Lack of Strict Compliance With Commercial Notice Provisions Can Be Excused Absent Prejudice

On December 23, 2013, Justice Kapnick of the New York County Commercial Division issued a decision in TLI Inv., LLC v. C-III Asset Mgt. LLC, 2013 NY Slip Op. 33328(U), addressing--among other things--the effect of a technical failure to comply with a commercial contract's notice provisions.

In TLI Inv., the plaintiff shareholder claimed that it had properly replaced defendant as the servicer of a real estate investment trust. The defendant moved for summary judgment on the grounds that plaintiff, TLI Investments, had improperly sent termination notices in the name of TLI Investors, LLC, and that the notices were therefore ineffective. The court rejected this argument on the grounds that defendant knew full well that the notices had come from plaintiff and not from some other party, that defendant had suffered no prejudice from the typographical error, and that under settled law, “strict compliance with contract notice provisions is not required in commercial contracts when the contracting party receives actual notice and suffers no detriment or prejudice by the deviation.” (Emphasis added). The notices were therefore held not to have been defective.

Practitioners should contrast this ruling with Justice Kapnick’s second ruling, in which she refused to grant summary judgment excusing the plaintiff's failure to comply with administrative prerequisites for replacing the servicer. The plaintiff claimed that the defendant's obstruction relieved its obligation to obtain confirmations from rating agencies and opinion letters from counsel before replacing defendant, but the court found that factual questions remained to be answered and denied summary judgment to either party on that issue.