which for the reasons set forth above, I find the bank did not
The bank's relationship with plaintiffs was a creditor-debtor
one, and not principally a fiduciary relationship. But, even
assuming that the bank had some other fiduciary obligations
toward plaintiffs beyond those prescribed in the U.C.C., it
would be absurd to think that Key Bank could never take its own
interests into account, or that plaintiffs' interests had to be
absolutely paramount at all times and in all situations.
Obviously it would have been in plaintiffs' best interests for
Key Bank simply to have forgiven their debt altogether, but the
law imposes no duty on a creditor to do so. Rather, "at common
law, and implicitly under the Uniform Commercial Code, a
creditor may assign its rights and transfer possession of
collateral without the knowledge or consent of the debtor, as
long as the debtor's right to redeem upon payment of the debt is
not impaired." Chittenden Trust Co. v. Marshall, 146 Vt. 543,
547, 507 A.2d 965 (1986). That is precisely what the bank did
here. Plaintiffs retained the same right to redeem after the
bank's transfer to Lass Associates that they would have had the
bank itself, or any other transferee, exercised its rights under
§ 9-505. Plaintiffs' failure to object to Lass Associates'
notice, whether the result of their own informed decision or
their attorney's negligence or questionable advice, is what
caused plaintiffs to lose the value of the collateral, and that
failure to act is not Key Bank's fault.
For these reasons, then, I find that all of plaintiffs'
remaining claims must be dismissed. As stated, Key Bank's duties
under the U.C.C. and under common law are essentially one and
the same: not to impair or destroy the collateral or plaintiffs'
right to redeem. Key Bank did not violate that duty.
Plaintiffs' cause of action for breach of the covenant of good
faith and fair dealing must also be dismissed. "This covenant is
breached when a party to a contract acts in a manner that,
although not expressly forbidden by any contractual provision,
would deprive the other party of the right to receive the
benefits under their agreement." Aventine Inv. Management, Inc.
v. Canadian Imperial Bank of Commerce, 265 A.D.2d 513, 514,
697 N.Y.S.2d 128 (2d Dep't 1999). As explained above, however,
nothing that the bank did deprived plaintiffs of their
contractual rights; it was plaintiffs' own failure to respond to
Lass Associates' notice that precipitated the result here.
In addition, while an obligation of good faith and fair
dealing is implied in every contract under New York law, that
duty, "however, is not without limits, and no obligation can be
implied that `would be inconsistent with other terms of the
contractual relationship.'" Dalton v. Educational Testing
Service, 87 N.Y.2d 384, 389, 639 N.Y.S.2d 977, 663 N.E.2d 289
(1995) (quoting Murphy v. American Home Products, 58 N.Y.2d 293,
304, 461 N.Y.S.2d 232, 448 N.E.2d 86 (1983)). See also
Marine Midland Bank, N.A. v. Yoruk, 242 A.D.2d 932, 933,
662 N.Y.S.2d 957 (4th Dep't 1997) ("it is well settled that an
obligation may not be implied that `would be inconsistent with
other terms of the contractual relationship'") (quoting Sabetay
v. Sterling Drug, 69 N.Y.2d 329, 335, 514 N.Y.S.2d 209,
506 N.E.2d 919 (1987)).
As stated, the assignment by plaintiffs to the bank of the St.
Paul Street Note and mortgage implicitly contemplated that the
collateral could be held not just by Key Bank, but by its
"successors, legal representatives and assigns. . . ." Wernz
Aff. Ex. A. In addition, the U.C.C. expressly permitted the bank
to assign its security interest to a third party, and if the
parties had wanted to limit the bank's rights in that regard,
they could have
written their contract in such a way as to do so. See U.C.C. §
1-102(3) (stating that "[t]he effect of provisions of this Act
may be varied by agreement," and that although "the obligations
of good faith, diligence, reasonableness and care prescribed by
this Act may not be disclaimed by agreement . . . the parties
may by agreement determine the standards by which the
performance of such obligations is to be measured if such
standards are not manifestly unreasonable"). Since they did not
do so, and since the bank's actions were consistent both with
its obligations under the U.C.C. and with the parties' contract,
there was no violation of the duty of good faith and fair
dealing. See Reale v. Sotheby's, Inc., 278 A.D.2d 119, 121,
718 N.Y.S.2d 37 (1st Dep't 2000) (since date on which auction of
plaintiffs coin collection was conducted was one of two possible
dates expressly set by parties' consignment agreement,
plaintiffs cause of action for breach of the implied covenant of
good faith and fair dealing, based on defendant's scheduling of
auction on same date as another auction house's coin auction,
was properly dismissed), leave to appeal denied, 96 N.Y.2d 706,
725 N.Y.S.2d 278, 748 N.E.2d 1074 (2001).
II. The Partners' Motion for Summary Judgment
At oral argument on the pending motions, counsel for the bank
stated that the bank was withdrawing its claims against the
partners for rescission and unjust enrichment, so the only
remaining claim is that for contribution and indemnity. Since
that claim is predicated upon a finding of liability on the part
of the bank, my decision granting summary judgment in favor of
the bank on all of plaintiffs' claims renders the bank's claim
for contribution and indemnity moot. Accordingly, I grant the
partners' motion for summary judgment.
The motion for summary judgment filed by defendant Key Bank
National Association, d/b/a Key Bank, Key Bank of New York, and
Key Bank of Central New York (Docket Item 42) is granted, and
the complaint is dismissed. The motion for summary judgment
filed by third-party defendants 1564 St. Paul Street Partners,
Lass Associates a/k/a "Last Associates," Sanford Liebschutz,
Edward J. After, Martin L. Schuster, Jack Schuster and Bell
Schuster (Docket Item 36) is granted, and the third-party
complaint is dismissed.
IT IS SO ORDERED.