Opinion
05 Civ. 9665 (RJH).
September 28, 2007
MEMORANDUM OPINION AND ORDER
Before the Court is plaintiff Orix Financial Services Inc.'s motion for summary judgment on liability and damages against pro se defendants Ronald L. Barnes and Cynthia Barnes. Plaintiff alleges that defendant Ronald Barnes has defaulted on two promissory notes and three conditional sale contract notes. Plaintiff further alleges that defendant Cynthia Barnes is liable on all five notes as guarantor. For the following reasons, plaintiff's motion is granted in part and denied in part.
BACKGROUND
This case concerns Ronald Barnes's alleged default on five notes arising out of a series of financing agreements between Mr. Barnes and Orix Credit Alliance, Inc. ("OCAI") in 1998 and 1999. On April 14, 1998 Mr. Barnes executed the first of two promissory notes in favor of OCAI ("Promissory Note 1") in consideration of OCAI's financing of his purchase of certain commercial equipment ("Equipment 1"). (Pl.'s 56.1 Statement ¶ 5) At the same time, Mr. Barnes and OCAI agreed to amend their 1994 security agreement to grant OCAI a secured interest in Equipment 1. ( Id. ¶ 6-8.) Mr. Barnes executed a delivery certificate acknowledging complete and satisfactory delivery of Equipment 1 on June 15, 1998. ( Id. ¶ 9.) In October 1998 and then again on April 13, 2000, Mr. Barnes requested, and OCAI granted, changes to the payment schedule on Promissory Note 1. ( Id. ¶¶ 10-11.) Mr. Barnes defaulted on Promissory Note 1 by failing to make the installment payment due on October 1, 2000, and on the first of each month thereafter. ( Id. ¶ 13.) OCAI, by then renamed Orix Financial Services, Inc. ("OFS"), repossessed Equipment 1 and sold it on October 19, 2001. ( Id. ¶ 15.) Under the terms of Promissory Note 1, OFS is owed $14,585.82 plus attorneys' fees and default interest from October 20, 2001. ( Id. ¶ 16.)
On September 26, 2000, Orix Credit Alliance, Inc. changed its name to Orix Financial Services, Inc. and succeeded to all rights under the five notes made by Ronald Barnes and the guaranty signed by Cynthia Barnes. (Pl.'s 56.1 Statement ¶¶ 12, 23, 32, 44, 55, 62.) At all times, plaintiff was a New York corporation that maintained its principal places of business in Georgia. ( Id. ¶ 1). Defendant's Answer alleges that "OCAI was involved in its own bankruptcy protection back in 2000-01 and made several agreements with the defendant" to resolve defendants' financial obligations. (Answer 6.) Defendants have presented no evidence of such agreements (other than the April 2000 changes to the payment schedule) or the alleged bankruptcy, while plaintiff has presented affidavits disclaiming the existence of additional agreements or a pertinent bankruptcy. (Sept. 25, 2006 Aff. of Yvonne Kalpakoff ("9/25/06 Kalpakoff Aff.") ¶ 75.) Though defendants' allegation of a relevant bankruptcy or release agreements may have been triggered by the name change, defendants have raised no direct objection to Orix Financial Services' succession to the rights of Orix Credit Alliance under the notes and guaranties.
On October 16, 1998, Mr. Barnes executed the second Promissory Note ("Promissory Note 2") in consideration of OCAI's financing of his purchase of a Volvo tractor ("Equipment 2"). ( Id. ¶ 18.) Mr. Barnes executed a delivery certificate acknowledging complete and satisfactory delivery of Equipment 2 the same day. ( Id. ¶ 19.) On April 13, 2000, Mr. Barnes requested, and OCAI granted, changes to the payment schedule on Promissory Note 2. ( Id. ¶ 21.) Mr. Barnes defaulted on Promissory Note 2 by failing to make the installment payment due on September 1, 2001, and on the first of each month thereafter. ( Id. ¶ 24.) Under the terms of Promissory Note 2, OFS is owed $81,293.00 plus attorneys' fees and default interest dating from September 1, 2001. ( Id. ¶ 25.)
Between November 1998 and May 1999, Ronald Barnes entered into three contracts to purchase commercial equipment from two different sellers. All three contracts, entitled Conditional Sale Contract Notes ("CSC Notes"), were drawn up by OCAI and each represented a hybrid purchase-financing transaction. (Sept. 25, 2006 Aff. of Yvonne Kalpakoff ("9/25/06 Kalpakoff Aff."), Exs. J, N, R.) In each, the seller promised delivery of the equipment and Barnes promised payment in installments and gave the seller a security interest in the equipment. ( Id.) The sellers gave notice to Barnes of their intent to assign their rights and much of the contracts' language limited Barnes's rights against the sellers' assignee. ( Id.) In all three cases, the seller assigned its rights under the contract to OCAI immediately after the sales contract had been signed, and Barnes acknowledged complete and satisfactory delivery of the equipment. (9/25/06 Kalpakoff Aff., Exs. K, L, O, P, S, T.)
The first contract, CSC Note 1, was entered into by Barnes and the seller, Utility Trailer Manufacturing Company dba Utility Trailer Sales Company ("Utility Sales"), on November 18, 1998. (Pl.'s 56.1 Statement ¶ 26; 9/25/06 Kalpakoff Aff., Ex. J.) The second, CSC Note 2, was entered into by Barnes and the seller, O'Connor GMC Inc. ("O'Connor GMC"), on May 2, 1999. (Pl.'s 56.1 Statement ¶ 39; 9/25/06 Kalpakoff Aff., Ex. N.) The third, CSC Note 3, was entered into by Barnes and the seller, O'Connor GMC, on May 28, 1999. (Pl.'s 56.1 Statement. ¶ 50, 9/25/06 Kalpakoff Aff., Ex. R.)
On April 13, 2000, Ronald Barnes requested, and OCAI granted, changes to the payment schedule on all three CSC Notes. (Pl.'s 56.1 Statement ¶¶ 30, 43, 54.) Barnes defaulted on CSC Note 1 on September 1, 2000 ( Id. ¶ 31.), on CSC Note 2 on November 1, 2000 ( Id. ¶ 45.), and on CSC Note 3 on November 9, 2000 ( Id. ¶ 56.) In each case, OFS repossessed the financed equipment and resold it. ( Id. ¶¶ 33-34, 46-47, 57-58.) On CSC Note 1, OFS is owed $51,657.32 plus attorneys' fees and default interest dating from November 10, 2001 ( Id. ¶ 38); on CSC Note 2, OFS is owed $70,603.46 plus attorneys' fees and default interest dating from April 24, 2002. ( Id. ¶ 39); on CSC Note 3, OFS is owed 69,429.07 plus attorneys' fees and default interest dating from April 24, 2002. ( Id. ¶ 60.)
On January 12, 1994, defendant Cynthia Barnes executed a personal and unconditional guaranty to OCAI for all of Ronald Barnes's past, present and future obligations to OCAI. ( Id. ¶ 61, 9/25/06 Kalpakoff Aff., Ex. V.) On November 16, 2005, plaintiff filed a complaint against defendants in the Southern District of New York, seeking payment of the balance of all amounts due under the five notes, default interest, and attorneys' fees. Plaintiff now moves for summary judgment.
In accord with the Local Rules of the Southern District of New York, plaintiff served defendants with a Rule 56.2 Statement. (Notice to Pro Se Litigant Opposing Pl.'s Mot. Summ. J.)
STANDARD OF REVIEW
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In reviewing the record, the district court must assess the evidence in "the light most favorable to the non-moving party," resolve all ambiguities, and "draw all reasonable inferences" in its favor. Am. Cas. Co. v. Nordic Leasing, Inc., 42 F.3d 725, 728 (2d Cir. 1994); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The moving party must demonstrate that no genuine issue exists as to any material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986).If the moving party makes such a showing, the "non-movant may defeat summary judgment only by producing specific facts showing that there is a genuine issue of material fact for trial." Samuels v. Mockry, 77 F.3d 34, 36 (2d Cir. 1996); Celotex, 477 U.S. at 322-23. An alleged factual dispute between the parties will not by itself defeat a motion for summary judgment, since "the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48 (emphasis in original). Specifically, the non-moving party cannot rely on mere allegations, denials, conjectures or conclusory statements, but must present affirmative and specific evidence showing that there is a genuine issue for trial. See id. at 256-57; Gross v. Nat'l Broad. Co., 232 F. Supp. 2d 58, 67 (S.D.N.Y. 2002).
Pro se parties are entitled to "extra consideration" and "special latitude" on summary judgment motions. Salahuddin v. Coughlin, 999 F.Supp 526, 535 (S.D.N.Y. 1998). Consequently, the Court reads a pro se party's supporting papers liberally, and will interpret them to raise the strongest arguments that they suggest. Burgos v. Hopkins, 14 F.3d 787, 790 (2d Cir. 1994). Nevertheless, proceeding pro se does not relieve the non-movant from the usual requirements of summary judgment. Lee v. Coughlin, 902 F.Supp. 424, 429 (S.D.N.Y. 1995) (holding that a pro se party's "bald assertion, completely unsupported by evidence, is not sufficient to overcome a motion for summary judgment." (citation omitted)). In cases involving notes and guaranties under New York law a "plaintiff establishes its prima facie entitlement to summary judgment by establishing the execution of the agreements at issue and nonpayment thereunder." Valley Nat'l Bank v. Greenwich Ins. Co., 254 F.Supp.2d 448, 453 (S.D.N.Y. 2003) (citation omitted).
DISCUSSION
I. Jurisdiction
Defendants object to the Court's exercise of jurisdiction over them in this case. Defendants do not, however, dispute the diversity of the parties or the amount in controversy. (Pl.'s 56.1 Statement ¶¶ 1-3; Def. Opp.); see 28 U.S.C. § 1132(a)(1). Likewise, defendants do not dispute that Ronald Barnes gave his consent in the five notes (and related agreements) to the "exclusive jurisdiction and venue of courts located in the State and County of New York" for all claims arising under the agreements, or that Cynthia Barnes did likewise in the guaranty (9/25/06 Kalpakoff Aff., Exs. A, B, E, F, G, I, J, M, Q, R, U, V.) Nor do defendants dispute that they designated C-A Credit Corp. as their agent for service of process in New York, or that both C-A Credit Corp and plaintiff promptly mailed defendants a copy of the Summons and Complaint. (Smoley Affirm. ¶ 3-6; 9/25/06 Kalpakoff Aff., Exs. A, B, E, F, G, I, J, M, Q, R, U, V.) "[P]arties to a contract may agree in advance to submit to the jurisdiction of a given court to permit notice to be served by the opposing party, or even to waive notice altogether." Nat'l Equip. Rental, Ltd v. Szukhent, 375 U.S. 311, 316 (1963). "A forum selection clause will be invalidated only if it was the product of fraud or overreaching, or if the agreed forum is so inconvenient as to deprive the litigant of his day in court." Atlantic Mutual Ins. Co. v. M/V Humacao, 169 F.Supp.2d 211, 215 (S.D.N.Y. 2001). New York courts have interpreted their jurisdiction under forum-selection clauses in similar fashion. See Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Worley, 690 N.Y.S.2d 57, 59 (N.Y.App.Div. 1999) ("[B]y agreeing to the forum selection clause in the indemnity agreement, defendant specifically consented to personal jurisdiction over her in the courts of New York and thereby waived any basis to dispute New York's jurisdiction"); Nat'l Equip. Rental, Ltd. v. Reagin, 338 F.2d 759, 761-62 (2d Cir. 1964) (interpreting New York law as consistent with the broad ability of parties to consent to jurisdiction and substituted service of process). The Court finds that it has subject matter jurisdiction over plaintiff's claims and personal jurisdiction over defendants.II. Choice of Law
III. Statutes of Limitations
See Lazard Freres Co. v. Protective Life Ins. Co.108 F.3d 15311538-39Hartford Fire Ins. Co. v. Orient Overseas Container Lines (UK) Ltd.230 F.3d 549556See Orix Fin. Servs. v. LeClair 2007 WL 633706 2132-725
A. The Five Notes
New York law provides a six-year statute of limitations for promissory notes under N.Y. C.P.L.R. 213(2), but a four-year statute of limitations for claims of breach of a contract for the sale of goods under N.Y. U.C.C. § 2-725. Though New York's law in this area is not entirely clear, it appears that where financing agreements are intertwined with contracts for the sale of goods, the six-year limitations period plaintiff seeks should be applied in three cases: (1) where the financing agreement is separate from the sale of goods; (2) where an apparent sale of goods amounts only to a financing agreement; and (3) where there is a hybrid contract containing both financing and sales provisions and the financing portion of the contract predominates.
See N. Fork Bank v. Healy, 638 N.Y.S.2d 671 (N.Y.App.Div. 1996) (holding that "action to recover payment on promissory notes and a personal guaranty" was timely filed where "commenced within six years of corporate debtor's default"); see also N.Y. C.P.L.R. 213(2) (applying six-year statute of limitations to "action[s] upon a contractual obligation or liability, express or implied" except where otherwise provided).
U.C.C. § 2-725 provides a four-year limitations period for "[a]n action for breach of any contract for sale." U.C.C. § 2-102 limits the scope of Article 2's provisions to "transactions in goods."
(1) Under New York law, where the financing agreement is separate from the sale of goods, the six-year limitations period should be applied. See Globekirk, Ltd. v. E.D. F Man Coffee Ltd., 474 N.Y.S.2d 388, 389-90 (N.Y.Sup.Ct. 1984) (observing that six-year statute of limitations would be appropriate on an action to recover a balance due "[w]here purchase money for goods is advanced by a third party") (citing Harris Trust Sav. Bank v McCray, 316 N.E.2d 209 (Ill.App.Ct. 1973) (holding that credit card issuer's suit against cardholder to recover money due for purchases of goods was not governed by the four-year U.C.C. statute of limitations)). In Plasticreal, S.A. v. Hirica USA, Ltd., the court treated the oral agreements made by a buyer, seller, and a third party as entailing a financing contract separate from the contract for the sale of goods where the third party provided a comfort letter to the seller in exchange for a fee paid by the buyer. No. 87 Civ. 0877 (MGC), 1990 WL 71441 (S.D.N.Y. 1990). Applying the six-year limitations period to the third party's suit against the buyer, the Platicreal court found the agreement between the buyer and the third party to be a separate agreement even though the seller sent invoices to the third party for collection of payment from the buyer. The court cautioned that Article 2's four-year limitations period did not apply every time a financing agreement "bear[s] some relationship to a separate contract for the sale of goods." Plasticreal, 1990 WL 71441 at *3 (citing United States v. Framen Steel Supply Co., 435 F.Supp. 681, 685 (S.D.N.Y. 1977)).
Promissory Notes 1 and 2 bear "some relationship" to the sale of goods that they financed, but they are, at bottom, financing agreements whereby OCAI agreed to advance the purchase price to the seller in exchange for Mr. Barnes's execution of the Promissory Note. Accordingly, plaintiff's claims based on Promissory Notes 1 and 2 are subject to the six-year limitations period and are timely. By contrast, the three CSC Notes are at least partially sales of goods; the top of each reads, "Buyer hereby purchases the property described below." (9/25/06 Kalpakoff Aff., Exs. J, N, R.) The true nature of the CSC Notes is therefore subject to further scrutiny.
(2) The six-year limitations period also applies to contracts that have the form of a sale of goods, but are only intended to operate as security transactions. Article 2 does not apply "to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction." N.Y. U.C.C. § 2-102 (emphasis added). Moreover, the Official Comment to the enactment of N.Y. U.C.C. § 2-102 notes that "[t]he Article leaves substantially unaffected the law relating to purchase money security such as conditional sale or chattel mortgage though it regulates the general sales aspects of such transactions." (emphasis added). While plaintiff reads § 2-102 to "explicitly remove contracts for the sale of goods intended to create a security interest in the goods from the purview of Article 2," (Pl.'s Mem. Supp. Summ. J. 17), this view conflicts with the plain language of the statute. Cf. D.A.N. Joint Venture, III v. Clark, 218 S.W.3d 455, 460 (Mo.Ct.App. 2006) (rejecting similar argument as inconsistent with Missouri's version of U.C.C. § 2-102). As emphasized above, Article 2's limitations period does not apply where the transaction takes the form of sale of goods, but is only intended to create a security transaction.
The D.A.N. court hypothesized that such a sham sale would occur where a party loaned another money "on condition that [the borrower] make out a bill of sale for her car, to be returned upon repayment of the loan." 218 S.W.3d at 260, n. 2. Though a sale of goods on its face, this transaction would "in reality only serve the purpose of securing the loan" and would therefore not be covered by Article 2's limitations period. Id.
For instance, where two parties entered into a contract which required the financing company to purchase a buyer-specified machine from a buyer-specified seller and lease it to buyer in exchange for monthly rent payments with an option for the buyer to renew the lease at a nominal rental price, the court held that the agreement between the financing company and the buyer was intended to create a security interest, rather than a sale of goods. Leaseco Data Processing Equip. Corp. v. Starline Overseas Corp., 346 N.Y.2d 288 (N.Y.App. Term 1973).
It is important to note that defendants in Leaseco did not raise a statute of limitations defense, but rather sought application of Article 2's provisions on implied warranties to its agreement with the financing company. See Leaseco, 346 N.Y.2d at 292 (Lupiano, J., dissenting) (cataloguing defendants objections). Thus the Leaseco court found that the financing company was not a merchant, and therefore that Article 2's warranty provisions did not apply to the transaction. 346 N.Y.2d at 290. Had defendants raised a limitations defense, in order to apply the six-year statute of limitations the Leaseco court would have had to determine not only that the agreement between the buyer and the financing company was not a sale of goods, but also either that the financing agreement was a separate transaction or that the financing agreement was part of a single contract where the financing features predominated.
In each of the three CSC Notes, the seller (Utility Sales in CSC Note 1 and O'Connor GMC in CSC Notes 2 and 3) was the actual seller of the equipment. (9/25/06 Kalpakoff Aff., Exs. J, N, R.) Though Mr. Barnes granted the seller a security interest in the purchased equipment (which the seller assigned to OCAI), in each case the seller offered to sell the equipment to Mr. Barnes with or without financing, quoting him "both a cash price and a time price." Id. After agreeing in the CSC Notes to purchase the equipment at the "time price," Mr. Barnes took delivery of the purchased equipment. (9/25/06 Kalpakoff Aff., Exs. K, O, S.) Plaintiff does not dispute that the sellers named in the CSC Notes were the actual sellers of the equipment, but instead relies on the fact that plaintiff was not a true seller in any of the transactions. (Pl. Mem. Supp. Summ. J. 16; 9/25/06 Kalpakoff Aff. ¶¶ 75-76.) Plaintiff's status as a seller or a merchant or otherwise is irrelevant; what matters is that the CSC Notes created an actual contract for a sale of goods from the real seller to the real buyer. As the CSC Notes created both a security interest and a contract for the sale of goods, they could not have been intended to only create a security interest.
(3) In hybrid contracts where some of the provisions are for the sale of goods and some are not, a court applying New York law must look "to the 'primary purpose' test to determine which statute of limitations applies to the entire contract." Cary Oil Co. v. MG Ref. Mktg., 90 F.Supp.2d 401, 407 (S.D.N.Y. 2000); see also Levin v. Hoffman Fuel Co., 462 N.Y.S.2d 195, 196 (N.Y.App.Div. 1983) (holding that where "a contract provid[es] both for the sale of goods and for the furnishing of services" the test to determine the appropriate limitations period "is whether the agreement is 'predominantly' one for the sale of goods or for the providing of services.").
As the title OCAI chose when drafting them indicates, the CSC Notes (Conditional Sales Contract Notes) are plainly hybrid contracts. The top of each CSC Note reads, "The undersigned Buyer herby purchases the property described below (the "Property") as-is on the following terms and conditions." (9/25/06 Kalpakoff Aff., Exs. J, N, R.) Directly underneath, the property to be sold is carefully described and the cash sale price is listed along with the total contract price. Id. The Buyer also "hereby agrees and promises to pay to the order of Seller or any assignee or endorsee . . . hereof at the office of [OCAI]" the full contract price in "consecutive monthly installments." Id. At the bottom of the contract's first page are the signatures of the buyer and seller. Id. Though comparatively brief, this portion of the CSC Notes is more than sufficient to ensure the contract's enforcement against either buyer or seller under the Statute of Frauds. N.Y. U.C.C. § 2-201(1).
The CSC Notes give notice that the seller intends to assign its rights to payment to OCAI, but the Notes do not require this assignment — rather, they set terms that will make the assignment more appealing to OCAI and, thereby, the seller. (9/25/06 Kalpakoff Aff., Exs. J, N, R.) OCAI's interest in the CSC Notes arose out of separately signed assignment contracts to which Mr. Barnes was not a party. (9/25/06 Kalpakoff Aff., Exs. L, P, T.) The CSC Notes also function as promissory notes — each provides for a financing charge, each refers to Mr. Barnes as the "Buyer-Maker," and in each Mr. Barnes granted OCAI, as the seller's assignee, a security interested the purchased equipment. ( Id.)
One New York case has directly held that an identical contract, drafted by the same plaintiff, was "primarily one for the sale of goods" and was therefore "controlled by the four-year statute of limitations." Orix Fin. Servs. v. Hoxit, 2006 N.Y. Misc. Lexis 2367 *4 (N.Y. Supr. Ct. 2006). In Hoxit, Justice Gische termed the financing aspect of the agreement "secondary" and held that it could not "convert this contract for goods into an action based upon a promissory note or a financing agreement." Id.; see also Alice A. Baker, Inc. v. Norton, 747 N.Y.S.2d 146 (N.Y. Supr. Ct. 2002) (holding without discussion that installment sales contracts for the sale of goods are subject to a four-year statute of limitations).
The courts of an overwhelming majority of New York's sister states concur with Justice Gische that a financing company's action for a deficiency on an installment sales contract assigned to it by the seller of the goods is governed by Article 2's four-year limitations period. In the leading case, the New Jersey Supreme Court found that a bailment lease security agreement for the sale of a car "constitut[ed] both a contract for sale and a security instrument." Assocs. Disc. Corp. v. Palmer, 219 A.2d 858, 860 (N.J. 1966). The court applied the four-year limitations period to a deficiency suit brought by seller's assignee, characterizing the suit as "nothing but a simple in personam action for that part of the sales price which remains unpaid after the seller has exhausted his rights under Article 9 by selling the collateral." Id. at 861. Such an action, the court held, is, at heart, one to "enforce the obligation of the buyer to pay the full sale price to the seller, an obligation which is an essential element of all sales, and which exists whether or not the sale is accompanied by a security arrangement." Id. Palmer has been almost universally followed. The limited contrary authority is distinguishable. Most significantly, in North Carolina National Bank v. Holshouser, 247 S.E.2d 645 (N.C.Ct.App. 1978) the court held that the four-year limitations period does not apply to similar suits under North Carolina's version of U.C.C. Article 2, but as has been well-documented, the Holshouser court relied on a local comment to § 2-102 to distinguish Palmer. See, e.g., Scott v. Ford Motor Co., 691 A.2d 1320, 1323 (Md. 1997). North Carolina's local comment to § 2-102 advises that the section "indicates that the Article on Sales does not apply to transactions intended as security even though in the form of an unconditional contract of sale or to sell." Scott, 691 A.3d at 1323. However, as the Maryland Court of Appeals noted, North Carolina's local comment omits the "qualifier, 'only,' that immediately precedes 'as a security interest' in the text of § 2-102." Id. Like Maryland, New York adopted U.C.C. § 2-102 without such a comment.
See, e.g., Masse-Ferguson Credit Corp. v. Casaulong, 133 Cal. Rptr. 497 (Cal.Ct.App. 1976) (four-year limitations period where seller assigned rights under conditional sales contract to financing company same day as sale); Worrel v. Farmer's Bank of the State of Delaware, 430 A.2d 469 (Del. 1981) (relying on Palmer and distinguishing contrary precedent); Citizen's Nat'l Bank of Decatur v. Farmer, 395 N.E.2d 1121 (Ill.App.Ct. 1979) (four-year limitations period where seller assigned rights under retail installment contract to bank); Barnes v. Cmty. Trust Bank, 121 S.W.3d 520, 524 (Ky.Ct.App. 2003) (four-year limitations period upon court's finding that similar contract "deals essentially with a contract for the sale of a good"); Scott v. Ford Motor Credit Co., 691 A.2d 1320 (Md. 1997) (four-year limitations period where contract gave financing company security interest and contract had been drawn up by financing company); First of Amer. Bank v. Thompson, 552 N.W.2d 516 (Mich.Ct.App. 1996) (applying four-year limitations period to deficiency action brought by seller's assignee where assignee had drafted installment sales contract and seller had given notice of its intention to immediately assign); First Nat'l Bank in Albuquerque v. Chase, 887 P.2d 1250, 1251 (N.M. 1994) (applying four-year period and noting "nearly every other jurisdiction that has considered which time limitation applies to deficiency actions has adopted the same approach.").
The near uniformity of opinion among New York's sister states is particularly persuasive in light of the Official Comment to N.Y. U.C.C. § 2-725, which states that the purpose of the limitations section was "[t]o introduce a uniform statute of limitations for sales contracts, thus eliminating the jurisdictional variations and providing needed relief for concerns doing business on a nationwide scale."
Contending that Justice Gische erred "as a matter of fact and law," plaintiff argues (1) that the CSC Notes are, by their nature, financing agreements rather than sales of goods, and (2) that the CSC Notes should be governed by the six-year limitations period because New York courts have found them to be "an instrument for the payment of money only" and thus a basis for the accelerated procedures of N.Y. C.P.L.R. 3213. (Pl.'s Mem. Supp. Summ. J. 13-19 19, n. 4.) Both of plaintiff's arguments are unpersuasive.
Plaintiff's claim that the CSC Notes are predominantly financing agreements implicitly asks this Court to look at the contracts solely from plaintiff's perspective. According to plaintiff, the CSC Notes only "nominally" involve a buyer and seller, ( Id. 13), they "contain only obligations relating to Ronald L. Barnes's indebtedness to OCAI for its financing his acquisition of the Equipment," ( Id. 15), and "they do not obligate OCAI or anyone else to sell any goods to Barnes." ( Id. 17.) Plaintiff overlooks the legal effect of the contract as between the buyer and seller — the parties who actually entered into the contract. As explained above, the CSC Notes clearly create a contract for the sale of goods from seller to buyer in which the seller disclaims implied warranties, the buyer agrees to pay seller in monthly installments, and the buyer agrees to limit its rights against the seller's assignees.
Although from OCAI's perspective, financing a purchase through an assignment of the seller's rights to a third party may be largely equivalent to a financing agreement made directly between the third party and buyer/debtors like Mr. Barnes, this Court believes that New York law, like that of most other states, perceives a legal difference, at least in terms of the applicable statute of limitations. Indeed, as New York applies a four-year limitations period to a seller's action for a deficiency on an installment contract, see Alice A. Baker, Inc. v. Norton, 747 N.Y.S.2d 146 (N.Y. Supr. Ct. 2002), it would be anomalous if the six-year period were applied to the same action brought by the seller's assignee.
See supra note 8.
While a buyer may waive certain defenses against the seller's assignee, see N.Y. U.C.C. § 2-110, 9-403, -404, under the U.C.C. the parties cannot contract to extend the applicable limitations period. N.Y. U.C.C. § 2-725.
Plaintiff claims that applying the four-year limitations period to its deficiency action on the CSC Notes conflicts with at least one New York court decision finding that such notes are "instrument[s] for the payment of money only" and therefore qualify for the accelerated judgment procedure of N.Y. C.P.L.R 3213. (Pl.'s Mem. Supp. Summ. J. 18-19); see also Orix Credit Alliance, Inc. v. Baker's Dozen, Inc., Index No. 604192/98 (N.Y. Supr. Ct., Mar. 22, 1999) (copy attached to Pl.'s Mem. Supp. Summ. J.) (holding that identical contract drafted by plaintiff was an instrument for the payment of money only under C.P.L.R. 213). This line of argument is unavailing. Application of C.P.L.R. 3213 turns on whether the instrument's terms and the failure to pay alone make out a prima facie case. See, e.g., E. N.Y. Sav. Bank v. Baccaray, 625 N.Y.S.2d 88 (N.Y.App.Div. 1995). But, whether a plaintiff may utilize C.P.L.R. 3213's accelerated judgment proceedings in prosecuting a claim has no bearing on the period in which she has to bring the claim. For instance, while an action on an account stated can qualify as an "instrument for the payment of money only," see Interman Indus. Prods., Ltd. v. R.S.M. Electron Power, Inc., 37 N.Y.2d 151, 156 (N.Y. 1975), "a claim for an account stated . . . does not allow [a] plaintiff to circumvent the statute of limitations set forth in UCC § 2-725 where the underlying transaction or contract involved the sale of goods." Troy Boiler Works, Inc. v. Sterile Techs., Inc., 777 N.Y.S.2d 574 (N.Y. Supr. Ct. 2003). The underlying transactions in the present case concern, at their core, the sale of goods. Consistent with New York and sister state authority, these transactions are subject to the four-year limitations period found in U.C.C. § 2-725 and plaintiff's claims based on the CSC Notes are therefore untimely.
B. The Guaranty
The New York Court of Appeals has held that a suit against a guarantor for her principal's obligations under a contract for a sale of goods is governed by the six-year statute of limitations of C.P.L.R. 213, rather than the four-year statute of U.C.C. § 2-725. Amer. Trading Co. v. Fish, 364 N.E.2d 1309, 1312-13 (N.Y. 1977). Observing that a guaranty is a "separate undertaking," the Fish court specifically rejected the proposition that a guaranty of a contract for the sale of goods "must in all instances be subject to the same Statute of Limitations as the underlying obligation." Id. at 1313. Thus, plaintiff's action against defendant Cynthia Barnes as guarantor of Ronald Barnes's obligation under the five notes is not barred by the statute of limitations, as it was filed within six years of Mr. Barnes's default on each of the notes. See Marine Midland Bank, N.A. v. Walter Perlstein, Inc., 572 N.Y.S.2d 789, 791 (N.Y.App. Div. 1991) ("Plaintiff's action on [defendant's] guarantee would be untimely only if it had not been instituted within six years of [debtor's] default).
IV. Cynthia Barnes's Liability for Ronald Barnes's Obligations Under the Guaranty
Defendants claim that Cynthia Barnes's 1994 guaranty, (9/25/06 Kalpakoff Aff., Ex. V), did not apply to the Promissory Notes and the CSC Notes. (Def.'s Opp. Mot. Summ. J. ¶¶ 1, 3.) Defendants concede that Ms. Barnes signed the guaranty. (Sept. 25, 2007 Tr. of Oral Argument ("Tr.") 6-7.)
At argument, defendants alleged that defendants have not submitted an original of the guaranty and that no such original exists. (Tr. 6.) Whatever the truth of this allegation, defendants do not contest the authenticity of the original, and the Court perceives no unfairness in admitting the duplicate in lieu of the original. See Fed.R.Evid. 1003.
Under the terms of the guaranty, Ms. Barnes agreed to be "jointly, severally, directly and unconditionally" liable to OCAI for Mr. Barnes's due performance of all "Security Obligations," "past, present and future" including "conditional sale agreements . . . chattel . . . mortgages, notes or other time payment paper." (9/25/06 Kalpakoff Aff., Ex. V.) By its terms, the guaranty was to "continue in full force and effect . . . until the full performance, payment and discharge of all Security Obligations and thereafter until actual receipt by [OCAI] from [Ms. Barnes] of written notice of termination." ( Id.) Termination was to be effective only as to "transactions having their inception [after such termination]." ( Id.) Ms. Barnes waived her right to notice of and gave her consent to "any agreement or arrangement" made between OCAI and Ronald Barnes altering the terms of any of his "Security Obligations." (9/25/06 Kalpakoff Aff., Ex. V.)
Mr. Barnes alleges that a manager at an OCAI branch office advised him in 1998 that Ms. Barnes's obligations under the guaranty were released. (Defs.' Opp. Mot. Summ. J. ¶¶ 1, 4; Tr. 7-8, 13.) Although Mr. Barnes conceded that he had no documentation of this agreement, he alleged that the manager drafted the necessary paperwork. (Tr. 13-14, 17.) However, neither OCAI nor OFS received a written termination or change in the Guaranty. (Apr. 30, 2007 Aff. of Yvonne Kalpakoff ¶ 3.) At oral argument, plaintiff's counsel averred that plaintiff had searched its files for any documents related to the notes at issue in this case, and no release of Ms. Barnes's obligations under the guaranty were found. (Tr. 19.)
Interpretation of the guaranty is a question of law for the Court. Orix Fin. Servs. v. Precision Charters, Inc., No. 05 Civ. 9346 (KMW), 2007 WL 2042499 *1, n. 2 (S.D.N.Y. 2007). The Court finds that the guaranty that Ms. Barnes signed created a continuing obligation that could only be released upon written notification to OCAI. See id., 2007 WL 2042499 at *1-*2 (finding apparently identical contract drafted by OCAI to unambiguously oblige guarantor to be liable for principal's future debts). The New York Court of Appeals has held that a continuing guaranty of this sort is not "terminated due to lack of further consideration, or cessation of what one party may have regarded as the 'business relationship,'" nor is it "limited to the life of loans executed contemporaneously therewith." Chem. Bank v. Sepler, 457 N.E.2d 714, 716 (N.Y. 1983). Moreover, a continuing guaranty that, by its terms, requires written notice for termination cannot be terminated through an oral agreement. See Chem. Bank v. Wasserman, 333 N.E.2d 187, 188 (N.Y. 1975) (holding that an alleged oral agreement in which officer of plaintiff bank had orally terminated the guaranty could not terminate defendant's obligation as guarantor); Merchants Bank of New York v. Kluger, 634 N.Y.S.2d 467, 468 (N.Y.App.Div. 1995) ("[T]he alleged oral assurance by a bank employee that the guarantees were terminated did not operate to terminate the [guarantors'] obligations. . . ."). As there is no evidence of a written notice terminating the guaranty, the Court finds that there is no genuine issue of material fact as to Ms. Barnes's obligations as guarantor.
Under New York law, there are two potential exceptions to this principle, neither of which applies here. The first, the partial performance exception, requires that the party seeking enforcement of the oral agreement prove (1) that they engaged in conduct that is "unequivocally referable" to the oral modification, and (2) that the conduct conferred some benefit on the party against whom enforcement is being sought. Club Haven Investment Co. v. Capital Co. of Am., 160 F.Supp.2d 590, 592 (S.D.N.Y. 2001). The second, the equitable estoppel exception, prevents a party who has induced another's significant and substantial reliance upon an oral modification" from arguing that the oral modification is unenforceable because written. Id. ( quoting Rose v. Spa Realty Assoc., 366 N.E.2d 1279, 1283 (N.Y. 1977). To gain the protection of the equitable estoppel exception the party seeking enforcement of the oral agreement must demonstrate conduct that that is not compatible with the underlying written agreement. See Club Haven, 160 F.Supp.2d at 592-93. Here, defendant's action in alleged reliance on the oral agreement — signing the notes — provides no indication whether the guaranty was terminated or not. Thus, defendants fail to allege a course of conduct that is unequivocally referable to the alleged oral termination of the guaranty or incompatible with the continuing force of the underlying guaranty.
For that matter, Mr. Barnes has failed to produce any admissible evidence of the alleged oral agreement. Mr. Barnes's unsworn statement made in opposition to the motion for summary judgment, long after the close of discovery, hardly provides an evidentiary basis for such a defense.
V. Execution of the Notes and Mr. Barnes's Failure to Pay
To obtain summary judgment against Ronald Barnes on the promissory notes and against Cynthia Barnes on her guaranty of payment on all five notes, plaintiff must establish that the notes were duly executed and that Ronald Barnes failed to make the required payments. Plaintiff has submitted ample, unrebutted evidence of the notes' proper execution (Kalpakoff Supp. Aff Exs. A-V) and Mr. Barnes failure to pay. (9/25/06 Kalpakoff Aff. ¶¶ 18, 26, 42, 55, 68 Exs. 2, 4, 6, 8, 10.) Thus, plaintiff has met its burden to show that the notes were properly executed and that Mr. Barnes failed to pay.
Both Ronald and Cynthia Barnes are liable for the unpaid portions of the two Promissory Notes and Cynthia Barnes is liable for the unpaid portion of the three CSC Notes.
VI. Amount of Damages and Attorneys' Fees
Defendants do not dispute the amounts owed on the notes:
• Promissory Note 1 — $14,585.82 plus default interest from October 20, 2001, and reasonable attorneys' fees (Pl.'s 56.1 Statement ¶ 17);
• Promissory Note 2 — $81,293.00 plus default interest from September 1, 2001, and reasonable attorneys' fees ( Id. ¶ 25);
• CSC Note 1 — $51,657.32 plus default interest from November 19, 2001, and reasonable attorneys' fees ( Id. ¶ 38);
• CSC Note 2 — $70,603.46 plus default interest from April 24, 2002, and reasonable attorneys' fees ( Id. ¶ 49);
• CSC Note 3 — $69,429.07 plus default interest from April 24, 2002 and reasonable attorneys' fees. ( Id. ¶ 60.)
According to the terms of the notes, default interest is calculated at the rate of one-fifteenth (1/15th) of one-percent (1%) per diem. Courts applying New York law have routinely upheld the same delinquency charge. See Orix Fin. Servs. v. Solace, 2007 WL 1455757 *1, n. 2 (S.D.N.Y. 2007) (Peck, M.J.) (collecting cases). The notes also entitle plaintiff to an award of attorneys' fees in the amount of 20% of the amount due. (Kalpakoff Aff., Exs. A, G, J, N, R.) As plaintiff's counsel has not submitted the number of hours worked on this case, the Court is unable to determine whether 20% of the total amount due would be unreasonable. Cf. Orix Fin. Servs. v. Precision Charters, 2007 WL 2042499 at *3 (noting inherent authority of court to determine reasonable attorneys' fees and finding fees equaling 20% of amount owed on promissory notes to be unreasonable).
CONCLUSION
For the reasons stated above, plaintiff's motion for summary judgment [14] is granted against both defendants on Promissory Notes 1 and 2, granted against Cynthia Barnes on CSC Notes 1, 2, and 3, and denied against Ronald Barnes on CSC Notes 1, 2 and 3. Plaintiff is directed to submit a statement of all amounts owed consistent with this decision. If plaintiff seeks to recover reasonable attorneys' fees, plaintiff should submit a statement regarding the number of hours its counsel has worked on this case.
SO ORDERED.