HSBC Bank USA v Dollar Bill Boutique, Inc.

[*1] HSBC Bank USA v Dollar Bill Boutique, Inc. 2008 NY Slip Op 52553(U) [21 Misc 3d 1148(A)] Decided on December 22, 2008 Supreme Court, Kings County Demarest, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 22, 2008
Supreme Court, Kings County

HSBC Bank USA, National Association, Plaintiff,

against

Dollar Bill Boutique, Inc. and Nordia Binns, Defendant.



5282/08



Attorney for Plaintiff:

Platzer, Swergold, Karlin, Levine

Goldberg & Jaslow, LLP

1065 Avenue of the Americas, 18th Floor

New York, NY 10018

Attorney for Defendant:

Robert Melamed, Esq.

1502 Kings Highway

Brooklyn, NY 11229

Carolyn E. Demarest, J.

Plaintiff, HSBC Bank, USA ("HSBC") moves for default judgment pursuant to CPLR § 3215 (a), as against defendant Dollar Bill Boutique, Inc. ("Dollar Bill"), and summary judgment pursuant to CPLR § 3212 (b), as against the defendant Nordia Binns ("Binns"), as personal guarantor for Dollar Bill in the total amount of $156,800.50 plus interest, attorney's fees, costs and expenses. In addition to denying the substantive allegations of the complaint, Binns raises the affirmative defense that through its loan agent, HSBC committed fraud in the preparation of defendants' loan application and misrepresented facts regarding the guarantor's obligations.

BACKGROUND

HSBC is a national bank with branches all over New York City. Dollar Bill is a fashion boutique in Brooklyn that specializes in discount clothing, shoes and accessories. Binns is an officer and sole owner of Dollar Bill. [*2]

On or about May 24, 2005, Binns applied for a Business Revolving Line of Credit ("BRLOC") with HSBC to finance her new business. In signing the application, Binns expressly acknowledged that she would guarantee the loans and the receipt of the Business Lending Agreement ("Agreement"), which further described her obligations as guarantor. HSBC approved the loan on May 27, 2005 for $50,000. On June 2, 2005, HSBC reiterated its approval and advised that a "prepayment premium equal to 2.80% of the outstanding balance" would be due if the account was cancelled within the first year. Defendant was advised that actual advances on the line of credit could be obtained by telephone.

On March 15, 2006, Binns extended the BRLOC to $75,000 and subsequently signed an Unlimited Continuing Guaranty for the line of credit on March 21, 2006. On June 23, 2006, Binns extended the BRLOC to $100,000, and executed another Unlimited Continuing Guaranty dated June 23, 2006, notarized on August 3, 2006.

On September 1, 2007, Dollar Bill defaulted on the loan. On January 25, 2008, via Federal Express and certified mail, HSBC notified Dollar Bill and Binns of the default and demanded payment. HSBC commenced this action on February 4, 2008. Dollar Bill failed to reply to the summons and complaint, and HSBC has moved for default judgment against Dollar Bill pursuant to CPLR § 3215 (a), and for summary judgment against Binns pursuant to CPLR § 3212 (b).

Binns alleges that the HSBC representative was negligent, committed fraud, and misrepresented facts. In support of her allegation, Binns claims that she filled in only her name and corporate information on the application for the BRLOC and the HSBC representative filled in the remainder of the required information, which Binns alleges is erroneous. Furthermore, Binns alleges that HSBC's representative fraudulently represented Dollar Bill as a three-year-old corporation, earning $300,000 in gross sales the year prior, and owning assets in the form of equipment in the amount of $200,000. Binns further alleges that the application also fraudulently indicates that the defendant's net worth was $200,000.

DISCUSSION

CPLR 3215 (a) states, "when a defendant has failed to appear, plead or proceed to trial of an action reached and called for trial, or when the court orders a dismissal for any other neglect to proceed, the plaintiff may seek a default judgment against him". Dollar Bill failed to appear or answer HSBC's complaint. Accordingly, due to HSBC's service of process and Dollar Bill's failure to respond to the summons and complaint, HSBC's motion for default judgment is granted (see Platinum RX, LLC v Pose, 31 AD3d 522 [2nd Dept 2006]). However, because it is not possible to ascertain from the complaint and moving papers, whether the initial BRLOC balance of $49, 148.64 is subsumed in the "LOC" balance of $99,891.17, and no documentation has been proffered regarding the actual sums borrowed (indeed, plaintiff fails to annex even the statements of account upon which it relies), an inquest will be necessary to determine the damages.

As to guarantor Binns, summary judgment is appropriate when no genuine issue of material fact exists on the record. The moving party has the burden to demonstrate a prima facie case, and only then may summary judgment be granted(see Ferrante v American Lung Ass'n., 90 NY2d 623 [1997]; GTF Marketing, Inc. v Colonial Aluminum Sales, Inc., 66 NY2d 965 [1985]). When a prima facie case has been shown, to defeat the motion, the opposing party then carries the burden to present a disputed fact that must be tried before a fact finder. "The motion shall be [*3]granted if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party. . . . [T]he motion shall be denied if any party shall show facts sufficient to require a trial of any issue of fact" (CPLR 3212 [b]). Mere conclusory allegations or defenses are insufficient to preclude summary judgment absent evidentiary substantiation (see Kornfeld v NRX Technologies, Inc., 62 NY2d 686, 687 688 [1984]; Columbus Trust Co. v Campolo, 110 AD2d 616, 617 [2d Dept 1985], aff'd, 66 NY2d 701 [1985]; GTE Sylvania, Inc. v Jupiter Supply Co., 51 AD2d 993 [2d Dept 1976]). Because summary judgment would deny the opposing party an opportunity to present a case, all evidence must be weighed in the light most favorable to the opposing party(see AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 5 NY3d 582 [2005]; Negri v Stop and Shop, 65 NY2d 625 [1985]).

In support of its claim against Binns as the guarantor of Dollar Bill's debt, plaintiff has provided numerous, uncontested documents. The affidavit of Edward M. Bellaire, vice president of HSBC bank, asserts that HSBC extended to Dollar Bill a line of credit upon which it defaulted thereby rendering Binns liable to HSBC for the full disputed amount of $156,800.50. HSBC has provided the Business Lending Agreement attached to the original Application Binns completed on May 24, 2005. Plaintiff has also provided the General Security and Business Line of Credit Agreements that Binns signed on March 15, 2006 and June 23, 2006, and the letters of approval sent to Binns on May 27, 2005 and June 2, 2005. Also annexed to the moving papers are the Unlimited Continuing Guaranties datedMarch 15, 2005 and June 23, 2006, nota rized March 21, 2006 and August 3, 2006, and the notice of default sent to Dollar Bill and to Binns on January 25, 2008, by Federal Express and certified mail.Defendant Binns has not raised any issue regarding the authenticity of the documents themselves or challenged, in her Affidavit in Opposition, the sum of the loans alleged to have been extended to her corporation.

On the Application, the sub-heading "OWNERS & GUARANTORS" is spelled out in bold, capital, white letters against a black text box, next to which the proclamation, "All owners and partners must sign as a guarantor," is written in white, bold, lower case letters against the same black box. Although Binns claims that the HSBC agent filled out the section under this sub-heading, Binns nonetheless was obligated to review the contract before she signed it (see Pimpinello v Swift & Co., 253 NY 159, 162 [1930]). Binns, as president (or "vice president" as noted on the application) of a small business corporation, would have been negligent not to have read, at a minimum, such glaring text (see Pimpinello v Swift & Co., 253 NY at 162). Even if Binns failed to read the full text of the Application, the provision above her signature, in bold, black, capital letters stated,"EACH PERSON SIGNING BELOW PERSONALLY GUARANTIES ALL OF THE INDEBTEDNESS INCURRED ON ANY BRLOC, LOC, RCTL OR LOAN YOU MAKE AVAILABLE TO THE BUSINESS EVEN THOUGH A TITLE MAY BE INCLUDED BELOW ANY NAME." The fact that she may have been only 21 years old, undertaking her first business enterprise, does not relieve her of her legal duties in executing a contract. She cannot now invalidate a contract to which, in hindsight, she should not have agreed; nor can her defense, that she should never have been qualified for the loan, shield her from liability.

Furthermore, in the Unlimited Continuing Guaranties that Binns signed on March 15, 2006 and on June 23, 2006, the word "GUARANTOR" appeared in the same section as [*4]defendant's name and personal address. The very first paragraph, Paragraph 1 (a), stated "Guarantor hereby unconditionally guarantees the full and prompt payment to BANK when due, whether by acceleration or otherwise, of any and all Indebtedness (as hereinafter defined) of Dollar Bill Boutique, Inc. (Debtor) to BANK." Indeed, Paragraph 3 (a) states, "This Guaranty is and is intended to be a continuing guaranty of payment of the Indebtedness . . . to BANK." Subsection (b) states,

"[t]his Guaranty is absolute and unconditional and shall not be changed or affected by any representation, oral agreement, act or thing whatsoever, except as herein provided. This Guaranty is intended by Guarantor to be the final, complete and exclusive expression of the agreement between Guarantor and BANK. Guarantor expressly disclaims any reliance on any course of dealing or usage of trade or oral representation of BANK including, without limitation, representations to make loans to Debtor or enter into any other agreement with Debtor or Guarantor."

Finally, under Paragraph 4, entitled "Certain Rights and Obligations," subsection (b) stated, "If any default shall be made in the payment of any Indebtedness, Guarantor hereby agrees to pay the same in full (I) without deduction by reason of any setoff, defense or counterclaim of Debtor . . . (iv) without requiring BANK to resort first to Debtor." The documents HSBC submitted substantiate its claim that Binns is the personal guarantor of Dollar Bill's indebtedness and owes to HSBC any sums due from Dollar Bill. Therefore, HSBC has presented a prima facie case for breach of contract (see Korea First Bank of NY v Noah Enters., 12 AD3d 321, 322 [1st Dept 2004], citing Interman Indus. Prods. v R. S. M. Electron Power, 37 NY2d 151, 154 155 [1975]; European Am. Bank v Syosset Autorama, 204 AD2d 266 [2d Dept 1994]). Because HSBC has met its burden on its motion for summary judgment, the burden shifts to Binns to raise a triable issue of fact.

Binns has argued that she did not believe she was signing the personal guaranty in her personal capacity, but as president of her company. In PNC Capital Recovery v Mechanical Parking Systems, Inc., 283 AD2d 268, 270 271 [1st Dept 2001], the court noted: "an interpretation that [an individual defendant] signed the Guaranty solely in his capacity as president of the corporation would compel the illogical conclusion that the purpose of the Guaranty was to provide that in case of [the corporate defendant's] default, the company would guaranty its own indebtedness, rendering the entire Guaranty meaningless." Such reasoning applies equally to the case here (see Two Guys from Harrison-N. Y. v S.F.R. Realty Assocs., 63 NY2d 396, 403 [1984] ("In construing a contract, one of a court's goals is to avoid an interpretation that would leave contractual clauses meaningless")).

Moreover, Binns' actual intent is irrelevant to the manifestation of her objective intent to enter into the agreement, which her signature evidenced. Judge Learned Hand explained that profession of contradictory intent is not sufficient to override a physical manifestation of assent, when he wrote [a] contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes upon them, he would still be held, [*5]unless there were some mutual mistake, or something else of the sort. (See Mencher v Weiss, 306 NY 1, 7 8 [1953], citing Hotchkiss v National City Bank of New York, 200 F 287, 293, aff'd, 201 F 664, aff'd 231 US 50 [1913]). Binns' claim, that she thought she was signing in her corporate capacity, is without effect because her signature is sufficient manifestation of her assent to the provisions in the contract. Her claim that she did not intend to personally guarantee the BRLOC contradicts the express provisions of the personal guaranty to which she agreed in several separate documents and cannot prevail over the express written agreement (see Mencher, 306 NY at 7 8; Hotchkiss, 200 F at 293). Any other conclusion would countenance the retrospective invalidation of duly-executed contracts, thus undermining the integrity of all contracts.

A defendant cannot invalidate a contract based merely on her failure to accurately, sufficiently, or comprehensively read its terms (see Sofio v Hughes, 162 AD2d 518 [2d Dept 1990]; Florence v Merchants Cent. Alarm Co., 51 NY2d 793 [1980]; Pimpinello, 253 NY at 162 ("the signer of a deed or other instrument . . . is conclusively bound thereby. That his mind never gave assent to the terms expressed is not material. If the signer could read the instrument, not to have read it was gross negligence; if he could not read it, not to procure it to be read was equally negligent; in either case the writing binds him")). In paragraph six of her affidavit in opposition, Binns conceded that she failed to review the application except for the signature pages. This concession supports HSBC's argument that Binns was negligent not to have read the entire document. Her negligence does not relieve her of the obligation she undertook in signing the guaranty, which induced plaintiff to advance the sums loaned.

Binns has asserted the affirmative defense of fraud and misrepresentation alleging that HSBC's representative filled out the application fraudulently, and that HSBC's agent fraudulently induced her to sign the personal guaranty of the loan. However, in New York, corporate officers may not raise a defense of fraudulent inducement when the guarantee states that it is absolute and unconditional, and includes a general merger provision (see Citibank, 66 NY2d 90, 92 [1985] ("[f]raud in the inducement of a guarantee by corporate officers of the corporation's indebtedness is not a defense to an action on the guarantee when the guarantee recites that it is absolute and unconditional irrespective of any lack of validity or enforceability of the guarantee")).

The application stated that Dollar Bill was three years old, had $300,000 in gross sales the prior fiscal year, and maintained $200,000 of assets in equipment. It also stated that Binns' net worth was $200,000. Binns contests the accuracy of these representations stating that Dollar Bill was not even six months old, had accumulated no sales, and did not have any assets in equipment as it was a new corporation. Binns, probably correctly, asserts that, but for the erroneous statements contained in the application, which inflated the assets, gross profits and age of Dollar Bill, HSBC would never have approved the BRLOC. But Binns cannot avoid responsibility under the personal guaranty when she signed the application containing facts she knew to be inaccurate without any review of the application. Although allegations of fraud in situations where the fraud is alleged to have induced the defendant's assent to a contract would bar summary judgment, in this case, the allegedly fraudulent information, which Binns claimed was inaccurate, could not have induced her to sign the guaranty. Rather, such information only compelled the bank's approval, of which Binns cannot now be heard to complain since she accepted the funds on more than one occasion (see First Nat'l State Bank v Irving Trust Co., 91 [*6]AD2d 543, 544 [1st Dept 1982], aff'd, 59 NY2d 991 [1983] ("[h]owever limited may be the duty to probe the truthfulness of a representation, there can be no liability in fraud where the complaining party is, in advance, fully knowledgeable and apprised of those matters as to which the representations are alleged to have deceived")). Binns' allegations of fraud are insufficient to raise a genuine issue of fact so as to preclude a grant of summary judgment (see Kornfeld v NRX Technologies, Inc., 62 NY2d 686, 688 [1984]).

In support of her argument that fraudulent inducement is a valid defense, Binns cites First National Bank v Fazzari, 10 NY2d 394 [1969] and Fleming v Ponziani, 24 NY2d 105 [1969]. However, her reliance on those two cases is misplaced. In First National, the defendant signed a promissory note, but could not read or write the English language and he could not therefore understand the promissory note. Nonetheless, the court found that the defendant was negligent in failing to ask his literate wife to read the promissory note to him, a finding concurred in by the Court of Appeals notwithstanding its determination to relieve defendant of liability to the bank based upon notice given of the infirmity of the instrument (Id. at 397 398). Nowhere did Binns claim she suffered any impediment to her ascertaining the content of the guaranty.

Fleming was a personal injury suit in which plaintiff had signed a release for the benefit of his friend, the defendant auto-owner, which defendant presented to him fifteen days after a serious car accident, while plaintiff was lying in the hospital, arguably in violation of the Penal Law provision at the time (Fleming, 24 NY2d at 107). Plaintiff received no consideration, except for the dollar bill defendant left on his bed, but relinquished all claims. In contrast, Binns received lines of credit for her corporation which she affirmatively undertook to personally guaranty. Clearly the Fleming case is inapposite to the case at bar.

Plaintiff has met its burden to demonstrate its right to judgment on liability as a matter of law and defendant has failed to identify any factual dispute warranting trial except as to damages. HSBC's motion for summary judgment is granted as to liability only.

CONCLUSION

Accordingly, it is ,

ORDERED that HSBC 's motion for default judgment against defendant Dollar Bill is granted; and it is further

ORDERED that HSBC's motion for summary judgment against defendant Binns is granted as to liability. An inquest as to damages as to both defendants will be held in which the defendant Binns is entitled to participate. Parties are directed to appear in Commercial Division I at 10 AM on Wednesday, February 11, 2009.

The foregoing constitutes the decision and order of the Court.

ENTER:

J.S.C.