Supreme Court of the State of New York, Appellate Division, Fourth Judicial Department

Decided on July 24, 2026

36 CA 25-00052

Present: Lindley, J.P., Bannister, Ogden, Nowak, And Delconte, JJ.

Appeal from a judgment of the Supreme Court, Ontario County (Brian D. Dennis, A.J.), entered December 27, 2024, in a breach of contract action. The judgment awarded plaintiff money damages.

[*1]

It is hereby ORDERED that the judgment so appealed from is vacated and the order entered November 13, 2024 is modified on the law by denying the motion in part with respect to the second cause of action, and as modified the order is affirmed without costs.

Memorandum: Plaintiff commenced this action following the alleged breach of a revenue purchase agreement (agreement) between plaintiff and defendants, Defiant Arms L.L.C. (Defiant Arms) and Dwayne Edmond Favors. Pursuant to the agreement, plaintiff advanced certain funds to Defiant Arms in exchange for 15% of Defiant Arms's weekly receivables (weekly receivables), and Favors agreed to guaranty Defiant Arms's performance under the agreement. The agreement allowed for plaintiff to withdraw the weekly payment via an ACH (automated clearing house) transaction.

Plaintiff alleged that Defiant Arms ceased remitting payment and intentionally impeded plaintiff from withdrawing the weekly receivables. Plaintiff further alleged that Favors, as guarantor, was responsible for all amounts owed to plaintiff as a result of any breach by Defiant Arms. Plaintiff moved for summary judgment on the complaint, alleging that defendants breached the agreement. Defendants opposed and filed a cross-motion to dismiss the complaint pursuant to CPLR 3211 (a) (1) and (a) (7), arguing that the contract was void for illegality and that the agreement was procured by fraud. Defendants further argued that, at a minimum, the complaint should be dismissed against Favors because he did not guarantee Defiant Arms's payments under the agreement. In an order, Supreme Court granted plaintiff's motion and denied defendants' cross-motion. Defendants appeal from the ensuing judgment entered in favor of plaintiff against them, jointly and severally, for the amount of $25,502.30, plus costs and disbursements.

Defendants contend that the agreement is void because it is not a revenue purchase agreement but rather a usurious loan and that the court therefore erred in granting plaintiff's motion and denying their cross-motion. We reject that contention. "In determining whether a transaction constitutes a loan, courts must determine whether the plaintiff is absolutely entitled to repayment under all circumstances; [u]nless a principal sum advanced is repayable absolutely, the transaction is not a loan" (Samson MCA LLC v Joseph A. Russo M.D. P.C./IV Therapeutics PLLC [appeal No. 2], 219 AD3d 1126, 1127 [4th Dept 2023] [internal quotation marks omitted]). "Usually, courts weigh three factors when determining whether repayment is absolute [*2]or contingent: (1) whether there is a reconciliation provision in the agreement; (2) whether the agreement has a finite term; and (3) whether there is any recourse should the merchant declare bankruptcy" (LG Funding, LLC v United Senior Props. of Olathe, LLC, 181 AD3d 664, 666 [2d Dept 2020]; see Samson MCA LLC, 219 AD3d at 1128; Principis Capital, LLC v I Do, Inc., 201 AD3d 752, 754 [2d Dept 2022]).

Here, there is a reconciliation provision in the agreement, entitled "Changes to the Weekly Payment." There is no definite term in the agreement. Indeed, the agreement provides that there is no "payment schedule and no time period during which the Purchased Amount must be collected by Purchaser." The agreement also provides that a "[s]eller going bankrupt or going out of business, in and of itself, does not constitute a breach of this [a]greement" (see Samson MCA LLC, 219 AD3d at 1128).

We further conclude that the court properly granted the motion with respect to the breach of contract cause of action against Defiant Arms. To prevail on a breach of contract claim, a plaintiff must prove that "(1) a contract exists . . . ; (2) plaintiff performed in accordance with the contract . . . ; (3) defendant breached its contractual obligations . . . ; and (4) defendant's breach resulted in damages" (34-06 73, LLC v Seneca Ins. Co., 39 NY3d 44, 52 [2022]; see Bridge Funding Cap LLC v SimonExpress Pizza, LLC [appeal No. 2], 240 AD3d 1186, 1189 [4th Dept 2025]). Plaintiff met its burden on its motion of establishing a breach of contract by Defiant Arms (see WM. Schutt & Assoc. Eng'g & Land Surveying P.C. v St. Bonaventure Univ., 151 AD3d 1634, 1635 [4th Dept 2017], amended on rearg 153 AD3d 1676 [4th Dept 2017]; see generally Bridge Funding Cap LLC, 240 AD3d at 1190). Here, plaintiff's manager specifically alleged that a couple of months after executing the agreement, plaintiff was denied access to the account by Defiant Arms and was, consequently, deprived of the weekly receivables. In opposition, defendants failed to raise an issue of fact with respect to Defiant Arms's breach (see WM. Schutt & Assoc. Eng'g & Land Surveying P.C., 151 AD3d at 1635).

We agree with defendants, however, that plaintiff failed to meet its burden with respect to its second cause of action against Favors. Plaintiff's initial submission relied primarily on the theory that Defiant Arms's breach of the agreement's payment provisions automatically triggered Favors's purported obligation to guaranty payment under the agreement. The agreement, however, limits Favors's obligations only to those identified as Guaranteed Obligations, i.e., not all performance obligations of Defiant Arms. Failure to make such showing requires "denial of the motion, regardless of the sufficiency of the opposing papers" (Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]). The court therefore erred in denying the motion with respect to the second cause of action, and thus we vacate the judgment and modify the order accordingly.

We have reviewed defendants' remaining contention and conclude that it lacks merit.

All concur except Nowak and DelConte, JJ., who dissent and vote to modify in accordance with the following memorandum: While we agree with the majority that plaintiff failed to meet its burden on its motion with respect to the second cause of action against Favors, we disagree with the majority's conclusion that plaintiff met its prima facie burden of establishing entitlement to judgment as a matter of law on its first cause of action. Even if plaintiff met that burden, however, we agree with defendants that they raised issues of fact with respect to whether defendants breached the agreement, and whether the agreement is void as a usurious loan. Inasmuch as we would vacate the judgment and modify the order by denying the motion in its entirety, we respectfully dissent.

As the majority notes, on October 13, 2023, plaintiff purports to have purchased 15% of Defiant Arms's weekly receivables (weekly payment) in exchange for an up-front payment to Defiant Arms. Under the express terms of the agreement, Defiant Arms was required to: (1) deposit its receivables into only one bank account; and (2) authorize plaintiff to withdraw an amount up to the weekly payment by automated clearing house (ACH) debits. Defiant Arms would be in default under the terms of the agreement if it "intentionally interferes with [plaintiff's] right to collect the [w]eekly [p]ayment in violation of th[e] Agreement."

To meet its burden on the motion with respect to the breach of contract cause of action, [*3]plaintiff was required to establish that Defiant Arms failed to deposit its receivables into the designated bank account, withdrew funds from that account such that plaintiff is unable to collect its weekly payment, canceled plaintiff's authorization to access that account by ACH debit, or otherwise "intentionally interfere[d]" with the process. It is not enough for plaintiff to simply allege that funds were not collected in a given week. Notably, in support of its motion, plaintiff attached no records whatsoever for the designated bank account from which plaintiff made its ACH debits. Rather, it submitted two bank statements from other, unrelated accounts owned by Defiant Arms. The conclusory allegation of plaintiff's manager that plaintiff was denied access to the designated account on December 13, 2023, without any documentary support or explanation of how access was denied—whether intentional or not—is insufficient to meet plaintiff's burden with respect to the first cause of action.

Even assuming, arguendo, that plaintiff met its burden on the motion with respect to the first cause of action, we conclude that defendants raised issues of fact in opposition. Defiant Arms's owner affirmed that on December 6, 2023—one week before the alleged default—he learned that either plaintiff or another lender set up a fraudulent PayPal account connected to the designated bank account, and as a result, the bank froze the designated bank account with a "fraud hold." Thus, defendants presented an issue of fact as to whether Defiant Arms, as opposed to plaintiff, the bank or another third party, deprived plaintiff of its ability to make its weekly ACH debit. Defendants additionally raised an issue of fact as to whether plaintiff improperly denied Defiant Arms the opportunity to reduce its weekly payment through the agreement's reconciliation provision.

Finally, we conclude that defendants raised an issue of fact whether the agreement was a usurious loan as opposed to a purchase of accounts receivable (see Kapitus Servicing, Inc. v Ragtime Gourmet Corp./Joe-Le Holding Corp., 242 AD3d 638, 638 [1st Dept 2025]). Given the totality of the circumstances (see generally id. at 638-639); including "the selection of [weekly] payment rates that did not appear to represent a good faith estimate of receivables . . . and provisions authorizing [plaintiff] to collect on the personal guaranty in the event of [the] business's inability to pay or bankruptcy" (Davis v Richmond Capital Group, LLC, 194 AD3d 516, 517 [1st Dept 2021]), we conclude that there are triable issues of fact which prevent summary judgment.

Entered: July 24, 2026

Ann Dillon Flynn

Clerk of the Court