Golden Plaza Ltd. v. Guangdong Building Inc. (In re Uni-RTY Corp.)

Subject: disputes regarding a certain sale/leaseback* transaction during which a deed for the fee of a parcel of real property, located at 239-241 Canal Street, New York City, was granted by one of the Ps to one of the Ds.

*Sale and leaseback – a sale to a purchaser who, as a part of the transaction, leases back to the seller the item that is the subject of the sale.

Facts:

Disputes arise out of a real estate transaction known as the Golden Pacific Building, located as 239-241 Canal St., NYC.

P argues that the deed was intended to be a security interest in the property and not a transfer of the fee and that the deed was obtained by fraud.

• The conveyance of a deed was intended by both parties as additional security for the refinancing of a mortgage loan

D contends that the deed and certain other document are sufficient to show that there is a binding contract between the parties.

• The conveyance was an absolute transfer of title to the property.

Issue: When the writing is not clear as to the parties’ intent to be bound or the writing is not a contract at all, is parol evidence admissible to prove the true consideration expressed in the writing or other written obligation of the parties?

Holding: Yes. Parol evidence is admissible to prove the parties’ true intent and true consideration expressed in the writing when the writing alone is insufficient to constitute a valid contract.

Rule (exceptions to the parol evidence rule):

• The parol evidence rule does not bar the admission of parol evidence to prove that the writing, which purports to be a contract, is not a contract at all.
• Parol evidence is also admissible to prove that a seemingly valid written contract is in fact invalid because it lacks of valid consideration or because the consent of one of the parties was induced by fraud, mistake, duress, or undue influence.
• In determining whether a deed was meant only as security or as an absolute transfer of title, the court will exam not only of the deed and the written agreement executed at the time of transfer, but also the oral testimony bearing on the intent of the parties and the surrounding circumstances and acts of the parties.
• Real Property Law 320 states that a deed which by any other instrument can be shown to be a mortgage, parol evidence may still be admitted to establish that the parties intended a deed which was absolute on its face to be a mortgage even where there is no other written instrument

Decision:

P’s claim of fraud, duress, undue influence or that the transaction was actually a mortgage, as opposed to a transfer of the fee or otherwise fits one of the exceptions to the parol evidence rule. Therefore, the relevant evidence is admissible.

P must prove (in order to win the case):

§ P must establish by clear and convincing evidence that the parties intended to create a mortgage.

§ The existence of the alleged oral evidence must be established beyond a reasonable doubt.