Summary Judgment In Lieu Of Complaint: When Is an Instrument for The Payment of Money Only an Instrument for The Payment Of Money Only?

• Posted on: Apr 6 2022

By: Jeffrey M. Haber

In prior articles, we examined the motion for summary judgment in lieu of complaint under CPLR § 3213. See, e.g., here and here. As explained below, summary judgment in lieu of complaint is available for an instrument for the payment of money only. 

Today, we examine Sanghvi Diamonds LLC v. Agadjani, 2022 N.Y. Slip Op. 30738(U) (Sup. Ct., N.Y. County Mar. 8, 2022) (here), and Deutsche Bank Luxembourg S.A. v. Lehner, 2022 N.Y. Slip Op. 30739(U) (Sup. Ct., N.Y. County Mar. 8, 2022) (here). Both cases involved the guarantee of a debt. Only one was found to be an instrument for the payment of money only.

CPLR § 3213: A Primer

Under CPLR § 3213, a motion for summary judgment in lieu of complaint may be served by a plaintiff “when an action is based upon an instrument for the payment of money only.” As noted by the Court of Appeals, this requirement is a “stringent” one.¹

“CPLR 3213 is generally used to enforce ‘some variety of commercial paper in which the party to be charged has formally and explicitly acknowledged an indebtedness,’ so that a ‘prima facie case would be made out by the instrument and a failure to make the payments called for by its terms.’”² Accordingly, to prevail on a motion for summary judgment in lieu of complaint, the plaintiff must provide proof of a written agreement for money only, and the defendant’s failure to pay in accordance with its terms.³ 

“The prototypical example of an instrument within the ambit of [CPLR § 3213] is of course a negotiable instrument for the payment of money – an unconditional promise to pay a sum certain, signed by the maker and due on demand or at a definite time.”⁴ 

“An unconditional guaranty is an instrument for the payment of money only within the meaning of CPLR 3213.”⁵ 

“CPLR 3213 is available ‘where a right to payment can be ascertained from the face of a document.’”⁶ It “is not available where there are other issues and considerations presented by the writing,” for example “if the liabilities and obligations can only be ascertained by resort to evidence outside the instrument, or if more than simple proof of nonpayment or a de minimis deviation from the face of the document is involved.”⁷

To demonstrate entitlement to summary judgment in lieu of complaint based on a personal guaranty, the plaintiff must show: (1) the existence of a guaranty, (2) the underlying debt, and (3) the guarantor’s failure to perform under the guaranty.⁸ Once the plaintiff has done so, “the burden shifts to the defendant to establish, by admissible evidence, the existence of a triable issue with respect to a bona fide defense.”⁹

Sanghvi Diamonds LLC v. Agadjani

[Ed. Note: the facts of the case come from the motion court’s decision and the parties’ papers submitted in connection with the motion.]

Sanghvi Diamonds involved a business arrangement with TraxNYC whereby Sanghvi Diamonds agreed to sell diamonds to TraxNYC on a periodic basis. To secure the parties’ business arrangement, the founder and president of TraxNYC executed an unconditional personal guarantee. 

The parties’ arrangement was accomplished using a three-step process. The first step involved a request for a specific quantity and quality of diamonds for inspection and potential purchase. The second step involved the delivery of the requested diamonds. The delivery, inspection, and acceptance of diamonds by TraxNYC would be memorialized in a series of memoranda bearing sequence numbers that set forth the diamonds that were kept by TraxNYC and the diamonds, if any, that were returned to Sanghvi Diamonds. The third step involved invoicing the transaction. 

According to Sanghvi Diamonds, TraxNYC never objected to, or otherwise contested, the invoices issued to it by Sanghvi Diamonds. Nor did TraxNYC return any of the diamonds that it received from Sanghvi Diamonds.

Shortly after the parties’ business arrangement began, however, TraxNYC fell behind on its payment obligations and, eventually, stopped making payments on the invoices. As a result, Sanghvi Diamonds declined to provide any additional diamonds to TraxNYC and undertook to obtain full payment from TraxNYC for the diamonds it previously accepted and maintained. 

Following multiple attempts to collect the money it was owed, Sanghvi Diamonds sent a formal payment demand to TraxNYC for the full amount of the then unpaid invoices. In response, TraxNYC made an initial installment payment. Thereafter, TraxNYC made six additional monthly installment payments. Beginning in February 2021, however, TraxNYC stopped remitting monthly installment payments. 

Plaintiff moved for summary judgment in lieu of complaint under CPLR § 3213 against the guarantor. The motion court denied the motion.

The motion court held that the amount of the underlying debt could not be established without resorting to evidence outside of the guaranty and the underlying documentation.¹⁰ The court explained that “on its face” the guaranty did “not establish the amount of Defendant’s indebtedness” and did not “refer to any underlying agreement that would conclusively establish Defendant’s – or TraxNYC’s – obligations to Plaintiff.”¹¹ 

The court rejected plaintiff’s attempt “to establish the amount due under the Guaranty by submitting approximately 1,000 pages of ‘Memorandums’ and ‘Invoices’ …, along with some evidence about the parties ‘course of dealing.’”¹² The court explained that the memoranda (which it found to be consignment agreements)¹³ did “not set out terms for payment, or even for sale.”¹⁴ In short, the memoranda were “not the kind of simple, direct proof of indebtedness conducive to CPLR 3213 treatment.”¹⁵ 

As to the invoices, the motion court found numerous issues of fact preventing the grant of summary judgment. For instance, there was a question of fact as to whether defendant received the invoices.¹⁶ And, since the invoices were unsigned, there were questions as whether the invoices were enforceable under the Statute of Frauds and, if so, whether for each transaction an oral or implied contract for sale existed.¹⁷ 

In short, observed the court, “this is hardly the kind of ‘de minimis’ undertaking for establishing indebtedness envisioned by CPLR 3213.”¹⁸

Deutsche Bank Luxembourg S.A. v Lehner

[Ed. Note: the facts of the case come from the motion court’s decision.]

Plaintiff and Borrower entered into a loan agreement on April 24, 2020, which was to mature and be fully due and payable on December 31, 2020 – approximately eight-months from the execution of the loan agreement. The purpose of the loan agreement was to provide Borrower “liquidity for investment purposes with the Lender and general liquidity needs for [Borrower’s] professional activities.” 

On that same date, Guarantor executed a personal guaranty in favor of plaintiff regarding Borrower’s obligations under the loan agreement. Under the guaranty, Guarantor “irrevocably and unconditionally” guaranteed Borrower’s payment and performance obligations, both present and future, and “unconditionally and expressly waive[d] … all defenses, counterclaims, rights of setoff, any requirement that [Plaintiff] first proceed against Borrower ….”. Defendant also agreed to pay to plaintiff all damages arising from Borrower’s default, including reasonable attorneys’ fees and disbursements.

Borrower drew down the full amount of the loan facility and then defaulted on his payment obligations by failing to repay the principal amount plus interest by December 31, 2020. Plaintiff notified both Borrower and Guarantor of Borrower’s default on January 5, 2021, by sending both a default notice and payment demand letter. Ten days later, Plaintiff sent another default notice and payment demand letter to both parties.

On February 2, 2021, Borrower partially satisfied his obligations under the loan agreement. Plaintiff responded by sending both Borrower and Guarantor a letter informing them that Borrower’s payment was only in partial satisfaction of Borrower’s obligations under the loan agreement, and that full payment of the outstanding balance was required.

Borrower failed to make any follow-up payments necessary to satisfy the payment obligations under the loan agreement.

Thereafter, plaintiff sent a fourth letter solely to Guarantor informing defendant that Borrower had failed to make full payment of the outstanding balance. Plaintiff requested payment in full pursuant to the Guaranty Agreement “without undue delay, but in any event no later than 15 April 2021.” Guarantor did not pay the amounts demanded.

Plaintiff brought the action seeking summary judgment in lieu of complaint against Guarantor. In support of the motion, plaintiff submitted copies of the underlying loan agreement, the Guaranty Agreement, and the four letters notifying Guarantor of Borrower’s default and defendant’s obligations as Guarantor. 

The motion court granted plaintiff’s motion.

The court held that plaintiff had “established a prima facie case for summary judgment” by demonstrating “that Borrower executed and delivered the Loan Agreement, which is an instrument for the payment of money only, and that Defendant executed and delivered the Guaranty Agreement, which obligate[d] Defendant to satisfy Borrower’s default to payment of money only.”¹⁹

The court also found that plaintiff “demonstrated that the Loan Agreement matured no later than December 31, 2020, that Borrower defaulted on his payment obligations under the Loan Agreement, and that Defendant is now liable for Borrower’s default.” 

Under the foregoing facts, as well as defendant’s non-opposition to the relief requested, the motion court granted plaintiff’s motion. 

Takeaway

CPLR § 3213 provides for accelerated judgment and does so 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 as a matter of law 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. 

An action on a promissory note is an action for payment of money only. So too is an action on a guarantee, as in Sanghvi Diamonds and Deutsche Bank. The instrument and evidence of failure to make payments in accordance with its terms constitute a prima facie case for summary judgment. Only where a defendant can raise questions of fact that the note or guarantee is not an instrument for the payment of money, as in Sanghvi Diamonds, will the court deny a motion for summary judgment under CPLR § 3213. 

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.

References

1. Weissman v. Sinorm Deli, 88 N.Y.2d 437, 444 (1996).
2. PDL Biopharma, Inc. v. Wohlstadter, 147 A.D.3d 494, 494 (1st Dept. 2017) (quoting, Interman Indus. Prods. v. R.S.M Electron Power, 37 N.Y.2d 151, 154-155 (1975)).
3. SCP (Bermuda) Inc. v. Bermudatel Ltd., 224 A.D.2d 214, 216 (1st Dept. 1996).
4. Id. at 444.
5. Cooperatieve Centrale Raiffeisen Boerenleenbank, B.A. v. Navarro, 25 N.Y.3d 485, 492 (2015).
6. Boland v. Indah Kiat Fin. (IV) Mauritius Ltd., 291 A.D.2d 342,343 (1st Dept. 2002) (quoting, Matas v. Alpargatas S.A.I.C., 274 A.D.2d 327, 328 (1st Dept. 2000)).
7. Kerin v. Kaufman, 296 A.D.2d 336, 337 (1st Dept. 2002) (citing, Weissman, 88 N.Y.2d at 437).
8. See, e.g., Davimos v. Halle, 35 A.D.3d 270, 272 (1st Dept. 2006).
9. Cutter Bayview Cleaners, Inc. v. Spotless Shirts, Inc., 57 A.D.3d 708, 710 (2d Dept. 2008) (internal quotations and citations omitted).
10. Slip Op. at *2 (citing, Kerin, 296 A.D.2d at 337).  
11. Id. at *3 (citing, Weissman, 88 N.Y.2d at 444).
12. Id.
13. Id.
14. Id.
15. Id.
16. Id.
17. Id. at *3-*4.
18. Id. at *4.
19. Slip Op. at *5.