Santulli v. Englert, Reilly & McHugh, P.C., 78 N.Y.2d 700 (1991)

In legal malpractice actions, the applicable statute of limitations (either three years for tort or six years for contract) depends on the remedy sought by the plaintiff, not the theory of liability.

Summary

Santulli retained Englert, Reilly & McHugh to represent him in selling his business. The firm was supposed to prepare a mortgage on property owned by the purchaser’s father to secure a portion of the sale price. The mortgage, when recorded, only covered part of the property, rendering it inadequate security. Santulli sued for legal malpractice and breach of contract more than three years after the error but within six years. The court addressed whether the three-year tort statute of limitations or the six-year contract statute of limitations applied to the legal malpractice claim and whether a breach of contract claim was sufficiently stated. The Court of Appeals held that the six-year statute of limitations applied because the remedy sought was pecuniary damages recoverable in a contract action, and that a breach of contract claim was adequately stated.

Facts

In October 1980, Santulli hired Englert, Reilly & McHugh to represent him in the sale of his hardware business to Daniel White for $75,000. $35,000 of the price was to be secured by a first mortgage on Samuel White’s property. The defendant law firm negotiated the sales contract. The defendant was to prepare and record a mortgage covering Samuel White’s entire property. The mortgage was executed shortly after the closing and recorded in February 1981. Daniel White defaulted on the mortgage payments. In May 1983, Santulli discovered the mortgage only encumbered a portion of Samuel White’s property, excluding the valuable part with a house on it. The portion actually encumbered had only vacant lots and a shed of minimal value.

Procedural History

Santulli retained new counsel and sued Englert, Reilly & McHugh in September 1985, alleging legal malpractice and breach of contract. The defendant moved for summary judgment based on the statute of limitations. Supreme Court denied the motion. The Appellate Division modified, dismissing the contract claim for lack of a specific promise of a result, but held the malpractice claim timely under the six-year contract statute of limitations, overruling prior conflicting decisions. Both parties appealed. The Court of Appeals granted leave to appeal.

Issue(s)

1. Whether the plaintiff’s contract cause of action was sufficiently stated.
2. Whether the three-year statute of limitations for tort or the six-year statute of limitations for contract applies to the legal malpractice claim.

Holding

1. Yes, the plaintiff’s contract cause of action was sufficiently stated because a cause of action for breach of contract may be based on an implied promise to exercise due care in performing the services required by the contract.
2. The six-year contract statute of limitations applies because the remedy sought is damages to pecuniary interests, recoverable in a contract action.

Court’s Reasoning

The Court of Appeals reasoned that a breach of contract claim could be based on an implied promise to exercise due care. The complaint alleged that the defendant agreed to provide services related to the sale, including preparing the mortgage, but failed to properly draw and record a first mortgage. The court found this sufficient to state a contract claim, giving the plaintiff the benefit of every fair inference.

Regarding the statute of limitations, the court reiterated the principle that the choice of the applicable statute is related to the remedy sought, not the theory of liability. The court quoted Sears, Roebuck & Co. v. Enco Assocs., 43 N.Y.2d 389, 394-395 (1977), stating that “the choice of applicable Statute of Limitations is properly related to the remedy rather than to the theory of liability.” All potential liability arose out of the retainer agreement. Santulli sought recovery of $35,000, the balance of the purchase price that should have been secured; these were damages to his pecuniary interests identical to those recoverable in the contract action. The court clarified that while some earlier cases emphasized the “essence” of the action, those cases often involved personal injury claims with different policy considerations.
The Court also addressed the argument that applying the six-year statute of limitations would nullify CPLR 214(6), the three-year statute of limitations for malpractice, noting this argument had been rejected in previous cases. Where a plaintiff relies on the six-year statute, damages are limited to those recoverable for breach of contract. The court concluded the continuous representation doctrine did not apply because there was no further representation after April 1981. The court also explicitly stated that no persuasive reason had been offered for failing to apply the six-year statute of limitations to a legal malpractice claim where the remedy sought is damages relating solely to pecuniary or property loss, as long as the damages arose out of the contractual relationship between the parties.