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PLAINTIFF ENTITLED TO AN EQUITABLE LIEN ON REAL PROPERTY WHICH WAS IDENTIFIED BUT NOT DESCRIBED IN THE MORTGAGE WHICH HAD BEEN ASSIGNED TO PLAINTIFF (SECOND DEPT).

The Second Department determined plaintiff bank was entitled to an equitable lien on real property. The mortgage secured by the property had been assigned to plaintiff but the mortgage did not include a description of the property:

… [T]he plaintiff commenced the instant action seeking, inter alia, an equitable mortgage on the property. The complaint noted that the mortgage failed to include a description of the property, and thus that the plaintiff’s security interest in the property was imperiled. …

“New York law allows the imposition of an equitable lien if there is an express or implied agreement that there shall be a lien on specific property” … . “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” … .

Here, the documentary evidence submitted by the plaintiff sufficiently established the existence of the loan, the intent that it be secured by the property, and the debtor’s obligation to satisfy the debt by a date certain … . U.S. Bank N.A. v Alleyne, 2020 NY Slip Op 06166, Second Dept 10-28-20

 

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STRICT FORECLOSURE AT THE DIRECTION OF THE MAJORITY BONDHOLDERS WHICH CANCELLED THE NOTES PRECLUDED RECOVERY BY THE PLAINTIFFS WHO PURCHASED SOME OF THE NOTES IN THE SECONDARY MARKET (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Garcia, reversing the Appellate Division, over a three-judge dissent, determined the strict foreclosure at the direction of the majority bondholders which cancelled the notes precluded plaintiffs from recovering on notes purchased in the secondary market. The decision is fact-specific, dependent on the wording of documents, and cannot be fairly summarized here:

After the issuer defaulted, plaintiffs, the holders of a minority in principal amount of senior secured debt, brought this lawsuit against the debtor and its guarantors to recover payment of principal and interest. We are called upon to determine whether plaintiffs’ right to sue for payment on the notes survived a strict foreclosure, undertaken by the trustee at the direction of a group of majority bondholders over plaintiffs’ objection, that purported to cancel the notes. We hold that it did … . …

In December 2005, defendant Cleveland Unlimited, Inc. (Cleveland Unlimited), a telecommunications company, issued $150 million of “senior secured” debt in the form of “Notes” pursuant to an indenture agreement (the Indenture). The Notes had a five-year term and required Cleveland Unlimited to pay interest to holders of the Notes (Noteholders or Holders) on a quarterly basis up to and including the maturity date, at which point the principal also became due. The Indenture named Cleveland Unlimited as the “Issuer” of the Notes, eighteen of Cleveland Unlimited’s subsidiaries and affiliates as the “Guarantors,” and U.S. Bank National Association (U.S. Bank) as the Indenture “Trustee.” At the same time the Indenture was executed, the Issuer, the Guarantors, and the Trustee executed a Collateral Trust Agreement and a Security Agreement (collectively, Indenture Documents) … . In April 2010, plaintiffs purchased approximately $5 million of the Notes in the secondary market, amounting to 3.33% of the outstanding principal value.

At issue in this case are certain provisions in the Indenture Documents governing the rights of the Noteholders to receive payment, the remedies available in the event of default, and the power of a majority of Noteholders to direct the Trustee’s choice of remedy. CNH Diversified Opportunities Master Account, L.P. v Cleveland Unlimited, Inc., 2020 NY Slip Op 05976, Ct App 10-20-20

 

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ALTHOUGH VACATING A JUDGMENT STEMMING FROM A CONFESSION OF JUDGMENT MUST ORDINARILY BE ACCOMPLISHED BY BRINGING A PLENARY ACTION, A MOTION TO VACATE IS APPROPRIATE WHERE IT IS ALLEGED THE COURT WHICH ENTERED THE JUDGMENT DID NOT HAVE SUBJECT MATTER JURISDICTION; HERE THE MOTION TO VACATE WAS THE CORRECT VEHICLE BUT THE MOTION WAS PROPERLY DENIED ON THE MERITS (SECOND DEPT).

The Second Department noted that ordinarily the only way to vacate a judgment entered by the filing of an affidavit of confession of judgment is a plenary action. However, if, as here, the ground for vacating the judgment is the lack of subject matter jurisdiction, a motion to vacate is proper. Here, although the motion was the proper vehicle, the court did have jurisdiction to enter the judgment:

“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” … . However, a claim that the court lacked the authority to enter the judgment is an exception to the general rule requiring a plenary action, and may be raised by a motion to vacate … . Thus, the defendants’ contention that the Supreme Court, Westchester County, lacked subject matter jurisdiction to enter a confession of judgment against them was properly raised by way of motion. Nevertheless, the contention is without merit. Pursuant to the version of CPLR 3218(b) applicable at the time the affidavit of confession was filed, “the clerk of the county designated in the affidavit” had authority to enter a judgment by confession against a nonresident defendant (former CPLR 3218[b]). Funding Metrics, LLC v A & A Fabrication & Polishing Corp., 2020 NY Slip Op 05724, Second Dept 10-14-20

 

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IN THIS DEFICIENCY JUDGMENT ACTION, THE PLAINTIFF DID NOT PRESENT SUFFICIENT PROOF OF THE AMOUNT OWED BY THE DEFENDANT OR THE REASONABLENESS OF THE SALE OF THE COLLATERAL (FOURTH DEPT).

The Fourth Department, vacating the damages award in this action on a motor vehicle retail installment contract, determined the plaintiff did not present evidence sufficient to determine the correct amount of the deficiency judgment or the reasonableness of the sale of the collateral:

… [T]he court should have denied plaintiff’s motion insofar as it sought summary judgment on the amount of damages. Plaintiff did not meet its initial burden of establishing the amount of the alleged deficiency as a matter of law … . We note in particular that plaintiff failed to provide evidence of defendant’s payment history, and failed to establish whether it applied certain applicable credits, including an unearned credit service charge pursuant to Personal Property Law §§ 305 and 315.

Moreover, plaintiff’s moving papers failed to establish that the vehicle was sold in a commercially reasonable manner … . A “secured party seeking a deficiency judgment from the debtor after sale of the collateral bears the burden of showing that the sale was made in a commercially reasonable manner” ( … see generally UCC 9-627 [b]). We conclude that, “[h]aving failed to set forth any of the facts and circumstances surrounding the sale, plaintiff failed to satisfy a prerequisite to obtaining a deficiency judgment and is not entitled to summary judgment” with respect to damages … . Ally Fin. Inc. v Jonathan, 2020 NY Slip Op 05630, Fourth Dept 10-9-20

 

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ACTION TO ENFORCE A FOREIGN JUDGMENT AGAINST A DELAWARE DISSOLVED LIMITED LIABILITY COMPANY COULD NOT BE MAINTAINED BECAUSE THE CERTIFICATE OF CANCELLATION HAS NOT BEEN NULLIFIED (FIRST DEPT).

The First Department, reversing Supreme Court, determined the action to domesticate and enforce a foreign judgment after defendant corporation had been dissolved could not be maintained:

Plaintiff commenced this action against defendant, a Delaware limited liability company, to domesticate and enforce a foreign judgment in its favor several months after defendant had been dissolved and a certificate of cancellation filed (see 6 Del C § 18-203[a]). As the certificate of cancellation has not been nullified and plaintiff does not seek nullification, plaintiff cannot maintain this action (6 Del C § 18-803[b]) … . Epie v Herakles Farms, LLC, 2020 NY Slip Op 05283, First Dept 10-1-20

 

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A NOTICE OF LIEN CAN NOT BE DISCHARGED ABSENT A TRIAL IF IT IS VALID ON ITS FACE (FIRST DEPT).

The First Department, reversing Supreme Court, determined the notice of lien should not have been discharged because it was valid on its face:

… Supreme Court … granted the motion of defendants … to reduce or discharge the mechanic’s lien filed by plaintiff … to the extent of reducing the lien from $33,837,618.34 to $3,566,357.42 … .

A court has no inherent power to vacate, modify or discharge a notice of lien pursuant to Lien Law § 19(6) where there is no defect on the face of the lien, and any dispute concerning the lien’s validity must await a trial … . Pizzarotti, LLC v FPG Maiden Lane LLC, 2020 NY Slip Op 05305, First Dept 10-1-20

 

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WHEN THE MERITS OF A MOTION TO REARGUE ARE ADDRESSED THE DENIAL IS APPEALABLE; THE PERSONAL SERVICE REQUIREMENTS FOR THE NOTICE OF SALE PURSUANT TO THE LIEN LAW WERE NOT MET, THEREFORE THE 10-DAY PERIOD FOR BRINGING A SPECIAL PROCEEDING TO CONTEST THE VALIDITY OF THE LIEN DID NOT START TO RUN (THIRD DEPT).

The Third Department noted that where the court addresses the merits of a motion to reargue it will be deemed to have granted the motion to reargue for purposes of appeal. Therefore, although the denial of a motion to reargue is not appealable, the denial after addressing the merits is appealable. In that case the motion is treated as if the motion to reargue were granted and then the original decision was adhered to. The court also noted that the requirements for the personal service of a notice of sale were not met in this case. Therefore the 10-day period for bringing a special proceeding to determined the validity of the lien did not start to run:

“Although, generally, no appeal lies from an order denying a motion to reargue, where the court actually addresses the merits of the moving party’s motion, we will deem the court to have granted reargument and adhered to its prior decision — notwithstanding language in the order indicating that reargument was denied” … . * * *

Under Lien Law §201-a, petitioner’s 10-day time period to “commence a special proceeding to determine the validity of the lien” does not begin to run until service upon it of the “notice of sale” by respondent, the lienor. Service of such notice of sale by the lienor must be effectuated by personal service “within the county where [the] lien arose,” unless the person to be served “cannot with due diligence be found within such county” (Lien Law § 201). … As Supreme Court correctly found, and as the record reflects, respondent failed to submit any proof that it exercised due diligence in seeking to effect personal service upon petitioner of the notice of lien and sale before improperly resorting to the statutory alternative of certified mail service. As a result, the 10-day time limitation for petitioner to challenge the lien under Lien Law § 201-a did not begin to run … . Matter of Manufacturers & Traders Trust Co. v J.D. Mar. Serv., 2020 NY Slip Op 05260, Third Dept 10-1-20

 

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THE PROMISSORY NOTE WAS NOT DEMONSTRATED TO BE AN INSTRUMENT FOR THE PAYMENT OF MONEY ONLY, THE MOTION FOR SUMMARY JUDGMENT IN LIEU OF COMPLAINT SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff’s motion for summary judgment in lieu of complaint (CPLR 3213) based upon a promissory note should not have been granted. The note was not demonstrated to be an instrument for the payment of money only:

Pursuant to CPLR 3213, a plaintiff demonstrates its prima facie entitlement to judgment as a matter of law with respect to a promissory note if it shows “the existence of a promissory note, executed by the defendant, containing an unequivocal and unconditional obligation to repay, and the failure by the defendant to pay in accordance with the note’s terms” … . “Where the instrument requires something in addition to defendant’s explicit promise to pay a sum of money, CPLR 3213 is unavailable” … . Once the plaintiff has established its prima facie entitlement to judgment as a matter of law, “the burden then shifts to the defendant to submit evidence establishing the existence of a triable issue with respect to a bona fide defense” … .

Here, the plaintiffs failed to establish, prima facie, that the subject promissory note was an instrument for the payment of money only … . In support of their motion, the plaintiffs submitted the promissory note, which refers to the asset sale/purchase agreement and provides the defendants with “an absolute right of set-off against the entire unpaid principal balance of [the] Note based upon any and all provisions of the Asset Sale/Purchase Agreement.” Under the circumstances, “outside proof” was required, “other than simple proof of nonpayment,” to establish the plaintiffs’ prima facie case … . Express Valentine Auto Repair Shop, Inc. v New York Taxi 2, Inc., 2020 NY Slip Op 03644, Second Dept 7-1-20

 

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THE HOLDER OF A DEED INTENDED AS SECURITY IN THE NATURE OF A MORTGAGE MUST PROCEED BY FORECLOSURE TO EXTINGUISH THE MORTGAGOR’S INTEREST; HERE THE SUBSEQUENT GOOD FAITH PURCHASERS OF THE PROPERTY WERE ENTITLED TO SUMMARY JUDGMENT DISMISSING THE MORTGAGEE’S CAUSES OF ACTION SEEKING RESCISSION OF THEIR DEED AND A DECLARATION THEIR DEED WAS NULL AND VOID (SECOND DEPT).

The Second Department determined a deed which facially appears to evidence an absolute conveyance was actually intended as security in the nature of a mortgage. The holder of such a deed (here American Lending) must proceed by foreclosure to extinguish the mortgagor’s interest. The subsequent purchasers of the property (the Romond defendants) were good faith purchasers. Therefore the Romond defendants were entitled to dismissal of American Lending’s complaint seeking rescission of the Romond deed and a declaration the deed was null and void:

In 2009, the defendant Dana Grigg sought to purchase certain property … . When financing for the transaction fell through, Grigg entered into an … agreement with the plaintiff, American Lending Corp. … to borrow … $385,000. The terms of the loan, which were memorialized in a note, included a provision that after 90 days, if the loan had not been repaid in full, American Lending would be authorized to file a joint deed in the property records and to “seek a Summary Judgment instead of following a regular foreclosure proceedings [sic].” In June 2009, Grigg purchased the subject property and executed … a deed from himself to himself and American Lending (… the joint deed). Grigg subsequently defaulted under the terms of the loan. * * *

Real Property Law § 320 provides, in pertinent part, that a “deed conveying real property, which, by any other written instrument, appears to be intended only as a security in the nature of a mortgage, although an absolute conveyance in terms, must be considered a mortgage” … .  … “The holder of a deed given as security must proceed in the same manner as any other mortgagee—by foreclosure and sale—to extinguish the mortgagor’s interest” … .

… [T]he Romond defendants established … that the joint deed was given as security for the loan from American Lending to Grigg. Therefore, pursuant to Real Property Law § 320, the joint deed must be considered a mortgage, and American Lending’s sole remedy for Grigg’s breach of its terms was to commence an action sounding in foreclosure. Moreover, under the circumstances at bar, the Romond defendants established that they were good faith purchasers of the subject property (see Real Property Law § 290 …). American Lending Corp. v Grigg, 2020 NY Slip Op 03211, Second Dept 6-10-20