Justice Harold B. Beeler

NEW YORK COUNTY
Supreme Court

DECISION & ORDER

Plaintiff ("wife") moves for partial summary judgment on a prenuptial agreement between wife and defendant ("husband"). Specifically, she seeks a declaratory judgment that under the agreement, she is the owner of real property that husband agreed to transfer to her, as well as damages for husband's alleged breaches of the agreement by encumbering this property, and by his failure to pay mortgage, loan, and maintenance obligations. Additionally, she seeks summary judgment dismissing several counterclaims and defenses raised in husband's answer, most of which challenge the validity of the agreement under which wife seeks relief. Husband opposes the motion, except where noted below.

The parties married in France on May 12, 1999, and separated in February 2006. Husband is a financial executive for various family enterprises, in which he owns substantial amounts of stock.

Prior to the marriage, on May 10, 1999, the parties entered into a prenuptial agreement in New York ("New York Agreement"), stating that the parties anticipate entering into marriage in France, and that they intend to enter into an agreement in France ("French Agreement") where wife will waive rights to husband's property. The French Agreement was entered into on May 12, 1999, on the same day of the marriage but prior thereto. Wife seeks summary judgment on causes of action enforcing her rights under the New York Agreement. Wife acknowledges that there are triable issues of fact with respect to the French Agreement, and therefore she does not seek summary judgment on her causes of action enforcing her rights under that agreement.

The New York Agreement provides that the French Agreement will contain waivers of wife's rights to husband's interest in the Hermes family business. Consideration for these waivers, which consists of real property that husband will give to wife, is specified in the New York Agreement. Specifically, Paragraph 1 states:

"The parties anticipate entering into an agreement in France governing certain property acquired or to be acquired by [husband]. Under the terms of the agreement, it is intended that [wife] will waive certain rights, including the right to acquire any interest in [husband's] shares of stock in the Hermes family business. The parties agree that the consideration for [wife's] waiver thereunder is inadequate. Accordingly, as additional consideration for [wife's] agreement to waive any rights to any interest in the Hermes family business, which additional consideration the parties agree is fair and equitable, [husband] agrees as follows:"

The agreement then lists the two items of real property concerning which husband agreed to transfer "all of his right, title and interest": Apartment 614 in a building at 1 West 67th Street, New York, New York ("Apartment 614") (New York Agreement at ¶1 (a)), and a house and accompanying land located on Sackett Hill Road in Warren, Connecticut ("Connecticut house") (New York Agreement at ¶1 (b)). These transfers are to "take effect immediately after the marriage." (New York Agreement at ¶¶1 (a)(1), 1(b)(1)).

The New York Agreement also states that husband "shall not transfer, encumber, or otherwise hypothecate [Apartment 614] or the [Connecticut] House in any manner whatsoever, other than the encumbrances existing of this date, pending the effectuation of the transfer of title in accordance with the terms of the Agreement" (New York Agreement at ¶3).

On the date of the marriage, Apartment 614 was subject to a $600,000 mortgage from Bank Audi. Parties agree that wife has taken Apartment 614 subject to this mortgage. They disagree, however, as to the liability for encumbrances later taken on this property. Husband transferred the cooperative shares of Apartment 614 to wife on February 2005, nearly six years after signing the New York Agreement. In December 1999, while the Apartment was still in husband's name, he increased the Bank Audi mortgage by $100,000. Husband alleges that he took out this money because he was out of work for three months following a heart attack. In March 2001, he took out a $1,000,000 loan from Washington Mutual, with Apartment 614 as collateral, and used the money to pay the Bank Audi loan. Husband alleges that these mortgages were taken with plaintiff's permission and consent, and that the Washington Mutual loan was taken in joint names. However, wife annexes a financial statement listing husband as the sole borrower on the Washington Mutual Loan. The current principal balance of the Washington Mutual Loan is $910,000.

In early 2006, husband stopped making maintenance payments on the Apartment 614, as also required by the New York Agreement, and wife borrowed $17,516.52 to pay the maintenance due on the Apartment.

Parties agree that husband transferred title of the Connecticut house to wife but the deed was not recorded until November 10, 2004. On December 2001, husband obtained a $500,000 line of credit from Bank Audi, collateralized by the Connecticut house. Husband paid back this line of credit by taking a $715,000 mortgage from Washington Mutual on the Connecticut house in February, 2003. Husband alleges that he and wife arranged for this loan together. However, documentary evidence shows that husband was the sole borrower (Plaintiff Ex. P). Wife further alleges that in spring 2006, husband stopped making mortgage payments and paying property taxes on the Connecticut home as required by the New York Agreement. Thereafter, the lender instituted foreclosure proceedings, and wife borrowed $43,000 to pay the Washington Mutual in order to avoid losing the property.

Discussion

Statute of Limitations

Because the counterclaims and defenses go to the validity and enforceability of the New York Agreement itself, and could, therefore, preclude the affirmative relief requested by wife, that portion of wife's motion seeking dismissal of husband's pleadings is addressed first.

At the outset, wife argues that any challenges to the validity of the New York Agreement are barred by the statute of limitations, because husband brought them more than six years after the parties entered the agreement. The New York Agreement was entered into on May 10, 1999, and husband first challenged its validity on August 8, 2008, as counterclaims and defenses in husband's answer to wife's matrimonial complaint. If husband's challenges to the prenuptial agreement are governed by the six-year statute of limitations of NY CPLR 213, and are not tolled during the intact marriage, then his claims are indeed time-barred.

On May 2008, the New York State Legislature resolved a departmental split regarding the applicable statute of limitations for challenges to a prenuptial agreement, by enacting DRL 250. NY DRL 250 (2008); see Elliot D. Samuelson, Should Marriage Be Viewed as a Co-Equal Economic Partnership, NYSBA Vol. 40 No. 3. Prior to its enactment, the First Department had held that the six-year statute of limitations for a prenuptial agreement is tolled during the intact marriage, Bloomfield v. Bloomfield, 281 A.D.2d 301, 304-05, 723 N.Y.S.2d 1443 (1st Dept 2001), rev'd on other grounds, Bloomfield v. Bloomfield, 97 N.Y.2d 188, 764 N.E.2d 950 (2001); Zuch v. Zuch, 117 A.D.2d 397, 404-05, 503 N.Y.S.2d 343 (1st Dept 1986), while the Second Department held that the six-year limitations begins to run from the date of agreement. DeMille v. DeMille, 5 A.D.3d 428, 774 N.Y.S.2d 156 (2d Dept 2004). In Bloomfield v. Bloomfield, the Court of Appeals did not fully resolve the differences between the First and Second Departments, holding instead that the six-year statute of limitations would be no bar where the challenge to the prenuptial agreement is put forth as a defense or counterclaim to an action arising out of the prenuptial agreement. 97 N.Y.2d 188, 192-93, 764 N.E. 950. This would be so even where an independent action might have been time-barred when commenced. Id. at 193.

DRL 250 created a new statute of limitations specific to marital agreements, essentially overruling Broomfield and the prior appellate decisions. It provides that the "statute of limitations for commencing an action or proceeding or for claiming a defense that arises from" a prenuptial agreement "shall be three years," tolled until "process has been served in such matrimonial action or proceeding." Chapter 226 session law provides that the rule takes effect on July 3, 2007, and does not apply to cases previously dismissed under the civil practice law.

In the instant case, wife served husband with an action for divorce on May 5, 2006, prior to the effective date of DRL 250. Therefore, DRL 250 does not apply. See Petracca v. Petracca, 11/18/2008 N.Y.L.J. 27 (col. 1) (Sup. Ct. N.Y. Cty. 2008) (stating that DRL 250 applies to "all actions brought on July 3, 2007 and thereafter"). In view of the inapplicability of DRL 250, this court is bound by the Court of Appeals' prior holding in Bloomfield that counterclaims and defenses arising from the same transaction asserted in the complaint are not barred by the Statute of Limitations, regardless if this challenge would have been barred by an independent action. Bloomfield, 97 N.Y.2d 188, 192-93, 764 N.E 950. Because the challenges to the validity and enforceability of the New York Agreement are asserted as counterclaims and defenses, and arise from the same agreement under which wife asserts her claims, they are not time barred.

Mutual Mistake and Unjust Enrichment

Although husband's objections to the validity of the agreement are timely, summary judgment in favor of wife dismissing these challenges is, nonetheless, appropriate.

According to husband, the parties signed the New York Agreement with the understanding that they would enter into the French Agreement, under which wife would waive rights to substantial properties owned by husband. Under husband's theory, were this court, in interpreting the French Agreement, to later find that wife did not waive her rights to husband's property to the extent originally anticipated by the New York Agreement, then the parties signed the New York Agreement under a mutual mistake of fact (Husband's Third Affirmative Defense and First Counterclaim) and additionally, that the transfer of the Apartment and the Connecticut property to wife would constitute unjust enrichment (husband's Fourth Affirmative Defense and Second Counterclaim). Husband asserts that, at the very least, there are triable issue of fact with respect to the extent of her waivers.

A mutual mistake exists where unbeknownst to both parties entering into an agreement, the signed writing does not express that agreement. Gould v. Bd. of Ed. Of the Sewan-Haka Central High School Dist., 81 N.Y.2d 446, 454, 616 N.E.2d 142, 146, 599 N.Y.S.2d 787, 791 (1993). It justifies rescission where the mistake exists at the time the contract is entered into and the mistake is substantial. P.K. Development, Inc. v. Elvem Dev. Corp., 226 A.D.2d 200, 201, 640 N.Y.S.2d 558, 559 (1st Dept 1996). Rescission is not warranted where the alleged mistake arises from the negligence of the party seeking it. DaSilva v. Musso, 53 N.Y.2d 543, 428 N.E.2d 382, 444 N.Y.S.2d 50 (1981).

Husband's challenge to the New York Agreement based on mutual mistake fails as a matter of law. First, there is no dispute of fact that the wife waived certain rights to property in the French Agreement, to which she otherwise may have been entitled in the absence of that agreement.¹ This court need not determine the precise amount of property waived, nor measure the adequacy of the waivers as consideration for husband's promises. Second, the alleged "mistake" did not exist at the time of the signing. If a lack of waivers under the French Agreement could conceivably constitute a mistake, then that mistake occurred after entering into the New York Agreement that husband seeks to invalidate. Lastly, to the extent husband believes that the waivers may be inadequate, that would be due to his own negligence in negotiating rights under the New York Agreement. Husband is a sophisticated party, who was represented independently by counsel of his own selection, (New York Agreement at ¶4). If a mistake exists, it is merely unilateral, and it will not justify rescission absent legally sufficient allegations of fraud. Greater New York Mutual Ins. Co. v. U.S. Underwriters Ins. Co., 36 A.D.3d 441, 443, 827 N.Y.S.2d 147 (1st Dept 2007).

For similar reasons, husband's challenge based on unjust enrichment must also fail. The existence of a valid and enforceable written contract ordinarily precludes unjust enrichment, which is a quasi-contractual remedy. Goldman v. Met. Life Ins. Co., 5 N.Y.3d 561, 572, 841 N.E.2d 742, 746, 807 N.Y.S.2d 583, 587 (2005). However, unjust enrichment may be applied where parties have entered into a contract that ultimately proves to be invalid or otherwise inapplicable. Unisys Corp. v. Hercules Incorp. et al., 224 A.D.2d 365, 367, 638 N.Y.S.2d 461 (1st Dept 1996). The essential inquiry is whether equity and good conscience permit the party to retain what is sought to be recovered. Dragon Investment Co. II LLC v. Shanahan, 49 A.D.3d 402, 405, 854 N.Y.S.2d 115, 118 (1st Dept 2008). Just as with mutual mistake, the doctrine will not relieve a party of the consequences of his own failure to exercise caution with respect to a business transaction. Id.

As already discussed, it is undisputed that wife agreed to waive rights to husband's property, to which she otherwise may have been entitled, under the French Agreement, and therefore she is not unjustly enriched by her entitlement to property under the New York Agreement. Husband may not use unjust enrichment to determine that an otherwise valid contract is rendered invalid.² Rather, the doctrine applies only after a determination that the contract cannot be enforced. Moreover, to the extent husband believes that the waivers are inadequate, the doctrine will not excuse husband where it was under his control to determine rights under the contract before he agreed to them. See Id. (noting that challenging party should have ascertained the circumstances before entering into the transaction).

Accordingly, this court dismisses husband's Third and Fourth Affirmative Defenses and First and Second Counterclaims, which seek to render the New York Agreement invalid, void, or unenforceable.

Wife also moved for summary judgment dismissing husband's First and Fifth affirmative defenses, which sought to invalidate the New York Agreement on other grounds. In response, husband withdrew those defenses, and they are hereby dismissed.

Wife's Ownership Claims

Wife seeks a declaratory judgment that she is the owner of Apartment 614 (wife's Second Cause of Action) and the Connecticut house (wife's Third Cause of Action) under the New York Agreement. There is no dispute as to the actual property wife is to receive under the New York Agreement, these properties are clearly defined, and transfer of property has already taken place pursuant to the agreement. Parties dispute, however, the effect of wife's waivers as consideration for the property, and the necessity to refer to the French Agreement in order to determine rights under the New York Agreement. Wife argues that the New York Agreement is itself sufficient to determine their respective rights. The New York Agreement states that parties intend to enter into an agreement in France whereby wife would waive the right to any "interest in [husband's] shares of stock in the Hermes family business" (New York Agreement at ¶1), and there is no dispute that the French agreement was signed and that this agreement contained waivers to husband's property. Therefore, plaintiff fully performed under the New York Agreement, and she is entitled to the property agreed upon. Furthermore, husband substantially performed by transferring this property to wife, although he allegedly breached the part of the agreement that he would not further encumber the property. Husband alleges that there is a discrepancy between the two parts of the New York Agreement whereby wife intends to waive "the right to acquire any interest in [husband's] shares of the stock in the Hermes family business," in the first sentence of Paragraph 1, and subsequently refers to her waiver of "any interest in the Hermes family business" in the second sentence. He claims that summary judgment is inappropriate because the New York Agreement is ambiguous as to precisely what wife is waiving without resort to extrinsic evidence to determine the parties intent, and because it is necessary to refer to the French Agreement to determine rights under the New York Agreement.

As with all contracts, prenuptial agreements may be enforced by the courts where the terms are clear and unambiguous. Van Kipnis v. Van Kipnis, 11 N.Y.3d 573 (2008). Extrinsic evidence is not considered unless a court holds that the agreement is ambiguous. Id. Whether or not a contract is ambiguous is a matter of law for the court to determine W.W.W. Associates, Inc. v. Giancontieri, 77 N.Y.2d 157, 162, 566 N.E.2d 639 (1990).

The contractual provisions regarding the transfer of property are unambiguous. There is no dispute that the parties entered into an agreement in France as intended in the New York Agreement, and there is no dispute that the French Agreement contained waivers to rights in husband's property. Enforcement of the New York Agreement, at least with respect to wife's ownership of Apartment 614 and the Connecticut house, does not require an examination of value of the of the waivers. Husband owns substantial amounts of property, and wife's waivers to rights in his property in the French Agreement are sufficient consideration for the property enumerated in the New York Agreement. More importantly, the provisions of the contract that wife seeks to enforce, are clear on their face, and not reasonably disputed by husband. Accordingly, summary judgment is warranted on wife's Second and Third Causes of Action, which seek a declaration of ownership on Apartment 614 and the Connecticut house.

Encumbrances

Wife also moves for summary judgment on those portions of the New York Agreement wherein husband is prohibited from transferring, encumbering, or hypothecating Apartment 614 (wife's Fourth Cause of Action) and the Connecticut house (wife's Fifth Cause of Action). Wife alleges that husband has breached these parts of the agreement by taking mortgages against both properties subsequent to the agreement, but prior to the actual transfers. She seeks damages for encumbrances taken in excess of the mortgage at the time of the agreement, as well as damages for money that wife paid in order to avoid foreclosure for husband's failure to make mortgage and tax payments.

The New York Agreement states that wife will take Apartment 614 subject to the existing mortgage held by Bank Audi, and that husband will continue to be responsible for any mortgage, loan or maintenance charge on the apartment. It further states that husband is to continue to be responsible for any mortgage, loan or taxes on the Connecticut house. Husband is prohibited from transferring, encumbering, or otherwise hypothecating either property, prior to the transfer to wife.

At the time of the agreement, Apartment 614 was subject to a $600,000 Bank Audi mortgage, and wife acknowledges that she has taken the apartment subject to this mortgage. In December 1999, while this apartment was still in husband's name, he increased the Bank Audi mortgage by $100,000. He alleges that he needed this money because he was out of work for three months, recovering from a heart attack. In March 2001, husband took out a $1,000,000 loan from Washington Mutual, with the apartment as collateral, and used the money to repay the Bank Audi loan. In February 2005, nearly six years after signing the New York Agreement, husband transferred the cooperative shares of Apartment 614 to wife. The mortgage on Apartment 614 is $910,000 as of the time of wife's motion. Wife now seeks damages of $310,000, the difference between the existing mortgage and the $600,000 for which she is responsible. Husband alleges that the Washington Mutual loan was taken with wife's consent, and that $300,000 of the Washington Mutual loan was used to purchase Apartment 612, which is contiguous to Apartment 614. Husband argues that wife consented to the additional encumbrance, and that wife seeks ownership of Apartment 612 pursuant to the French Agreement. Therefore, husband argues that there is an issue of fact as to wife's consent to the additional encumbrances and her damages. Wife denies that she consented to the additional encumbrances, and argues that it does not make a difference because the New York Agreement permits modification only in writing.

In early 2006, husband stopped making maintenance payments on the Apartment, as required by the Agreement, and wife borrowed $39,000 to pay to the management agent to make up for husband's failure to pay. Wife attributes $17,516.52 of this payment to Apartment 614, with the rest of the money for maintenance for adjoining apartments.

Wife's motion for liability and damages on husband's breach of the agreement prohibiting encumbrances on Apartment 614 is granted. The New York Agreement clearly restricts husband from further encumbering the property, and husband breached this part of the agreement by increasing the Bank Audi loan and taking the Washington Mutual mortgage prior to the transfer. By the Agreement's terms, the wife was to take the Apartment subject to the mortgage that existed at the time of the Agreement. Because husband increased the loan and then added an additional one prior to the actual transfer of the apartment to wife, wife took title to the Apartment with a greater mortgage than agreed upon. Husband has shown no triable issues of fact that wife waived her rights to property under the New York Agreement, unencumbered beyond the original mortgage at the time of the agreement. Accordingly, summary judgment is granted to wife on her Fourth Cause of Action, and husband is liable for the existing Washington Mutual loan less the $600,000 attributable to wife. Summary judgment is also granted on wife's Sixth Cause of Action, in connection with husband's failure to pay maintenance fees on the Apartment.

Prior to the agreement, there was no mortgage on the Connecticut house. The New York Agreement does not state that wife takes the Connecticut house subject to an existing mortgage. In December 2001, husband took a $500,000 line of credit from Bank Audi, collaterized by the Connecticut house. Husband later took a $715,000 mortgage on the house through Washington Mutual and used the money to repay the Bank Audi line of credit. The deed to the Connecticut house was recorded on November 10, 2004. Wife alleges that in spring 2006, husband ceased making mortgage and property taxes. She alleges that in order to avoid foreclosure she borrowed $43,221 to pay the lender. Husband argues that the Bank Audi Loan was not a breach of the agreement, because it was taken contemporaneously with the signing of the agreement, with the understanding that it would benefit both parties. He alleges that $180,000 of the Bank Audi loan was transferred directly to the wife's bank account, although he does not present legally sufficient evidence that this transfer occurred. In his deposition testimony, husband stated that the $500,000 loan was to support a "lavish lifestyle" (Plaintiff Ex. M). Wife denies that she received $180,000 from the Bank, but also argues that it does not make a difference because the New York Agreement contains a merger clause and permits modification only in writing (New York Agreement at ¶10).

Wife's motion seeking summary judgment on her Fifth Cause of Action, on husband's breach of New York Agreement's restriction on encumbrances, is granted. Husband clearly breached the part of agreement prohibiting him from furthering encumbering the Connecticut property, by taking the Bank Audi line of credit and the Washington Mutual Loan prior to the recording of the deed. Furthermore, he has not submitted sufficient evidence that wife was the beneficiary of these loans, as he alleges. Therefore, husband presents no triable issues of fact that wife waived her rights to unencumbered property under the New York Agreement. Accordingly, husband is liable for the existing Washington Mutual loan. Summary judgment is also granted on her Sixth Cause of Action, in connection with husband's failure to pay mortgage and property tax payments.

Accordingly, it is hereby ORDERED that:

Wife is granted judgment on her Second Cause of Action, and it is ADJUDGED and DECLARED that she is entitled to right, title and interest in the cooperative shares and proprietary lease appurtenant to Apartment 614 at One West 67th Street, New York, New York, and husband is ORDERED to pay all maintenance fees in connection therewith;

Wife is granted judgment on her Third Cause of Action, and it is ADJUDGED and DECLARED that she is entitled to right, title and interest in and to two parcels of land with all appurtenances thereon located on Sackett Hill Road, Town of Warren, County of Litchfield, Connecticut; and husband is ORDERED to pay all mortgage, loan, and property taxes in connection therewith;

Wife is granted judgment on her Fourth Cause of Action in the amount of $310,000, her Fifth Cause of Action in the amount of $715,000, and her Sixth Cause of Action in the amount of $60,737.52, together with interest as allowable by law, until the entry of judgment, as calculated by the Clerk of the Court, and thereafter at the statutory rate, together with costs and disbursements to be taxed by the Clerk upon submission of an appropriate bill of costs; these Causes of Action are severed, and the Clerk is directed to enter judgment accordingly;

Husband's First, Second, Third, Fourth, and Fifth Affirmative Defenses, and First, Second, and Tenth Counterclaims, are dismissed with prejudice;

The action shall continue as to the remaining Causes of Action.

This constitutes the decision and order of the court.

1. The relevant provisions of the French Agreement are:

The Future Spouses state that they adopt as a basis for their union the regime of separation of property as established by Articles 1536 to 1543 of the Civil Code, as amended by the Law of July 13, 1965. (French Agreement at Art. One, ¶1)

As a result, each of them will preserve ownership, administration, enjoyment and free disposal of the personal and real property that may belong to them currently or which they may acquire hereafter in any manner. (French Agreement at Art. One, ¶2)

The fruits and income received from their own property will remain the property of the future spouses. (French Agreement at Art. Two, ¶5)

Nominative equities and securities, corporate shares, and equities, as well as debts owned by them, will presumed to belong to the holder; bearer securities on deposit and cash on deposit or in current accounts belong to the spouse who is the holder of the of the account or the deposit; securities, sums or objects which are held in a safe which is leased belong to the spouse who leases said safe and to both, if the lease is made in both names. (French Agreement at Art. Three, ¶3

2. Any challenges to the written contract's validity based on failure to comply with NY DRL 236(B) have been withdrawn by defendant.