Opinion
00320-08.
Decided on January 14, 2009.
Law Office of Nicholas Panzini, Amityville, New York, COUNSEL FOR PLAINTIFF.
Seidman Pincus, LLC, New Jersey, Shapiro Croland, Esqs., New Jersey, COUNSEL FOR DEFENDANTS, (for Jordan Carp).
Plaintiff moves for summary judgment in lieu of complaint against Defendants Jordan Carp and Caryll Carp.
BACKGROUND
Plaintiff, The North Face, a division of UF Outdoor, Inc. (North Face"), and Princeton Ski Shop, Inc. and its related entities ("Princeton"), had a relationship which dates back to 1988. Princeton purchased outdoor apparel and related items from North Face. The sale of North Face goods by Princeton amounted to about ten (10%) percent of Princeton's annual revenue.
Prior to November 14, 2006, Princeton would purchase goods against a $900,000.00 line of credit with North Face. In the Fall of 2006, North Face became concerned with regard to Princeton's ability to pay for the goods it purchased and demanded security and/or collateral. Accordingly, Defendants, Jordan Carp ("Jordan") and his wife, Caryll Carp ("Caryll"), entered into a guaranty whereby they "absolutely and unconditionally" guaranteed the prompt payment of all Princeton indebtedness exceeding $250,000.00.
In addition, the guaranty provided, in pertinent part:
Liability of Guarantor hereunder shall not be subject to any set — off, counterclaim or defense based upon any claims guarantor may have against The North Face and shall remain in full force and effect without regard to:
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(c) any exercise or non-exercise of any right, remedy, power or privilege in respect of any indebtedness or any security therefore;
Guarantor authorizes The North Face (whether or not after termination of this guarantee), without notice or demand (except as required by applicable law and cannot be waived), and without effecting Guarantor's liability hereunder, from time to time to
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(ii) take and hold security for the payment of this guarantee or the indebtedness guarantee, and exchange, enforce, waive and release any such security
Guarantor irrevocably and unconditionally waive
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(6)any requirement of diligence;
(7)any requirement to mitigate damages;
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Guarantor waives any right to require The North Face to
(b) proceed against or exhaust any security held from Obligor or any other party
The principal obligor, Princeton, and its related entities, filed for bankruptcy in November 2007. At that time, pursuant to the invoices for goods sold and delivered by North Face to Princeton, there was then a balance due of $506,809.07. None of that sum was recovered in the bankruptcy proceeding. Thus, North Face now seeks to recover the sum of $256,809.07 together with interest from January 7, 2007. This sum represents the total balances of the Princeton entities less the $250,000.00 threshold set forth in the guaranty.
In opposition to the motion, Caryll asserts that she has, and never had, an interest in any of the Princeton entities. Thus, she received and realized no consideration for the guaranty. In addition, she claims that she never executed any guaranty on behalf of Princeton. North Face concedes that the forgery defense on Caryll's part constitutes a triable issue of fact warranting withdrawal of this motion as to her.
Richard Carp ("Richard"), Jordan's son, took over the day-to-day operations of Princeton in 2006. Jordan is 80 years old and retired from the business. Although there was no affidavit from Jordan with regard to the opposition and defenses interposed therein, Richard argues that summary judgment should be denied because North Face had an obligation to provide credit which it did not do; North Face failed to perfect its security interest apparently granted by Princeton on August 31, 2006; and the amount claimed as due is incorrect. Richard argues that, at the time of the Princeton bankruptcy, there was due and owing $486,063.25.
The security agreement produced on this motion was not executed by anyone on behalf of Princeton. Nevertheless, inasmuch as one of Jordan's defenses rests upon the theory of the failure to perfect the security interest and the resulting impairment of the secured collateral, the Court will assume that it was in fact executed and enforceable.
DISCUSSION
A. Guaranty
An unconditional guaranty, like a promissory note, is an instrument for the payment of money only for the purposes of CPLR 3213. Weissman v. Sinorm Deli, 88 NY2d 437 (1996); and Ultimate Connection, Inc. v. Friedfertig, 12 Misc 3d 1175 (A) (Sup.Ct. Nassau Co. 2006). Although an unconditional guaranty does not recite a sum certain, it does not affect the availability of summary judgment under CPLR 3213. European American Bank v. Lofrese, 182 AD2d 67 (2nd Dept. 1992); and 97 NY Jur.2d Summary Judgment and Pretrial Motions to Dismiss § 100.
Plaintiff establishes a prima facie case on a guaranty by establishing an existence of the underlying obligation, the guarantee and failure of the prime obligor to make payments as required by the underlying agreement or promissory note. See, Royal Commercial Corp. v. Kotrulya, 304 AD2d 742 (2nd Dept. 2003); and E.D.F Security Systems Inc. v. Allyn, 262 AD2d 351 (2nd Dept. 1999).
The guaranty must be in writing executed by the person to be charged. Schulman v. Westchester Botanical Contractors Inc., 56 AD2d 625 (2nd Dept. 1977); and General Obligation Law § 5-701(a)(2). The intent of the guarantor is to guarantee the obligations of the principal obligor must be clear and unambiguous. European American Bank v. Syosset Autorama, Inc., 204 AD2d 266 (2nd Dept. 1994); and North Fork Bank Trust Co. v. Bernstein Gershman, 201 AD2d 472 (2nd Dept. 1994). Plaintiff establishes that the guarantor clearly and explicitly intended to guaranty the obligation by having the guarantor sign as a guarantor and by the language contained in the guaranty. Salzman Sign Co. v. Beck, 10 NY2d 63 (1961); and Harrison Court Assoc. v. 220 Westchester Avenue Assoc., 203 AD2d 244 (2nd Dept. 1994).
Upon establishing a prima facie right to enforce the guaranty, it becomes incumbent upon the Defendants "to demonstrate, by admissible evidence the existence of a triable issue of fact with respect to a bona fide defense." Sacco v. Sutera, 266 AD2d 446, 447 (2nd Dept. 1999); and J.L.B. Equities Inc. v. Mind Over Money, Ltd., 261 AD2d 510, 511 (2nd Dept. 1999). See also, Federal Deposit Ins. Co. v. Jacobs, 185 AD2d 913 (2nd Dept. 1992).
B. Jordan's Defenses
1. Failure to Provide Credit
Nowhere in any of the documents presented on this motion is there any written agreement between the parties that compelled or bound North Face to extend a certain amount of credit in return for the execution of the Guaranty. Since Defendant has failed to come forward with admissible evidence establishing the existence of a triable issue of fact in this regard, this defense cannot stand as a basis for denial of the motion.
2. Failure to Perfect North Face's Security Interest
The failure to perfect a security interest constitutes an impairment of the collateral negating the guaranty under Uniform Commercial Code ("UCC") § 2-606(1)(b), which provides:
The holder discharges any party for the instrument to the extent that without such party's consent the holder
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(b) unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he has a right of recourse.
It is Jordan's contention that North Face's unrefuted failure to perfect its security interest impaired the collateral for the obligation which negated any lien North Face would have had on the collateral then available in the Princeton entities' bankruptcy. See, Mikanis Trading Corp. v. Block, 59 AD2d 689 (1st Dept. 1977).
In and of itself, the failure to file a security interest constitutes an unjustifiable impairment of collateral which would discharge the guarantor. See, EFL Federal Credit Union v. Bovee, 9 Misc 3d 256, 259 (Sup.Ct. Monroe Co. 2005). See also, Executive Bank of Fort Lauderdale, Florida v. Tighe, 54 NY2d 330, 346 (1981). The impairment of collateral would discharge a guarantor, unless the language in UCC § 3-606 (1)(b) can be avoided by clear and explicit language in the guaranty. Id.; See, General Trading Co., Inc. v. A D Food Corp., 292 AD2d 266 (1st Dept. 2002); and European American Bank v. Kahn, 175 AD2d 704 (1st Dept. 1991). In Executive Bank of Fort Lauderdale, the Court of Appeals held, "It would be illogical to rule that the Bank had a duty to file the financing statements and the failure to do so released the endorsers, when under the endorsement it could have released the collateral with impunity. Executive Bank of Fort Lauderdale, Florida v. Tighe, supra at 338, quoting Etelson v. Suburban Trust Co., 263 Md. 376, 378-379 (1971). Such is the circumstance here. By its express terms, the viability of the guaranty remained "in full force and effect without regard to . . . any exercise or non-exercise of any rights, remedies, power or privilege in respect of any indebtedness or any security therefore. . ." (Guaranty, p. 2) Nor is the guarantor's liability affected by North Face taking and holding the security "for the payment of this Guaranty or the indebtedness guaranteed, and exchange, enforce, waived or released any such security." ( Id.) Likewise, Jordan waived any requirements of diligence on the part of North Face and a requirement that North Face mitigate its damages. ( Id.) Finally, Jordan specifically waived any right to require North Face to "proceed against or exhaust any security held from Obligor or any other parties." (Id.) Thus, even with North Face's failure to properly perfect the security interest, Jordan unequivocally waived his defenses with regard thereto. See, European American Bank v. Kahn, supra.
Thus, Jordan cannot successfully claim that the impairment of the collateral, in any way, negated his rights under the guaranty. This defense, therefore, cannot stand.
3. Damages
It is clear that the parties, in their respective submissions of invoices and calculations, demonstrate a disparate view of the amount due and owing on the underlying Princeton obligation. Thus, a hearing as to damages is required in order to establish the precise amount due and owing under the guaranty.
In addition, under the terms of the guaranty (p. 3), North Face is entitled to recover its costs and expenses, including reasonable attorney fees for pursuit of this litigation. Legal fees are to be awarded on a quantum meriut basis and cannot be determined summarily. See, Simoni v. Time-Line, LTD. 272 AD2d 537 (2nd Dept. 2000); and Borg v. Bel Aire Ridge Development Corp., 270 AD2d 377 (2nd Dept. 2000). Accordingly, a hearing to determine Plaintiff's damages and reasonable attorney fees must be scheduled as well.
Accordingly, it is,
ORDERED, that Plaintiff's motion for summary judgment in lieu of complaint is granted as to liability only against Defendant Jordan Carp; and it is further,
ORDERED, that Plaintiff's motion for summary judgment in lieu of complaint against Defendant Caryll Carp is denied and the matter is severed and continued as to her; and it is further,
ORDERED, that this matter is set down for an Inquest before Special Referee Thomas V. Dana to hear and determine all issues relating to damages and reasonable counsel fees. Not later than February 17, 2009, Plaintiff shall serves a copy of this Order with Notice of Entry, Notice of Inquest and a Note of Issue on counsel for Defendants. Upon payment of the appropriate fees and filing of the Note of Issue and a copy of this Order with proof of service with the Clerk of this Court not later than February 24, 2009, the Inquest shall be heard on March 10, 2009 at 10:00 a.m.; and it is further,
ORDERED, that counsel for Plaintiff and Defendant Caryll Carp shall appear for a Preliminary Conference before this Court on February 13, 2009 at 9:30 a.m.
This constitutes the decision and Order of the Court.