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Criteria for Accelerated Relief Re: a Promissory Note Explained–Conclusory Allegations of Fraud in the Inducement Insufficient to Defeat Summary Judgment

Reversing Supreme Court, the Second Department determined plaintiff was entitled to accelerated summary judgment on a promissory note because the defendant’s conclusory allegations of fraud in the inducement were not sufficient to defeat the motion.  The court explained the availability of accelerated relief:

“Pursuant to CPLR 3213, a party may obtain accelerated relief by moving for summary judgment in lieu of complaint, provided that the action is based upon an instrument for the payment of money only or upon any judgment'” … . ” A promissory note is an instrument for the payment of money only, provided that it contains an unconditional promise by the borrower to pay the lender over a stated period of time'” … . “An instrument does not qualify for accelerated relief under CPLR 3213 if outside proof is needed, other than simple proof of nonpayment or a similar de minimis deviation from the face of the document'” … . “Therefore, a plaintiff makes a prima facie showing of entitlement to judgment as a matter of law pursuant to CPLR 3213 by showing that the defendant executed the subject instrument, the instrument contains an unconditional promise to repay the plaintiff upon demand or at a definite time, and the defendant failed to pay in accordance with the instrument’s terms” … . Once the plaintiff establishes its prima facie entitlement to judgment as a matter of law, the burden shifts to the defendant to submit admissible evidence to establish the existence of a triable issue of fact with respect to a bona fide defense … .

Here, the plaintiff established its prima facie entitlement to judgment as a matter of law by showing that the defendant executed the subject instruments, which contained unconditional promises to repay the plaintiff upon demand or at a definite time, and the defendant failed to pay in accordance with the terms of the instruments … . Contrary to the Supreme Court’s determination, in opposition, the defendant failed to establish the existence of a triable issue of fact with respect to a bona fide defense. The defendant claimed that the plaintiff fraudulently induced it to execute the promissory notes. However, the evidence submitted by the defendant failed to raise a triable issue of fact in this regard. Moreover, the defendant’s conclusory allegations of fraud were insufficient to defeat the plaintiff’s entitlement to summary judgment … . Sun Convenient Inc v Sarasamir Corp, 2014 NY Slip Op 08827, 2nd Dept 12-17-14

 

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Rent-Stabilized Apartment Lease Is Exempt from the Bankruptcy Estate

The Court of Appeals, in a full-fledged opinion by Judge Abdus-Salaam, over a dissent, determined that a rent-stabilized apartment lease is exempt from the bankruptcy estate because it qualifies as a “local public assistance benefit” under Debtor and Creditor Law (DCL) 282 (2):

Section 522 (b) of the Bankruptcy Code permits the debtor to exempt certain property from the bankruptcy estate, and section 522 (d) provides a list of property that may be exempt. However, the Code also permits states to create their own list of exemptions, and New York has done so. DCL § 282 sets forth the permissible exemptions in personal bankruptcy. Debtors domiciled in New York have the option of choosing either the federal exemptions or New York exemptions (11 USC § 522 (b); DCL § 285). DCL § 282 (2), entitled “Bankruptcy exemption for right to receive benefits” lists the following as exemptions:

“The debtor’s right to receive or the debtor’s interest in: (a) a social security benefit, unemployment compensation or a local public assistance benefit; (b) a veterans’ benefit; (c) a disability, illness, or unemployment benefit; (d) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; and (e) all payments under a stock bonus, pension, profit sharing, or similar plan or contract on account of illness, disability, death, age, or length of service . . . “

When the rent-stabilization regulatory scheme is considered against the backdrop of the crucial role that it plays in the lives of New York residents, and the purpose and effect of the program, it is evident that a tenant’s rights under a rent-stabilized lease are a local public assistance benefit.   Matter of Santiago-Monteverdi, 2014 NY Slip Op 08051, CtApp 11-20-14

 

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Defendants Unable to Demonstrate that Plaintiff’s Alleged Breach of a Related Contract Relieved Defendants of the Obligation to Pay a Promissory Note—No Showing the Promissory Note and Oral Agreement Were “Intertwined”

The First Department determined the allegations that plaintiff’s breach of a related oral agreement relieved defendants of the obligation to pay a promissory note were insufficient to defeat summary judgment on the note:

” [T]he general rule is that the breach of a related contract cannot defeat a motion for summary judgment on an instrument for money only unless it can be shown that the contract and the instrument are “intertwined” and that the defenses alleged to exist create material issues of triable fact'” … . Here, the defendants failed to demonstrate that the alleged oral construction management agreement was “inextricably intertwined” with the promissory note … . Castle Restoration & Constr Inc v Castle Restoration LLC, 2014 NY Slip Op 07972, 2nd Dept 11-19-14

 

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Agreement to Pay over $500,000 (Re: Prior Loans Allegedly Made Over a Period Time) Not Enforceable Because the Agreement Did Not Express Any Consideration—Past Consideration Is No Consideration Because the Detriment Did Not Induce the Promise

The Second Department determined that an agreement to pay over $500,000, allegedly constituting the amount of past loans made over a period of time, was not enforceable because the agreement did not express any consideration.  However, the cause of action for monies had and received properly survived summary judgment:

The lack of consideration for a note is a bona fide defense to payment thereof … . Generally, past consideration is no consideration and cannot support an agreement because “the detriment did not induce the promise” … . That is, “since the detriment had already been incurred, it cannot be said to have been bargained for in exchange for the promise” … . However, a “promise in writing and signed by the promisor or by his agent shall not be denied effect as a valid contractual obligation on the ground that consideration for the promise is past or executed, if the consideration is expressed in the writing and is proved to have been given or performed and would be a valid consideration but for the time when it was given or performed” (General Obligations Law § 5-1105 [emphasis added]).

Here, as indicated, the agreement did not express any consideration. Thus, it is not enforceable as a promissory note or as a contract (see General Obligations Law § 5-1105; Uniform Commercial Code § 3-104[1][a]-[d]; [2][d…). Samet v Binson, 2014 NY Slip Op -7643, 2nd Dept 11-12-14

 

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Son of Sam Law Required Murderer’s Police Pension Be Paid to Daughter and Estate of the Murder Victim

The Second Department determined that the “Son of Sam Law” required that the pension to which a convicted murderer was entitled be paid to the estate of the murder victim.  The plaintiff is the daughter of the murder victim.  The murderer is plaintiff’s father. The father fraudulently transferred his pension rights to his second wife.  Plaintiff, individually and as the administrator of her mother’s estate, procured a wrongful death judgment against her father. The court affirmed Supreme Court’s ruling that the transfer of the pension to the father’s second wife was fraudulent under Florida law (where the transfer was made) and the “Son of Sam Law” trumped the Retirement and Social Security Law such that the father’s pension was payable to the plaintiff:

“Under the full faith and credit clause . . . , where collateral attack on the ground of fraud would be permitted in the courts of the foreign State in which the judgment had been rendered, our courts will entertain a similar challenge” … . Here, Florida law permits a collateral attack on the defendant’s transfer of his pension to [second wife] on the ground that it constituted a fraudulent transfer … . * * *

Next, we reject [the second wife’s] contention that the defendant’s pension is not subject to execution or attachment by virtue of section 110(2) of the Retirement and Social Security Law or under certain provisions of the Administrative Code of the City of New York (see Administrative Code of City of NY §§ 13-181, 13-212, 13-264). As [the second wife] correctly contends, section 110(2) of the Retirement and Social Security Law provides that the right of a person to a pension “[s]hall not be subject to execution, garnishment, attachment, or any other process whatsoever” (Retirement and Social Security Law § 110[2]). In 2001, however, the Legislature amended the Son of Sam law to subject the “[f]unds of a convicted person” to an action for damages by a crime victim, a crime victim’s representative, or certain other persons (L 2001, ch 62, § 1; see Executive Law § 632 a[1][a], [c], [d]; [3]). The phrase “funds of a convicted person” was broadly defined as “all funds and property received from any source” (Executive Law § 632 a[1][c] [emphasis added]).

We conclude, for the reasons stated by our colleagues in the Appellate Division, [3rd] Department [97 AD3d 235]…, that the defendant’s pension is subject to execution under the Son of Sam law. Both the clear statutory language and the legislative history of the 2001 amendments to the Son of Sam law evince the Legislature’s intent to permit crime victims to recover assets from convicted persons, including pensions, regardless of the source of the convicted person’s funds … . As the [3rd] Department concluded, a contrary holding would “directly thwart[ ] the Legislature’s stated intent of holding convicted criminals financially … . Kane v Galtiere, 2014 NY Slip Op 07476, 2nd Dept 11-5-14

 

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Post-Judgment Restraining Order Served On a New York Branch of a Foreign Bank, Pursuant to the Separate Entity Rule, Cannot Extend to Assets Held in Branches of the Bank Which Are Outside of New York

The Court of Appeals, in a full-fledged opinion by Judge Graffeo, over a dissenting opinion, answering a certified question from the Second Circuit, determined the “separate entity” rule prohibited a restraining order served on a New York branch of a bank from extending to assets in other branches of the bank which are outside New York.  Here a restraining order was served on a New York Branch of a foreign bank headquarted in the United Kingdom and the plaintiff sought to apply the restraining order to $30 million held in a branch of that bank in the United Arab Emirates:

The separate entity rule, as it has been employed by lower New York courts and federal courts applying New York law, provides that even when a bank garnishee with a New York branch is subject to personal jurisdiction, its other branches are to be treated as separate entities for certain purposes, particularly with respect to CPLR article 62 prejudgment attachments and article 52 postjudgment restraining notices and turnover orders. In other words, a restraining notice or turnover order served on a New York branch will be effective for assets held in accounts at that branch but will have no impact on assets in other branches… . * * *

In large measure, the underlying reasons that led to the adoption of the separate entity rule still ring true today. The risk of competing claims and the possibility of double liability in separate jurisdictions remain significant concerns, as does the reality that foreign branches are subject to a multitude of legal and regulatory regimes. By limiting the reach of a CPLR 5222 restraining notice in the foreign banking context, the separate entity rule promotes international comity and serves to avoid conflicts among competing legal systems … . And although Motorola suggests that technological advancements and centralized banking have ameliorated the need for the doctrine, courts have continued to recognize the practical constraints and costs associated with conducting a worldwide search for a judgment debtor's assets … . Motorola Credit Corp v Standard Chartered Bank, 2014 NY Slip Op 07199, CtApp 10-23-14

 

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Insufficient Proof of an Agreement to Assume a Mortgage at the Time Deed Transferred

The Second Department determined that the writings were insufficient to demonstrate the grantee agreed to assume a mortgage at the time the deed was transferred:

General Obligations Law § 5-705 provides, in relevant part, that “[n]o grantee of real property shall be liable upon any indebtedness secured by a mortgage” unless, “simultaneously with the conveyance,” the grantee executes a writing before a notary agreeing to assume and pay the mortgage debt. Here, it is clear from the allegations in the complaint and attached exhibits that the defendants did not execute a notarized written agreement to assume the mortgage allegedly held by the plaintiff at the time the properties were conveyed … . Thus, General Obligations Law § 5-705 bars the plaintiff from recovering on the theory that the defendants agreed to assume his existing mortgage on the properties as alleged in the complaint. Furthermore, [recovery] is also barred by the statute of frauds because an agreement to answer for the debt of another must be in writing (see General Obligations Law § 5-701[a][2]). Contrary to the plaintiff’s contention, the various writings attached to the complaint, taken together, were insufficient to memorialize the existence of an agreement … . Dahan v Weiss, 2014 NY Slip Op 05767, 2nd Dept 8-13-14

 

Purchaser of Mortgage Was Not a “Bona Fide Encumbrancer”—Another Previously Filed Mortgage Was the Operative Mortgage

The Second Department determined Deutsche Bank did not “win the race” to the recording office (so as to cut off another filed mortgage) and was not a “bona fide encumbrancer” because the person living in the mortgaged premises and paying taxes on the property was not consistent with Deutsche Bank’s mortgage:

“[T]o cut off a prior lien, such as a mortgage, the purchaser must have no knowledge of the outstanding lien and win the race to the recording office” … . * * *

” [W]here a purchaser has knowledge of any fact, sufficient to put him on inquiry as to the existence of some right or title in conflict with [what] he is about to purchase, he is presumed either to have made the inquiry, and ascertained the extent of such prior right, or to have been guilty of a degree of negligence equally fatal to his claim, to be considered as a bona fide purchaser'” … . “Similarly, a mortgagee is under a duty to make an inquiry where it is aware of facts that would lead a reasonable, prudent lender to make inquiries of the circumstances of the transaction at issue'” … . ” Actual possession of real estate is sufficient notice to a person proposing to take a mortgage on the property, and to all the world of the existence of any right which the person in possession is able to establish'” … . Mortgage Elec Registration Sys Inc v Pagan, 2014 NY Slip Op 05309, 2nd Dept 7-16-14

 

Attributes of Equitable Mortgage Explained

In affirming the denial of plaintiff’s motion for summary judgment based upon allegations of the existence of an equitable mortgage, the Fourth Department explained the attributes of an equitable mortgage:

“Equity generally will keep an encumbrance alive, or consider it extinguished, as will best serve the purposes of justice’ ” … . “The whole doctrine of equitable mortgages is founded upon [the] cardinal maxim of equity which regards that as done which has been agreed to be done, and ought to have been done” … .

” [A]n equitable mortgage may be constituted by any writing from which the intention so to do may be gathered, and an attempt to make a legal mortgage, which fails for the want of some solemnity, is valid in equity’ ” … . “While [a] court will impose an equitable mortgage where the facts surrounding a transaction evidence that the parties intended that a specific piece of property is to be held or transferred to secure an obligation’ . . . , it is necessary that an intention to create such a charge clearly appear from the language and the attendant circumstances’ ” . .. . Canandaigua Natl Bank & Trust Co v Palmer, 2014 NY Slip Op 05263, 4th Dept 7-11-14

 

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All Ambiguities Re: Letters of Credit Resolved Against the Issuer—“Independence Principle” Applied—Beneficiaries of Letters of Credit Entitled to Payment

In a full-fledged opinion by Justice Andrias, the First Department reversed Supreme Court and determined plaintiffs were entitled to payment as beneficiaires of irrevocable standby letters of credit.  The opinion is detailed and meticulously resolved all ambiguities in the relevant documents against the issuer of the letters of credit.  The opinion includes an extended discussion of the “independence principle” in this context.  With respect to the basic analytical principles to be applied, the court wrote:

Under New York law, in order to recover on its claim that the issuer wrongfully refused to honor its request to draw down on a letter of credit, the beneficiary must prove that it strictly complied with the terms of the letter of credit … . “The corollary to the rule of strict compliance is that the requirements in letters of credit must be explicit, and that all ambiguities are construed against the [issuer]” … . The reasoning is that “[s]ince the beneficiary must comply strictly with the requirements of the letter, it must know precisely and unequivocally what those requirements are” … . “Where a letter of credit is fairly susceptible of two constructions, one of which makes it fair, customary and one which prudent men would naturally enter into, while the other makes it inequitable, the former interpretation must be preferred to the latter, and a construction rendering the contract possible of performance will be preferred to one which renders its performance impossible or meaningless” … . * * *

In November 2000, the independence principle was codified in a general revision of article 5 of the UCC. UCC 5—103(d) now provides that:

“[r]ights and obligations of an issuer to a beneficiary or a nominated person under a letter of credit are independent of the existence, performance, or nonperformance of a contract or arrangement out of which the letter of credit arises or which underlies it, including contracts or arrangements between the issuer and the applicant and between the applicant and the beneficiary.”

The doctrine of independent contracts, as codified in UCC article 5, allows the letter of credit to provide ” a quick, economic and trustworthy means of financing transactions for parties not willing to deal on open accounts'”… . “Only staunch recognition of this principle by the issuers and the courts will give letters of credit the continuing vitality that arises from the certainty and speed of payment under letters of credit” … .BasicNet SpA v CFP Servs Ltd, 2014 NY Slip Op 04585, 1st Dept 6-19-14