By notice of motion filed on March 17, 2011, under motion sequence number one, plaintiff, Herschmann & Nova, (hereinafter H & N) has moved pursuant to CPLR 3212 for summary judgment against defendant, Qiao-Xian Zhang (hereinafter Zhang) on the issue of liability and for damages in the amount of $61,738.99, plus attorney's fees, based on a guarantee agreement. Zhang opposes the motion. Co-defendant USA Diamond Window, Inc., (hereinafter UDW) has not appeared in the instant action.

The complaint alleges the following salient facts. H & N owns a parcel of real property located at 47-00 76th Street, Elmhurts, New York (hereinafter "the subject premise"). On April 1, 2006, H & N entered into a ten year lease agreement with UDW for the subject premise. Zhang signed the lease agreement as president of UDW. Zhang also signed a separate agreement with H & N guaranteeing UDW's performance under the lease until its termination or until UDW's surrender of possession to H & N. Paragraph 42 of the rider to the lease provides for a monthly rent of $13,112.72 for the period of January through March 2010 and $13,506.11 for the period of April 2010 through March 2011. UDW stopped paying rent after December 2009 and surrendered the premise on April 30, 2010.

H & N's motion papers consists of an affirmation of its counsel, an affidavit of Donna Shore, the manager of real property located at 47-00 76th Street, Elmhurst, New York (hereinafter the subject premises); and four annexed exhibits labeled A through D. Exhibit A is the instant summons and complaint. Exhibit B is Zhang's verified answer. Exhibit C is the lease between H & N and UDW for the subject premise. Exhibit D is the guarantee agreement by Zhang with H & N by which Zhang guaranteed UDW's performance of its obligations under the lease.

Zhang submitted an affirmation of counsel in opposition to the motion.

H & N submitted an affirmation of its counsel in reply to Zhang's opposition.

H & N and Zhang do not dispute the following facts. H & N entered into a ten year lease agreement with UDW for the subject premise. Zhang signed the lease agreement as president of UDW and also signed a separate agreement which guaranteed UDW's obligations under the lease. The guarantee was limited to the accrued obligations of UDW prior to the termination of the lease or prior to UDW's surrender of possession of the subject premises. UDW surrendered the premise on April 30, 2010. UDW's monthly rent obligation was $13,112.72 from January through March 2010 and $13,506.11 from April 2011 to March 20102. UDW stopped paying rent after December 2009. The lease provided for payment as additional rent for water bills, real estate escalations and late fees of six percent for any rent or additional rent more than 10 days past due. The total accrued unpaid rent until the date of surrender was $52,844.27, not including additional rent.

It is well established that summary judgment may be granted only when it is clear that no triable issue of fact exists (Alvarez v. Prospect Hospital, 68 NY2d 320, 501 N.E.2d 572 [1986]). The burden is upon the moving party to make a prima facie showing that he or she is entitled to summary judgment as a matter of law by presenting evidence in admissible form demonstrating the absence of any material facts (Giuffrida v. Citibank, 100 NY2d 72, 790 N.E.2d 772 [2003]). A failure to make that showing requires the denial of that summary judgment motion, regardless of the adequacy of the opposing papers (Ayotte v. Gervasio, 81 NY2d 923 619 N.E.2d 400 [*3][1993]). If a prima facie showing has been made, the burden shifts to opposing party to produce evidentiary proof sufficient to establish the existence of material issues of fact (Alvarez v. Prospect Hospital, 68 NY2d at 324).

A contract will be interpreted in accordance with the intent of the parties as expressed in the language of the agreement (Johnston v. MGM Emerald Enterprises, Inc.,69 AD3d 674, 893 N.Y.S.2d 176 [2d 2010], citing Greenfield v. Philles Records, 98 NY2d 562, 569, 750 N.Y.S.2d 565 [2002]). A written agreement that is complete, clear, and unambiguous on its face must be enforced according to the plain meaning of its terms (Johnston v. MGM Emerald Enterprises, Inc.,69 AD3d 674, 893 N.Y.S.2d 176 [2d 2010] citing South Rd. Assoc., LLC v. International Bus. Machs. Corp., 4 NY3d 272, 277, 793 N.Y.S.2d 835 [2005]).

A guaranty is to be interpreted in the strictest manner- particularly in favor of a private guarantor and cannot be altered without the guarantor's consent. Accordingly, a guarantor can not be bound beyond the express terms of his guarantee. (See, 665-75 Eleventh Ave. Realty Corp., 265 AD2d at 271).

"Where ... a creditor seeks summary judgment upon a written guaranty, the creditor need prove no more than an absolute and unconditional guaranty, the underlying debt, and the guarantor's failure to perform under the guarantee," (Kensington House Company v. Oram, 293 AD2d 304, 305 [1d 2002], see also, Superior Fidelity Assurance, Ltd., v. Schwartz, 69 AD3d 924, 925 [2d 2010] ).

The legal relationship between landlord and tenant with regard to the security deposit has changed—where once the landlord was thought of as a debtor who owed tenant a debt, now the landlord acts as a trustee and "owes a duty not to commingle the deposit with his own funds." (LeRoy v. Sayers, 217 AD2d 63, 68 [1d 1995], quoting Matter of Perfection Tech. Servs. Press, 22 AD2d 352, 356 [2d 1965], aff'd 18 NY2d 644 [1966]).

Section 7-103 of the General Obligations Law provides in pertinent part that:

Whenever money shall be deposited or advanced on a contract or license agreement for the use or rental of real property as security for performance of the contract or agreement or to be applied to payments upon such contract or agreement when due, such money, with interest accruing thereon, if any, until repaid or so applied, shall continue to be the money of the person making such deposit or advance and shall be held in trust by the person with whom such deposit or advance shall be made and shall not be mingled with the personal moneys or become an asset of the person receiving the same."

"As a general rule, the debtor has the right to specify to which debt he wishes a payment to be applied. In the absence of such a designation, the creditor may make it. When neither the debtor nor the creditor makes such an application, the court will make it as equity and justice require (see Camp v. Smith, 136 NY 187, 201[1892]), and, usually, the funds will be applied to the debts in the order of time in which they stand in the account (see Carson v. Federal Reserve Bank of NY, 254 NY 218, 232 [1930]; Foss v Riordan, 84 NYS2d 224 [1947], affd 273 App Div 982 [2d 1948], mot for lv to app dsmd 298 NY 509 [1948])" (Beyer Bros. of Long Is. Corp. v. Kowalevich, 89 AD2d 1005, 1006, 454 N.Y.S.2d 444, 445 [2d 1982]).

Paragraph 32 of the lease between H & N and UDW contains the following language:

"Tenant has deposited with Owner the sum of $48,000.00 as security for the faithful performance and observance by tenant of the terms, provisions and conditions of this lease. It is agreed that in the event tenant defaults in respect of any of the terms, provisions and conditions of this lease, including, but not limited to, the payment of rent and additional rent, owner may [*4]use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent ...."

At the time Zhang signed the lease, he also signed a separate limited guarantee agreement (exhibit D to the instant motion) which contained the following language:

"FOR VALUE RECEIVED and in consideration for, and as a material inducement to HERSCHMANN AND NOVA, as landlord, to enter into that certain lease (the "Lease") dated as of April 1, 2006, with USA Diamond Window, Inc., as tenant, for the premises 47-00 76th Street, Elmhurst, New York, the undersigned jointly and severally guarantees to landlord and landlord's successors and/or assigns, the full performance and payment of all rent and additional rent payable under the lease, and as provided in said lease, and all costs of collection of same including reasonable attorneys fees...

Guarantors shall be released from all liability with respect to any obligations of tenant under the lease arising or accruing after the surrender date, but guarantors shall be and shall remain liable pursuant to the terms of this guaranty (I) for all obligations for all rent and additional rent of tenant which arose or accrued on or prior to the surrender date..."

H & N contends that Zhang owes $52,844.27 in back rent, $3,170.66 in late fees and $5,724.06 in real estate escalations for a total of $61,738.99, plus legal fees.

Zhang concedes that he is personally liable for all of UDW's obligation to H & N that accrued on or before April 30, 2010. Zhang paid H & N the $48,000.00 security deposit referenced in paragraph 32 of the lease. In accordance with Section 7-103 of the General Obligations Law, the security deposit belongs to Zhang and H & N must hold the funds in trust for him unless Zhang has agreed to another arrangement.

Zhang contends that the $48,000.00 security deposit should be applied against the unpaid rent of $52,844.27, leaving a balance due of $4,844.27. He calculates his obligation for late fees to be 6% of this reduced amount or $290.66. He concedes that he is liable for reasonable attorney's fees, however, he denies receiving any notice of a real estate escalation and therefore claims no responsibility for the $5,724.06 asserted by H & N.

Turning to H & N's supporting papers the court notes the following. The affirmation of H & N's counsel does not assert a basis for counsel's personal knowledge of the underlying facts and transactions and therefore has no probative value (see Feratovic v. Lun Wah, Inc., 284 AD2d 368 [2001]). The affidavit of Donna Shore, the manager of the subject premise, relies in part on H & N's business records which she did not annex. The complaint is verified by H & N's counsel and therefore may not serve as an affidavit pursuant to CPLR 105(u).

The issue to be resolved is whether the amount of Zhang's obligation to H & N can be determined without the necessity of a trial. There is no dispute that the total amount of rent arrears before computing additional rent is $52,844.27. Inasmuch as this figure has not been paid, the addition of a late fee in the amount of $3,170.66 (6% of $52,844.27) is appropriate for a total due of $56,014.92. However, there is no documentary evidence supporting H & N's claim for unpaid real estate tax escalations in the amount of $5,724.06. Nor is there a claim that H & N made a demand to either UDW or Zhang to pay this amount. Whether Zhang is liable for this amount must be left to the trier of fact.

According to the express terms of the lease, the owner may use, apply or retain the whole or any part of the security to the extent required for the payment of any rent and additional rent, or any other sum as to which tenant is in default. By agreeing to this term UDW and Zhang left it up to H & N to apply the security deposit to rent, additional rent and other specific categories [*5]of costs occasioned by UDW's breach as H & N saw fit. However, the same language limits the type of costs to which the security deposit may be applied against.

In order to keep the security deposit, H & N must show qualifying debt by UDW above and beyond the charges for which Zhang is responsible for. If there isn't any such debt, then the security deposit should be applied to Zhang's obligations to H & N.

UDW has not appeared in the action and H & N has not moved to enter a default against UDW. Although H & N conceded that UDW surrendered the premises on April 30, 2010, the circumstances surrounding the surrender are not explained in the moving papers. The court cannot find at this stage that UDW's obligations to H & N exceed the amount that Zhang is obligated to pay pursuant to his guarantee. Therefore, the issue of whether the security deposit must be applied to Zhang's obligation to H & N is, at this point, premature.

Pursuant to CPLR 3212, the court grants H & N partial summary judgment against Zhang on the issue of liability. Zhang is liable to H & N for UDW's obligations that accrued prior to April 30, 2010, and for an amount for reasonable attorney's fees. The attorney's fees are to be determined in an ancillary proceeding after the resolution of all other damages.

The court grants partial summary judgment to H & N on the issue of damages to the extent that Zhang owes H & N $56,014.92 for rent arrears.

The issues remaining for the trier of fact are whether Zhang owes H & N $5,724.06 for real estate tax escalations, and whether H & N must apply all or part of the $48,000.00 security deposit to Zhang's obligation.

The foregoing constitutes the decision and order of this Court

Enter:

J.S.C.

Enter Forthwith:____________________________

J.S.C.