per day, does not bear a reasonable relation
to the actual amount of probable damage that respondent would have had in the event of
petitioner's default and, thus, it constitutes a penalty (Leroy v. Sanders, 217
AD2d 63 [1st Dept 1995]).
Where a court has sustained a liquidated damages clause, the measure of
damages for a breach will be the sum in the clause. However, if a clause is found to be a
penalty, "the recovery is limited to actual damages proven" (JMD Holding Corp.,
4 NY3d at 380). In this matter, respondent has failed to prove any damages that it
sustained by the escrow agent not remitting the funds. Nor, has respondent offered any
reason why it did not seek the funds from the escrow agent for the entire eight month
period, despite its entitlement to such funds, suggesting that it may have acquiesced to
the escrow agent holding the funds.
For all of the above reasons, respondent's motion is denied. Prior to
respondent's motion, this case had been marked settled and the matter was not on the
calendar. This matter shall revert to this status.
This is the decision and order of the Court.
Dated: ___December 22, 2014_______________
New York, New York________________________________
Hon. David B. Cohen, J.C.C.