Carver Fed. Sav. Bank v 3 Whale Sq., LLC (2012 NY Slip Op 51473(U))

The following papers numbered 1 to 7 read on this motion:Papers Numbered

Notice of Motion / Order and Judgment / Exhibits / Hood Affidavit / Exhibits

In this action, for collection on a Small Business Administration ("SBA") commercial loan and collateral securing such loan, plaintiff Carver Federal Savings Bank ("Carver"), successor by merger to Community Capital bank ("Community"), moves, pursuant to CPLR 3212, for summary judgment on its first cause of action, for breach of a promissory note against defendant 3 Whale Square, LLC ("3WS"), and seventh cause of action, for breach of an unconditional guaranty against defendants Michael Walby, Nancy Walby (collectively, the "Walbys"), Michael Savarese ("Savarese"), Anthony Rosvoglou ("Rosvoglou"), and V. Barile Inc. ("Barile").

On July 7, 2005, 3WS, by its Managing Member Michael Walby, signed a promissory note in favor of Community for a loan in the amount of $750,000.00. Pursuant to the note, 3WS was to make a principal and interest payment of $6,157.11 on the first calendar day of each month beginning two months from the date of the note. Upon the event of default, which occurs when 3WS "does not make a payment when due," Section 5 of the note specifies that:

Without notice or demand and without giving up any of its rights, Lender may:

C. File suit to obtain judgment

(emphasis added). The note contains a rider that states that 3WS "waives any presentment, demand, protest or notice of dishonor, non-payment or other default with respect to this Note,"^[FN1] but also provides, in the next paragraph, that "[a]ll notices hereunder shall be in writing and shall be deemed to have been sufficiently given or served for all purposes when delivered in person or sent by certified mail, return receipt requested, to any party hereto" (the "Notice Provision"). As collateral for the loan, 3WS executed a security agreement granting Community a security interest in all of the LLC's personal property, including, inter alia, its accounts, inventory, equipment, investment properties, and commercial tort claims.

Concurrent with execution of the note and security agreement, the Walbys, Savarese, Rosvoglou and Barile (collectively, the "Guarantors") executed an unconditional guaranty of payment under the note. Section 1 of the guaranty states that it "remains in effect until the Note is paid in full" and that "Lender is not required to seek payment from any other source before demanding payment from Guarantor[s]." At Section 6, the unconditional guaranty specifies that the Guarantors "waive all rights to . . . "[r]equire presentment, protest, or demand upon Borrower" and "waive[] any notice of . . . [a]ny default under the Note." Moreover, Section 11 states that the Guarantors "acknowledge[] that [they] have read and understand[] the significance of all terms of he Note and this Guarantee, including all waivers." Savarese and Rosvoglou (the "S & R Defendants") both claim that they "signed a lot of papers relating to the closing of the building but [*3]do not recall signing any papers relating to a personal guarantee of the business loan" and state that they acted under the direction of their attorney, Albert S. Tablante, Jr., Esq., who is now deceased. However, plaintiff has provided a notarized copy of the guaranty bearing the Guarantors' signatures, and the S & R Defendants do not challenge the validity of this document.^[FN2]

Plaintiff alleges that 3 Whale Square defaulted on the note by failing to make payments due on or after August 1, 2011. On September 1, 2011, Anthony G. Hood ("Hood"), Vice President of Carver, sent notice of default, via email, to Michael Walby, in his capacity as Managing Member of 3WS, stating that 3WS was in default on the note and demanding the August and September 2011 payments, plus late fees (the "Default Email"). The Default Email also asserted that "if this matter is not resolved amicably within seven (7) calendar days . . . Carver, without further notice, will accelerate the balance due on all credit facilities" and thereafter bring suit against 3WS and the Guarantors for recovery of the loan. While it does not appear, from the email printout that plaintiff provides, that any of the Guarantors, other than the Walbys, received the Default Email, Hood listed, at the end, the Walbys, Savarese, and Rosvoglou, as "Personal Guarantor[s]" and "C.c." recipients of the email. Defendants all deny having received the Default Email or any other notice of 3WS's default.

On October 25, 2011, plaintiff initiated this action, seeking, inter alia, damages for breach of the note and guaranty, replevin of 3WS's assets, and access to defendants' books and records. On December 20, 2012, 3WS, the Walbys, and Barile (collectively, the "Walby Defendants") interposed an answer admitting only that the note, guaranty, and security agreement were executed and asserting two affirmative defenses, which both state that plaintiff did not provide notice of default as specified in the rider to the note. On January 11, 2012, the S & R Defendants interposed an answer generally denying the complaint and raising nine affirmative defenses, which all consist of short pro forma contentions unsupported by factual allegations.

Plaintiff filed a motion for summary judgment on its first and seventh causes of action, for breach of the note and guaranty, respectively, on February 9, 2012. Plaintiff provides signed and notarized copies of the note and guaranty, along with an affidavit from Hood asserting the facts and circumstances of defendants' breach of the note and guaranty (the "Hood Affidavit"). In opposition, the S & R Defendants claim that they do not recall signing the guaranty or being informed that they would be personally liable, and all defendants argue that written notice of the default, delivered personally or by certified mail, was required under the note and that plaintiff failed to provide such service before declaring defendants to be in default. Defendants do not dispute that 3WS executed the note and defaulted on the loan. In reply, plaintiff contends that all defendants waived their right to notice of default under the note and the guaranty, that notice of default was nonetheless given to all defendants, and that the S & R Defendants must be bound by the guaranty by virtue of having [*4]signed the document.

Upon motion for summary judgment, the moving party has the initial burden to produce affidavits and documentary evidence sufficient to "warrant the court as a matter of law in directing judgment in [its] favor" (CPLR 3212 [b]; see Friends of Animals, Inc. v Associated Fur Mfrs., Inc., 46 NY2d 1065, 1067 [1979]). Once the movant establishes its prima facie entitlement to judgment, the burden shifts to the opposing parties to "demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action" (Zuckerman v City of New York, 49 NY2d 557, 560 [1980]; see CPLR 3212 [b]; Friends of Animals, Inc. v Assoc. Fur Mfrs., Inc., 46 NY2d 1065, 1067-68 [1974]). While all "facts must be viewed in the light most favorable to the non-moving party'" (Vega v Restani Constr. Corp., 18 NY3d 499, 503 [2012], quoting Ortiz v Varsity Holdings, LLC, 18 NY3d 335, 339 [2011]), mere conclusory allegations or defenses are insufficient to preclude summary judgment (see Zuckerman, 49 NY2d at 562).

To establish a prima facie case of breach of a promissory note, a plaintiff must demonstrate the existence of a note executed by the defendant, the unconditional terms of payment, and default by the defendant (see Famolaro v Crest Offset, Inc., 24 AD3d 604, 604 [2d Dept 2005]; MDJR Enters. v LaTorre, 268 AD2d 509, 509 [2d Dept 2000]; Layden v Boccio, 253 AD2d 540, 540 [2d Dept 1998]). Plaintiff has met its initial burden by providing a copy of the note, bearing Michael Walby's signature as 3WS's Managing Member and imposing an unconditional obligation upon the LLC to repay the principal and interest of the loan, and the Hood Affidvait, stating that 3WS has failed to tender all payments due on or after August 1, 2011. Therefore, the burden shifts to 3WS to present evidence raising a triable issue of fact that would prevent the Court from granting summary judgment.

In opposition, 3WS asserts that it never received notice of default and that the notice that plaintiff claims it sent is deficient under the terms of the note. Should notice be required to enforce the note, defendants are correct in asserting that the Default Email was deficient, because it was sent via email rather than personal delivery or certified mail, as specified in the rider to the note. However, under UCC 3-504 (b), notice of dishonor, where required to enforce a negotiable instrument, "is excused if (i) by the terms of the instrument notice of dishonor is not necessary to enforce the obligation of a party to pay the instrument, or (ii) the party whose obligation is being enforced waived notice of dishonor." Here, the note states that plaintiff may attempt to collect the remaining principal and interest of the loan and initiate suit "without notice," and the note and rider both contain an express waiver of notice of dishonor. While defendants rely on the Notice Provision, arguing that it contradicts these waiver clauses and mandates notice of default and an opportunity to cure prior to collection, the clear language of the note and rider evidences that the parties intended that such notice not be required (see Gerrity Co. v Padalino, 51 Misc 2d 928, 929 [Sup Ct, Albany County 1966]["[W]here the waiver [of notice of dishonor] is embodied in the instrument itself, it is binding upon all parties."]; see also Ashwood Capital, Inc. v OTG Mgt., Inc., __ AD3d __, 2012 NY Slip Op 05483, *4 [1st Dept 2012] [" [W]hen parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms.' We apply this rule with even greater force in commercial contracts negotiated at arm's length by sophisticated, counseled businesspeople."], quoting W.W.W. Assoc. v Giancontieri, 77 NY2d 157, 162 [1990]).

Furthermore, the Notice Provision, which defines proper service of "[a]ll notices hereunder" [*5]and appears immediately beneath the borrower's waiver of demand or notice of default, could only apply to Section 3 of the note, which requires the borrower to give written notice if it "prepays more than 20% [of the loan] and the Loan has been sold on the secondary market." Because the Notice Provision is applicable to specific circumstances described elsewhere in the note, it does not give rise to conflict or ambiguity when read in conjunction with the clear terms of the notice waiver clauses regarding default that appear more than once in the document (see Brad H. v City of New York, 17 NY3d 180, 185 [2011]["To determine whether a writing is unambiguous, language should not be read in isolation because the contract must be considered as a whole."]; W.W.W. Assoc., 77 NY2d at 163). Therefore, as 3WS waived any notice of default or dishonor, the deficiency of the Default Email is irrelevant. The cases that the Walby Defendants cite in support of their argument are inapposite, as they both involve promissory notes that specifically required notice (see Superior Fid. Assur., Ltd. v Schwartz, 69 AD3d 924, 925-26 [2d Dept 2010]; Ultimate Connection, Inc. v Friedfertig, 12 Misc 3d 1175[A], 2006 NY Slip Op 51236[U], *3 [Sup Ct, Nassau County 2006]). Because plaintiff has demonstrated its entitlement to judgment as a matter of law and 3WS has failed to raise a sufficient defense, plaintiff's motion for summary judgment on its first cause of action is granted. Plaintiff also requests summary judgment on its seventh cause of action against the Guarantors for breach of the unconditional guaranty. A signed guaranty of a note will be enforced pursuant to its unconditional terms (see Bartlett v Konner, 228 AD2d 532 [2d Dept 1996]; see also Famolaro, 24 AD3d at 604-05). Here, plaintiff provided a copy of the guaranty, signed by all of the individual Guarantors and Michael Walby as President of Barile and containing the certification of a notary public stating that the Guarantors personally appeared before her to execute the guaranty. The guaranty provides that the Guarantors are unconditionally liable in the event that 3WS defaults on the note and that the Guarantors waive any right to notice to themselves or to 3WS before seeking collection. Therefore, the Guarantors' defenses that they never received notice of 3WS's default and that 3WS was never properly notified are not sufficient to preclude summary judgment.

The S & R Defendants also state that they "signed a lot of papers relating to the closing of the building but do not recall signing any papers relating to a personal guarantee of the business loan" and further ascribe their actions at the closing to the "direction of the attorney" representing them in the transaction.^[FN3] The S & R Defendants do not claim, as plaintiff suggests, that their signatures on the guaranty were forged, but only that they have no memory of executing the specific document and never intended to be bound by it. Such ambiguous denials of having signed a personal guaranty or of having intended to be personally liable for repayment of a loan are insufficient to raise a triable issue of fact (see North Fork Bank Corp. v Graphic Forms Assoc., Inc. (36 AD3d 676, 676-77 [2d Dept 2007]; JPMorgan Chase Bank v Gamut-Mitchell, Inc., 27 AD3d 622, 623 [2d Dept 2006]).

Moreover, the S & R Defendants' suggestion that they should not be liable because their [*6]attorney directed them to sign the guaranty is wholly without merit, as a "party that signs a document is conclusively bound by its terms absent a valid excuse for having failed to read it" (Guerra v Astoria Generating Co., L.P., 8 AD3d 617, 618 [2d Dept 2004]; see Sofio v Hughes, 162 AD2d 518, 519 [2d Dept 1990]). It is not a sufficient excuse that the S & R Defendants chose to blindly trust the advice of counsel rather than read the guaranty, which clearly states that they will be personally liable for 3WS's loan and contains the title, in large print, "Unconditional Guarantee" (see Metzger v Aetna Ins. Co., 227 NY 411, 416 [1920]; Gillman v Chase Manhattan Bank, N.A., 135 AD2d 488, 491 [2d Dept 1987]). Therefore, Plaintiff's motion for summary judgment on its seventh cause of action is granted.

Accordingly, plaintiff's motion for summary judgment is granted in its entirety. Pursuant to the note, 3WS is liable to plaintiff for the current principal balance of the note, plus interest and late fees. Michael Walby, Nancy Walby, Savarese, Rosvoglou, and Barile are all liable, jointly and severally, for the same amount pursuant to the unconditional guaranty.

As plaintiff has waived attorney's fees and recovery on all other causes of action, and no challenge has been raised as to the sums demanded, the Court has entered judgment as requested.