hernandez

Short Form Order

NEW YORK SUPREME COURT - QUEENS COUNTY

Present: HONORABLE THOMAS V. POLIZZI IA Part 14
Justice

______________________________________ Index
x Number 5285 1999
ZAIDA HERNANDEZ, et al.

Motion
- against - Date August 31, 1999

MARY JOE LEE, et al. Motion
______________________________________x Cal. Number 9

The following papers numbered 1 to 12 read on this motion by plaintiff to strike the answers of defendants Mary Joe Lee, 109-33 Farmers Realty, Inc., ("Farmers") and Mafree Liquors, Inc., ("Mafree") for summary judgment against defendants, for leave to amend the caption deleting reference to defendants "John Doe 1" through "John Doe 10" and to appoint a Referee to ascertain and compute the amount due and owing plaintiff.

Papers
Numbered

Notice of Motion - Affidavits - Exhibits ......... 1 - 8
Answering Affidavits - Exhibits .................. 9 - 11
Reply Affidavits ................................. 12

Upon the foregoing papers it is ordered that the motion is determined as follows:

Plaintiff commenced this foreclosure action seeking to foreclose on two subordinate mortgages given to Larry Berman, its assignor, by defendant Farmers as security for two notes evidencing loans in the principal amounts of $60,000 and $40,000 respectively. The first cause of action seeks foreclosure on the blanket subordinate mortgage held by plaintiff on the properties located at 109-31 Farmers Boulevard, St. Albans, New York, 109-33 Farmers Boulevard, St. Albans, New York, and 109-05 109th Road, St. Albans, New York. The second cause of action seeks foreclosure on the blanket subordinate mortgage held by plaintiff on the properties located at 109-31 Farmers Boulevard, St. Albans, New York and 190-05 109th Road, St. Albans, New York. Defendants Mary Joe Lee and Mafree executed unconditional guaranties for the payment of both mortgage debts. As additional security, defendant Mafree executed UCC-1 financing statements. Plaintiff alleges that defendant Farmers defaulted under the terms of the notes and mortgages by failing to pay the monthly mortgage payments due on May 5, 1993 and May 21, 1993 respectively and that defendants Lee and Mafree have failed to pay the remaining amounts due under the notes and mortgages notwithstanding its demand they do so. Defendants New York State Department of Taxation and Finance and Mafree have filed notices of appearance. Defendants New York City Department of Finance and New York City Environmental Control Board are in default in the action. Defendants Lee, Farmers and Mafree served a combined answer denying the material allegations of the complaint and asserting various affirmative defenses.

That branch of the motion seeking to dismiss the first, second, third, and fourth affirmative defenses asserted in the answer of defendants Lee, Farmers and Mafree based upon fraudulent inducement is granted. Defendants Lee, Farmers and Mafree assert that Larry Berman, in concert with their former counsel (who was subsequently disbarred in connection with an unrelated matter and is now deceased), fraudulently misrepresented to them, prior to the execution of the loan documents, that defendant Farmers would receive loans in principal amounts less than the principal amounts set forth in the loan documents, and that the effect of the loan documents would be to secure only such lesser received principal amounts, rather than the greater stated principal amounts of indebtedness.

It is well settled that in proper circumstances, mutual mistake or fraud may provide the basis for reforming a written instrument that does not reflect the actual agreement reached between the parties (see, Chimart Assocs. v Paul, 66 NY2d 570, 573; Backer Mgt. Corp. v Acme Quilting Co., 46 NY2d 211, 218-219; Lent v Cea, 209 AD2d 820). Because there is a "heavy presumption that a deliberately prepared and executed written instrument manifest[s] the true intention of the parties" (Backer Mgt. Corp. v. Acme Quilting Co., supra, at 219), the party seeking to establish the requisite fraud or mistake must do so by clear and convincing evidence (see, Nash v Kornblum, 12 NY2d 42, 46; Lent v Cea, supra). The allegation by defendants Lee, Farmers and Mafree that plaintiff's assignor fraudulently misrepresented the effect of the loan documents, so as to fraudulently induce the execution of the various documents, as part of a conspiracy with their then counsel, is insufficient to raise a triable issue of fact. Defendants Lee, Farmers and Mafree concede that they understood the loan documents were in the nature of notes, mortgages and guaranties of payment, and do no contest that the loan amounts were stated therein. Defendant's allegations of conspiracy consist of nothing more than conjecture and surmise (see, Gateway State Bank v Shangri-La Private Club for Women, 113 AD2d 791, affd 67 NY2d 627). Furthermore, to the extent that defendants Lee and Mafree raise the defense relative to the guaranties, the plain language of the guaranties precludes the raising of the defense of fraud in the inducement (see, Citibank v. Plapinger, 66 NY2d 90; Security Sys., Inc. v Allyn, AD2d , 691 NYS2d 567; Raven El. Corp. v Finkelstein, 223 AD2d 378).

That branch of the motion seeking to dismiss fifth affirmative defense asserted in the answer of defendants Lee, Farmers and Mafree based upon the failure to state a cause of action is granted. In the Second Judicial Department, an affirmative defense that a complaint does not state a valid cause of action cannot be interposed in an answer (Guglielmo v Roosevelt Hosp., 222 AD2d 403; Platt v Portnoy, 220 AD2d 652; Propoco, Inc. v Birnbaum, 157 AD2d 774).

With respect to the sixth affirmative defense asserted in the answer of defendants Lee, Farmers and Mafree, the Statute of Limitations for instituting an action for foreclosure is six years (see, CPLR 213[4]). An action against a guarantor to recover upon a guaranty must be commenced within six years (CPLR 213[2]). Plaintiff commenced this action on May 10, 1999 by filing the summons and complaint with the County Clerk. In relation to a mortgage payable in installments, separate causes of action exist for each installment accrued, and the Statute of Limitations begins to run on the date each installment becomes due unless the mortgage debt is accelerated (see, Loiacono v Goldberg, 240 AD2d 476), or in the absence of debt acceleration, on the day after maturity (see, Scionti v Ried, 238 AD2d 496). If the mortgage debt is accelerated, the entire amount is due and the Statute of Limitations begins to run on the entire mortgage debt (see, Federal Natl. Mtge. Assn. v Mebane, 208 AD2d 892, 894). The period of limitations for a cause of action to recover under a guaranty commences upon the debtor's default in paying the underlying obligation (see, Phoenix Acquisition Corp. v Campiore, Inc., 182 AD2d 1101).

The $60,000 mortgage required payment in accordance with the mortgage note dated March 5, 1990. The March 5, 1990 note required payment of the principal amount of $60,000 with interest at 20% per annum by payment of twelve equal monthly installments of interest only in the amount $1000 until March 5, 1991 when the entire principal balance and interest became fully due and payable. Since plaintiff did not bring this action until May 10, 1999, more than eight years after maturity of the loan, the cause of action for foreclosure on the $60,000 mortgage is time-barred.

The $40,000 mortgage required payment in accordance with the mortgage note dated September 21, 1990. The September 21, 1990 note required payment of the principal amount of $40,000 with interest at 24% per annum by payment of twenty-four equal monthly installments of interest only in the amount $800 until September 21, 1992 when the entire principal balance and interest became fully due and payable. Since plaintiff did not bring this action until May 10, 1999, more than six years after maturity of the loan, the cause of action for foreclosure on the $40,000 mortgage is time-barred.

To the extent, however, that a $550 payment was allegedly made by defendant Lee, by check dated April 30, 1993, to Larry Berman, questions of fact exist as to when the check was cashed, whether such payment was attributable to either the $60,000 or $40,000 mortgage and whether such payment was sufficient to revive either debt for limitations purposes (see, General Obligations Law ' 17-107[2][b]; see, Petito v Piffath, 85 NY2d 1, 9, rearg denied 85 NY2d 858, cert denied 516 US 864; Crow v Gleason, 141 NY 489; Bobrow v Bobrow, 181 AD2d 556; Matter of Flaum v Birnbaum, 177 AD2d 170, 180). Under such circumstances, that branch of the motion by plaintiff to dismiss the sixth affirmative defense asserted in the answer of defendants Lee, Farmers and Mafree is denied.

That branch of the motion by plaintiff seeking to dismiss the seventh affirmative defense asserted in the answer of defendants Lee, Farmers and Mafree based upon usury is granted. It is well settled that where a loan is made to a corporation, the corporation and the individual guarantors of a corporate obligation, are prohibited by statute from interposing the defense of civil usury (see, General Obligations Law '5-521; Schneider v Phelps, 41 NY2d 238; Weisz, P.C. Retirement Plan v NCHD Assocs., 237 AD2d 276; Webar, Inc. v Capra, 212 AD2d 594). Because the subject loan documents called for interest in amounts not exceeding 25 per cent per annum, the mortgage loans were not criminally usurious (see, Penal Law ' 190.40).

That branch of the motion by plaintiff seeking to dismiss the eighth affirmative defense asserted in the answer of defendants Lee, Farmers and Mafree based upon lack of consideration with respect to the assignment of the notes, mortgages and guaranties to plaintiff is granted. Defendants Lee, Farmers and Mafree, as nonparties to the assignment agreement, lack standing to raise such a defense. Furthermore, even assuming these defendants had standing to raise the defense of lack of consideration relative to the assignment agreement, the assignment agreement states that consideration was paid in connection with the assignment.

That branch of the motion by plaintiff seeking to dismiss the ninth affirmative defense asserted in answer of defendants Lee, Farmers and Mafree based upon failure to elect the remedy of foreclosure or to recover under the guaranties is granted. In New York, when a mortgagor defaults, a mortgagee must elect between pursuing a legal remedy or foreclosing on the property, but may not prosecute both actions without leave of court (RPAPL '1301; TBS Enterprises, Inc. v Grobe, 114 AD2d 445). This "election of remedies" rule applies to actions on the guaranty of a note (TBS Enterprises, Inc. v. Grobe, supra). Contrary to the argument of defendants Lee, Farmers and Mafree, the complaint confirms that the action is in equity to foreclose the mortgages and to adjudicate that the guarantors will be liable in the event of a deficiency remaining after the foreclosure sale. Clearly, plaintiff has not elected both to seek a money judgment and to foreclose the mortgage in violation of RPAPL '1301 (see, First Nat. Bank of Glen Falls v G.F. Clear, Inc., 103 AD2d 951; see also, The Pines at Setauket, Inc. v Retirement Mgt. Group, Inc., 246 AD2d 528).

That branch of the motion by plaintiff seeking to dismiss the tenth affirmative defense asserted in the answer of defendants Lee, Farmers and Mafree based upon lack of consideration for the guaranties is granted. Again, the plain language of the guarantee precludes those defendants from raising the defense of lack of consideration (see, Citibank v. Plapinger, 66 NY2d 90; Security Sys., Inc. v Allyn, supra; Raven El. Corp. v Finkelstein, supra; Harrison Ct. Assocs. v. 220 Westchester Ave. Assocs., 203 AD2d 244).

That branch of the motion by plaintiff seeking to dismiss the eleventh affirmative defense of lack of ownership of the mortgaged properties asserted in the answer of defendants Lee, Farmers and Mafree is granted. Defendant Farmers owned the subject properties, pursuant to deeds dated March 3, 1990 and March 5, 1990, at the time of the execution, acknowledgment and delivery of the mortgages.

That branch of the motion by plaintiff seeking summary judgment with respect to defendants Lee, Farmers and Mafree is denied. As discussed above, a question of fact exists as to whether the Statute of Limitations has been tolled.

That branch of the motion by plaintiff seeking to appoint a Referee to ascertain and compute the amount due plaintiff is denied at this juncture.

That branch of the motion seeking leave to amend the caption deleting reference to defendants "John Doe 1" through "John Doe 10" is granted.

Dated: November 29, 1999 ______________________________
J.S.C.