Weissman v. Sinorm Deli, Inc.

• Decision Date: 11 June 1996
• Citation: Weissman v. Sinorm Deli, Inc., 88 N.Y.2d 437, 646 N.Y.S.2d 308, 669 N.E.2d 242 (N.Y. 1996)
• Parties: , 669 N.E.2d 242 Mark WEISSMAN, Respondent, v. SINORM DELI, INC., Defendant, and Richard A. Cummings et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 308

646 N.Y.S.2d 308

88 N.Y.2d 437, 669 N.E.2d 242

Mark WEISSMAN, Respondent, v. SINORM DELI, INC., Defendant and Richard A. Cummings et al., Appellants.

Court of Appeals of New York.

June 11, 1996.

Tressler, Soderstrom, Maloney & Priess, New York City (Donald M. Bernstein, of counsel), for appellants.

Capell & Vishnick, Lake Success (Bernard Vishnick and Alan Roger Pollack, of counsel), for respondent.

OPINION OF THE COURT

KAYE, Chief Judge.

Two questions lie at the heart of this appeal. First, is the indemnification sued on an "instrument for the payment of money only" within CPLR 3213? Second, is the indemnification a guaranty by the individual defendants of the corporation's obligation? We answer both questions in the negative: the individual defendants' indemnification is neither "an instrument for the payment of money only" within CPLR 3213 nor a guaranty. The summary remedy is therefore not available to plaintiff, and indeed summary judgment should be granted against him dismissing his action against the individual defendants.

Prior to March 5, 1992, plaintiff and the five individual defendants constituted all of the shareholders of Sinorm Deli, Inc., a New York corporation. To resolve irreconcilable differences among them, Sinorm agreed to buy out plaintiff's one-quarter interest in the corporation. The transaction was set out in a stock agreement dated March 5, 1992 with Sinorm as buyer, plaintiff as seller and the individual defendants as the remaining shareholders.

The purchase price was $250,000 to be paid by the corporation as follows: $50,000 at the closing in exchange for plaintiff's shares, and a $200,000 promissory note with interest of 7% per year to be paid in monthly installments. The installments were to be $1,667.67 per month for 36 consecutive months, then $2,500 per month until December 5, 2002, and a final payment of $1,696 on January 5, 2003.

The stock agreement further provided that the note was collateralized by an agreement which granted plaintiff a purchase-money first security interest in Sinorm's assets; an assignment to plaintiff of Sinorm's lease; and a sublease between plaintiff as sublandlord and the corporation as subtenant. The lease and the assignment were to be deposited in escrow with plaintiff's attorneys under a written escrow receipt. Sinorm represented in the stock agreement that until full payment of the note was made it would not without plaintiff's written consent take any action which "will or might impair [its] obligations" under the stock agreement, including transferring, selling, assigning or encumbering any of its assets or properties.

The stock agreement also contained both default and indemnification provisions. Under the default provision, failure to make the monthly installment payment, after a 10-day cure period, allowed the holder of the note to call it due in its entirety. The indemnification provision (art. 10.1 of the stock agreement) stated:

"Buyer's Indemnification. Buyer and the Remaining Shareholders shall indemnify and hold Seller, his heirs, successors and assigns, harmless from and against all costs, losses, claims, taxes, liabilities, fines, penalties, damages and expenses (including any interest and court costs imposed in connection therewith and reasonable fees and disbursements of counsel) incurred by any of them in connection with any breach of any of the representations, warranties, covenants or agreements made by Buyer in this Agreement as well as all liabilities and obligations accruing from 7/23/91 and thereafter.

"Seller's Indemnification. Seller shall indemnify the Buyer and the Remaining Shareholders, their heirs, successors and assigns safe and harmless from and against any and all unpaid corporate taxes not reflected on Buyer's books and records up to and including July 31, 1991 to the extent of twenty-five (25%) percent of any assessment required to be paid by Buyer in excess of the taxes previously paid by the Buyer."

A separate indemnification agreement mirroring the indemnification language of the buyer's indemnification was also signed by the parties at closing. During the closing, the last lines of the buyer's indemnification--reading "as well as all liabilities and obligations accruing from 7/23/91 and thereafter"--were handwritten into article 10.1 and the indemnification agreement. At the closing, the contract was executed, the corporation paid the $50,000 and it delivered Sinorm's $200,000 note.

Promptly after Sinorm's default on the note installment due November 5, 1993, plaintiff moved under CPLR 3213 for summary judgment in lieu of complaint against the corporation and the individual defendants, seeking $189,984.31 plus interest. He based his motion on the note, the indemnification agreement and the stock agreement, asserting that the indemnification agreement represented a personal guaranty by the individual defendants of Sinorm's note.

The corporation did not oppose the motion. Two months after its default on the note, it had been evicted by its landlord in a nonpayment proceeding. The individual defendants, however, cross-moved for summary judgment and submitted the affidavit of Burton Beal, the attorney who represented them in negotiating the various agreements. Apart from challenging the propriety of plaintiff's motion under CPLR 3213, the attorney contradicted plaintiff's assertion that the indemnification agreement was intended as a personal guaranty of the note, adding that when plaintiff at closing asked for individual guaranties, the request was adamantly refused. According to Beal, the parties agreed there would be no personal guaranty for the note. Rather, he asserted, the indemnification agreement was intended to protect plaintiff from any personal liability he might incur as a result of his status as a principal shareholder of the corporation. Plaintiff's reply affidavit denied the factual allegations of the Beal affidavit.

Supreme Court granted plaintiff's motion and denied the cross motion, finding that plaintiff had established a prima facie case by proof of the promissory note, the indemnification agreement, and default in payment and indemnification. In granting summary judgment to the plaintiff, the court held

"the indemnification agreement, the latter portion of which was handwritten, clearly and unambiguously obligates the individual defendants to indemnify the plaintiff for losses he sustained arising from the corporate obligor's default on the promissory note."

The Appellate Division affirmed for the reasons stated by

Supreme Court.

Before us defendants urge that the indemnification agreement does not qualify as an instrument for the payment of money only, as the agreement covers future, unstated, contingent liabilities to unknown third parties. Further, they contend that the indemnification agreement unambiguously does not constitute a guaranty of the corporation's promissory note, and consequently their cross motion should have been granted. We consider each in turn.

Summary Judgment in Lieu of Complaint

Introduced more than three decades ago, CPLR 3213 was a procedural reform that, for the limited matters within its embrace, melded pleading and motion practice into one step, allowing a summary judgment motion to be made before issue was joined (compare, CPLR 3212). Its purpose was to provide quick relief on documentary claims so presumptively meritorious that "a formal complaint is superfluous, and even the delay incident upon waiting for an answer and then moving for summary judgment is needless" (1st Prelim Report of Advisory Comm. on Practice and Procedure, 1957 N.Y.Legis Doc No. 6[b], at 91). The statute provides:

"When an action is based upon an instrument for the payment of money only or upon any judgment, the plaintiff may serve with the summons a notice of motion for summary judgment and the supporting papers in lieu of a complaint."

CPLR 3213 begins with the seemingly straightforward--though stringent--requirement that the action be based on "an instrument for the payment of money only or a judgment." ¹ The prototypical example of an instrument within the ambit of the statute is of course a negotiable instrument for the payment of money--an unconditional promise to pay a sum certain, signed by the maker and due on demand or at a definite time (see, 4 Weinstein-Korn-Miller, N.Y.Civ.Prac. p 3213.04, at 253). In fact, the remedy has proved an effective one, particularly for financial institutions recovering on promissory notes and unconditional guaranties (see, Cozier, Summary Judgment § 25.4, at 830, in 2 Commercial Litigation in New York State Courts [Haig ed.].

Ironically, however, the threshold requirement has also generated a spate of litigation, leading one commentator to note that there have been "so many invocations of CPLR 3213 over the years in which the result was a dismissal of the application for want of a proper 'instrument' * * * [so as] to point up the illusory advantages of CPLR 3213 when used so carelessly" (Siegel, Practice Commentaries, McKinney's Cons.Laws of N.Y., Book 7B, CPLR 3213:1, at 497).

This Court last spoke to the threshold requirement in Interman Indus. Prods., v. R.S.M. Electron Power, 37 N.Y.2d 151, 154-155, 371 N.Y.S.2d 675, 332 N.E.2d 859, observing that cases within CPLR 3213 "have dealt primarily with some variety of commercial paper in which the party to be charged has formally and explicitly acknowledged an indebtedness." Where the instrument requires something in addition to defendant's explicit promise to pay a sum of money, CPLR 3213 is unavailable. Put another way, a document comes within CPLR 3213 "if a prima facie case would be made out by the instrument and a failure to make the payments called for by its terms" (Interman, 37 N.Y.2d at 155, 371 N.Y.S.2d 675, 332 N.E.2d 859, citing Seaman-Andwall Corp. v. Wright Mach. Corp., 31 A.D.2d 136, 295 N.Y.S.2d 752, affd 29 N.Y.2d 617, 324 N.Y.S.2d 410, 273...