General Motors Acceptance Corp. v. Kalkstein

• Decision Date: 17 April 1984
• Citation: 474 N.Y.S.2d 493,101 A.D.2d 102
• Parties: GENERAL MOTORS ACCEPTANCE CORPORATION, Plaintiff, v. Marvin KALKSTEIN and Bernice Kalkstein, Defendant. Marvin KALKSTEIN and Bernice Kalkstein, Third-Party Plaintiffs-Respondents, v. GENERAL MOTORS CORP., PONTIAC DIVISION, Third-Party Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 493

474 N.Y.S.2d 493

101 A.D.2d 102

GENERAL MOTORS ACCEPTANCE CORPORATION, Plaintiff, v. Marvin KALKSTEIN and Bernice Kalkstein, Defendant.

Marvin KALKSTEIN and Bernice Kalkstein, Third-Party Plaintiffs-Respondents, v. GENERAL MOTORS CORP., PONTIAC DIVISION, Third-Party

Defendant-Appellant.

Supreme Court, Appellate Division,

First Department.

April 17, 1984.

Barrington D. Parker, Jr., New York City, of counsel (Kim J. Landsman, New York City, and C. Dennis Davenport, with him on brief; Parker, Auspitz, Neesemann & Delehanty, P.C., New York City, and Elmer W. Johnson, attorneys), for third-party defendant-appellant.

Stuart F. Gartner, New York City, of counsel (Kenneth A. Bloom, New York City, with him on brief; O'Donnell, Fox, Gartner & Sobolewski, P.C., New York City, attorneys), for third-party plaintiffs-respondents.

Before MURPHY, P.J., and KUPFERMAN, SANDLER, MILONAS and ALEXANDER, JJ.

MURPHY, Presiding Justice:

Plaintiff General Motors Acceptance Corporation (GMAC) sues to recover $79,914.29 upon the written guaranty made by defendants Marvin and Bernice Kalkstein. The Kalksteins unconditionally guaranteed the performance and payment of the full indebtedness of Blair Pontiac, Inc. (Blair) to GMAC. Marvin was president of and owned all the stock in Blair; Bernice was an officer in Blair. The guaranty was executed by the Kalksteins in their individual capacities on August 7, 1979. Marvin, as president of Blair, signed a Dealer and Service Agreement ("the agreement") with General Motors Corporation, Pontiac Division (GM) on August 10, 1979.

The Falkstein's original third-party complaint against GM was dismissed by Justice Shainswit with leave to replead. Justice Shainswit found that the allegations of fraud had not been pleaded with sufficient detail (CPLR § 3016(b)). Thereafter, the Kalksteins served an amended third-party complaint which contained two causes of action. The first cause alleged that, if GMAC recovered on the action-in-chief, the Kalksteins were entitled to recover for the fraudulent conduct of GM set forth in the second cause. The Kalksteins charged under the second cause that GM's officials made various representations and promises to them that were never honored. The Kalksteins alleged, inter alia, that GM failed (i) to supply four to five "X body" cars each week; (ii) to remove "large body cars" which sold slowly and (iii) provide financial support.

As a result of this fraud and misrepresentation on GM's part, the Kalksteins maintained that they were personally damaged. They were induced to purchase a Pontiac dealership from Page Pontiac, Inc. (Page). Moreover, the Kalksteins stressed that they had (i) advanced over $300,000; (ii) guaranteed loans in excess of $200,000; (iii) devoted their full time and energy and (iv) incurred professional expenses, all on behalf of Blair. They sought (i) $750,000 in compensatory damages, (ii) $1,000,000 in lost profits, and (iii) $2,000,000 in punitive damages.

GM again moved to dismiss the amended third-party complaint under CPLR §§ 3211 and 3212 on the ground that the Kalksteins did not have legal capacity to sue. GM asserted that the two causes in the amended third-party complaint originally belonged to Blair. However, GM noted that Blair had made an assignment for the benefit of creditors on April 2, 1980. Thus, neither the Kalksteins nor Blair could assert any action for fraud or breach of contract. Justice Grossman found that he was bound by the "law of the case" since Justice Shainswit had previously ruled against GM on this point. He, therefore, denied the motion without prejudice to renewal upon completion of discovery.

At the outset, it should be noted that we may review this record without restriction. We are not bound by the "law of the case." (Klein v. Smegel, 44 A.D.2d 248, 354 N.Y.S.2d 117 aff. 36 N.Y.2d 809, 370 N.Y.S.2d 897, 331 N.E.2d 679). It should be further emphasized that GM's motion was made before issue was joined on the amended third-party complaint. Therefore, the branch of GM's motion which sought summary judgment must be denied as premature. (CPLR § 3212(a); Arlo Builders and Contractors, Inc. v. Chicken Koop, Inc., 78 A.D.2d 512, 432 N.Y.S.2d 2; Milk v. Gottschalk, 29 A.D.2d 698, 286 N.Y.S.2d 39). Upon the branch of the motion brought under CPLR § 3211, the allegations in the amended third-party complaint will be viewed most favorably to the Kalksteins to determine whether they have pled a valid basis for relief. The affidavit submitted by Marvin will be considered for purposes of remedying any defect in the third-party complaint (Rovello v. Orofino Realty Co., 40 N.Y.2d 633, 389 N.Y.S.2d 314, 357 N.E.2d 970).

In the amended third-party complaint, the Kalksteins do not specify the capacity in which they are suing. They do not allege that they are suing in their individual capacities as guarantors. Likewise, they do not aver that they are suing as corporate officers on behalf of the corporation. Marvin does not explicitly assert that he is suing as sole shareholder in Blair. In his affidavit, Marvin does claim that he was fraudulently induced by the wrongful conduct of GMAC and GM to buy Page. He also maintains that, once discovery is completed, he will show a "special duty" and a "personal service contract" between himself and GM. Because of this ambiguity in the amended third-party complaint and the supporting papers, each possible cause of action will be explored.

Generally, a creditor can not recover from a guarantor where the creditor has practiced any fraud to induce the guarantor to assume the obligation of guaranty (57 N.Y.Jur., Suretyship and Guaranty, § 97, p. 341; Weichert v. American National Bank and Trust Company, 39 A.D.2d 819, 333 N.Y.S.2d 94; First Citizens Bank & Trust Co. v. Sherman's Estate, 250 A.D. 339, 294 N.Y.S. 131). The leading case of Walcutt v. Clevite Corp., 13 N.Y.2d 48, 241 N.Y.S.2d 834, 191 N.E.2d 894) does not hold to the contrary. In Walcutt, the guarantor never alleged that he was induced to enter into his guaranty as a result of the creditor's misrepresentations. Therefore, the Court of Appeals disallowed the guarantor's defense based upon fraud. (Walcutt, supra, at 55, 241 N.Y.S.2d 834, 191 N.E.2d 894.)

In the amended third-party complaint, the Kalksteins inartistically allege that they were fraudulently induced into executing the guaranty by the misrepresentations of certain GM employees. Viewed most favorably to the Kalksteins, the amended third-party complaint thus states a meritorious cause of action in fraud. The Kalksteins thus have "standing" to bring the two causes predicated upon fraud.

If the amended third-party complaint is read in conjunction with Marvin's affidavit, it would seem that he is also attempting to allege, as an alternative cause, that GM breached a "personal service contract" with him--individually. Even though Marvin does not allege that he is the sole shareholder of Blair, that fact would seem to underlie this alternative claim for relief.

The documentary evidence indicates that Marvin signed the agreement with GM in his corporate capacity as president of Blair. That agreement can in no way be construed as a contract with him personally. Moreover, he may not sue GM simply because he is the sole shareholder of Blair. An individual shareholder has no right to bring an action in his own name and in his own behalf for a wrong committed against the corporation. (Fifty States Management Corporation v. Niagara Permanent Savings and Loan Association, 58 A.D.2d 177, 179, 396 N.Y.S.2d 925). Similarly, Marvin and his wife have no individual right to sue on Blair's behalf because they are officers in that corporation.

Even if it were assumed that the Kalksteins, individually, could sue GM on behalf of Blair, the amended third-party complaint would fail upon the evidence in this record. The documentary proof indicates that Blair made a general assignment for the benefit of creditors on April 2, 1980. Thus, Blair's own right of action, if any, has passed to the assignee. (Matter of Alfred Frank, Inc. [Melniker], 278 App.Div. 862, 104 N.Y.S.2d 735; 28 N.Y.Jur., Insolvency, § 26.) The Kalksteins, individually, may not advance a corporate cause that Blair has previously assigned.

Accordingly, the order of the Supreme Court, New York County (Grossman, J.), entered on July 11, 1983, which denied GM's entire motion to dismiss the third-party complaint pursuant to CPLR §§ 3211 and 3212, should be modified, on the law, by striking all claims from the complaint except the Kalksteins' individual claim based upon fraud to the extent to which they seek to recover from General Motors whatever amount they may be required in the main action to pay to General Motors Acceptance Corporation on their guaranty. As modified, the order should be affirmed, without costs.

Order, Supreme Court, New York County, entered on July 11, 1983, modified, on the law, by striking all claims from the complaint except the Kalksteins' individual claim based upon fraud to the extent to which they seek to recover from General Motors whatever amount they may be required in the main action to pay to General Motors Acceptance Corporation on their guaranty, and as modified, the order is affirmed, without costs and without disbursements.

All concur except MILONAS, J. who dissents in an Opinion.

MILONAS, Justice (dissenting).

The question here is whether guarantors may assert an independent cause of action belonging to their principal as a defense or counterclaim against a creditor on the principal contract when they are sued alone on the guarantee. The fact that in the instant matter, defendants have, as third-party plaintiffs, brought into the case General Motors Corporation, Pontiac Division, a subsidiary of plaintiff, as a third-party defendant does not alter the situation that what defendants Marvin and Bernice Kalkstein are attempting to do is allege fraud and...