Summary
In NY Capital, the trial court found that "purchases and sales of future receivables and sales proceeds... are common commercial transactions expressly contemplated by the Uniform Commercial Code" and that several New York trial courts "have considered and rejected arguments that agreements to purchase receivables and sales proceeds were loans."
Summary of this case from Fast Trak Inv. Co. v. SaxOpinion
58499/2017
03-08-2018
NY CAPITAL ASSET CORP., Plaintiff, v. F & B FUEL OIL CO., INC. and Christopher Ficaro, Defendants.
Vlock & Associates, PC, 630 3rd Ave, Floor 18, New York, NY10017–6940, Attorney for Plaintiff James Rocco Monteleon, Esq., 445 Hamilton Ave, Suite 607, White Plains NY 10601, Attorney for defendant
Vlock & Associates, PC, 630 3rd Ave, Floor 18, New York, NY10017–6940, Attorney for Plaintiff
James Rocco Monteleon, Esq., 445 Hamilton Ave, Suite 607, White Plains NY 10601, Attorney for defendant
Lawrence H. Ecker, J.
The following papers numbered 1 through 12 were read on the motion of NY CAPITAL ASSET CORP. [Mot. Seq. 1] ("plaintiff"), made pursuant to CPLR 3212, for an order striking the affirmative defenses of F & B FUEL OIL CO., INC. and CHRISTOPHER FICARO ("defendants") and granting plaintiff summary judgment as against defendants and the cross-motion [Mot. Seq. 2] of defendants made pursuant to CPLR 3212, for an order denying plaintiff's motion and granting defendants summary judgment dismissing the complaint as against plaintiff:
Upon the foregoing papers, the court determines as follows:
This lawsuit is an attempt to recover sums allegedly due under an agreement and personal guaranty. The foundational issue here is whether the monetary transaction, which was memorialized in the agreement and the guaranty, was, at its core, a loan of monies, and therefore subject to the law of usury interest, or was instead a business transaction for the sale of accounts receivables.
On or about May 7, 2015, defendants entered into a financial transaction with non-party EFB. As part of the deal, defendants executed a "Payment Rights Purchase and Sale Agreement," an Addendum to the Payment Agreement ("jointly referred to hereinafter as "the Agreement") and a Security Agreement and Guaranty ("the Guaranty") [Pltf's Ex. A].
The Agreement sets forth a "Purchase Price" of $60,000, a "Purchase Amount" of $87,000, a "Daily Payment" of $870 and a "Specific Percentage" of 15.00%. It is undisputed that, under these terms, defendants received approximately $60,000 from EFB and EFB began to withdraw $ 870 a day in daily payments from defendants' bank account.
The Agreement further states, in a paragraph titled "Offer to Sell and Purchase Payment Rights," that:
"Seller ... sells ... to EBF, without recourse (except upon an Event of Default defined [herein] ), upon payment of the Purchase Price, the Specified Percentage of the proceeds of each future sale by Seller ... until the Purchased Amount has been delivered to EBF by or on behalf of Seller. ‘Future Receipts’ include all payments made by [various methods] ... or other form of monetary payment in the ordinary course of Seller's Business. Based upon Seller's calculations and experience in operating its Business, Seller is confidant that the purchase price paid by EBF in exchange for the purchased amount of future receipts will be used in a manner that will benefit Seller's current and future business operations."
The Agreement sets forth the additional proviso that:
"Sale of Payment Rights
Seller ... is selling the Purchased Amount of Future Receipts to EBF in Seller's normal course of business and the Purchase Price paid by EBF is good and valuable consideration for the sale. Seller is selling a portion of a future revenue stream to EBF at a discount, not borrowing money from EBF. There is no interest rate or payment schedule and no time period during which the Purchased Amount must be collected by EBF" [Agreement ¶ 2.2].
Importantly, the Agreement also permits defendants to request that EBF reconcile its payments with actual receipts, providing:
"The Daily Payment amount is intended to represent the Specific Percentage of Seller's future receipts. Seller may request that EBF reconcile Seller's actual receipts by either crediting or debiting the difference back to or from the Account so that the amount EBF debited in the recent calendar month equaled the Specific Percentage of Future Receipts that Seller collected in that calendar month" ("The Reconciliation Provision") [Agreement p.1].
Also of import, in terms of Bankruptcy, the Agreement states:
"If Future Receipts are remitted more slowly ... then anticipated ... because the Seller's business has slowed down, or if the full Purchase Amount is never remitted because Seller's business went bankrupt or otherwise ceased operations in the ordinary course of business, and Seller has not breached this Agreement, Seller would not owe anything to EFB and would not be in breach of or default under this Agreement. EBF is buying the Purchased Amount of Future Receipts knowing the risks that Seller's business may slow down or fail, and EBF assumes the risks based on the Seller's representations ... which are designed to give EBF a reasonable and fair opportunity to receive the benefit of its bargain ..." [Agreement ¶ 2.2].
In defining situations that constitute an "Event of Default," the Agreement provides that a default occurs if:
"(a) Seller interferes with EBF's right to collect the Daily Payment ...; (b) Seller violates any term or covenant [in the Agreement]; (c) Any representation in the Agreement or warranty by Seller ... proves to have been [incorrect or false] when made; (d) the sending of notice of termination by Seller; (e) Seller transports, moves, interrupts, suspends, dissolves or terminates its business; (f) Seller transfer or sells all or substantially all of its assets; (g) Seller makes ... notice of any intended bulk sale ...; (h) Seller uses multiple depository bank accounts ...; (i) Seller changes its depositing account or credit card processor ... (j) Seller performs any act that reduces the value of any Collateral granted under this Agreement; or (k) Seller defaults under any of the terms, covenants and conditions of any other agreement with EBF" ("Event of Default Clause") [Agreement ¶ 3.1].
In terms of potential remedies for a breach, EBF is entitled, among other things, to enforce the provisions of the Guaranty and to pursue its security interest in the secured collateral [Agreement ¶ 3.2, B, D]. Moreover, defendants are liable for the costs incurred in collecting any debt owed, including attorneys' fees [Agreement ¶ 3.2, E].
The Guaranty was executed by defendant Christopher Ficaro simultaneously with the Agreement. The Guaranty provides that it is "a security agreement under the Uniform Commercial Code" and grants EBF a security interest and lien upon defendants' assets. It also provides that it is a "Personal Guaranty of Performance" and that EBF is buying the future receipts knowing the risk that the business may slow down or fail. "EBF assumes these risks based on Seller's representations ... in [the Agreement] which are designed to give EBF a reasonable and fair opportunity to receive the benefit of its bargain" [Guaranty p. 3]. In return, defendant "unconditionally guarantees the Seller's good faith, truthfulness and performance of all of the representations, warranties, covenants made by Seller in the Agreement" and acknowledges that his obligations are due at the time of "any Event of Default under the Agreement" as defined in the Event of Default Clause [Guaranty p. 3].
Furthermore, there is a "Guarantor Acknowledgment" provision set forth in the Guaranty pursuant to which defendant acknowledges that he understands the seriousness of the provisions of the Agreement, including the Guaranty, and has had a full opportunity to consult with counsel, has consulted with counsel or has decided not to avail himself of that opportunity [Guaranty p.3].
By October 2015, defendants had paid approximately $65,000 to EFB. Defendants thereafter allegedly defaulted on October 19, 2015. On or about March 17, 2017, EFB sold defendants' account to plaintiff NY Capital Asset Corp., a New York state-registered corporation.
About three months later, on June 2, 2017, plaintiff commenced the present action against defendants alleging that defendants defaulted on their obligations under the Agreement and Guaranty. In the complaint, plaintiff alleges that defendants failed to pay all amounts due and are now duly indebted under the Agreement and Guaranty in the sum of $29,915. Plaintiff also seeks attorneys' fees and costs for this action.
In the answer, defendants deny plaintiff's allegations and set forth eight affirmative defenses: lack of jurisdiction; unclean hands; bad faith; failure to state a cause of action; fraud; lack of standing; barred by General Business Law § 349 and; a usurious interest rate.
Plaintiff now moves pursuant to CPLR 3212 for an order dismissing the affirmative defenses and granting summary judgment in its favor. Defendants cross-move pursuant to CPLR 3212 for an order denying plaintiff's motion and granting summary judgment in defendants' favor.
Plaintiff first argues that the documentation and affidavits submitted in support of the motion prima facie prove plaintiff's entitlement to summary judgment on the complaint. Specifically, the Agreement and Guaranty were assigned to it via a legal assignment on March 17, 2017. The Agreement states that, in exchange for monies, plaintiff purchased defendants' future receipts with the purchase price to be repaid weekly based on the future receipts of defendants' business. The Guaranty secures defendants' performance of its obligations under the Agreement and sets forth various fees, including fees due upon default under the Agreement. As it is undisputed that on October 19, 2015, defendants prevented plaintiff from obtaining the payments that were due from defendants' account, plaintiff claims, defendants are in default. Based on this undisputed default, plaintiff seeks $22,750 in uncollected receipts, a default fee of $5000, a "block fee" of $2500, four "NSF" fees of $140 each, for a total sum of $29,915 plus interest from October 19, 2015, and costs and attorneys' fees.
Furthermore, as for defendants' affirmative defenses based on: lack of jurisdiction; unclean hands; bad faith; failure to state a cause of action; fraud; lack of standing; and General Business Law 349, plaintiff cites caselaw and asserts that each lacks merit as a matter of law and must be stricken.
In terms of the final affirmative of defense based on usury interest, plaintiff asserts that the documents speak for themselves and prove that the transaction is not a loan and therefore cannot be subject to a claim of usury. Specifically, the transaction is a financial deal for the purchase of future receivables which involved significant risk of non-repayment to plaintiff and as such is not a loan as a matter of law. As the transaction is not a loan, plaintiff maintains, the repayment provisions set forth in the documentation are not subject to the constraints of the law of usury interest.
Defendants oppose the motion and cross-move for summary judgment. Defendants argue that the Agreement and Guaranty, by their language, prove that the transaction is, at its core, a loan and that the interest rate on that loan is usurious. In support of this claim, the individual defendant submits an affidavit in which he avers that the deal was for a loan and that at no time did EFB ask him to provide a ledger of business receivables. In addition, defendants argue that the Guaranty is proof that the matter is a loan because the guarantor must pay the money back if the business fails, so that plaintiff experiences no risk of loss in the transaction.
In addition, defendants claim that calculations prove that the amount lent and the repayment amount of ($87,000) within 140 days constitutes an interest rate of 118.421% per year. As New York State law only permits 25% interest ( Penal Law § 190.40 ), defendants assert, under the circumstances, the Agreement is a loan that contemplates a criminal usurious interest rate. As such, as a matter of law, defendants maintain, plaintiff's motion must be denied and defendants are entitled to summary judgment dismissing the complaint. At a minimum, defendants contend, questions of fact exist as to whether the transaction is a loan, and, if so, is the interest rate charged usuriously, warranting the denial of plaintiff's motion
Moreover, defendants contend, without citing any legal or factual support, that the failure of EBF to give them notice of the assignment of the debt to plaintiff deprives plaintiff of standing to bring this action. Finally, defendants argue that plaintiff's purchase of the Agreement and Guaranty violated Judiciary Law § 489, which codifies the doctrine of champerty. At a minimum, defendants claim, the numerous issues of fact presented under the circumstances warrant denial of plaintiff's motion for summary judgment.
In opposition to the cross-motion and on reply, plaintiff first points out that defendants do not address the motion to dismiss the seven affirmative defenses (personal jurisdiction, unclean hands, bad faith, failure to state a cause of action, fraud, lack of standing and General Business Law § 349 ) and contends that, accordingly, the defenses must be stricken. Plaintiff next reiterates that the action is brought to recover sums due under the express language of a business agreement for the purchase and sale of accounts receivables and the connected personal guaranty of the business owner and, as such, there is no loan and no basis for a claim of usury.
In addition, plaintiff contends, to the extent that defendants argue that they were entitled to notice of the assignment, nothing in the law or the contracts supports this claim, and, in all circumstances, defendants are liable for the underlying debt. Moreover, as for the allegations based on Judiciary Law § 489, plaintiff asserts that the provision is inapplicable here as this is a lawsuit seeking to enforce a valid debt and the purchase of the Agreement was not solely in order to bring the lawsuit. In any event, any affirmative defense based on the Judiciary Law, plaintiff maintains, is waived because it was not raised in the answer.
It is well-settled that the proponent of the summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact ( Zuckerman v. City of New York, 49 NY2d 557 [1980] ; Alvarez v. Prospect Hosp., 68 NY2d 320 [1986] ; De Souza v. Empire Transit Mix, Inc., 155 AD3d 605 [2d Dept 2017] ). Importantly, "[o]nce this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action (Alvarez v. Prospect Hosp., supra; Alvarex v. Madeline D'Anthony Enterprises, Inc. v. Sokolowsky , 101 AD3d 606 [1st Dept 2012] ; see De Souza v. Empire Transit Mix, Inc., supra; Pinelawn Cemetery v. Metropolitan Transp. Auth., 155 AD3d 1069 [2d Dept 2017] ). Mere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient to raise a triable issue of fact (Zuckerman v. City of New York, supra ; Cabrera v. Rodriguez , 72 AD3d 553 [2010] ; Hammond v. Smith, 151 AD3d 1896 [4th Dept 2017] ).
Here, plaintiff sets forth a prima facie showing of entitlement to summary judgment as a matter of law. The Agreement and the Guaranty support the assertion of amounts due and defendants concede that they defaulted under both relevant contracts. The documents, furthermore, are complete, clear and unambiguous on their face (see Merchant Cash Capital, LLC v. Ethnicity, 2016 NY Slip Op. 32593 [Sup. Ct., Nassau County 2016) ]. In light of this showing, the burden shifts to defendants as the party opposing the motion for summary judgment and seeking summary judgment in their own favor to produce evidentiary proof in admissible form sufficient to warrant judgment in their favor or to, at least, establish the existence of material issues of fact which requires a trial of the action (see Min Capital Corp. Retirement Trust v. Pavlin, 88 AD3d 666 [2d Dept 2011] ).
Turning to defendants' defenses to plaintiff's action, the challenge to plaintiff's standing based on the failure to serve defendants with notice of the assignment lacks merit as a matter of law. Nothing in the Agreement or the Guaranty requires that defendants receive notice of a valid assignment of the obligations under the relevant contracts, and defendants fail to cite to any applicable legal precedent to support the assertion that the failure to serve notice under the circumstances deprives plaintiff of standing. As such, in light of the absence of any proof that the assignment was invalid, defendants fail to make a prima facie showing that plaintiff lacks standing in this action.
In terms of defendants' claim that the enforcement of the debt here is a violation of Judiciary Law § 489, this defense was waived by the failure to raise it in the answer (see generally Red Tulip, LLC v. Neiva , 44 AD3d 204 [1st Dept 2007] ). In any event, there is no evidence that the Agreement and the Guaranty were assigned with the intent and for the sole purpose of bringing an action or proceeding and, accordingly, the claim lacks merit as a matter of law ( Bluebird Partners, LP v. First Fid. Bank, NA , 94 NY2d 726 [2000] ; TAP Holdings, LLC v. Orix Finance Corp., 45 Misc 3d 1217(A) [Sup. Ct., New York County 2014] ).
Next, defendants elected to not oppose that part of plaintiff's motion for summary judgment which seeks the dismissal of the affirmative defenses based on: lack of jurisdiction; unclean hands; bad faith; failure to state a cause of action; fraud; lack of standing; and General Business Law § 349. As such, that part of plaintiff's motion is granted without opposition and the relevant affirmative defenses are stricken.
As for the final affirmative defense based on usury interest, it is undisputed that, should the transaction be characterized as a loan, the interest charged in the deal is usurious under New York Penal law. The remaining central issue on these motions, therefore, is whether the Agreement and Guaranty were executed in furtherance of a loan or in the interests of a business transaction to purchase accounts receivables.
Section 190.40 of New York's Penal Law prohibit persons from knowingly charging interest on a note or loan at a rate which exceeds 25% per annum. The defense afforded by this statute imposes a heavy burden on the party raising the defense to establish that the lender knowingly charged, took or received annual interest exceeding 25% on a loan or forbearance (see Ujueta v. Euro–Quest Corp., 29 AD3d 895 [2d Dept 2006] ). The rudimentary element of usury is the existence of a loan or forbearance of money and where there is no loan, there can be no usury ( Seidel v. 18 E. 17th St. Owners, Inc. , 79 NY2d 735 [1992] ; Feinberg v. Old Vestal Rd. Assoc., Inc., 157 AD2d 1002 [3d Dept. 1990] ; Colonial Funding Network, Inc.for TVT Capital, LLC v. Epazz, Inc. , 252 F.Supp.3d 274 [SDNY 2017] ; IBIS Capital Group, LLC v. Four Paws Orlando, LLC , 2017 NY Slip Op. 30477(U)[Sup.Ct., Nassau County 2017] ; Merchant Cash and Capital, LLC v. Sogomonyan, 2017 NY Slip Op. 31111 [Sup. Ct., Nassau County 2017] ).
At the outset, it is noted in disputing their obligation to plaintiff, defendants have taken the position that the disputed amount was nothing more than an unenforceable usurious loan. Of note, although a corporation and its individual guarantor are generally prohibited from the right to interpose the defense of usury in an action (General Obligations Law § 5–521 [1 ]; see, Schneider v. Phelps, 41 NY2d 238, 242 [1977] ), this prohibition is not applicable to any action where the corporation interposes a defense of criminal usury under Penal Law § 190.40 ( Feinberg v. Old Vestal Rd. Assoc., Inc., supra ; General Obligations Law § 5–521 [3 ] ), which is what occurred in the instant case.
"In New York, there is a presumption that a transaction is not usurious. As a result, claims of usury must be proven by clear and convincing evidence, a much higher standard than the usual preponderance" ( K9 Bytes, Inc. v. Arch Capital Funding, LLC, 56 Misc 3d 807 [Sup. Ct., Westchester Co. 2017] ; see Giventer v. Arnow , 37 NY2d 305, 309 [1975] ). Usury will not be presumed from facts equally consistent with a lawful purpose ( Merchant Cash and Capital, LLC v. Transfer International Inc., 2016 NY Slip Op. 32395 [Sup. Ct., Nassau County 2016); Kaufman v. Horowitz, 178 AD2d 632 [2d Dept 1991] ).
Usury laws therefore apply only to loans or forbearance, not investments. Of import, if the transaction is not a loan, there can be no usury, however unconscionable the contract may be ( Rabid Capital Finance, LLC v. Natures Market Corp., 57 Misc 3d 979 [Sup. Ct., Westchester County 2017] ; Seidel v. 18 E. 17th St. Owners , supra ; K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra ; IBIS Capital Group, LLC v. Four Paws Orlando, LLC, supra ). In determining whether a transaction is usurious, the law looks not to its form, but to its substance, or real character (see IBIS Capital Group, LLC v. Four Paws Orlando, LLC , supra ; Min Capital Corp. Retirement Trust v. Pavlin, supra ).
Importantly, purchases and sales of future receivables and sales proceeds such as alleged to be present here are common commercial transactions expressly contemplated by the Uniform Commercial Code (Rapid Capital Finance, LLC v. Natures Market Corp., supra; K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra; IBIS Capital Group, LLC v. Four Paws Orlando, LLC, supra ). Moreover, a number of trial-level decisions have considered and rejected arguments that agreements to purchase receivables and sales proceeds were loans (see, e.g., Rapid Capital Finance, LLC v. Natures Market Corp., supra; K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra; IBIS Capital Group, LLC v. Four Paws Orlando, LLC, supra; Merchant Cash & Capital, LLC v. Yehowa Med. Servs., Inc. , 2016 NY Slip Op. 31590[U] [Sup.Ct., Nassau County 2016] ; Merchant Cash & Capital, LLC v. Ethnicity Inc., 2016 NY Slip Op. 32593(U) [Sup.Ct., Nassau County 2016] ).
As previously stated, in determining whether a transaction is usurious, the law looks not to its form, but to its substance, or real character (see Min Capital Corp. Retirement Trust v. Pavlin, supra ; IBIS Capital Group LLC v. Four Paws Orlando, LLC, supra ). It is not dispositive, therefore, that the Agreement is not called a loan and that it affirmatively states that it is not a loan (Rapid Capital Finance, LLC v. Natures Market Corp., supra ), although a clause in a document expressly providing that the document is not a loan is relevant to the deciphering of the true nature of the agreement (K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra; see IBIS Capital Group, LLC v. Four Paws Orlando, LLC, supra ).
Moreover, when evaluating whether a transaction is a loan or not, the court must examine, among other things, whether or not plaintiff is absolutely entitled to repayment under all circumstances. "For a true loan it is essential to provide for repayment absolutely and at all events or that the principals in some way be secured as distinguished from being put in a hazard" (K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra, quoting, Rubenstein v. Small, 273 App Div 102, 104 [1st Dept 1947] ). Hence, there can be no usury unless the principal sum advanced is repayable absolutely (K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra ; IBIS Capital Group, LLC v. Four Paws Orlando, LLC, supra; Transmedia Rest. Co. v. 33 E. 61st St. Rest. Corp., 184 Misc 2d 706, 711 [Sup. Ct., New York County 2000] ).
When payment or enforcement rests on a contingency, therefore, the agreement is valid though it provides for a return in excess of the legal rate of interest (see Kelly, Grossman & Flanagan, LLP v. Quick Cash, Inc., 35 Misc 3d 1205(A) [Sup. Ct., Suffolk County 2012] ; Colonial Funding Network, Inc.for TVT Capital, LLC v. Epazz, Inc., supra ). Further, a loan is not usurious merely because there is a possibility that the lender will receive more than the legal rate of interest ( Lehman v. Roseanne Inv'rs Corp., 106 AD2d 617 [2d Dept 1984] ; Colonial Funding Network, Inc.for TVT Capital, LLC v. Epazz, Inc., supra ).
Courts examine certain factors in determining whether repayment is absolute or contingent. Recent decisions on the issue have focused on the court weighing, among other things, whether the contract has a reconciliation provision, a finite term and the purchaser is granted recourse in the event of a Bankruptcy (see e.g. Rapid Capital Finance, LLC v. Natures Market Corp., supra; K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra; IBIS Capital Group, LLC v. Four Paws Orlando, LLC, supra ).
The first factor:
"and the one cited by each and every court that found that the transaction was not a loan, is whether or not there is a reconciliation provision in the agreement. The reconciliation provisions allow the merchant to seek an adjustment of the amounts being taken out of its account based on its cash flow (or lack thereof). If a merchant is doing poorly, the merchant will pay less, and will receive a refund of anything taken by the company exceeding the specified percentage (which often can also be adjusted downward). If the merchant is doing well, it will pay more than the daily amount to reach the specified percentage" (K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra; Rapid Capital Finance, LLC v. Natures Market Corp., supra ).
If this provision is missing, repayment may not be contingent and the agreement may be considered a loan (K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra; see Merchant Funding Services, LLC v. Volunteer Pharmacy, Inc., 55 Misc 3d 316 [Sup. Ct., Westchester County 2016] ).
Here, it is undisputed that the Agreement contains a "Reconciliation Provision." As such, this factor weighs in favor of the repayment being contingent and the transaction not being a loan (see, Merchant Cash and Capital, LLC v. Transfer International, Inc., supra ).
The next quintessential factor in determining the definite nature of a repayment requirement is whether the agreement has a finite term or not. "If the term is indefinite, then it is consistent with the contingent nature of each and every collection of future sales proceeds under the contract" (K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra, quoting, IBIS Capital Group, LLC v. Four Paws Orlando, LLC, supra ). This is because plaintiff's collection of sales proceeds is contingent upon defendants actually generating sales and those sales actually resulting in the collection of revenue. Indeed, under such a clause, "neither party could have known when the Agreement might end because [defendants'] collection of sales proceeds was wholly contingent upon the outside factor of customers actually ... paying for products and services. The existence of this uncertainty in the length of the Agreement is an express recognition by the parties of the wholly contingent nature of this Agreement" (K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra, quoting, IBIS Capital Group, LLC v. Four Paws Orlando, LLC, supra ).
Here, under the provisions of the Agreement, the time span for plaintiff's collection of a percentage of defendants' sales proceeds is contingent upon defendants actually generating sales and those sales resulting in the collection of revenue. As such, the agreement has an indefinite term, evidencing the contingent nature of the repayment plan (Rapid Capital Finance, LLC v. Natures Market Corp., supra; K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra; IBIS Capital Group, LLC v. Four Paws Orlando, LLC, supra ). Furthermore, to the extent that defendants imply that their execution of a security agreement granting plaintiff a security interest in the company's assets makes repayment absolute, the argument lacks merit as this protection of plaintiff's ultimate ability to collect its full entitlement by separately pursuing collateral sources is insufficient, alone, to establish that the purchase agreement is repayable absolutely and a loan (Rapid Capital Finance, LLC v. Natures Market Corp., supra ).
The third factor to be considered in determining the finality of a repayment requirement is whether plaintiff has any recourse should the merchant declare Bankruptcy (K9 Bytes, Inc.v. Arch Capital Funding, LLC, supra; IBIS Capital Group, LLC v. Four Paws Orlando, LLC, supra) . Here, the Agreement provides that if the business enters Bankruptcy or otherwise ceases operations in the ordinary course of business, and defendants have not breached the Agreement, defendants would owe nothing to plaintiff, and would not be in breach of the Agreement. In addition, the provision in the Agreement that defines "events of default" does not list filing Bankruptcy as an event of default. Under the Guaranty, moreover, plaintiff may enforce the provisions of the personal guaranty against defendant and its security interest in the collateral only if defendants default as that term is defined in the Agreement. Consequently, if defendants declare Bankruptcy, defendants are not in default and plaintiff is not entitled to further payments under the Agreement or the Guaranty (see, Merchant Cash and Capital v. Transfer International, Inc., supra ; Merchant Cash Capital, LLC v. Sogomonyan, 2017 NY Slip Op. 31111(U) [Sup. Ct., New York County 2017]. Under the circumstances, this factor weighs in favor of finding that payment is not absolute and the transaction is not a loan (see Merchant Cash and Capital v. Transfer International, Inc., supra; K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra; IBIS Capital Group, LLC v. Four Paws Orlando, LLC, supra ).
Having weighed all of the above cited factors and applying the legal principles set forth herein, the court finds that plaintiff has demonstrated that: under the Agreement and the Guaranty repayment is not absolute; the transaction is sufficiently risky such that it cannot be considered a loan as a matter of law (K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra ) and; therefore, defendants' affirmative defense alleging the transaction is a usurious loan must be stricken as without merit (Merchant Cash and Capital, LLC v. Sogomonyan, supra ). Here, the document states it is not a loan, is labeled a "purchase and sale" agreement, contains a reconciliation provision, is of an indefinite term and does not call for payment in the event of Bankruptcy. In light of these factors, under no circumstances could plaintiff be assured of repayment and the court finds the risk of loss such that the transaction is not a loan, but is for the sale and purchase of accounts receivables as a matter of law(Merchant Cash and Capital, LLC v. Sogomonyan, supra; K9 Bytes, Inc. v. Arch Capital Funding, LLC, supra; Rapid Capital Finance, LLC v. Natures Market Corp., supra; IBIS Capital Group, LLC v. Four Paws Orlando, LLC, supra; Merchant Cash and Capital, LLC v. Transfer International Inc., supra; Merchant Cash and Capital, LLC v. Liberation Land Co.,LLC, 2016 NY Slip Op. 32589[U] [Sup. Ct., Nassau County 2016] ; Merchant Cash and Capital, LLC v. Wett Plumbing, LLC , 55 Misc 3d 1220(A) [Sup. Ct., Nassau County 2017] ; Merchant Cash & Capital, LLC v. Yehowa Med. Servs., Inc. , supra ).
Under the facts present, moreover, defendants should not be surprised by this conclusion. The Agreement clearly states that it is for the purchase of further receipts at a discount and that defendants acknowledge that they received good and fair compensation for those receipts. In addition, the document specifically provides that it is not a loan, that there is no time in which amounts are to come do, and there is not an interest rate set forth in the transaction. Moreover, under the contracts, plaintiff expressly adopted the risk of loss in situations that do not constitute a default. Finally, defendants acknowledge their right to have the transaction reviewed by counsel. Under the circumstances, therefore, defendants were on notice that the transaction, pursuant to which they received $60,000, was not a loan and, as such, was not subject to the law of usury.
In accordance with determinations reached herein, plaintiff's motion is granted such that all of defendants' affirmative defenses are stricken and plaintiff is awarded summary judgment on the complaint as against defendants. Defendants' motion for summary judgment is denied.
In terms of damages, plaintiff moves for summary judgment on the cause of action in the complaint based on breach of the Agreement and the Guaranty and for attorneys' fees and costs. Plaintiff's submissions, including the pleadings, the documents and the affidavit in support, show an outstanding balance of $29,915 with interest from October 19, 2015, prima facie establishing plaintiff's entitlement in that amount as a matter of law. Defendants have failed to raise a triable issue of fact in opposition to these assertions. Accordingly, plaintiff's motion for damages in the amount of $29,915 with interest from October 19, 2015 is granted (Merchant Cash and Capital, LLC v. Sogomonyan, supra ).
Plaintiff also seeks the recovery of costs, disbursements and attorneys' fees based upon the express language of the Agreement and Guaranty but submits no evidentiary support on which to calculate said damages. Inasmuch as plaintiff is entitled to summary judgment on the cause of action, the court grants the branch of the motion that demands such costs and attorneys' fees and directs that the matter be set down for an inquest to determine the appropriate amount of said damages.
The court has considered the additional contentions of the parties not specifically addressed herein. To the extent any relief requested by either party was not addressed by the court, it is hereby denied. Accordingly, it is hereby
ORDERED that the motion of plaintiff NY CAPITAL ASSET CORP. [Mot. Seq. 1] made pursuant to CPLR 3212, for an order striking defendants' affirmative defenses is granted; and it is further
ORDERED that the motion of plaintiff NY CAPITAL ASSET CORP. [Mot. Seq. 1] for an order granting it summary judgment on the complaint against defendants in the amount of $29,915 plus interest from October 19, 2015 is granted; and it is further
ORDERED that the motion of plaintiff NY CAPITAL ASSET CORP. [Mot. Seq. 1] for an order granting it summary judgment on its claim for costs and attorneys' fees as against defendants is granted and the matter is set down for an inquest; and it is further
ORDERED that the motion of defendant F & B FUEL OIL CO., INC. and CHRISTOPHER FICARO [Mot. Seq. 2], made pursuant to CPLR 3212, for an order granting summary judgment dismissal of the complaint is denied; and it is further
ORDERED that plaintiff shall file a Note of Issue forthwith, and that the parties shall appear at the Settlement Conference Part of the Court, Room 1600, on April 17, 2018, at 9:15 a.m. for the purpose of scheduling of the inquest.
The foregoing constitutes the decision and order of the court.