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THE AGREEMENT WHICH PROVIDED PLAINTIFF WOULD PAY DEFENDANT ABOUT $38,500 AND PLAINTIFF WOULD BE ENTITLED TO MONTHLY PAYMENTS FROM DEFENDANT’S REVENUE TOTALING ABOUT $52,500 WAS NOT A “LOAN” TO WHICH THE USURY DEFENSE COULD BE APPLIED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the contract between plaintiff and defendant (I Do) in which plaintiff paid defendant about $38,500 in return for monthly payments from defendant’s revenue totally about $52,500 did not constitute a “loan” to which the usury defense would apply:

Unless a principal sum advanced is repayable absolutely, the transaction is not a loan. Usually, courts weigh three factors when determining whether repayment is absolute or contingent: (1) whether there is a reconciliation provision in the agreement; (2) whether the agreement has a finite term; and (3) whether there is any recourse should the merchant declare bankruptcy” … .

… [T]he plaintiff established that the transaction set forth in the agreement was not a loan. The terms of the agreement specifically provided for adjustments to the monthly payments made by I Do to the plaintiff based on changes in I Do’s monthly sales. Concomitantly, as the amount of the monthly payments could change, the term of the agreement was not finite. Moreover, no contractual provision existed establishing that a declaration of bankruptcy would constitute an event of default … . Principis Capital, LLC v I Do, Inc., 2022 NY Slip Op 00203, Second Dept 1-12-22

 

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A JUDGMENT DEBTOR CANNOT BRING AN ACTION IN TORT AGAINST THE CREDITOR OR THE MARSHAL ALLEGING DAMAGES STEMMING FROM THE SEIZURE OF PROPERTY TO BE APPLIED TO THE DEBT; THE JUDGMENT DEBTOR’S REMEDIES ARE CONFINED TO THOSE DESCRIBED IN CPLR 5239 AND 5240 (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Garcia, over a two-judge dissent, and an additional single-judge dissent, determined a judgment debtor cannot bring a action in tort against the creditor or the marshal stemming from the seizure of the judgment debtor’s property. Any such claim must be made pursuant to CPLR 5239, 5240:

“[G]eneral provisions that permit ‘any interested person’—including a judgment debtor—to secure remedies for wrongs arising under the statutory scheme” are set out in CPLR 5239 and 5240 … . CPLR 5239 provides that “[p]rior to the application of property or debt by a sheriff or receiver to the satisfaction of a judgment, any interested person may commence a special proceeding against the judgment creditor or other person with whom a dispute exists to determine rights in the property or debt.” In such a proceeding, “[t]he court may vacate the execution or order, void the levy, direct the disposition of the property or debt, or direct that damages be awarded” … . Section 5240 in turn lays out the court’s power to, “at any time, on its own initiative or the motion of any interested person, and upon such notice as it may require, make an order denying, limiting, conditioning, regulating, extending or modifying the use of any enforcement procedure.” … CPLR 5240 grants the courts broad discretionary power to control and regulate the enforcement of a money judgment under article 52 to prevent ‘unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts'” … . … CPLR 5240 provides courts with the ability to craft flexible and equitable responses to claims that arise with respect to enforcement of valid money judgments. Plymouth Venture Partners, II, L.P. v GTR Source, LLC, 2021 NY Slip Op 07055, CtApp 12-16-21

 

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IF A DEBT IS ACCELERATED, THE SIX-YEAR STATUTE OF LIMITATIONS FOR RECOVERY OF THE DEBT IS TRIGGERED; IF THE DEBT IS NOT ACCELERATED, THE INSTALLMENTS DUE WITHIN THE SIX YEARS PRIOR TO COMMENCING SUIT ARE RECOVERABLE (THIRD DEPT).

The Third Department determined that, because the debt was never accelerated, recovery of the installments due during the six years prior to commencement of the action is not time-barred:

The claim alleges that the [defendants] stopped making monthly payments as required by the 1988 agreement in December 2003, 15 years before the commencement of this action. “Without acceleration of the entire debt by” [plaintiff], however, “a cause of action for portions of the indebtedness” owed would only accrue when each of the individual installments became due … . The … defendants did not demonstrate that [plaintiff] accelerated the debt and, as a result, failed to sustain their burden of showing that the claim was time-barred to the extent that it sought to recover installments that became due after December 2012. DiCenzo v Mone, 2021 NY Slip Op 06734, Third Dept 12-2-21

 

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THE CREDIT BID IN THIS UCC FORECLOSURE WAS SIGNIFICANTLY BELOW WHAT A COMMERCIALLY REASONABLE BID SHOULD HAVE BEEN PURSUANT TO UCC 9-615 (THIRD DEPT).

The Third Department, in a full-fledged opinion by Justice Lynch which addresses several issues not summarized here, determined the bid in foreclosure proceedings pursuant to UCC 9-611 was too low:

Taking the position that the business cessation constituted a breach of the security agreement, [plaintiff] terminated the agreement and gave [defendants] notice of its intent to foreclose on the collateral — i.e., the outstanding medical receivables — by holding a public auction pursuant to the Uniform Commercial Code (see UCC 9-611). [Plaintiff] was the only bidder at the public auction and purchased the collateral by way of a $50,000 credit bid, which it then credited against the outstanding balance of the loan. * * *

We find that the credit bid was “significantly below” what a commercially reasonable bid should have been under the standard set forth in UCC 9-615 (f) (2) … . It follows that Supreme Court erred in awarding plaintiff damages for breach of contract. Specifin Mgt. LLC v Elhadidy, 2021 NY Slip Op 06578, Third Dept 11-24-21

 

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A LOAN AGREEMENT WHICH ALLOWS THE LENDER TO CONVERT THE BALANCE TO SHARES OF STOCK AT A FIXED DISCOUNT CAN VIOLATE THE USURY STATUTE, WHICH WOULD THEREBY RENDER THE AGREEMENT VOID AB INITIO (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Wilson, over a partial dissent. answered two questions posed by the Second Circuit in the affirmative. “1. Whether a stock conversion option that permits a lender, in its sole discretion, to convert any outstanding balance to shares of stock at a fixed discount should be treated as interest for the purpose of determining whether the transaction violates N.Y. Penal Law § 190.40, the criminal usury law. 2. If the interest charged on a loan is determined to be criminally usurious under N.Y. Penal Law § 190.40, whether the contract is void ab initio pursuant to N.Y. Gen. Oblig. Law § 5-511:”

GeneSYS ID, Inc. (“GeneSYS”) is a publicly held corporation that produces various types of medical supplies. Adar Bays, LLC is a limited liability company based in Florida. On May 24, 2016, Adar Bays loaned GeneSYS $35,000. In exchange, GeneSYS gave Adar Bays a note with eight percent interest that would mature in one year. The note included an option for Adar Bays to convert some or all of the debt into shares of GeneSYS stock at a discount of 35% from the lowest trading price for GeneSYS stock over the 20 days prior to the date on which Adar Bays requested a conversion. Adar Bays could exercise its option starting 180 days after the note was issued and could do so all at once or in separate partial conversions. …

Six months and four days after the note was issued … Adar Bays requested conversion of $5,000 of debt into 439,560 shares of stock. GeneSYS refused … seeking to renegotiate the loan. … GeneSYS was trading for $0.024 per share, the conversion price was $0.011. Adar Bays … sued GeneSYS in the … Southern District of New York for breach of contract. GeneSYS filed a motion to dismiss arguing the contract was void because the loan’s rate of interest, including both the stated interest and conversion option, exceeded the criminal usury rate of 25%. Adar Bays, LLC v GeneSYS ID, Inc., 2021 NY Slip Op 05616 CtApp 10-14-21

 

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GENERALLY, TO VACATE A JUDGMENT BY CONFESSION, A PLENARY ACTION, NOT A MOTION TO VACATE, MUST BE BROUGHT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that, in order to vacate a judgment by confession, a plenary action must be commenced. Here the motion to vacate was not the proper vehicle:

“Generally, a person seeking to vacate a judgment entered upon the filing of an affidavit of confession of judgment must commence a separate plenary action for that relief” … . Here, the grounds for vacatur relied upon by the defendant do not fall within an exception to that general rule … . Accordingly, the Supreme Court should have denied the defendant’s motion without prejudice to his right to commence a plenary action to vacate the judgment by confession. Funding Metrics, LLC v D & V Hospitality, Inc., 2021 NY Slip Op 04964, Second Dept 9-15-21

 

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THE BANK IN THIS FORECLOSURE ACTION WAS NOT REQUIRED TO DEMONSTRATE IT WAS A LICENSED DEBT COLLECTION AGENCY PURSUANT TO THE NYC ADMINISTRATIVE CODE; THE BANK DID NOT ATTACH THE BUSINESS RECORDS NECESSARY TO DEMONSTRATE DEFENDANT’S DEFAULT (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Iannacci, determined: (1) the bank in this foreclosure action did not have to allege it was a licensed “debt collection agency” pursuant to the NYC Administrative Code (20-490); (2) the proof of defendant’s default was inadmissible hearsay:

A judicial foreclosure action such as the one at bar does not constitute the sort of tactics “shocking to the conscience of ordinary people”—like phone calls at unreasonable hours and other threatening behavior—that the subject Administrative Code provisions were enacted to address. Furthermore, the particular requirements and prohibitions placed upon debt collectors under the Administrative Code are concerned with ensuring that consumers can verify that payment on a debt is actually due, learn the correct amount of the debt, and meaningfully communicate with the debt collection agency about the debt … . In the context of judicial foreclosure, the state statutory scheme operates to protect homeowners and ensure fairness in the process, in a far more comprehensive manner and in ways that might not be entirely consistent with the Administrative Code provisions. * * *

… [T]he plaintiff failed to sustain its initial burden of demonstrating that the defendants defaulted in the repayment of the subject note. To establish such default, the plaintiff relied upon an affidavit of a representative of its loan servicer, whose averment regarding the defendants’ default was based upon her review of unidentified business records. Inasmuch as no business records were attached to, or otherwise incorporated into, the affidavit, this averment constituted inadmissible hearsay lacking in probative value … . Citibank, N.A. v Yanling Wu, 2021 NY Slip Op 04902, Second Dept 9-1-21

 

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THE STIPULATION OF DIVORCE DIVESTED THE HUSBAND OF HIS RIGHTS IN THE MARITAL PROPERTY; THEREFORE THE HUSBAND’S JUDGMENT CREDITOR COULD NOT REACH THE PROPERTY EVEN THOUGH THE HUSBAND’S NAME REMAINED ON THE DEED (FIRST DEPT).

The First Department, reversing Supreme Court, determined the stipulation of divorce awarding the marital property to the wife, Tiozzo, controlled such that the property could not be reached by the husband’s, Dangin’s, judgment creditor, Lenz. Lenz unsuccessfully argued the property was fair game because Dangin’s name remained on the deed:

The stipulation of divorce thus divested Dangin of his rights in the subject property. Under CPLR article 52 a judgment creditor may only seek to enforce its money judgment against a judgment debtor’s property. “Property” under CPLR 5201(b), whether realty or personalty, is defined broadly as an interest that is present or future, vested or contingent … . However, the determining factor as to whether a judgment debtor’s interest can constitute property vulnerable to a judgment creditor is whether it “could be assigned or transferred” (CPLR 5201[b]). In the stipulation of divorce Dangin gave up any right to assign or transfer to a third party an interest in the subject property. The subject property is therefore beyon.d the reach of Lenz … . Tiozzo v Dangin, 2021 NY Slip Op 04739, First Dept 8-19-21

 

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THE FULL AMOUNT OF THE NOTE WAS NOT RECOVERABLE BECAUSE THERE WAS NO ACCELERATION CLAUSE; CLAIMS FOR UNPAID INSTALLMENTS DUE MORE THAN SIX YEARS BEFORE FILING SUIT WERE TIME-BARRED (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined the full amount of the note could not be recovered because it did not include an acceleration clause. In addition, claims for unpaid installments due more than six years before the filing of the lawsuit were time-barred:

“As a general rule, in the absence of an acceleration clause providing for the entire amount of a note to be due upon the default of any one installment, [a plaintiff is] only entitled to recover past due installments and [can]not unilaterally declare the note[] accelerated” … . “Rather, each default on each installment gives rise to a separate cause of action” … . Here, the record is devoid of any evidence of an acceleration clause and, thus, plaintiff was entitled to recover “only the amount of the installments past due at the time of trial” … . … “Where, as here, ‘a loan secured by a mortgage is payable in installments, separate causes of action accrue for each unpaid installment, and the statute of limitations begins to run on the date that each installment becomes due’ ” … . As defendant correctly asserted as a defense, inasmuch as plaintiff commenced this action on July 13, 2017, any claims for missed installments that accrued prior to July 13, 2011 were time-barred by the applicable statute of limitations … . Estate of Kathryn Essig v Essig, 2021 NY Slip Op 04301, Fourth Dept 7-9-21

 

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CONVEYANCES OF REAL PROPERTY SHOULD HAVE BEEN SET ASIDE AS FRAUDULENT PURSUANT TO THE DEBTOR-CREDITOR LAW; RELATED AFFIRMATIVE DEFENSES BASED UPON UNSUPPORTED CONCLUSIONS OF LAW SHOULD HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined conveyances of property should have been set aside as fraudulent and the related affirmative defenses based upon unsupported conclusions of law should have been dismissed:

… [T]he plaintiff submitted … a copy of the deed and transfer documents regarding the properties at issue, which demonstrated that conveyances of the properties were made after the underlying action was commenced and without fair consideration. The plaintiff also submitted evidence that a judgment was docketed against [defendants] and that they failed to satisfy the judgment. With respect to the element of fair consideration, the deed and transfer documents reflect that no money or a nominal fee of ten dollars was paid for the defendants’ properties. Therefore, the plaintiff established her prima facie entitlement to summary judgment on the first cause of action to the extent that it seeks to set aside the conveyances of the properties pursuant to former section 273-a of the Debtor and Creditor Law … . …

The Supreme Court … should have granted that branch of the plaintiff’s motion which was pursuant to CPLR 3211(b) to dismiss the affirmative defenses insofar as the affirmative defenses pertain to Debtor and Creditor Law former § 273-a. CPLR 3211(b) authorizes a plaintiff to move to dismiss a defendant’s affirmative defense on the ground that it is without merit … [T]he affirmative defenses … proffered no supporting facts and merely pleaded conclusions of law. Diaz v 297 Schaefer St. Realty Corp., 2021 NY Slip Op 03825, Second Dept 6-16-21

 

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