Guaranty Provision Referencing “Other Obligations” Held Insufficient To Defeat Motion For Summary Judgment In Lieu Of Complaint

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Posted on: Jun 10 2024

Over the years, we have examined a motion for summary judgment in lieu of a complaint under CPLR § 3213 (see, e.g., here, here, here, here, and here). Sometimes, the case that we examine involves a guaranty and whether it constitutes an instrument for the payment of money only. See, e.g., here. A guaranty can be tricky for purposes of CPLR § 3213 because the instrument may include provisions that impose other obligations on the guarantor. Today, we examine DB Auraria, LLC v. Nelson, 2024 N.Y. Slip Op. 03079 (1st Dept. June 6, 2024) (here), a case in which the guaranty at issue referenced “other obligations” that the guarantor claimed required denial of the motion for summary judgment in lieu of a complaint.

DB Auraria involved a loan that was made in connection with a residential high-rise building in Denver, Colorado.

In connection with the Loan, defendants executed a guaranty in November 2019 (the “Guaranty”).¹ Under the Guaranty, defendants, jointly and severally as the Guarantor, “irrevocably and unconditionally guarantee[d] to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise.”

In Section 1.1 of the Guaranty, defendants “irrevocably and unconditionally covenant[ed] and agree[ed] that they were liable for the Guaranteed Obligations as a primary obligor.” Section 1.2 of the Guaranty defined Guaranteed Obligations as “all obligations and liabilities of [the] Borrower pursuant to Section 3.1 of the Loan Agreement.” Section 1.3 stated that “[t]his Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection.”

The Loan matured on December 9, 2021, and Borrower failed to repay the outstanding debt. Failure to pay the “Debt” upon maturity is an event of default under Section 8.1(a)(i) of the Loan Agreement.

Subsequently, on June 9, 2022, Borrower filed a voluntary chapter 11 bankruptcy petition. The Borrower’s voluntary bankruptcy filing was an event of default under Section 8.1(a)(vii) of the Loan Agreement as well as a Springing Recourse Event under Section 3.1(c). Borrower became “personally liable for the payment of the Debt” when the Springing Recourse Event occurred. Under Sections 1.1 and 1.2 of the Guaranty, defendants also became liable for the payment of the debt when the Springing Recourse Event occurred.

Plaintiff moved for summary judgment in lieu of complaint against defendants under the Guaranty. The motion court granted the motion.

CPLR § 3213 provides for accelerated judgment where the instrument sued upon is for the payment of money only and the right to payment can be ascertained from the face of the document without regard to extrinsic evidence, “other than simple proof of nonpayment or a similar de minimis deviation from the face of the document.”²

Generally, an action on a guaranty is an action for payment of money only.³ The same standards that apply to motions for summary judgment under CPLR § 3212 apply to CPLR § 3213 motions. Movant must make a prima facie case by submitting the instrument and evidence of the defendant’s failure to make payments in accordance with the instrument’s terms.⁴

“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.”⁵

The motion court found that plaintiff established its prima facie entitlement to summary judgment in lieu of complaint with regard to the outstanding principal balance on the notes, the advance, the amount of interest accrued at the regular and default rates, and the exit fee and exit fee interest. The motion court further found that plaintiff submitted sufficient evidence to satisfy the requirements of CPLR § 3213 (e.g., the instruments and proof of default).

In holding that plaintiff satisfied its burden, the motion court rejected several arguments advanced by defendants.

First, defendants argued that the Guaranty was not an instrument for the payment of money only because it required defendants to perform “all of the ‘Guaranteed Obligations’” under the Loan Agreement, including non-monetary “Other Obligations” under Article V. The motion court disagreed, holding that the Guaranty qualified as an instrument for the payment of money only regardless of the word “performance” in Section 1.1 of the Guaranty.⁶

Second, defendants argued that the motion court should deny the motion and require plaintiff to first seek repayment from the borrower. The motion court rejected the argument, noting that under Section 1.3 of the Guaranty, the Guaranty was a guaranty “of payment and performance and not a guaranty of collection.” Thus, if plaintiff recovered any money from the borrower, any judgment against defendants arising under the Guaranty would be reduced in that amount. Moreover, said the motion court, there would be no risk of “inconsistent rulings,” as defendants asserted.

Third, defendants argued that plaintiff’s affiliate breached its duty of good faith and fair dealing by reneging on its promise in a term sheet to provide funding. The motion court rejected the argument, holding that the term sheet was non-binding and did not bear on whether the Guaranty was enforceable, whether defendants and the borrower owed plaintiff outstanding amounts under the Loan Documents, or whether defendants failed to tender payment.

On appeal, the First Department affirmed.

The Court held that “Plaintiff satisfied its burden on its CPLR 3213 motion for summary judgment in lieu of complaint.”⁷ In so holding, the Court found that “Plaintiff submitted the guaranty executed by defendants, the underlying loan agreement, the assignment of the loan agreement and accompanying documents to plaintiff, and evidence establishing the borrower’s default and defendants’ failure to perform under the guaranty.”⁸

The Court also found that, “[c]ontrary to [defendants’] contentions, the guaranty … [was] an instrument for the payment of money only as it unconditionally guarantee[d] the borrower’s obligation to pay its debt.”⁹ The Court rejected defendants’ “reliance on the loan agreement’s reference to certain ‘Other Obligations’ to show that the guaranty required performance” because “the loan agreement impose[d] [those] obligations on the borrower and not on defendants as the guarantor.”¹⁰

The Court also rejected defendants’ argument that plaintiff’s affiliate “breached its duty of good faith and fair dealing by reneging on its promise in a ‘term sheet’ to provide funding.”¹¹ The Court reasoned that “defendants’ unconditional and absolute guaranty preclude[d] such defenses.”¹² “In any event,” said the Court, “the term sheet, which expressly stated that it was nonbinding, ha[d] no bearing on the guaranty or the underlying loan agreement.”¹³

Takeaway

CPLR § 3213 provides for an accelerated judgment at the outset of the litigation. There are no pleadings, and there is no discovery when a movant seeks summary judgment under CPLR § 3213.

As noted, to obtain judgement pursuant to CPLR § 3213, the movant must demonstrate that its “action is based upon an instrument for the payment of money only or upon any judgment.” When the former is involved, the movant must demonstrate that the other party executed an instrument that contains an unequivocal and unconditional promise to pay the party upon demand or at a definite time and the party failed to pay according to the terms of the instrument.

In DB Auraria, the Court found that the Guaranty was “an instrument for the payment of money only as it unconditionally guarantee[d] the borrower’s obligation to pay its debt.”¹⁴ As such, the Guaranty did not require both payment and performance, which would have made CPLR § 3213 in applicable. It was a “prototypical example of an instrument within the ambit of [CPLR § 3213] … [i.e.,] an unconditional promise to pay a sum certain, signed by the maker and due on demand or at a definite time.”¹⁵

Footnotes

Through a series of assignments, plaintiff obtained the Loan Documents, including the two Notes, the Loan Agreement, and the Guaranty.
Weissman v. Sinorm Deli, Inc., 88 N.Y.2d 437, 444 (1996).
Cooperative Centrale Raiffesisen-Boerenleenbank, B.A., “Rabobank Intl.,” N.Y. Branch v. Navarro, 25 N.Y.3d 485, 492 (2015).
Weissman, 88 N.Y.2d at 444; Matas v. Alpargatas S.A.I.C., 274 A.D.2d 327, 328 (1st Dept. 2000).
Bank of Am., N.A. v. Solow, 19 Misc. 3d 1123(A) (Sup. Ct., N.Y. County 2008).
Citing 27 W. 72nd St. Note Buyer LLC v. Terzi, 194 A.D.3d 630, 631-632 (1st Dept. 2021), lv. to appeal denied, 37 N.Y.3d 913 (2021).
Slip Op. at *1.
Id. (citations omitted).
Id. (citations omitted).
Id. (citation omitted).
Id.
Id.
Id.
Id. (citations omitted).
Weissman, 88 N.Y.2d at 444.

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.