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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: January 3, 2014

Employee Promissory Notes to be Repaid from Earnings Not Amenable to Summary Judgment in Lieu of Complaint

On December 24, 2013, Justice Sherwood of the New York County Commercial Division issued a decision in Newmark & Co. Real Estate, Inc. v. Brennan, 2013 NY Slip Op. 33261(U), examining the standard for a motion for summary judgment in lieu of complaint pursuant to CPLR 3213.

In Newmark, the issues included that plaintiffs had made loans to defendant secured by promissory notes that defendant was to repay from commissions earned while working for plaintiffs. The notes provided that they became due if defendant left plaintiffs’ employ, which defendant did before the notes were paid off. Plaintiff sued for summary judgment in lieu of complaint on the notes. The court denied the motion, explaining:

CPLR 3213 provides for accelerated judgment where the instrument sued upon is for the payment of money only and where the right to payment can be ascertained from the face of the document without regard to extrinsic evidence, other than simple proof of nonpayment or a similar de minimis deviation from the face of the document. An action on a promissory note is an action for payment of money only. The usual standards for summary judgment apply to CPLR 3213 motions. The instrument and evidence of failure to make payments in accordance with its terms constitute a prima facie case for summary judgment.

The case of Tradition North America, Inc. v Sweeney (133 AD2d 53 [1st Dept 1987]) is controlling. In that case, an employee signed six promissory notes that held out the possibility of being repaid by bonuses. In order to determine the amount payable, the court was required to look beyond the notes to determine the employee’s entitlement to payments to offset the obligations evidenced by the notes. Even though the notes could have been satisfied by monetary payments, the employee did not make an unconditional promise to pay a sum certain at a given time or over stated period. Rather, he had the option of performing work for his employer to satisfy the debt. The court considered the notes alternatively as evidencing a loan obligation or an advance on bonus and indeed, nonbonus, compensation. The First Department concluded that when what purport to be notes have such a hybrid dimension they ought not to be considered instruments for the payment of money only.

(Internal quotation and citations omitted).

Newmark illustrates a (small) limitation to the use of promissory notes to secure obligations from employees of which counsel should be aware.

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