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Current Developments in the Commercial Divisions of the
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Posted: November 12, 2019

Contract Claim Barred by Voluntary Payment Doctrine

On October 30, 2019, Justice Borrok of the New York County Commercial Division issued a decision in Brooklyn Navy Yard Dev. Corp. v. TDX Constr. Corp., 2019 NY Slip Op. 33231(U), holding that a claim was barred by the voluntary payment doctrine, explaining:

The voluntary payment doctrine bars recovery of payments voluntarily made with full knowledge of the facts, and in the absence of fraud or mistake of material fact or law. TDX argues that because Navy Yard voluntarily undertook to provide SurroundArt with rent abatements (i.e., SurroundArt did not commence a legal action or even threaten to do so), it is not entitled to recover for the rent abatements from TDX. Navy Yard, in turn, claims that this common law doctrine is inapplicable to this action because it only applies where plaintiff voluntarily pays an amount directly to defendant which was not legally due, and subsequently seeks to recover said payment from said defendant.

Here, looking at the terms of the Lease, and as described above, nothing required Navy Yard to provide SurroundArt with a rent credit and indeed, the Lease, expressly provided that rent was due without offset. To wit, the Lease provides for two remedies in connection with any issues with the Navy Yard’s work. The first remedy addresses issues which prevent SurroundArt’s installation work. In this regard, as described above, the Lease provides for a delay in the Start Date (i.e., pushing out the first day when rent would otherwise be due). The second addresses issues which did not prevent SurroundArt’s installation work. In this regard, the Lease provides that for items identified during an inspection during the one year period following the Start Date (see ยง 8[d] of the Lease Declaration), Navy Yard shall make demand on the contractors to repair and replace in accordance with the Warranty Agreement. Here, looking at the timeline, attached as exhibit X to the Singh Affirm., it is undisputed that the issues did not impede SurroundArt’ s interior improvements. Therefore, Section 8(a) of the Lease Declaration does not apply, and the Start Date was not adjusted. A defect identified pursuant to Section 8(d) of the Lease Declaration did not entitle SurroundArt to a rent credit. And, in fact, as discussed above, Section 2.01 of the Lease confirms that SurroundArt is not entitled to a rent credit or an abatement under the Lease. Put another way, any rent abatement extended by Navy Yard was done voluntarily and without obligation under the Lease. The fact that Navy Yard voluntarily extended rent credits to SurroundArt, well after the “Start Date,” as an accommodation and without any obligation to do so does not make TDX, the Navy Yard’s construction manager, liable for those rent credits. Nor may it be said that such rent credits were the foreseeable and consequential damages of any breach of the Construction Management Contract. It is well settled law in this State that consequential damages are not recoverable in an action to recover damages for breach of contract in the absence of the plaintiffs showing that such damages were foreseeable and within the contemplation of the parties at the time the contract was made. Rather, damages for breach of contract are generally limited to general damages which are the natural and probable consequence of the breach. Here, it was neither foreseeable nor within the contemplation of the parties at the time of the contract that TDX could be liable for voluntary rent credits after the Lease start date for the Perry Building went into effect. And, finally, Navy Yard is not claiming that it extended the rent credits based on a mistake of material fact or law or upon any fraud. Nor does Navy Yard cite any facts to suggest that it was under economic duress and lacked a meaningful choice as alluded to in its brief. Simply put, Navy Yard did not have to incur these damages and could have pursued its rights under the Lease against SurroundArt in court. Having chosen to do otherwise, it cannot now recover its losses against TDX.

(Internal quotations and citations omitted).

As this decisions discusses, if you knowingly and voluntarily pay money to someone, you may not be able to get that money back. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding the recovery of payments made under a contract.

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Posted in Commercial, Contracts
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