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Gazzi Pizza & Rest., Inc. v Quatro Amici, Inc.
2006 NY Slip Op 50452(U) [11 Misc 3d 1070(A)]
Decided on March 23, 2006
Supreme Court, Nassau County
Austin, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.


Decided on March 23, 2006
Supreme Court, Nassau County


Gazzi Pizza & Restaurant, Inc., Plaintiff,

against

Quatro Amici, Inc., DIEGO STORNELLO, BENEDETTO LOMANTO, JULIAN MERCADO, and JAGDISH IDNANI, Defendants.




019373/05

Leonard B. Austin, J.

Plaintiff moves for summary judgment in lieu of complaint pursuant to CPLR 3213. Defendants cross-move for an order pursuant to CPLR 3211(a)(7) dismissing Plaintiff's action and for an order granting sanctions and attorney's fees pursuant to 22 NYCRR 130-1.1.

BACKGROUND


This action arises out of Defendants' alleged failure to pay a promissory note, with regard to the sale of Plaintiff's restaurant business located at 19995 Sound View Avenue, Southhold, NY 11971.

On July 29, 2002, Defendant Quatro Amici, Inc. ("Quatro"), by its president, Defendant Diego Stornello ("Stornello"), executed a promissory note ("Note") in favor of Plaintiff Gazzi Pizza & Restaurant, Inc. ("Gazzi") in the sum of $525,000.

The Note, dated July 29, 2002, provided that Quatro was to pay the principal balance of $525,000 on a self-amortizing basis at an interest rate of seven (7%) percent per annum, payable in 72 equal monthly installments of $8,950.73. Each monthly installment was to be paid on the first of every month commencing on September 1, 2002, and continuing until August 1, 2008. The Note was personally guaranteed by Stornello and co-defendants Benedetto Lomanto ("Lomanto"), Julian Mercado and Jagdish Idnani. The guaranty also provided for payment of Gazzi's expenses of collection of the Note and enforcement of the guaranty, including reasonable attorney's fees.

In the event of a default in payment and it was not cured within seven (7) days of the due date, the installment would bear interest "at the lesser of twelve percent per annum or the highest lawful rate permitted under applicable law, from the date when such payment was due until paid." The Note further provided that "a late payment premium of 5 percent of any principal or interest payment made more than seven (7) days after the due date thereof, which premium shall be paid with such late payment." The Note also stated that these conditions "shall not be deemed to extend or otherwise modify or amend the date when such payments are due hereunder."

Additionally, the Note included an acceleration clause whereby Gazzi, as the holder of the Note, "may declare the entire unpaid amount of principal and interest under this Note to be immediately due and payable if Maker defaults in the due and punctual payment of any installment of principal or interest hereunder, if such payment is not received within 15 days of such due date."

Plaintiff claims that, as of January 19, 2004, it had not received the payment due on January 1, 2004. As a result, by a default letter dated January 19, 2004, Plaintiff demanded the overdue payment on the Note totaling $10,275.81 by January 24, 2004. This amount was calculated as $6,462.51 in principal, plus $3,365.76 in interest calculated at twelve percent (12%) per annum interest on the full outstanding principal balance of $426,552.19 from January 1, 2004 to January 24, 2004, plus $447.54 as a late payment [*2]premium at five (5%) percent on the $8,950.73 monthly installment due for January, 2004.

Plaintiff sent a second default letter dated September 25, 2004 demanding $23,274.69 as outstanding payments on the Note to be paid by October 7, 2004, and calculated in a similar manner, less monthly payments received by Plaintiff from January, 2004 to September 25, 2004.

As a result of Defendants' failure to pay the increased default interest and late payment premiums that accumulated since January, 2004, by letter dated October 26, 2005, Plaintiff demanded full payment of the Note pursuant to the Note's acceleration clause, including the increased default interest and late payment premiums due.

In response, Defendants submitted a copy of a check in the amount of $8,950.73, dated December 31, 2003, which was payable to Franco Purita ("Purita"), President of Gazzi, and his wife, pursuant to Purita's request. Lomanto alleges that he delivered and tendered to Purita and his wife a check in full payment of the January, 2004 installment on or about January 1, 2004. The back of the check indicates that it was endorsed with reservation of rights, presented, and deposited by Plaintiff at it's bank on January 14, 2004. Plaintiff contends that the check dated December 31, 2003 was mailed in an envelope postmarked January 10, 2004.

Defendants also claim that, in a letter dated December 6, 2004, Defendants' counsel responded to Plaintiff's default letters by claiming that Defendants did not receive Plaintiff's January 19, 2004 letter, and that the calculation of the amount due as stated in Plaintiff's September 25, 2004 letter was incorrect. Without conceding that the amounts were paid late, Defendants' counsel suggested that any possible outstanding interest and late payment premiums due through December 31, 2004 could be resolved by a payment in the amount of $892.91. Thus, in December, 2004, Lomanto, through Defendants' counsel, tendered a check in the amount of $892.91 representing the amount of deficiency interest due from January 1, 2004 through January 14, 2004 to Plaintiff's attorney. There is no evidence that this check was deposited by Plaintiff.

Gazzi now seeks $355,468.15 as the sum due under the promissory note from Defendant Quatro, as guaranteed by the remaining Defendants, including interest, late payment premiums, and attorney's fees, plus interest at the default rate of twelve (12%) percent, along with costs and disbursements.

DISCUSSION


A.Plaintiff's Motion for Summary Judgment in Lieu of Complaint

CPLR 3213 allows a plaintiff to move for summary judgment in lieu of complaint based on an instrument for the payment of money only. Interman Industrial Products, Ltd. v. R.S.M. Electron Power, Inc., 37 NY2d 151, 155 (1975). An action on a promissory note is an action for payment of money only. Davis v. Lanteri, 307 AD2d 947 (2nd Dept. 2003).

In order to establish prima facie entitlement to judgment as a matter of law on a promissory note, the plaintiff must submit evidence that the defendant executed a promissory note and failed to make payment in accordance with the terms of the promissory note. See, Davis v. Lanteri, supra; Constructamax, Inc. v. CBA Assocs., Inc., 294 AD2d 460 (2nd Dept. 2002); and Moezinia v. Baroukhian, 247 AD2d 452, 453 (2nd Dept. 1998). The burden then shifts to the defendant to come forward with evidentiary facts [*3]demonstrating the existence of a triable issue of fact or a bona fide defense, which would defeat summary judgment in lieu of complaint. See, Moezinia v. Baroukhian, supra; Silber v. Muschel, 190 AD2d 727 (2nd Dept. 1993); Coniglio v. Regan, 186 AD2d 709, 710 (2nd Dept. 1992); Telephone Dynamics Corp. v. Morrisey, 8 Misc 3d 1009(A) (Sup. Ct. Nassau Co. 2005).

A plaintiff establishes a prima facie claim on a guarantee by establishing the existence of a promissory note, the guarantee and the failure of the primary obligor to make payments according to the terms of the promissory note. E.D.S. Security Systems, Inc. v. Allyn, 262 AD2d 351 (2nd Dep't 1999); Telephone Dynamics Corp. v. Morrisey., supra. The burden then shifts to the defendant to establish, by admissible evidence, the existence of triable issues of fact or a viable defense to the action on the guarantee. See Federal Deposit Ins. Co. v. Jacobs, 185 AD2d 913 (2nd Dept. 1992); Telephone Dynamics Corp. v. Morrisey, supra.

In support of its motion, Plaintiff has submitted a copy of the promissory note executed by Quatro and a copy of the guarantee executed by all of the individual Defendants. According to the terms of the Note, Quatro was required to make a monthly payment of principal and interest in the amount of $8,950.73 at the first of every month, commencing on September 1, 2002, and continuing until August 1, 2008.

Plaintiff also submitted an affidavit executed by Purita, in which he avers that as of January 19, 2004, Quatro failed to make the January 1, 2004 installment due under the Note. Quatro's default caused Plaintiff to send default letters on January 19, 2004 and September 25, 2004 declaring overdue payment on the Note. In addition to the overdue payment, Plaintiff informed Quatro that, pursuant to paragraph 3 of the Note, it was required to pay an increased default interest of twelve (12%) percent per annum on the outstanding principal balance for failure to make payment within the seven (7) days of the due date, and a late payment premium of five (5%) percent of any principal or interest payment made more than seven (7) days after the due date.

As a result of Quatro's failure to cure the alleged default, in a letter dated October 26, 2005, Plaintiff demanded full payment of the Note, including increased default interest and late payment premiums, pursuant to the Note's acceleration clause. Although Defendants eventually paid the January, 2004 installment, and continued to pay subsequent monthly installments in a timely manner, Plaintiff claims that these payments were deficient because they were paid at seven percent (7%) interest, rather than the increased twelve percent (12%) interest. According to Plaintiffs, a continuing default for failure to pay back increased interest payments and late payment premiums existed since January, 2004, and justifies Plaintiff's exercise of the acceleration clause under the Note.

Plaintiff has made a prima facie showing by submitting evidence that Quatro executed a promissory note in favor of Plaintiff, the remaining Defendants executed a guarantee in favor of Plaintiff, and Quatro, as primary obligor, failed to make payments in accordance with the terms of the Note. See, Davis v. Lanteri, supra; Constructamax, Inc. v. CBA Assocs., Inc., supra; E.D.S. Security Systems, Inc. v. Allyn, supra.

According to Lomanto, on or about January 1, 2004, he delivered and tendered a check to Purita and his wife in the amount of $8,950.73 in full payment of the January 1, 2004 Note payment. Furthermore, based on the evidence submitted by Defendants, the check was dated December 31, 2003, paid to the order of Purita and his wife, and [*4]presented by Plaintiff at its bank on January 14, 2004.

The evidence submitted by Defendants, as well as the statements made in Lomanto's affidavit, contradict the statement made in the affidavit of Franco Purita in support of Plaintiff's motion that "[a]s of January 19, 2004, no payment was received for the January, 2004 installment under the Promissory Note (Exhibit A) due January 1, 2004." (Affidavit of Franco Purita, ¶ 5). In Plaintiff's reply papers, Plaintiff's attorney acknowledges the existence of the check dated December 31, 2003, and explains that it was mailed to Plaintiff in an envelope postmarked January 10, 2004. Plaintiff also recognizes that some form of partial payment was made as of January 15, 2004.

The actual date of payment for the January, 2004 installment is crucial to Plaintiff's claim. The actual date of payment is required to determine if Quatro timely paid the January, 2004 installment. The conflicting affidavits and evidence presented by both parties, however, create a question of fact which cannot be decided on a summary judgment motion. See, Ferrante v. American Lung Assn., 90 NY2d 623 (1997); and Venetal v. City of New York, 21 AD3d 1087 (2nd Dept. 2005). Questions of credibility on motions for summary judgment cannot be determined by affidavit. Zulferino v. State Farm Automobile Insur. Co., 123 AD2d 432 (2nd Dept. 1985). Thus, Gazzi's motion for summary judgment in lieu of complaint must be denied at this time. See, Hogan v. Springer, 24 AD2d 477 (2nd Dept. 1965).

B.Defendants' Cross-Motion to Dismiss

A dismissal motion pursuant to CPLR 3211(a)(7) permits the court to dismiss a cause of action on the grounds that it fails to state a cause of action. When deciding a 3211(a)(7) motion, the court must accept as true all of the facts alleged in the complaint and any factual submission made in opposition to the motion. 511 West 232rd Street Owners Corp. v. Jennifer Realty Co., 98 NY2d 144 (2002); Sokoloff v. Harriman Estates Development Corp., 96 NY2d 409 (2001). The allegations in the complaint must be liberally construed, and the plaintiff must be given the benefit of every favorable inference which can be drawn from the facts as pled. Leon v. Martinez, 84 NY2d 83 (1994); and Paterno v. CYC, LLC, 8 AD2d 544 (2nd Dept. 2004).

Although there is an issue of credibility as to the date of receipt of the January 2004 installment, the papers submitted in support of Plaintiff's motion establishes sufficient allegations that, if accepted as true, establish a cause of action that a promissory note in favor of Plaintiff existed, and that Quatro defaulted on its obligations under the Note.

Since Plaintiff has a cognizable cause of action, Defendants' cross-motion to dismiss for failure to state a cause of action should be denied. See, Guggenheimer v. Ginzburg, 43 NY2d 268 (1977).

C.Defendants' Cross-Motion to Impose Sanctions

The court may impose sanctions upon a party or an attorney who engages in frivolous conduct. 22 N.Y.C.R.R. 130-1.1(a). Frivolous conduct is that which sets forth arguments lacking merit in law and cannot be supported by a reasonable extension, modification or reversal of existing law, if it is designed to harass or maliciously injure another, or if it makes material statements of fact which are false. 22 N.Y.C.R.R. 130-1.1(c). Determination of sanctions is left to the sound discretion of the court. Wagner v. Goldberg, 293 AD2d 527 (2nd Dept. 2002).

Though Plaintiff's motion for summary judgment and Defendant's motion to dismiss [*5]must be denied, it does not necessarily follow that Plaintiff's arguments are without merit. Hair Say, Ltd. v. Salon Opus, Inc., 6 Misc 2d 1041(A) * 10 (Sup. Ct. Nassau Co. 2005) ("Not every unsuccessful claim is frivolous."). Since Plaintiff's arguments have not been shown to lack merit, Plaintiff's conduct cannot be deemed frivolous. As such, Defendants' cross-motion for sanctions and attorney's fees must be denied.

Accordingly, it is,

ORDERED, Plaintiff's motion for summary judgment in lieu of complaint is denied; and it is further,

ORDERED, that Defendants' cross-motion to dismiss Plaintiff's cause of action is denied; and it is further,

ORDERED, that Defendants' cross-motion for sanctions and attorney's fees is denied; and it is further;

ORDERED, that counsel for the parties are directed to appear for a preliminary conference on April 28, 2006 at 9:30 A.M.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY

March 23, 2006

____________________________________

Hon. LEONARD B. AUSTIN, J.S.C.