Opinion
601892/07.
Decided on April 17, 2008.
STROOCK STROOCK LAVAN LLP, New York, New York 10038, (Kenneth Pasquale), For Plaintiff.
PRYOR CASHMAN LLP, New York, New York, (Luisa K. Hagemeier), DEWEY PEGNO KRAMARKSY, LLP, New York, New York, (Thomas Dewey), For Defendant.
This is a motion for summary judgment in lieu of complaint based upon an instrument for the payment of money only, pursuant to CPLR 3213. The instrument in question is a guaranty, executed by defendant Sheldon H. Solow, in which he guaranteed repayment of a sum advanced to TAG 380 (TAG), a limited liability company of which he is the sole member. Neither TAG, nor Solow, paid the money, and now plaintiff Bank of America, N.A. (BOA) seeks repayment from Solow the guarantor.
The moving affidavit is made by plaintiff's senior vice-president. He relates that, in 1989, a trust company leased property at 380 Madison Avenue to a partnership. In 1991, the partnership assigned the lease to Spartan Madison Corp. (Spartan). Spartan took out several mortgages on its interest in the lease. On December 19, 1997, the notes evidencing the mortgage debts/loans and the mortgage agreements were consolidated into one mortgage/loan, with Spartan as debtor and BankBoston, N.A. as lender.
On February 28, 2001, Spartan transferred the lease to TAG, and TAG and Fleet National Bank, the successor to BankBoston, made agreements whereby Spartan was released from its obligations under the consolidated loans and TAG assumed those obligations. One of these agreements provided that $15,910,000 was owing on the loan. On the same date, Solow executed the guaranty, guaranteeing the prompt payment of all of TAG's obligations to Fleet.
In 2004, Fleet was merged into plaintiff BOA, and BOA succeeded to the rights and obligations stemming from Fleet's agreements with TAG. As the loan approached maturity, TAG requested and received extensions of the maturity date. Each extension agreement, in addition to being signed by TAG, acknowledged Solow's ongoing guaranty of TAG's obligations and was signed by Solow as guarantor.
After the maturity date passed, plaintiff's senior vice-president attempted to contact both Solow and TAG's chief executive officer (CEO), but was able to contact only the latter. Since April 24, 2007, he says, both have been avoiding him. Plaintiff commenced this action, seeking the principal amount of $15,910,000 and interest, plus fees and costs associated with this case.
Under CPLR 3213, instead of serving a complaint, the plaintiff serves the defendant with a notice of motion for summary judgment and supporting papers. The instrument sued upon must clearly be for the payment of money only, that is, it must contain the defendant's explicit acknowledgment of a debt and must suffice to prove the debt by itself ( Weissman v Sinorm Deli, Inc., 88 NY2d 437, 444). The instrument and evidence of failure to pay constitute a prima facie case for summary judgment in lieu of complaint ( id.; Interman Indus. Products, Ltd. v R. S. M. Electron Power, Inc., 37 NY2d 151, 155). If outside proof is needed to prove the debt, "other than simple proof of nonpayment or a similar de minimis deviation from the face of the document," the instrument does not qualify as one for the payment of money only ( Weissman, 88 NY2d at 444).
Defendant argues that the guaranty is defective as a predicate for a CPLR 3213 motion, because the obligation in the guaranty cannot be understood without resort to several other complex documents. Defendant argues that the guaranty is not for the payment of money only, since proof of his obligation "requires something in addition to defendant's explicit promise to pay a sum of money" ( id.). He also claims that since some of the documents are neither authenticated, nor signed, they cannot serve as evidence of the transactions underlying the guaranty. In addition, defendant claims that one of the documents creates condition precedents that must be met before his obligation on the guaranty is triggered.
Plaintiff submits several documents to evidence the obligations that first belonged to Spartan, and then to TAG and to defendant via the guaranty. Unless otherwise indicated, all exhibits are attached to the notice of motion. Exhibit 1 is the guaranty.
Exhibit 2 is the Mortgage Consolidation and Modification Agreement between BankBoston and Spartan, dated December 19, 1997. Attached as Schedule A to this agreement is the list of the consolidated mortgages. At Exhibit A is the Consolidated Mortgage, dated December 19, 1997. The Consolidated Mortgage provides that the parties have made an Amendment to Consolidated Loan Agreement, dated December 19, 1997, that modifies an Amendment and Consolidation Agreement dated March 31, 1994. The Amendment to Consolidated Loan Agreement is attached to plaintiff's affidavit in further support of its motion and in opposition to defendant's cross motion, at Exhibit 18.
Exhibit 3 is the Consolidated and Restated Term Note, dated December 19, 1997, between Spartan and BankBoston, which refers to an Amendment and Consolidation Agreement dated March 31, 1994, and to a Consolidated Loan Agreement.
Exhibit 4 is the Amendment and Consolidation Agreement dated March 31, 1994 between Spartan and BankBoston. Attached as Annex A is the Consolidated Loan Agreement, dated March 31, 1994.
Exhibit 5 is the Assignment and Assumption of Ground Lease between Spartan and TAG, dated February 28, 2001, reciting that it is subject to the consolidated mortgages listed in Exhibit C, which is made a part of it. By this agreement, Spartan transferred and TAG assumed Spartan's interest in the lease of 380 Madison Avenue.
Exhibit 6 is the Assumption and Release Agreement, dated February 28, 2001, between Fleet and TAG. The attached list of the consolidated mortgages provides that the outstanding principal balance is $15,910,000. In this agreement, TAG assumed Fleet's obligations toward the mortgages.
Exhibit 7 is the Assumption of Leasehold Mortgages, dated February 28, 2001, between Fleet and TAG. The attached list of the consolidated mortgages says that the outstanding principal balance is $15,910,000.
Exhibit 8 is the last extension agreement between plaintiff and TAG, signed by Solow and TAG's CEO, extending the maturity date of the loan to October 31, 1996. The agreement provides that it "shall serve to evidence . . . your acknowledgment that the outstanding principal balance of the Note as of the date hereof, is $15,910,000 . . . and . . . your covenant, representation and warranty that the Guaranty of Payment . . . made by Sheldon H. Solow . . . remain[s] in full force and effect" (Notice of motion, Ex. 8, at 2).
The guaranty provides that it is "re" the leasehold mortgage loan on the leasehold interest in 380 Madison Avenue and that the guarantor makes it to induce the lender to enter into the Assumption and Release Agreement with TAG, the borrower (Ex. 1, at 1). The guarantor "represents, warrants, and covenants" to the lender that the note, mortgage, and the Assumption and Release Agreement have been duly executed by the borrower and the guarantor, and that the guarantor "guarantees the prompt payment when due, whether at maturity or by acceleration or otherwise, of all of the borrower's obligations under the Note and the Mortgage," with interest as provided for in said documents ( id., ¶ 2). The guarantor's obligations are "primary, absolute and unconditional" ( id.). The guarantor "expressly and unconditionally waives" his right to interpose any counterclaim, other than a compulsory counterclaim ( id., ¶ 17). In the section entitled " Indemnification; Payments; Certain Waivers," the guarantor indemnifies the lender against loss or expense caused by the assertion of the guarantor or borrower of any defense to its obligations under any of the loan documents or the guaranty ( id., ¶ 5).
Defendant objects to the motion on the following grounds. He maintains that the guaranty does not describe any of the obligations it purports to guarantee. The guaranty (Ex. 1) refers to a note, a mortgage, and other documents, but does not define them, except to refer them to the Assumption and Release Agreement between TAG and plaintiff's predecessor (Ex. 6). That Assumption and Release Agreement does not define the note at all, and defines the mortgages by reference to its own attached schedule, which lists several mortgages culminating in the consolidated mortgage. The Consolidated Mortgage sheds no light on the obligations guaranteed, as it is devoid of loan payment obligations or their terms (Ex. A of Ex. 2). It just refers to more documents that in turn refer to others. Overall, according to defendant, to divine the obligations that are guaranteed requires more than de minimis deviation from the guaranty.
Defendant also complains that some of the documents cannot evidence his obligations as they are not signed. The Amendment and Consolidated Agreement of March 31, 1994 (Ex. 4), and the Consolidated Loan Agreement are not signed (Annex A of Ex. 4).
In addition, defendant claims that the Consolidated Mortgage (Ex. A of Ex. 2), with its numerous covenants and warranties, sets forth obligations with respect to the lease, and the guaranty (Ex. 1) places these obligations on the guarantor. Defendant argues that an instrument that contains more than a promise to pay money and places other obligations on the maker cannot be regarded as being for the payment of money only.
Courts have often discussed the extent to which an instrument may require consultation with outside documents and still conform to the requirements of CPLR 3213 ( see Weissman, 88 NY2d at 444 [the statute "has generated a spate of litigation"]). In this case, the instrument is a guaranty, which, by definition, relates to an underlying obligation. It requires the guarantor to perform the obligation of another, the primary obligor, so there must be some reference to another document.
The application of CPLR 3213 "is not affected by the circumstance that the instrument in question was part of a larger transaction, such as the sale of business, as long as the instrument requires the defendant to make certain payments and nothing else" ( Torres Leonard v Select Professional Realties, Ltd., 118 AD2d 467, 468 [1st Dept 1986]). A guaranty may be the proper subject of a motion for summary judgment in lieu of complaint whether or not it recites a sum certain, and the need to consult the underlying documents to establish the amount of liability does not affect the availability of CPLR 3213 ( European Am. Bank v Cohen, 183 AD2d 453, 453 [1st Dept 1992] [amount readily ascertainable from bank records]; see also European Am. Bank v Lofrese, 182 AD2d 67, 71 [2nd Dept 1992]; Schwartz v Turner Holdings, Inc., 139 AD2d 458, 459 [1st Dept 1988]). The failure to include all of the underlying documents with the motion does not necessarily render an instrument outside the purview of CPLR 3213 ( see Meyer v La Barbera , 35 AD3d 554, 555-556 [2nd Dept 2006] [failure to include underlying promissory note]; European Am. Bank Trust Co. v Schirripa, 108 AD2d 684, 684 [1st Dept 1985]).
An instrument that contains more than an unconditional promise to pay money is not necessarily disqualified as being for the payment of money only ( First Interstate Credit Alliance, Inc. v Sokol, 179 AD2d 583, 684 [1st Dept 1992]). The mere presence of additional provisions in the guaranty does not constitute a bar to CPLR 3213 relief, provided that the provisions do not require additional performance as a condition precedent to repayment, or otherwise alter the defendant's promise of payment ( Juste v Niewdach , 26 AD3d 416, 417 [2nd Dept 2006]; Stevens v Phlo Corp., 288 AD2d 56, 56 [1st Dept 2001]; Machidera Inc. v Toms, 258 AD2d 418, 418 [1st Dept 1999]; Afco Credit Corp. v Boropark Twelfth Ave. Realty Corp., 187 AD2d 634, 634 [2nd Dept 1992]). References to other agreements in the instrument do not necessarily qualify or alter the obligation to pay on the instrument ( Embraer Fin. Ltd. v Servicios Aereos Profesionales, S.A. ,42 AD3d 380, 381 [1st Dept 2007] [instrument incorporated by reference the terms and conditions of the companion sale agreement only to the extent necessary for the enforcement of the note]; Smith v Shields Sales Corp. , 22 AD3d 942 , 944 [3rd Dept 2005]). A provision in the instrument that refers to another document for the definition of a term may be an instrument for the payment of money only ( see Boland v Indah Kiat Fin. [IV] Mauritius Ltd., 291 AD2d 342, 342-343 [1st Dept 2002] [instrument referred to indenture for definition of event of default]).
In this case, the guaranty contains a straightforward unconditional promise to pay the money after the maturity date. That and defendant's acknowledgment of the amount owed constitute a prima facie case ( see Anthony M. Barraco, P.C. v Rosendale, 162 AD2d 899, 900 [3rd Dept 1990] [account stated and letter by defendant to plaintiff acknowledging debt constituted prima facie evidence of indebtedness]). The references to other documents do not prevent the guaranty from being enforceable as an instrument for the payment of money only. Those references to the underlying obligation do not add to or alter the guarantor's obligations. The other documents provide the necessary background to enforcing the guaranty, by establishing the amount owed, the interest rate, and the nature of the primary obligation. The guaranty does not obligate defendant to perform any provisions of the lease, except pay the mortgage/loan.
That two of the copies of agreements are not signed does not negate defendant's obligations. In the guaranty, defendant acknowledged that all of the transactions evidenced by the documents took place as claimed in the documents, that mortgages were made and consolidated, that TAG took on the obligations of the previous mortgagee, and that he guaranteed those obligations to the extent of paying money only. Nor does the complexity of the documents prevent CPLR 3213 from being applicable in this case, given that defendant's obligation is made clear. The complicated nature of the underlying transactions does not complicate the straightforward and simple promise in the guaranty itself.
Defendant claims that the guaranty establishes condition precedents that must be met before plaintiff can collect on the guaranty. In the guaranty, any payments required by the guarantor "hereunder shall become due on demand in accordance with the terms of the Note and Mortgage immediately upon the happening of any default thereunder and without presentment to Borrower, demand for payment or protest, or notice of non-payment" (Ex. 1, ¶ 5). Defendant refers to the Consolidated Loan Agreement which provides that if the borrower fails to pay the principal at maturity, the lender "may by notice in writing to the Borrower declare all or part of the amounts owing . . . and they shall thereupon forthwith become immediately due and payable without presentment, demand, protest or other notice of any kind" (Annex A to Ex. 4, ¶ 11.1 [a], [p]). According to defendant, there was no demand on him or notice to TAG, the borrower. Therefore, his liability on the guaranty was never triggered
Plaintiff's vice-principal says that upon maturity of the loan, on October 31, 2006, TAG requested additional time to repay as TAG was seeking to refinance the loan with another lender. TAG's CEO allegedly assured plaintiff's vice-president that plaintiff would be paid immediately upon that event (Affidavit in further support of motion, ¶ 16). On February 9, 2007, the CEO told plaintiff's vice-president that payment of the loan would be forthcoming shortly, pending the closing of a refinancing and assignment to a particular named bank (Notice of motion, affidavit, ¶ 15). This apparently did not happen, and after that the vice-president made numerous attempts to contact TAG and defendant (Affidavit in further support of motion, ¶ 19; notice of motion affidavit ¶ 17). Plaintiff attaches a communications log showing several attempts in April and May of 2007 to get in touch with TAG and defendant (Affidavit in further support of motion, Ex. 21). On March 30, 2007, the vice-president wrote to TAG, addressing the letter to TAG's CEO and copying it to defendant. The letter stated that the loan matured on October 31, 2006, that the writer left numerous telephone messages for the CEO, and"[g]iven Mr. Solow's personal liability in this matter, I left a telephone message with him as well" (Affidavit in further support of motion, Ex. 20).
This March 30, 2007 letter suffices as a written demand and notice on Solow, the guarantor, and on TAG. The letter by itself is enough and, given all the telephone calls, defendant cannot claim to be unaware that the guaranty was being triggered.
Defendant argues that the affidavit in further support of the motion improperly introduces new evidence, such as the letter of March 30, 2007, not introduced initially in the motion. However, the letter is properly introduced as a response to defendant's arguments in the cross motion and as a reply to defendant's opposition to the motion.
Defendant further alleges that plaintiff did not adhere to the provisions for interest in the loan agreements. Plaintiff sent TAG invoices for interest from November 2006 through May 2007 that stated that the interest rate was fixed and uniformly applied a rate of 9.0725%. Defendant says that the loan documents provide for a variable rate of interest.
Plaintiff replies that the reference to a fixed rate in the invoices means that the interest rate was fixed only for the particular invoice period, and that the interest rate charged to TAG was correct according to the Consolidated Loan Agreement. The interest rate is the sum of the Eurodollar Rate for the interest period plus the applicable margin (Ex. 4, Annex A, ¶ 2.6). The applicable margin is given as 1.75% per annum, and the Eurodollar Rate is defined as "[f]or any Interest Period, the rate per annum equal to the quotient (rounded upwards to the nearest 1/16 of one percent) of (a) LIBOR for such Interest Period divided by (b) a number equal to 1.00 minus the Reserve Rate" ( id., at 2, 4). If the borrower is in default, plaintiff is entitled to add an additional 2% to the interest rate ( id., ¶ 4.9). LIBOR is the London InterBank Offered Rate ( Claire v O'Driscoll , 30 AD3d 1119, 1120 [1st Dept 2006]).
Plaintiff alleges that since November 1, 2006 (the loan matured on October 31, 2006), plaintiff has charged an interest rate of 5.3225% (LIBOR), 1.75%, and 2% for a total interest rate of 9.0725% (Affidavit in further support of motion, ¶ 32). The invoices attached to the motion bear out this contention (Ex. 10). Therefore, defendant's claim that the interest rate is incorrect has no merit. Plaintiff states that it has not exercised its option of raising the interest rate as LIBOR has risen.
Plaintiff establishes a prima facie entitlement to summary judgment. Once the plaintiff makes a prima facie case, the defendant can defeat the motion by establishing that a triable issue of fact exists ( SCP [Bermuda] Inc. v Bermudatel Ltd., 224 AD2d 214, 216, [1st Dept 1996]). As shown above, defendant does not succeed.
The interest provided by the loan agreement, 9.0725%, is higher than the statutory rate of 9%, under CPLR 5004. Under the Consolidated Loan Agreement, interest on overdue amounts "shall continue to accrue from the due date thereof until such amount shall be paid in full (after as well as before judgment)" (Annex A to Ex. 4, ¶ 4.9). Courts have held that in contract cases, if the contract provides for a higher rate of interest than the statutory rate, the contract rate may prevail, at least prior to judgment ( Citibank, N.A. v Liebowitz, 110 AD2d 615, 615 [2nd Dept 1985]; see also Heimbinder v Berkovitz, 263 AD2d 466, 467 [2nd Dept 1999]; Hayduk v Rent-All Uniforms Co., 203 AD2d 104, 104 [1st Dept 1994]). There is some suggestion that, given the right contractual language, the contract rate may be obtained even in the post-judgment period until the judgment is actually paid ( see Marine Mgt., Inc. v Seco Mgt., Inc., 176 AD2d 252, 254 [2nd Dept 1991], affd 80 NY2d 886). In Retirement Accounts, Inc. v Pacst Realty, LLC (__ AD3d __, __, 2008 NY Slip Op. 02815, * 1 [2nd Dept 2008]), the court determined that per the parties' agreements, the agreed-upon rate of interest of 24% was to govern over the statutory rate of interest through the entry of judgment up until actual satisfaction.
Here, as the agreement provides that interest of 9.0725% will apply after judgment until actual satisfaction, that is how interest will be calculated.
Yet another question about interest remains. This case commenced on June 6, 2007, when plaintiff purchased the index number. The affidavit in support of plaintiff's motion claims that TAG paid the interest accruing on the loan through April 30, 2007. In the motion, plaintiff seeks interest starting from May 2007. In the opposition to defendant's cross motion, plaintiff seeks interest from September 2007. Plaintiff does not say that TAG paid the interest through August 2007. No explanation is offered as to the difference in time periods for which interest is sought. Since the month from which interest should begin to be calculated is not known, this decision will grant interest from the date of this decision. The question of whether interest is owing from before entry of judgment will be directed to a referee.
The guaranty provides for the guarantor to pay expenses incurred should plaintiff be required to commence an action to enforce the note. Such provisions are valid and will be enforced ( Arent Fox Kintner Plotkin Kahn, PLLC v Lurzer GmbH, 297 AD2d 590, 590 [1st Dept 2002]). The matter of reasonable attorney's fees will be heard by a referee.
In conclusion, it is
ORDERED that plaintiff's motion for summary judgment in lieu of complaint is granted in favor of plaintiff and against defendant in the amount of $15,910,000, together with interest as prayed for allowable by law at the contractual rate of 9.0725% per annum from the date of this decision until the date that the judgment is satisfied, as calculated by the Clerk, together with costs and disbursements to be taxed by the Clerk upon submission of an appropriate bill of costs; and it is further
ORDERED that in regard to interest payable before the date of this decision and in regard to the amount of reasonable attorney's fees to be paid by defendant to plaintiff, such questions are referred for assignment to a Special Referee to hear and report with recommendations, except that, in the event of and upon filing of a stipulation by the parties, as permitted under CPLR 4317, the Special Referee, or another person designated by the parties to serve as a referee, shall determine the aforesaid issue; and it is further
ORDERED that entry of judgment shall abide receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403 or receipt of the determination of the Special Referee or the designated referee; and it is further
ORDERED that counsel for plaintiff shall serve and file a copy of this order with notice of entry on the Clerk of the Judicial Support Office for the purpose of arranging a calendar date for hearing and assignment of this reference to a Special Referee.