Debtor-Creditor – New York Appellate Digest

ALTHOUGH “ALICE” DID NOT SIGN THE NOTE, SHE WAS NAMED AS A “BORROWER” IN THE MORTGAGE DOCUMENT AND WAS THEREFORE ENTITLED TO THE RPAPL 1304 NOTICE OF FORECLOSURE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined “Alice,” who was named as a “borrower” in the mortgage document, was entitled to the RPAPL 1304 notice of foreclosure notwithstanding that she did not sign the note:

Alice was entitled to notice pursuant to RPAPL 1304 as a “borrower” within the meaning of that statute. Although Alice did not sign the subject note, she executed the mortgage as “Borrower,” she was identified as a borrower on the first page of the mortgage agreement, and she agreed in the mortgage agreement to pay the amounts due under the note. “‘Where, as here, a homeowner defendant is referred to as a “borrower” in the mortgage instrument and, in that capacity, agrees to pay amounts due under the note, that defendant is a “borrower” for the purposes of RPAPL 1304, notwithstanding . . . any ambiguity created by a provision in the mortgage instrument to the effect that parties who did not sign the underlying note are not personally obligated to pay the sums secured'” … . Bank of Am., N.A. v Maddox, 2026 NY Slip Op 06084, Second Dept 10-21-26

Practice Point: Here “Alice” was named as a “borrower” in the mortgage document but she did not sign the note. She was still entitled to the RPAPL 1304 notice of foreclosure.

October 21, 2026

Attorneys, Contract Law, Debtor-Creditor

ALTHOUGH PLAINTIFF WAS ENTITLED TO ATTORNEY’S FEES IN THE ORIGINAL SUIT ON THE NOTE, PLAINTIFF WAS NOT ENTITLED TO “FEES ON FEES” INCURRED DEFENDING DEFENDANTS’ APPEAL OF THE ORIGINAL JUDGMENT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff (Davidoff) was not entitled to an award of “fees on fees.” Defendants (the Hershfields) had appealed a judgment on a note which included an award of attorney’s fees to Davidoff. Davidoff then sued the Hershfields for the attorney’s fees incurred in defending the appeal, so-called “fees on fees.” The Second Department held that the language of the note did not support a “fees on fees” award:

Davidoff commenced the instant action against the Hershfields, alleging that under the terms of the note, he was entitled to recover attorneys’ fees and costs in connection with the prior appeal and in bringing this action. …

… Supreme Court granted Davidoff’s cross-motion for summary judgment on the issue of liability … . The court determined that Davidoff was entitled to recover his attorneys’ fees in connection with the prior appeal and the instant action under the clear terms of the note. …

… Supreme Court should have denied Davidoff’s cross-motion for summary judgment on the issue of liability and should have granted the Hershfields’ motion pursuant to CPLR 3211(a) to dismiss the complaint. “The construction and interpretation of an unambiguous written contract is an issue of law within the province of the court, as is the inquiry of whether the writing is ambiguous in the first instance. If the language is free from ambiguity, its meaning may be determined as a matter of law on the basis of the writing alone without resort to extrinsic evidence” … . “[A]n award of attorneys’ fees for the costs incurred in prosecuting a claim for an award of attorneys’ fees, so called ‘fees on fees,’ must be based upon a specific contractual provision or statute” … . “Consequently, where a party is under no legal duty to indemnify, a contract assuming that obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed” … .

… Davidoff failed to establish his prima facie entitlement to judgment as a matter of law on the issue of liability for breach of contract. The note did not contain clear language expressly providing for the prevailing party to recover fees on fees or any reference to fees incurred to recover attorneys’ fees … . “Given the absence of unmistakably clear intent regarding the recovery of fees on fees, a right to recover those fees should not be implied” … . Davidoff v Hershfield, 2026 NY Slip Op 05931, Second Dept 10-14-26

Practice Point: To recover “fees on fees” the relevant contract must explicitly refer to fees incurred to recover attorney’s fees.

October 14, 2026

Agency, Contract Law, Debtor-Creditor

THERE WAS NO PROOF PLAINTIFFS HAD NOTICE DEFENDANT WAS ACTING AS AN AGENT FOR A LIMITED LIABILITY COMPANY WHEN HE SIGNED THE CONSTRUCTION-LOAN CONTRACT; THE BREACH OF CONTRACT ACTION SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that defendant, the principal in a limited liability company (LLC), told plaintiffs he was the “owner of the property” at the time the construction-loan contract was signed and did not disclose the loan was for the company (the LLC). Therefore defendant’s argument he was acting as an agent for the LLPC when the contract was signed was rejected:

“An agent who enters into a contract on behalf of a disclosed principal is not personally liable unless there is clear and explicit evidence of the agent’s intention to be personally bound” … . However, “[t]he party claiming, as an affirmative defense to liability for breach of contract, that an agency relationship existed must demonstrate that the agency relationship and the identity of the principal were disclosed” … . “A principal is considered to be ‘disclosed’ if, at the time of a transaction conducted by an agent, the other party to the contract had notice that the agent was acting for the principal and of the principal’s identity” … .

… [T]here was no evidence that the existence of 1719 Hylan, LLC, was disclosed to the plaintiffs at the time of the loan. The plaintiffs’ principal testified that the defendant told her that he was the owner of the property, that there was no discussion that the construction project was on behalf of a company, and that the defendant never told her that the loan was for a company. The defendant presented no evidence to the contrary. Therefore, the defendant failed to meet his burden of demonstrating that the plaintiffs knew that he was acting on behalf of 1719 Hylan, LLC. 710 E Elizabeth Ave, LLC v Jhong Kim, 2026 NY Slip Op 05756, Second Department 10-7-26

Practice Point: In this breach of contract action, defendant argued he signed the contract as an agent for a limited liability company and was not personally liable. But defendant did not submit any proof the plaintiff was given notice he was signing as an agent for a company. Therefore the agency defense was rejected.

October 7, 2026

Civil Procedure, Contract Law, Corporation Law, Debtor-Creditor, Fraud

PETITIONER OBTAINED JUDGMENTS EXCEEDING $1 BILLION AGAINST RESPONDENTS STEMMING FROM THE 2008 FINANCIAL CRISES WHICH HAVE YET TO BE SATISFIED; PETITIONER BROUGHT THIS TURNOVER PROCEEDING IN 2023; THE CORPORATE VEIL-PIERCING CLAIM AND THE FRAUDULENT CONVEYANCE AND VOIDABLE TRANSACTIONS CAUSES OF ACTION PROPERLY SURVIVED THE MOTION TO DISMISS (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Higgitt, affirmed the denial of the motion to dismiss the corporate veil-piercing claim and the fraudulent conveyance and voidable transactions causes of action: The respondents have not satisfied a pair of judgments totaling more than $1 billion stemming from the 2008 financial crisis. The petitioner, UBS, commenced this turnover proceeding pursuant to CPLR 5225 in 2023:

… UBS alleged that, after it secured the first judgment, it discovered that [respodents] had conspired to frustrate UBS’s ability to recover against the judgment debtors. UBS alleged that [respondents], exercising complete domination over the judgment debtors and other related entities, transferred the debtors’ assets to themselves or other entities that they controlled in an effort to avoid paying UBS any of the obligations stemming from … the judgments. * * *

For pleading purposes, a party seeking to pierce the corporate veil does not have to satisfy the heightened pleading requirement imposed on one interposing a cause of action for fraud (see CPLR 3016); rather, the party must plead facts that would establish that the individual defendant’s domination of the corporation was used to perpetrate a wrong or injustice against the party, and the allegations of domination must be adorned with particularized allegations of consequent wrongs … . Matter of UBS Sec. LLC v Dondero, 2026 NY Slip Op 05460, First Dept 9-24-26

Practice Point: Consult this opinion for insight into the pleading requirements for piercing the corporate veil and fraudulent conveyance and voidable transactions causes of action in the context of a (post-judgment) turnover proceeding pursuant to CPLR 5225.

September 24, 2026

Contract Law, Debtor-Creditor, Family Law, Usury

THE PARTIES IN THIS DIVORCE PROCEEDING ENTERED A LITIGATION FUNDING AGREEMENT IN WHICH DEFENDANT ADVANCED FUNDS TO PLAINTIFF IN RETURN FOR THE ASSIGNMENT OF PROCEEDS FROM THE DIVORCE CLAIM; DESPITE THE INCLUSION OF THE TERM “THIS IS NOT A LOAN” IN THE AGREEMENT, THE FIRST DEPARTMENT HELD THE AGREEMENT WAS IN FACT AN INVALID LOAN AT A USURIOUS 18.96% ANNUAL INTEREST RATE (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Michael, reversing (modifying) Supreme Court, determined the parties’ divorce-litigation funding agreement was a usurious loan, not an investment, and was therefore void and unenforceable:

The parties entered into a Purchase and Sale Agreement, dated May 23, 2018 (the PSA), wherein defendant agreed to advance approximately$200,000 to plaintiff to fund the legal costs of plaintiff’s pending divorce action. In return, plaintiff agreed to assign to defendant his right to receive any proceeds from the divorce claim up to the amount owed to defendant under the PSA. The “Proceeds” consisted of “the total recovery from the Claim” and the “Claim” was defined as plaintiff’s right, title, and interest in and to any amount granted to plaintiff in connection with his pending divorce action, any appeal or settlement with respect thereto, and any related action. * * *

The PSA clarified that “THIS IS NOT A LOAN” and was expressly contingent on plaintiff’s “successful” recovery on the Claim. It proclaimed that “[i]f there is no recovery on the Claim, nothing will be owed to [defendant].” Yet, several provisions of the PSA together with the Sweetheart Guaranty … , entitled defendant to recoup the money it advanced plus interest even if “there is no recovery on the Claim,” such as in the event of plaintiff’s death or reconciliation with his wife. * * *

Considering the totality of the circumstances … , we find that the parties’ PSA was in fact a loan. The only remaining question is whether the loan was usurious. A loan is usurious if the interest exceeds the maximum legal rate of 16% (see General Obligations Law § 5-501[1], [2]; Banking Law § 14-a[1]). It is undisputed that under the PSA, interest accrued at 18.96% annually, which exceeds the legal limit. Denemark v New Ch. Capital, Inc., 2026 NY Slip Op 04553, First Dept 7-23-26

Practice Point: Consult this opinion for insight into when an agreement constitutes a “loan” subject to the usury law rather than an “investment.”

July 23, 2026

Contract Law, Debtor-Creditor

A CONTRACT WHICH ALLOWS A PARTY “SOLE DISCRETION” TO ASSIGN A LOAN IS CONSTRAINED BY THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING; HERE IT WAS ALLEGED THE ASSIGNMENT WAS PART OF A “BACKROOM DEAL” TO EXCLUDE PLAINTIFF FROM A DEVELOPMENT PROJECT AND BENEFIT FROM A RESULTING WINDFALL; THE BREACH OF THE IMPLIED COVENANT CAUSE OF ACTION WAS REINSTATED BY THE COURT OF APPEALS (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Wilson, over a three-judge partial dissent, reversing (modifying) thee Appellate Division, determined the cause of action alleging breach of the implied covenant of good faith and fair dealing should not have been dismissed. The complex facts of the case center around loans and contracts to develop a luxury residential tower. Under the Pledge Agreement at issue the defendant, Apollo, had “sole discretion” to assign a “junior mezzanine loan.” The majority concluded that the “sole discretion” did not override the implied covenant of good faith and fair dealing. Plaintiff alleged the assignment of the loan to “Spruce” was part of a “backroom deal” to push plaintiff out of the project’s capital structure and benefit from a resulting windfall:

We concur with the prevailing view among the Appellate Division departments—that a party’s “sole discretion” with respect to a right does not exculpate that party from complying with the implied covenant with respect to that right. Although “parties to a contract are basically free to make whatever agreement they wish, no matter how unwise it might appear to a third party . . . [t]here exists an unavoidable tension between the concept of freedom to contract . . . and the equally fundamental belief that an enlightened society must to some extent protect its members from the potentially harsh effects of an unchecked free market system” … . In light of those competing interests, “rightly or wrongly, society has chosen to intervene in various ways in the dealings between private parties,” for example by “mandating the express or implicit inclusion of certain substantive or procedural provisions in various types of contracts” … . Indeed, one of those implicit substantive provisions is the implied covenant, which has the primary purpose of ensuring that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract,” when that conduct is “inconsistent with the other terms of the contractual relationship,” and yet not negotiated for in advance … .

This doctrine is even more important “where a contract contemplates the exercise of discretion,” or in other words awards one party the freedom to act in ways the contract may not directly foresee … . Accordingly, the implied covenant obligates the party with discretion act in good faith, and “not [] arbitrarily or irrationally,” when “exercising that discretion” … . A promisor’s discretion may not be used to violate a promise that “a reasonable person in the position of the promisee would be justified in understanding w[as] included” … . 111 W. 57th Inv. LLC v 111 W57 Mezz Inv. LLC, 2026 NY Slip Op 03376, CtApp 5-28-26

Practice Point: A contract provision allowing a party “sole discretion” to take certain actions is constrained by the implied covenant of good faith and fair dealing. i.e., a party cannot exercise discretion in a way that frustrates another party’s rights under the contract.

May 28, 2026

Civil Procedure, Contract Law, Debtor-Creditor

THE SURETY BOND, A CONTRACT, WAS UNAMBIGUOUS AND MADE NO MENTION OF PREJUDGMENT INTEREST; THE SURETY THEREFORE WAS NOT OBLIGATED TO PAY PREJUDGMENT INTEREST; THE ARGUMENT THAT CPLR 5001 MAKES PAYMENT OF PREJUDGMENT INTEREST MANDATORY WAS REJECTED (THIRD DEPT).

The Third Department, modifying Supreme Court, determined that the terms of the surety bond governed whether the surety was obligated to pay prejudgment interest. Because the bond, a contract, did not mention prejudgment interest, the surety was not obligated to pay it. The argument that CPLR 5001 makes an award of prejudgment interest mandatory, regardless of the language of the surety bond, was rejected:

Here, the contract states that the surety will “pay for labor, materials, and equipment furnished for use in the performance of the [c]onstruction [c]ontract”; importantly to this case, there is no commitment to remit — or even mention of — prejudgment interest. “Surety bonds — like all contracts — are to be construed in accordance with their terms under established rules of contract construction. . . . [A] surety’s obligation upon its undertaking is defined solely by the language of the bond and cannot be extended by the court” … . In the matter before us, the damage claimed by plaintiff is the amount of prejudgment interest it did not receive in the judgment against the surety. However, under the clear and unambiguous terms of the payment bond, the surety had no obligation to remit same. Stone Cast, Inc. v Couch, Dale Marshall P.C., 2025 NY Slip Op 05860, Third Dept 10-23-25

Practice Point: CPLR 5001 does not make payment of prejudgment interest mandatory in breach of contract cases. The language of the surety bond, a contract, controls.

October 23, 2025

Contract Law, Debtor-Creditor, Landlord-Tenant

THE GUARANTY OF RENT DUE UNDER THE COMMERCIAL LEASE WAS A “GOOD GUY” GUARANTY; THE GUARANTOR’S LIABILITY ENDED WHEN THE TENANT VACATED THE PREMISES, NOT SUBSEQUENTLY WHEN THE LANDLORD ACCEPTED THE SURRENDER OF THE PREMISES (CT APP).

The Court of Appeals, reversing the Appellate Division, in a full-fledged opinion by Judge Wilson, over a two-judge dissent, determined Mr. Lieberman’s guaranty of the rent due under the commercial lease terminated when the tenant vacated the premises, not when the landlord subsequently accepted the surrender of the premises. The opinion turns on interpreting the language of the guaranty and the lease:

In the world of commercial leases, a “good guy” guaranty is a limited guaranty in which the guarantor’s obligation extends only up to the point that the tenant surrenders the premises to the landlord, leaving the tenant solely responsible for rent due from that point forward … . The question in this case is whether the guaranty at issue operates in that manner. The guarantor’s liability ended when the tenant vacated the premises and, under the terms of the guaranty in this agreement, was not conditioned on the landlord’s acceptance of that surrender. Accordingly, we reverse. * * *

It would be a simple matter for parties intending to enter into a “good guy” guaranty to say so explicitly, with clear language that does not require courts to resort to rules of construction regarding superfluity or canons that aid in determining the parties’ intent. Here, although the parties could have expressed their intent in a much simpler and clearer way and avoided this litigation entirely, we conclude that the guaranty in this case is limited, confining the guarantor’s liability to damages accruing prior to the date the tenant surrendered possession of the Premises. Under the terms of the guaranty, WSA [the tenant] surrendered possession of the Premises on or about November 30, 2020 when it provided 1995 CAM [the landlord] notice, completely vacated the Premises, and relinquished control of the Premises. 1995 CAM LLC v West Side Advisors, LLC, 2025 NY Slip Op 05782, CtApp 10-21-25

Practice Point: Consult this opinion for an analysis of a “good guy” guaranty of rent due under a commercial lease.

October 21, 2025

Agency, Contract Law, Debtor-Creditor, Landlord-Tenant, Limited Liability Company Law

ALTHOUGH THE LEASE WAS ENTERED INTO BY THE LIMITED LIABILITY COMPANY (LLC) THE OWNERS OF THE LLC SIGNED A PARAGRAPH AGREEING TO GUARANTEE THE PAYMENT OF THE RENT; THE BREACH OF CONTRACT ACTION AGAINST THE INDIVIDUAL OWNERS SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that, although the lease was entered into by the limited liability company (LLC), the owners of the LLC signed as personal guarantors of the rent payments. Therefore the breach of contract action against the individual owners should not have been dismissed:

“An agent executing a contract on behalf of a disclosed principal ‘is not liable for a breach of the contract unless it clearly appears that he or she intended to bind himself or herself personally'” … . “[T]here [must be] clear and explicit evidence of the agent’s intention to substitute or superadd his [or her] personal liability for, or to, that of his [or her] principal” … . “There is great danger in allowing a single sentence in a long contract to bind individually a person who signs only as a corporate officer” … . A personal guaranty of a corporation’s obligation will be enforced against an individual where it “‘constitute[s] a deliberately stated, unambiguous, and separate expression personally obligating'” the individual under the contract … . * * *

Directly above the … signature lines was a paragraph stating that the parties agreed “[t]hat Roman and Solomon Davydov, are the owners of Tavak LLC, and they will act as personal guarantors for the payment of rent and any other[ ] costs, bills and fees and issues arising from the above enumerated items.” …

The clearly worded language of the guaranty clause made reference to Tavak and to each of the individual defendants by name, was contained in a short, two-page rider, and appeared directly above the rider’s signature lines, which the individual defendants signed without listing their corporate titles. 166-20 Union Turnpike, LLC v Tavak, LLC, 2025 NY Slip Op 05054, Second Dept 9-24-25

Practice Point: The owners of a limited liability company which enters a lease can agree to be personally liable for the debts of the LLC by guaranteeing the payment of rent.

September 24, 2025

Civil Procedure, Constitutional Law, Debtor-Creditor

A FOREIGN DEFAULT JUDGMENT MAY BE ACCORDED FULL FAITH AND CREDIT IN NEW YORK BY A PLENARY ACTION OR A MOTION FOR SUMMARY JUDGMENT IN LIEU OF COMPLAINT; THERE IS NO NEED FOR PERSONAL JURISDICTION OVER THE DEFENDANT (SECOND DEPT).

The Second Department, reversing Supreme Court, in a full-fledged opinion by Justice Braithwaite Nelson, determined New York need not have personal jurisdiction over a defendant to have a North Carolina money judgment recognized in New York. After obtaining a default judgment in North Carolina, the plaintiff moved for summary judgment in lieu of complaint pursuant to CPLR 3213:

To facilitate fulfilling this constitutional obligation and to assist in the enforcement of judgments entitled to full faith and credit, the New York Legislature adopted the Uniform Enforcement of Foreign Judgments Act (hereinafter the Foreign Judgments Act) (CPLR art 54), which provides a simple procedure by which a judgment creditor may file an authenticated copy of a judgment rendered by a court entitled to full faith and credit in New York … . Once filed, and after certain other conditions have been met … , the foreign judgment shall be treated in the same manner as a judgment of New York and may be enforced in like manner as a judgment rendered in New York … . There is no explicit requirement in the Foreign Judgments Act that New York have personal jurisdiction over the judgment debtor before the foreign judgment may be filed and treated as a New York judgment.

A judgment that was obtained by a default in appearance, however, is not eligible for the streamlined process afforded by the Foreign Judgments Act … . Where a judgment was entered on a default in appearance, full faith and credit may be accorded by the commencement of a plenary action or by a motion for summary judgment in lieu of complaint … . * * *

In seeking recognition and enforcement of an out-of-state judgment entitled to full faith and credit, “‘the judgment creditor does not seek any new relief against the judgment debtor, but instead merely asks the court to perform its ministerial function of recognizing the [out-of-state] money judgment and converting it into a New York judgment'” … . Here, the defendant does not contest the jurisdiction of the North Carolina court or otherwise contend that he was denied due process in that court. Cadlerock Joint Venture, L.P. v Simms, 2025 NY Slip Op 04541, Second Dept 8-6-25

Practice Point: A foreign default judgment may be accorded full faith and credit in New York by a plenary action or a motion for summary judgment in lieu of complaint. There is no need for personal jurisdiction over the defendant.

August 6, 2025