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Transaction Documents Found Not to Be So Intertwined as To Warrant a Stay of Judgment on A Note

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  • Posted on: Apr 7 2021

Under well-settled principles, summary judgment in lieu of complaint is available for an instrument for the payment of money only. In considering such a motion, the courts will look at the four corners of the instrument sued upon in determining whether the instrument qualifies as one for the payment of money only.

[Ed. Note: This Blog recently wrote about summary judgment motions in lieu of a complaint here.]

In Yang v. Dai, 2021 N.Y. Slip Op. 02125 (1st Dept. April 6, 2021) (here), the Appellate Division, First Department applied the foregoing principles in affirming the grant of summary judgment in lieu of a complaint on a note that was part of various business dealings between defendant and plaintiff’s spouse (a non-party).

On December 28, 2018, plaintiff Jinmei Yang, as lender, and defendant Shang Dai, as borrower, executed an Amended and Restated Secured Promissory Note (the “Note”) in the sum of $1,150,000.00. The Note was guaranteed by defendant Da Wei Gongsun pursuant to a Continuing Guaranty (the “Guaranty”) executed on the same date as the Note. 

Defendants defaulted on the payments, causing plaintiff to file the motion for summary judgment in lieu of a complaint. In support of the motion, plaintiff submitted an affidavit confirming that she wired $1,150,000.00 to defendant Dai, authenticating the loan documents on which she relied, confirming defendants’ default in payment on the Note, and providing the calculations supporting the amount due ($1,123,809.42). The motion court held that the affidavit and supporting documents sufficed to state a prima facie case. (Here.)

In opposition, defendant asserted that the Note was inextricably intertwined with various business dealings he had with plaintiff’s husband, nonparty Xiajie Huang, related to, among other things, a joint venture to invest in DaDong Restaurant (the “Restaurant”) via the formation of DaDong LLC. Defendant claimed that Huang offered to lend him the money represented by the Note to facilitate that investment. 

The lender under the Note was plaintiff because Huang conducted business in the United States through his wife’s bank account. Defendant insisted that the terms of the original Note and all amendments were between him and Huang and that plaintiff was involved in name only. Defendant also claimed that he was fraudulently induced by Huang’s misrepresentations to borrow the money, believing the Restaurant would generate profits defendant could use to repay the loan. The venture ultimately failed, and defendant lost his entire investment.

Defendant Da Wei Gongsun, the guarantor on the Note, also asserted that he was fraudulently induced to sign the Guaranty by Huang’s misrepresentations about the potential success of the Restaurant. 

The motion court granted plaintiff’s motion. The motion court found that defendant “unconditionally promise[d]” to pay $1,150,000.00 to plaintiff pursuant to the terms of the Note. “Nowhere in the seven-page Note,” observed the motion court, was “there any reference to the Restaurant, to Huang, or to any business venture with Huang or anyone else.” “Nothing in the Note,” continued the motion court, “indicate[d] that the Note [was] inextricably intertwined with any related or unrelated business transaction.” 

The motion court noted that, although the Note referenced an amended and restated pledge and security agreement, which the parties executed on the same day as the Note, it did “not change the fact that the Note [was] an instrument for the payment of money only not dependent upon, or inextricably intertwined with, the success or failure of the Restaurant.”

The referenced Amended and Restated Pledge and Security Agreement executed on the same date as the Note is between defendant Shang Dai as Pledgor, Dai’s company True Taste as Issuer, and plaintiff Jinmei Yang as the Secured Party. There, defendant pledged “100% of the membership interest of the Issuer [True Taste], which was the managing member and the legal and beneficial owner of 10 Units or 10% of the issued and outstanding membership interests of Dadong Management LLC, a Delaware limited liability company (the “Company”), to the Secured Party [plaintiff Jinmei Yang] …”

But the fact that defendant collateralized the Note with his or his company’s membership interest in the Restaurant’s operating company, or that he invested the loan money in the Restaurant company with the mistaken belief the Restaurant would succeed, does not change the fact that the Note is an instrument for the payment of money only not dependent upon, or inextricably intertwined with, the success or failure of the Restaurant. 

The motion court also rejected defendant’s fraud in the inducement allegations, holding that they were “insufficient to negate the comprehensively detailed and carefully drafted multi-page Note for the payment of money only.”

Accordingly, the motion court granted plaintiff’s motion and directed the entry of judgment in favor of plaintiff against defendants for the amount of the loan, plus interest, and attorney’s fees as provided in the Note.

On appeal, the First Department affirmed.

The Court held, like the motion court, that the Note was an unconditional promise to pay money, which defendant failed to pay: “The December 28, 2018 amended and restated note stated that defendant Shang Dai ‘unconditionally’ promised to pay plaintiff Jinmei Yang by the maturity date in exchange for the loan of $1,150,000 and it is undisputed that defendant Dai defaulted.” Slip Op. at *1.

The Court also rejected defendant’s argument that the Note was intertwined with the joint venture, noting that “[a]t most, the promissory note ‘[was] part of an investment transaction between sophisticated, counseled parties dealing at arms-length and that the language of the notes [ ] obligated the defendant in his personal capacity.’” Id. (quoting Berlind v. Heinfling, 176 A.D.2d 452, 452 (1st Dept. 1991)).

Further, the Court rejected defendant’s argument that because the Note was secured by defendant’s membership interest in a business that he owned, the Note was not an instrument for the payment of money only:

That the note was secured by a membership interest in a business owned by defendant does not “alter its essential character as an instrument for the payment of money only and, accordingly, is immaterial to plaintiff’s right to relief pursuant to CPLR 3213.” 

Id. (quoting Bhatara v. Futterman, 122 A.D.3d 509, 510 (1st Dept. 2014)).

Finally, the Court noted that the profitability of the investment was no defense to a motion for summary judgment under CPLR § 3213: “the fact that the investment was not profitable did not constitute a defense to the note.…” Id.


As shown above, plaintiff sustained her initial burden of demonstrating entitlement to judgment as a matter of law by submitting proof of the existence of the underlying note and guaranty, the unconditional terms of repayment, and defendants’ failure to make payment. It was incumbent upon defendants to demonstrate by admissible evidence, the existence of a triable issue of fact with respect to a bona fide defense. The courts considering the facts and evidence found that they did not do so. 

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