Advanced Safety Systems NY, Inc. v. Manufacturers and Traders Trust Co.

• Decision Date: 30 December 1992
• Docket Number: No. 1,1
• Citation: 592 N.Y.S.2d 159,188 A.D.2d 1009
• Parties: ADVANCED SAFETY SYSTEMS NY, INC., and Jon E. DeYoung, Respondents-Appellants, v. MANUFACTURERS AND TRADERS TRUST COMPANY, Appellant-Respondent. Appeal
• Court: New York Supreme Court — Appellate Division

Page 159

592 N.Y.S.2d 159

188 A.D.2d 1009

ADVANCED SAFETY SYSTEMS NY, INC., and Jon E. DeYoung Respondents-Appellants, v. MANUFACTURERS AND TRADERS TRUST COMPANY Appellant-Respondent. Appeal No. 1.

Supreme Court, Appellate Division Fourth Department.

Dec. 30, 1992.

Hodgson, Russ, Andrews, Woods & Goodyear by Victor Fuzak, Buffalo, for appellant-respondent.

Zdarsky, Sawicki & Agostinelli by Joseph Zdarsky, Buffalo, for respondents-appellants.

Before DENMAN, P.J., and PINE, BALIO, FALLON and DAVIS, JJ.

MEMORANDUM:

Plaintiff Advanced Safety Systems NY, Inc. (ASSI) contracted with defendant Manufacturers and Traders Trust Company (M & T) for a $300,000 line of credit. Pursuant to the terms of a separate agreement, M & T was given a security interest in various forms of collateral including the proceeds of ASSI's accounts receivable held in a cash collateral account referred to as a Deposit Account. The security agreement permitted M & T to take control of the Deposit Account without notice "after the occurrence or existence of any Event of Default". Similarly, the line of credit agreement provided that it was subject to "suspension or termination at any time for any reason without prior notice to [ASSI]". Plaintiff Jon E. DeYoung, ASSI's president, also executed a personal guaranty that afforded M & T a right of set-off against his bank accounts in the event of ASSI's default.

Approximately one year after the parties entered into those agreements, after close of business on May 26, 1987, M & T vice-president Robert Smith orally demanded that ASSI pay its outstanding obligations in full. A postdated demand letter was mailed that evening and personally delivered to ASSI on May 27, 1987. The letter recited that M & T was exercising its rights of set-off against $66,471.56 in the Deposit Account because ASSI had failed to comply with its oral demand for immediate payment of the outstanding balance due on the line of credit of $129,001.34. ASSI was not advised of the nature of its default. DeYoung's personal account was also seized. ASSI was unable to meet its payroll and checks sent in payment to key suppliers were dishonored. Although ASSI satisfied the debt to M & T in a matter of months, it alleges that it has been unable to obtain adequate financing to run its business since M & T's action.

Alleging that M & T's actions were made in bad faith and for commercially unsound reasons, ASSI and DeYoung commenced this action seeking compensatory and punitive damages. Plaintiffs' complaint alleges eight causes of action based on theories of negligence, breach of a fiduciary duty, negligent misrepresentation, intentional interference with contractual rights, prima facie tort, and breach of the implied covenant of good faith and fair dealing. A cause of action is asserted on behalf of DeYoung individually for wrongful dishonor of checks written on his personal account.

Following joinder of issue, M & T moved to dismiss the complaint (see, CPLR 3211[a][7] and for summary judgment. Plaintiffs cross-moved to "supplement or amend" their bill of particulars or complaint "concerning allegations of wrongful dishonor of checks in plaintiffs' account". Supreme Court granted defendant's motion dismissing all but the seventh cause of action, founded upon M & T's alleged breach of the implied covenant of good faith and fair dealing. Plaintiffs' cross motion was denied. By separate order, plaintiffs' punitive damages claims were dismissed. Defendant appeals and plaintiffs cross-appeal.

Because we conclude that plaintiffs' claims against M & T are limited to breach of contract, Supreme Court properly dismissed plaintiffs' first, third, fourth and sixth causes of action sounding in tort (see, Sommer v. Federal Signal Corp., 79 N.Y.2d 540, 551-552, 583 N.Y.S.2d 957, 593 N.E.2d 1365; see also, Quail Ridge Assocs. v. Chemical Bank, 162 A.D.2d 917, 558 N.Y.S.2d 655, appeal dismissed 76 N.Y.2d 936, 563 N.Y.S.2d 64, 564 N.E.2d 674). Plaintiffs' second cause of action, although also based in tort, alleges that M & T's conduct was in derogation and reckless disregard of the good faith requirements of UCC 1-203. Supreme Court properly determined that such cause of action did not lie on the facts of this case (see, Gillman v. Chase Manhattan Bank, 73 N.Y.2d 1, 15, 537 N.Y.S.2d 787, 534 N.E.2d 824). In the...