By lease dated December 20, 2004, Bank leased a Braun Washer Extractor 450lb. Machine ("extractor") to Newtex Inc. ("Newtex").

By lease dated December 20, 2004, Bank leased two Airspeed Towel Folders S/N 43/1199053 and 47/980004 ("folders") to Newtex.

To secure Bank's interest in the extractor and folders, Bank filed a UCC-1 financing statement with the New York State Department of State.

Paragraph 15 of the extractor lease and folders lease provide that lessee will be in default if the lessee fails to make monthly payments or if the lessee files a petition in bankruptcy.

Newtex is in default under the leases in that it has failed to make the monthly lease payments since May 1, 2005. Newtex is also in default in that, on October 20, 2005, it filed a petition for reorganization in the United States Bankruptcy Court for the Southern District of New York.

On December 20, 2004, Im signed a guarantee pursuant to which he guaranteed Newtex' obligations under the terms of the folders and extractor leases. The co-Defendants, who are not the subject of this motion, also guaranteed Newtex' obligations on the lease. Although Bank alleges that the co-Defendants have been served and are in default, Bank has not made an application to enter a default judgment against them.

The only affirmative defense Im pleads in his answer is that he was fraudulently induced into executing the guarantee.

Both the leases and the guarantees provide that they are to be interpreted in accordance with the laws of the State of California.

New York will enforce contractual choice of law provisions provided that the law of the jurisdiction selected bears a reasonable relationship to the agreement and the law selected does not violate fundamental public policy of the State of New York. Welsbach Electric Corp. v. Mastec North America, Inc., 23 AD3d 639 (2nd Dept. 2005); and Culbert v. Rols Capital Co., 184 AD2d 612 (2nd Dept. 1992).

The choice of law provisions bear a reasonable relationship to the agreement. Bank of the West is located in Walnut Creek, California.

Neither party asserts that interpreting the lease and guaranty in accordance with [*2]California law would violate a fundamental public policy of New York. The Court, in its research, has found that to be the case.

A grant of summary judgment is appropriate where there are no issues of material fact, and the moving party is entitled to judgment as a matter of law. Snyder v. United States Fidelity & Guaranty Co., 60 Cal.App.4th 561 (1st Dist. 1997); and Nymark v. Heart Federal Savings & Loan Assoc., 231 Cal.App.3d 1089 (3rd Dist. 1991). See, California Code of Civil Procedure §437.

The party moving for summary judgment must establish all the essential elements of the cause of action. Snyder v. United States Fidelity & Guaranty Co., supra.

The party moving for summary judgment has the burden of establishing that there are not triable issues of fact and that he is entitled to judgment as a matter of law. Lugtu v. California Highway Patrol, 24 Cal 4th 703 (2001). If the party seeking summary judgment has established all of the essential elements of the cause of action, the burden then shifts to the party opposing the motion to establish through specific facts the existence of material issues of fact. Id.

"A surety or guarantor is one who promises to answer for the debt, default or miscarriage of another, or hypothecates property as security therefor." Cal. Civil Code §2787. "A suretyship obligation is to be deemed unconditional unless its terms import some condition precedent to the liability of the surety." Cal. Civil Code §2806.

Each guaranty in question is a continuing guaranty covering present and future indebtedness. They do not contain any conditions precedent to the liability of the surety. Im waived any defenses, rights or protections available under the provisions of California Civil Code §§2787-2855. Im also waived any right of subrogation or reimbursement against Newtex until the full amount due on the leases has been paid (Moving papers, Continuing Guarantee of Indebtedness, ¶5).

The only affirmative defense in Im's answer is fraud in the inducement. Im does not oppose this motion on this basis. From a reading of the opposition papers, Im appears to have abandoned this defense.

Im's first defense to the motion involves an assertion that Bank's action have prejudiced the interests of the guarantors. See, Conner v. Conner, 76 Cal.App.4th 646 (2d Dist. 1999). This defense is premised upon California Civil Code §2819. See, Id. This defense may be, and has been, waived. See, Cal. Civil Code §2865(a)(1)^[FN1]. Thus, to the extent Im's opposition to the motion is premised upon actions of Bank which prejudice his ability obtain reimbursement, subrogation, indemnification or contribution from Newtex, such defense has been waived by the explicit terms of the guaranty.

Im's next defense is premised upon California Uniform Commercial Code §3605(e). This section is inapplicable to this action. This section is part of Division 3 of the California Uniform Commercial Code. Division 3 of the California Uniform Commercial Code applies to negotiable instruments. See, California Uniform Commercial Code §3102(a). The agreements upon which [*3]Bank sues in this action are leases (California Uniform Commercial Code§10103[10]) and guarantees (California Civil Code §2787);, not negotiable instruments.^[FN2] The defense created by California Uniform Commercial Code §3605(e) is available only to guarantors of instruments. See, American Security Bank v. Hunter, 151 Cal. App.3d 874 (4th Dist. 1984). See also, Official Comments on Uniform Commercial Code §3-605(5). Thus, §3-605 does not provide Im with a defense to this action.

A surety who assumes the obligations for payment is liable immediately upon the principal's default. California Civil Code §2807. Upon default of the principal, the creditor may maintain an action against the surety without having to make any effort to collect from the principal. ITT Diversified Credit Corp. v. Highlands Ins. Co. of Houston, Texas, 191 Cal. App.3d 301 (1st Dist. 1987); and Impac Imported Parts & Accessories Corp. v. Rattray, 95 Cal. App.3d 792 (4th Dist. 1979).

Newtex, the principal, defaulted by failing to make the monthly lease payment due in September 2005 and by filing a petition in bankruptcy.

The obligations of the surety may not be larger in amount than the liability of the principal. California Civil Code §2809. Thus, Bank cannot recover from Im more than is presently owed by Newtex. In this case, it is unclear whether Plaintiff has recovered any amount in the Newtex bankruptcy. Im's liability would be reduced by any amounts Bank has recovered or will recover in the bankruptcy proceeding.

The amount Bank seeks as damages is not in accordance with either the leases or the applicable statutes. Under California law, upon default of the lessee as to goods accepted by the lessee and not repossessed or tendered to the lessor, lessor may recover from lessee, upon lessee's default, the accrued unpaid rent as of the date of the entry of the judgment, the present value of remaining rental payment, any incidental damages allowed under California Uniform Commercial Code §10530, less any expenses saved as a result of lessee's default. California Uniform Commercial Code §10529(a)(1). The calculation of damages contained in the motion papers is not in accordance with the statute in that it seeks only the September 2005 payment and the present value of the remaining payments as of September 1, 2005. [*4]

Paragraph 16 of the extractor and folders leases gives Bank alternative remedies in the event of lessee's default. Bank has the option upon default of the lessee to (1) use self-help or any other lawful remedy to take possession of the item; (2) sell or otherwise dispose of the item in a commercially reasonable manner; (3) terminate the lease as to the equipment upon notice to the lessee; or (4) recover from the lessee the amounts then due and owing plus the (i) the stipulated value of the equipment upon payment of which, lessee will acquire lessor's interest in the property, (ii) if lessor has sold the item, the difference between the stipulated sales price and the net sales price

or (iii) if lessor has not sold the equipment, the amount set by law using an 8% discount rate or (5) any other remedy available at law or in equity.

Bank has chosen option to recover the amount due and owing plus the present value of the remaining lease payments calculated using an 8% discount rate. Thus, Bank is entitled to recover the amount of the unpaid rent as of the date of the entry of the judgment, plus the present value of the remaining lease payments using an 8% discount rate. A hearing is required to determine these amounts.

Bank also seeks attorney's fees. Paragraph 8 of the guaranty provides the guarantor will pay attorney's fee should Bank be required to incur any costs or expenses to enforce the guaranty.

The prevailing party may recover attorney's fees if the contract upon which the action is based specifically provides for such recovery. See, California Civil Code §1717(a). The amount of the legal fees to be awarded to the prevailing party are determined by the nature of the services rendered and are a question of fact to be determined by the trial court. See, Scott v. Travelodge Corp., 265 Cal.App.2d 881 (5th Dist. 1968). A hearing is required to determine the legal fees Plaintiff is entitled to recover.

The agreement also provides for interest at the rate of 18% from the date of default. Therefore, interest shall be at this rate from the date of default to the date of the entry of judgment.

Accordingly, it is,

ORDERED, that Plaintiff's motion for summary judgment is granted on the issue of liability and the matter is set down for a hearing before Special Referee Thomas V. Dana on April 18, 2007 at 10:00 a.m. to determine the amount due on the guaranty and the reasonable legal fees due to Plaintiff's attorney: and it is further,

ORDERED, that Plaintiff's attorney shall serve and file a Note of Issue and Certificate of Readiness and pay the appropriate fees on or before March 16, 2007; and it is further,

ORDERED, that the County Clerk is directed to enter a judgment in favor of the Plaintiff Bank of the West and against Defendant Wan Su Im in the amount determined by the Special Referee as due under the leases with interest at the rate of 18% per annum from September 1, 2005 through the date of entry of judgment, reasonable legal fees as determined by the Special Referee and costs and disbursements as taxed by the Clerk; and it is further,

ORDERED, that the actions against the Defendants Moon Mo Choung, Man Sik Ryoo and Choon Sik Kim are hereby severed and continued.

This constitutes the decision and Order of the Court. [*5]

Dated: Mineola, NY__________________________

February 20, 2007Hon. Leonard B. Austin, J.S.C.