If the contract names a sole remedy, can the disappointed party sue for ordinary damages anyway?
No, where sophisticated parties said so. New York holds that contract terms providing for a 'sole remedy' are sufficiently clear to establish that no other remedy was contemplated by the parties at the time the contract was formed, for that portion of the transaction, "especially when entered into at arm's length by sophisticated contracting parties", and a claimant cannot subvert an exclusive-remedies limitation by re-characterising the same breach under a different provision of the same agreement. Where the claims for general contract damages are in substance grounded in breaches of the representations to which the limited remedy applies, they are dismissed. Substance cuts both ways, though: the exclusive remedy does not swallow every general representation in the agreement. In Nomura the seller never claimed that it did. The Court recorded that the seller did not 'assert that the Sole Remedy Provision would apply to limit the remedies available for breach of section 7 representations that are not ... based on the mortgage loans and their characteristics, such as, for example, a claim that defendant entered into the contract without proper corporate authority', and that it instead 'concedes that the Sole Remedy Provision would not apply to such breaches based upon the language to which the parties agreed'. The trustee's claims fell only because 'all of the claims asserted under section 7 are also breaches of the loan-specific Mortgage Representations contained in section 8'. A representation genuinely independent of the subject matter the limited remedy addresses is not caught, and the result rested on a canon of construction, that '[a] specific provision will not be set aside in favor of a catchall clause'.
The trap
The New York trap is re-characterisation, and it does not work. In Nomura the trustee pleaded breach of a separate 'no untrue statement' provision rather than the loan-level representations subject to the cure-or-repurchase sole remedy; the Court of Appeals read the agreements as a harmonious whole and dismissed those damages claims anyway: modifying the Appellate Division order insofar as appealed from, affirming it as so modified and answering the certified question in the negative, over a dissent in part and a separate dissent. The clause itself said that the obligations 'to cure or repurchase a defective Mortgage Loan . . . constitute the sole remedies of the Purchaser against [defendant] respecting a missing document or a breach of the representations and warranties contained in [s]ection 8', and the Court found 'it is readily apparent from the face of the complaints that the alleged breaches of the No Untrue Statement Provision are, in fact, based upon alleged breaches of the Mortgage Representations'. Note what this rule does NOT say: UCC 2-719 (exclusive remedies failing of their essential purpose, and unconscionable exclusions of consequential damages) is NOT among the New York statutes available for this research, so New York's sale-of-goods overlay (including the failure-of-essential-purpose escape that exists in other states' rows) is not established here and must not be assumed from this rule.
8 authorities
- case30 N.Y.3d 572Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc.N.Y.decided 2017read it at the source ↗
The words that state the rule
Contract terms providing for a "sole remedy" are sufficiently clear to establish that no other remedy was contemplated by the parties at the time the contract was formed, for purposes of that portion of the transaction (see J. D'Addario & Co., Inc. v Embassy Indus., Inc., 20 NY3d 113, 118 [2012]), "especially when entered into at arm's length by sophisticated contracting parties" (Kalisch-Jarcho, Inc. v City of New York, 58 NY2d 377, 384 [1983]).
- case30 N.Y.3d 572Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc.N.Y.decided 2017read it at the source ↗
The words that state the rule
Therefore, even accepting HSBC's allegations as true and giving HSBC the benefit of every favorable inference, it is readily apparent from the face of the complaints that the alleged breaches of the No Untrue Statement Provision are, in fact, based upon alleged breaches of the Mortgage Representations. However, under both the MLPAs and the PSAs, the sole remedy for breaches of the Mortgage Representations is cure or repurchase. HSBC cannot "subvert this 'exclusive remedies' limitation" of liability by simply re-characterizing its claims (Matter of Westmoreland Coal Co., 100 NY2d at 359).
- case30 N.Y.3d 572Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc.decided 2017read it at the source ↗
The words that state the rule
We hold that, inasmuch as the claims for general contract damages at issue here are grounded in alleged breaches of the mortgage loan- specific representations and warranties to which the limited remedy fashioned by the sophisticated parties applies, plaintiffs' claims for general contract damages should be dismissed.
- case30 N.Y.3d 572Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc.decided 2017read it at the source ↗
The words that state the rule
It is fundamental that, "when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms" (W.W.W. Assoc. v - 7 - - 8 - No. 39 Giancontieri, 77 NY2d 157, 162 [1990]; see Reiss v Financial Performance Corp., 97 NY2d 195, 198 [2001]), and that courts should read a contract "as a harmonious and integrated whole" to determine and give effect to its purpose and intent
- case30 N.Y.3d 572Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc.N.Y.decided 2017read it at the source ↗
The words that state the rule
Significantly, section 9 (c) states that "[i]t is understood and agreed that the obligations of [defendant] set forth in this [s]ection 9 to cure or repurchase a defective Mortgage Loan . . . constitute the sole remedies of the Purchaser against [defendant] respecting a missing document or a breach of the representations and warranties contained in [s]ection 8" [emphasis added]. This language is referred to by the parties as the "Sole Remedy Provision."
- case30 N.Y.3d 572Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc.N.Y.decided 2017read it at the source ↗
The words that state the rule
Notably, defendant does not claim that all possible breaches of the general representations and warranties set forth in section 7 of the MLPAs, including the No Untrue Statement Provision, are subject to the sole remedy of curing or repurchasing the defective loans. Nor does defendant assert that the Sole Remedy Provision would apply to limit the remedies available for breach of section 7 representations that are not - 15 - - 16 - No. 39 based on the mortgage loans and their characteristics, such as, for example, a claim that defendant entered into the contract without proper corporate authority. Rather, defendant concedes that the Sole Remedy Provision would not apply to such breaches based upon the language to which the parties agreed (cf. Ambac Assur. Corp. v EMC Mtge. LLC (121 AD3d 514 [1st Dept 2014]).5 However, as previously noted, there are no allegations in the complaints of a breach of the No Untrue Statement Provision in section 7 of the MLPAs to which the Sole Remedy Provision would not apply because all of the claims asserted under section 7 are also breaches of the loan-specific Mortgage Representations contained in section 8.
- case30 N.Y.3d 572Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc.N.Y.decided 2017read it at the source ↗
The words that state the rule
Rather, "[r]eading the [contracts] as a harmonious and integrated whole" (id. at 358) and honoring "the exclusive remedy that the[se] [sophisticated] parties fashioned" (J D'Addario, 20 NY3d at 119), we conclude - 13 - - 14 - No. 39 that the Sole Remedy Provision applies, precluding HSBC from seeking general contract damages for the particular claims challenged on this appeal.
- case30 N.Y.3d 572Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc.N.Y.decided 2017read it at the source ↗
The words that state the rule
In any event, the more specific Sole Remedy Provision that is narrowly related to breaches of the Mortgage Representations applies here because "[a] specific provision will not be set aside in favor of a catchall clause" (William Higgins, 20 NY2d at 428). Accordingly, the Appellate Division order insofar as appealed from should be modified, without costs, in accordance with this opinion and, as so modified, affirmed, and the certified question answered in the negative.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.