Acute Corp. v Stewart

[*1] Acute Corp. v Stewart 2008 NY Slip Op 52346(U) [21 Misc 3d 1134(A)] Decided on November 24, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 November 24, 2008
Supreme Court, Kings County

Acute Corp., Plaintiff,

against

Nerita M. Stewart and Sultan Del Sewell, Defendants.



12881/08



Attorney for Plaintiff

Steven Apollo, Esq.

100 Park Avenue, Suite 1600

New York, NY 10017

Attorney for Defendant

Felix Ngati, Esq.

1203 Nostrand Ave.

Brooklyn, NY 11225

Carolyn E. Demarest, J.

Plaintiff Acute Corp. (Acute) moves pursuant to CPLR 3213 for an Order granting summary judgment against defendant Nerita M. Stewart for payment allegedly owed on a Promissory Note and against defendant Sultan Del Sewell on a Guaranty executed along with an Agreement of Sale.

Defendants cross-move "pursuant to CPLR 2215" for an Order denying plaintiff's summary judgment motion and ordering plaintiff to file and serve a summons and complaint in this matter. Defendants' cross-motion also requests an Order "granting summary judgment based on Quantum Meruit' on the amount paid by the defendant as of this date." For the reasons set forth below plaintiff's motion is granted and defendants' motion is denied.

On December 21, 2006 defendant Nerita M. Stewart and plaintiff entered into an Agreement of Sale (the "Agreement") whereby Ms. Stewart purchased from plaintiff's president, Gopesh Patel, a Hallmark Store known as Unique Cards and Gifts (the business or store). The purchase price of the business was $150,000. According to plaintiff, and paragraph 2 of the [*2]Agreement, Ms. Stewart paid $55,000 towards the purchase prior to closing but, as set forth in paragraph 2(c) of the Agreement, executed a Promissory Note dated December 21, 2006 (the "Note") in favor of plaintiff towards the balance of the purchase price which was $95,000. On the same date, defendant Del Sewell executed a personal guaranty of $95,000 on the Note (the "Guaranty").[FN1]

The Note specifies that, commencing on January 15, 2007, and continuing on the 15th day of every month until June 15, 2007, Stewart was to pay plaintiff $1,500 per month. From July 15, 2007 until December 15, 2009, Stewart was to pay $2,867.50 per month. The Note requires Stewart to pay all outstanding principal and any accrued interest by December 15, 2009. Plaintiff admits that Stewart has made the required $1,500 monthly payments from January 2007 through July 2007. However, plaintiff alleges that, in August 2007, Stewart made only a partial payment of $1,200 and has not made any other payments since that date. Plaintiff adds that on July 17, 2007, Stewart offered to pay the Note in full if plaintiff was willing to reduce the total amount owed by $10,000, but no formal written agreement was reached (Patel Reply Affidavit to Defendants' cross-motion ¶ 25). According to plaintiff, to date, Stewart has only paid a total of $11,700 towards the Note. Although the Note provides that a twenty-four percent (24%) interest rate will be charged on payments in default, plaintiff requests that the Court apply a sixteen percent (16%) interest rate if it grants plaintiff's motion.

Paragraph 3 of the Note allows plaintiff to accelerate maturity of the unpaid principal: The holder of the Note may declare the entire unpaid amount of principal and interest to be immediately due and payable if Maker defaults in the due and punctual payment of any installment of principal and if such default continues for a period of ten (10) days.

Similarly, the Guaranty, signed by defendant Del Sewell provides, in paragraph 2 that it is irrevocable and "may be proceeded upon immediately after failure by the Maker to pay any Obligations."

Paragraph 4 of the Note contains a waiver of notice provision which states that the: Maker, and all guarantors, endorsers and sureties of this Note, hereby waive presentment for payment, demand, protest, notice of protest, notice of nonpayment, notice of intention to accelerate maturity, notice of acceleration of maturity, and notice of dishonor of this Note. Maker and all guarantors, endorsers and sureties consent that the holder of this Note at any time may extend the time of payment of all or any part of the indebtedness secured hereby, or may grant any other indulgences.[*3]

Likewise, paragraph 3 of the Guaranty provides that the guarantor waives "notice of any demand for payment, notice of default or nonpayment as to any Obligations." Yet, despite these waiver of notice provisions, plaintiff's attorney David Halberstam, Esq.[FN2] wrote to Stewart by letter dated November 15, 2007 declaring the unpaid amount of principal and interest immediately due and payable. Defendant Del Sewell was copied on the letter. Plaintiff claims that no additional payments have been made on the Note since sending that letter and states that $83,300 remains outstanding on the Note.

It is not disputed that defendants signed the Note and Guaranty. Defendants also do not dispute that Stewart has failed to make payments on the Note since August 2007. Instead, defendants cross-move and attempt to assert claims of fraud and quantum meruit arguing that Acute's president, Gopesh Patel, took advantage of defendants as "young, new, inexperienced and naive business investors" by misrepresenting the store's expenses, annual sales and projected profits (Ngati Affidavit in support of the cross-motion ¶ 19). They also allege that Mr. Patel agreed to "help get lower rents from the landlord because he had been a tenant of the landlord for a long time." (Del Sewell and Stewart Affidavit in support of the cross-motion ¶ 9). Defendants claim that they relied on Mr. Patel's representations which fraudulently induced them into signing the Agreement, Note and Guaranty.

In reply, plaintiff's president, Gopesh Patel, asserts that he did not take advantage of defendants and could not have because they are not "young and new in business." In support of this contention he submits documentation evincing that Stewart owned, and Del Sewell took part in operating, two other businesses. In addition, Mr. Patel points out that defendants were represented by an attorney throughout the negotiations prior to closing.

Mr. Patel argues that he made no misrepresentations about the sales and profits of the business and he claims that defendants had full access to the store records prior to closing. Moreover, he adds that Stewart operated the store herself for approximately two weeks before the closing, during the height of the winter holiday season. During that time she also had access to the cash register log going back two or three years. Mr. Patel also states that he never promised to help defendants obtain lower rent from the landlord and, in fact, the closing was adjourned several times because defendants were trying to finalize the lease.

In support of his contention that he made no false or misleading representations to the defendants, Mr. Patel highlights paragraph 13 of the Agreement which states that: Purchaser acknowledges that neither Seller nor any representative or agent of Seller has made any representation or warranty (expressed or implied) regarding the Assets or business, or any matter or thing affecting or relating to this agreement, except as specifically set forth in this agreement. Purchaser has inspected the Assets, Purchaser agrees to take the Assets "as is" and in their present condition, subject to reasonable use, wear, tear and deterioration between now and the closing date. (emphasis added).

Moreover, the Court notes that paragraph 22 of the Agreement contains a merger clause which states: [*4] Entire Agreement. This agreement contains all of the terms agreed upon between Seller and Purchaser with respect to the subject matter hereof. This agreement has been entered into after full investigation.

Finally, paragraph 23 of the Agreement states that it cannot be altered or modified unless changes are in writing, signed by the party to be bound.

Discussion

A motion for Summary Judgment in Lieu of the Complaint is appropriate where "an action is based upon an instrument for the payment of money only" (CPLR 3213). A promissory note is designated as such an instrument if the movant establishes proof of the note and a failure to make payments as called for by its terms (Gateway State Bank v Shangri-La Private Club for Women, 113 AD2d 791 [2d Dept 1985]; Seaman-Andwall Corp. v Wright Mach. Corp., 31 AD2d 136, 137 [1st Dept 1968]).

In support of its motion, plaintiff has supplied the Court with fully signed and executed copies of the Agreement, Guaranty and Note at issue. Furthermore, Gopesh Patel, president of Acute, sets forth in his affidavit the relevant provisions of the Note which give rise to defendants' liability. Specifically, plaintiff has pointed to paragraph 3 of the Note which provides that: The holder of the Note may declare the entire unpaid amount of principal and interest to be immediately due and payable if Maker defaults in the due and punctual payment of any installment of principal and if such default continues for a period of ten (10) days.

Mr. Patel adds that since August 2007, Stewart has not made any payments due under the Note. Moreover, plaintiff notified defendant of her default by letter dated November 15, 2007 despite the provision in the Note in which plaintiff waives notice. In the letter, plaintiff's attorney explained to Stewart that she had been in default since August 2007. He also demanded, on behalf of his client, that Stewart immediately pay the balance due on the Note. No payments have been made since then. Plaintiff has provided ample evidence of defendants' default on the Note by way of Mr. Patel's affidavit, the November 15, 2007 letter, and the unambiguous terms of the Note itself. In addition, Stewart does not contest that she signed the Note or that she has defaulted on her payments. Therefore, the Court finds that plaintiff has met its burden on summary judgment as to the Note (See Gateway, 113 AD2d at 791-92; see also North Fork Bank & Trust Company v Holbrook, 89 AD2d 599, 599-600 [2d Dept 1982]).

A guaranty can also be the subject of a CPLR 3213 motion so long as the movant establishes that an absolute and unconditional guarantee of a note exists (Federal Deposit Ins. Corp. v Jacobs, 185 AD2d 913 [2d Dept 1992]). Here the Guaranty, signed by defendant Sultan Del Sewell, is unambiguous and specifically states that it is unconditional: The Guarantor does hereby unconditionally guaranty to the Lender the due and punctual payment of all principal and interest evidenced by the Note and all extensions, renewals or refinancings [sic] thereof, whenever due and payable, and all expenses of collection of the Note and of enforcement of the Guaranty, including reasonable attorneys' fees. (emphasis added).[*5]

Defendant Del Sewell does not dispute that he signed the Guaranty or that it is unconditional. Therefore, the Court finds that plaintiff has prima facie established its entitlement to summary judgment on the Guaranty as well because plaintiff has demonstrated that, by its own terms, the Guaranty is unconditional (See Federal Deposit Ins. Corp. v Jacobs, 185 AD2d at 913).

Once a prima facie entitlement to CPLR 3213 summary judgment has been established it is "incumbent on the defendant to come forward with proof of evidentiary facts showing the existence of a triable issue with respect to a bona fide defense" (Gateway, 113 AD2d at 792). The defendant must "avoid mere conclusory allegations and lay bare his or her proof" (Federal Deposit Ins. Corp. v Jacobs, 185 Ad2d at 913).

In Rudnick v Glendale Systems, 222 AD2d 572 (2d Dept 1995), plaintiff buyers entered into a contract to purchase a business from seller defendants. The plaintiffs gave defendants a promissory note towards the purchase price of the business. After making some payments under the note, plaintiff buyers defaulted and brought an action to rescind the agreement of sale claiming that they were fraudulently induced into entering the contract as a result of the seller's alleged false misrepresentations about the gross receipts of the business and the physical condition of the premises. Seller defendants moved and succeeded on their motion for summary judgment to dismiss the complaint.

The Appellate Division, Second Department upheld the lower court's decision finding that summary judgment was proper because the contract at issue in Rudnick contained a provision which disclaimed seller's representations about "the property's physical condition or the bakery's income, expenses, and operation." The contract also provided that the plaintiffs had examined the tangible assets and premises and agreed to purchase them as is.'" As a result, the Court held that "such clauses are sufficiently specific to bar the buyers from claiming that they were fraudulently induced into entering into the contract because of oral representations to the contrary." (Id. at 573). The Court also rejected "the buyers' contention that the facts allegedly misrepresented or not disclosed were peculiarly within the sellers' knowledge" because the buyers had the means available to discover the facts underlying any alleged misrepresentations. (Id.).

Similarly, in Platus Corp. Pension Plan v Nazareth, 271 AD2d 422 (2d Dept 2000), plaintiff moved for summary judgment on a promissory note the purchaser defendant signed to effectuate the purchase of a potato chip delivery route. Purchaser defendant argued that he was fraudulently induced into signing the note because the seller overestimated the gross revenues of the route. The Appellate Division, Second Department, found that defendant's defense of fraud failed to raise a triable issue of fact because purchaser defendant had all the relevant financial records available to him to assess the seller's estimation. (Id. at 423).

Defendants here submitted a joint affidavit in support of their cross-motion.[FN3] Similar to the arguments advanced by the makers in Rudnick and Platus, defendants' only opposition to the [*6]motion for summary judgment comes in the form of allegations that plaintiff's president took advantage of them as "young and new" business investors and fraudulently induced them into signing the Agreement, Note and Guaranty by misrepresenting the actual profits and sales of the business and misinforming them about the business expenses. However, defendants' allegations are insufficient to raise an issue of fact because paragraph 13 of the Agreement here, like the agreement in Rudnick, clearly states that plaintiff did not make any representations about the profits or condition of the business. Specifically, it reads: Purchaser acknowledges that neither Seller nor any representative or agent of Seller has made any representation or warranty (expressed or implied) regarding the Assets or business, or any matter or thing affecting or relating to this agreement, except as specifically set forth in this agreement. Purchaser has inspected the Assets, Purchaser agrees to take the Assets "as is" and in their present condition, subject to reasonable use, wear, tear and deterioration between now and the closing date. (emphasis added).

Therefore, as in Rudnick, defendant Stewart's reliance on the alleged misrepresentations regarding the sales and profits of the business cannot support her claim of fraudulent inducement because the Agreement of Sale, which she signed, contains a provision in which plaintiff specifically disclaims any and all representations relating to the business, particularly the assets which defendant explicitly agreed to take "as is."

In addition, defendants' own evidence in support of their opposition suggests that they were fully apprised of the profits and expenses of the business.

Defendants' attorney attached a spreadsheet to the motion papers that is not dated.[FN4] He alleges that the spreadsheet indicates a loss on the business of $15,600 while defendants themselves argue that the spreadsheet shows a loss of $16,300. Neither defendant explains how the spreadsheet gives rise to an issue of fact. Indeed, the only thing the spreadsheet does suggest is that defendants were fully apprised of the profits and expenses of the business prior to closing yet chose to enter into the Agreement despite their apprehensions. Moreover, plaintiff submits documents which suggest that Ms. Stewart was far from "young and new" in business but rather a seasoned business woman that could have easily ascertained the actual profits and sales of the business. Her personal financial statement, submitted by plaintiff, indicates that she was the owner of a separate business called JacsWebs.[FN5] Plaintiff also submits a Service Provider Application and Agreement which list Ms. Stewart as the president and CEO of JacsWebs. Ms. Stewart does not specifically dispute this allegation. Rather, she continually claims only that she [*7]was "young and new" in business. However, despite her alleged naivety with respect to business operations, Stewart was able to run the store for two weeks prior to the closing during the height of the winter holiday season. During this time she had full access to the store's cash register log going back three years. As president and CEO of another business, fully apprised of the financial stability of the business she was planning to purchase, with first-hand experience in operating it, Stewart, like the parties in Rudnick and Platus, was in a position to discover the facts underlying any alleged misrepresentations about the sales and profits of the business. She cannot claim that she was fraudulently induced into signing the Agreement and accompanying Note solely based on her conclusory allegations and an undated spreadsheet. (See Platus Corp. Pension Plan, 271 AD2d at 423; Rudnick, 222 Ad2d at 573). Therefore, there is no issue of fact with respect to a bona fide defense on the Note.

The same logic applies to the Guaranty. Defendant Del Sewell's only opposition to summary judgment is found in the joint affidavit he signed with Stewart in support of their cross-motion.[FN6] He makes no specific claims regarding the Guaranty and does not dispute that it is unconditional or that he signed it. The conclusory allegations that he was fraudulently induced to sign the Guaranty are insufficient to overcome summary judgment. (See Federal Deposit Ins. Corp. v Jacobs, 185 AD2d at 913 [upholding Supreme Court's grant of summary judgment in lieu of the complaint where defendants provided no evidentiary support for their conclusory claims of fraudulent inducement relating to a guaranty]).

Defendants also allege that they relied on plaintiff's alleged promise to "help [defendants] get lower rents from the landlord because he had been a tenant of the landlord for a long time." (Stewart and Del Sewell Affidavit in support of the cross-motion ¶ 9). However, this allegation is belied by the merger clause in the Agreement and paragraph 12 which provides: "Lease. Purchaser shall, prior to closing, negotiate a lease with the landlord of the business premises. At closing, Seller shall surrender its lease." These provisions suggest that it was purchaser's obligation under the Agreement to secure a lease and that no obligation, or even representation, by plaintiff to do anything more than "surrender its lease." In addition, plaintiff submits a fairly sophisticated letter dated December 11, 2006 from Stewart, addressed to the business broker in which Stewart requests numerous changes to the lease. Tellingly, in the closing paragraph of the letter Stewart states: To reiterate, as I'm sure you already know the highlight of this deal was to have possession by Saturday, December 9, 2006, which has already passed, in hopes of taking advantage of the holiday season. As time is of the essence and you have worked diligently in order to ultimately close this deal in an accelerated manner, I [*8]would appreciate your feed-back and/or the landlord's response/counter-offer as soon as possible. (Patel Reply Affidavit Exhibit C).

This language suggests that she was well aware that it was her obligation to secure the lease prior to closing. Furthermore, as discussed above, any allegations about the lease are legally insufficient to raise an issue of fact here because the Agreement specifically states that plaintiff disclaims oral representations regarding "any matter or thing affecting or relating to this agreement." (See generally Rudnick, 222 Ad2d at 573; see also Croman v Wacholder, 2 AD3d 140 [1st Dept 2003][finding that buyers who entered into a contract of sale for shares of stock could not rely on the alleged oral representations of seller that he would secure a lease in real property prior to closing where the contract stated only that seller would "execute" modifications to a commercial lease but disclaimed all other representations and contained a merger clause]). Therefore, defendants' bald allegations that they were fraudulently induced into executing the Agreement, Note and Guaranty through plaintiff's misrepresentations about the lease are insufficient to raise a triable issue of fact. (See generally, Federal Deposit Ins. Corp. v Jacobs, 185 AD2d at 913 [finding that defendants' conclusory assertions, unsupported by evidence that they were fraudulently induced into executing a guaranty was insufficient to overcome its burden summary judgment]).

Furthermore, assuming, arguendo, that defendants are trying to argue that securing the lease was a condition precedent to Agreement, this argument also fails because defendants do not sufficiently detail any alleged condition precedent but rather make bald and conclusory allegations that plaintiff agreed to secure lower rent for plaintiffs (See Abacus Real Estate Finance Co. v P.A.R. Constr. and Maintenance Corp., 115 AD2d 576 [2d Dept 1985][granting plaintiff's motion for summary judgment because defendant did not allege its condition precedent defense with sufficient detail but rather presented conclusory allegations]). Defendants have thus failed to raise any triable issues of fact with respect to a bona fide defense to plaintiff's motion. Plaintiff's summary judgment motion is granted. Defendants are joint and severally liable for any outstanding payments due on the Note.

Defendants cross-move seeking an Order "[g]ranting summary judgment based on "Quantum Meruit." "[I]f defendant's claim is not as clear and liquidated as one based on a judgment or instrument, it should not be interposable in response to a CPLR 3213 motion" (Siegel, Practice Commentaries, McKinney's Cons Law of NY, Book 7B, CPLR 3213:17). Thus, unless a counterclaim is a defense to the main claim, summary judgment on an instrument should be granted, regardless of whether the counterclaim arises out of the same transaction as the main claim (Harris v Miller, 136 Ad2d 603 [2d Dept 1988]).

In this case defendants make no allegations whatsoever to support their supposed claim for quantum meruit. They fail to even allege that they have made any payments toward the Note and do not specify the basis for their quantum meruit claim. Accordingly, defendants' alleged claim for quantum meruit does not affect the Court's holding on plaintiff's motion for summary judgment. Where counterclaims are pled in opposition to a motion for summary judgment in lieu of the complaint that has been granted, the proper procedure is to sever those claims to be formally pled and separately litigated (Harris, 136 AD2d at 604-605). Therefore, that part of defendants' cross-motion which requests summary judgment based on quantum meruit is severed [*9]from the instant action. Plaintiffs are free to pursue their quantum meruit claim by formally pleading the counter-claim in a complaint to be served and filed within 30 days of the date of this Decision and Order. The failure to so plead will result in dismissal of the counterclaim (See Harris, 136 AD2d at 604-605). Defendants' cross-motion is otherwise denied.

Plaintiff requests attorney's fees in this case. Plaintiff is entitled to recover reasonable attorney's fees because paragraph 1 of the Guaranty provides that the guarantor, in this case Del Sewell, guarantees payment of any attorney's fees sought in connection with the collection of the Note or enforcement of the Guaranty. However, the reasonableness of the fees can only be determined upon evidence of the fair value of the services rendered. Therefore, a hearing is scheduled for January 20, 2009, to determine whether the attorney's fees requested by plaintiff are reasonable (CIT Group/ Equipment Financing, Inc. v Riddle, 31 AD3d 477, 478 [2d Dept 2006]; National Bank of North America v Arthur R. Smith Mechanical Corp., 74 AD2d 600 [2d Dept 1980]; Federal Deposit Ins. Corp. v RGB Int. Property, Inc., 214 AD2d 603, 604 [2d Dept 1995]).

Plaintiff also requests that the Court sanction defendants for presenting bald allegations and misrepresentations of fact. Pursuant to 22 NYCRR §130-1.1, a court may award sanctions, in its discretion, for actual expenses reasonably incurred and reasonable attorney's fees, resulting from frivolous conduct. However, since plaintiff will recover reasonable legal fees incurred as a result of defendants' litigation of this matter, this court declines to grant sanctions.

Finally, the Note provides that interest may be charged on default payments: In the event any payment due hereunder shall not be paid on the date when due, and if such default continues for a period of ten (10) days, such payment shall bear interest at the rate of twenty-four percent (24%) per annum, from the date when such payment was due until paid.

Plaintiff requests only that a rate of sixteen percent (16%) be applied to any payments in default. Plaintiff alleges that there is $83,300 due and owing on the Note and that Stewart is in default from September 1, 2007 because her last payment under the Note was made in August 2007. Therefore, plaintiff is entitled to interest at a rate of sixteen (16%) on the $83,300 from September 1, 2007 until entry of judgment and nine percent (9%) interest thereafter.

Conclusion

Plaintiff's motion is granted. Defendants' cross-motion is denied. That portion of defendants' motion which requests judgment based on quantum meruit is severed, defendants are free to formally plead the quantum meruit claim within 30 days of the date of this Order. This case is adjourned to January 20, 2009. This constitutes the decision and order of the Court.

E N T E R,

________________________

Hon. Carolyn E. Demarest

J.S.C. Footnotes

Footnote 1:On December 21, 2006 Stewart and Acute Corp. also entered into a Security Agreement. Paragraph 2(c) of the Agreement incorporates the promissory note and security agreement into the Agreement by specifying that, prior to closing, Stewart was to execute a promissory note and security agreement "substantially in the form of" exhibits "A" and "B," respectively. The Note is marked as Exhibit A and the Security Agreement is marked as Exhibit B. The Guaranty is marked as Exhibit B-2. All three documents are attached as separate exhibits to plaintiff's motion.

Footnote 2:Mr. Halberstam is also designated as the Escrow Agent in paragraph 16 of the Agreement.

Footnote 3:Instead of filing opposition to plaintiff's motion for summary judgment, plaintiff cross-moved for quantum meruit and for an Order denying plaintiff's motion. Therefore, the Court will treat the affidavits submitted in support of that cross-motion as opposition to the motion for summary judgment and will address that portion of the motion requesting judgment based on quantum meruit later in this decision.

Footnote 4:Affidavits in support of summary judgment must be made by a person with actual knowledge of the facts; attorney affirmations are normally without evidentiary value (Zuckerman v City of New York, 49 NY2d 557, 563 [1980]). However, supporting proof submitted by way of an attorney's affidavit may be considered (Olan v Farrell Lines Incorporated, 64 NY 1092, 1093 [1985]). Therefore, the Court may consider the import of the documents attached to the attorney's affirmation in support of the cross-motion.

Footnote 5:Plaintiff's president also alleges in his reply affidavit that Ms. Stewart owned a Blimpie's restaurant.

Footnote 6:A hand-printed barely legible note (the note is also not dated and not signed by either defendant) is also attached to the cross-motion. Littered with doodles, it reads, in totality: "Mr. Gopesh, I knew you are a man of your word. My family really needs this and I want to make sure everything is okay because I am nervous. My mortgage is $25,000 per year alone." Defendants' attorney claims that Del Sewell wrote this note to Mr. Patel to express his concern that the profits of the store would not be enough to cover defendants' mortgage payments. However, defendants themselves barely alude to the note in their own affidavit and certainty do not elaborate on how it indicates that they were fraudulently induced into signing the Agreement, Note and Guaranty.