Lincoln Bldg. Servs. Inc. v. Dellwood Dev., Ltd., Index No. 5899/12, 02/23/17 (Dufficy, J.)

Promissory Note; Breach of Contract; Costs and Attorney’s Fees; Unjust Enrichment; Piercing the Corporate Veil; Joint and Several Liability

By: Casey Hughes | Staff Writer

Plaintiff is a New York construction corporation that privately lends money. Defendant is a limited liability company that renovates existing apartment buildings and converts them from low income rentals into condominiums. Two entities contracted for Defendant’s work. Under these contracts, Defendant was required to pay a percentage of the contract price as cash collateral, which was to be returned unless a default occurred. Defendant sought a loan from Plaintiff to cover the cash collateral, which Plaintiff gave. Defendant failed to make many of its monthly payments and fell behind on its contract obligations and subsequently signed a promissory note, and later a second note for additional monies. When Defendant came under new ownership, Plaintiff demanded full payment of both notes from the Defendant’s new owner. Defendant, however, failed to remit payment. Plaintiff commenced two actions, the first action alleged ten causes of action against Defendant and its owner, Delengos: (1) breach of contract for the first promissory note; (2) breach of contract for the second promissory note; (3) costs and attorney’s fees; (4) unjust enrichment; (5) implied-in-fact contract; (6) quantum meruit; (7) breach of implied covenant of good faith and fair dealing; (8) conversion; (9) piercing the corporate veil; and (10) fraud. The second cause of action alleged only breach of contract based upon the promissory note. In its answer, Defendant asserted the affirmative defense of usury. The Court consolidated the two actions and a joint trial was conducted.

Plaintiff argued it was entitled to repayment of all money loaned because Defendant knew of the promissory notes, the express terms of the notes provided for repayment and Defendant failed to pay. Defendant argued that it was not aware of the promissory notes, but the Court found Defendant’s testimony was not credible due to evidence of substantial misappropriation of the subject money.

The Court found in favor of Plaintiff on its first, second, and third causes of action and dismissed the remaining claims and Defendant’s affirmative defense. On Plaintiff’s first and second claims for breach of contract, the Court reasoned that Plaintiff satisfied its prima facie burden of establishing Delengos’ knowledge of the promissory notes, and therefore Plaintiff was entitled to recover. On Plaintiff’s third claim, the Court awarded Plaintiff costs and attorney’s fees because Plaintiff inserted a provision in the promissory notes that Defendant would be liable for attorney’s fees upon default. The Court dismissed the fourth, fifth, sixth, seventh, eighth, and tenth causes of action because Plaintiff failed to assert these claims separate and distinct from the breach of contract cause of action. The Court rejected Defendant’s usury claim for two reasons: (1) Defendant failed to prove by clear and convincing evidence that the interest of the loans violated the usury statute, and (2) the loans were in an amount excluded from the usury statute. Furthermore, The Court dismissed Plaintiff’s ninth cause of action for piercing the corporate veil but still awarded Plaintiff a remedy under this claim because Delengos used his corporation’s funds for his own personal use.

Lincoln Bldg. Servs. Inc. v. Dellwood Dev., Ltd., Index No. 5899/12, 02/23/17 (Dufficy, J.)

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