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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: April 2, 2019

Note That Contained Conditions on Payment Cannot Be Subject of Motion for Summary Judgment in Lieu of Complaint

On March 18, 2019, Justice Masley of the New York County Commercial Division issued a decision in Borremans v. Gardner, 2019 NY Slip Op. 30660(U), holding that a promissory note that contined conditions could not be the subject of a motion for summary judgment in lieu of complaint, explaining:

For purposes of CPLR 3213, an instrument for the payment of money only must be a written unconditional instrument. Documents which set forth more than the simple promise by the obligor to pay a sum of money may not be sued upon by way of CPLR 3213.

Here, the Note provides that JG may,

withhold and set-off any Losses under the Purchase Agreement against amounts due hereunder in accordance with Section 6.l(f) of the Purchase Agreement.

Section 6.l(f) of the PA provides the terms under which Defendant JG may offset and withhold amounts due under the Note. Specifically, it states,

Subject to other provisions set forth in this Article VI, Buyer shall have the right to withhold and set-off any Losses against any amounts due or may be due under the Note or the Royalty Agreement. If any such amount under the Note or the Royalty is so set-off, the amount of such set-off shall be treated as an adjustment to the Purchase Price. In the event that any such outstanding claims for indemnification have not been finally determined in accordance with this Article VI at the time of such set-off, the Buyer shall have the right to withhold from any payment due under the Note or the Royalty Agreement the Buyer Indemnified Party’s reasonable estimate of the maximum amount of Losses the Member would be obligated to pay the Buyer Indemnified Party with respect to such claim in accordance with this Article VI and, upon final resolution 1 of such claim in accordance with this Article VI, the claim shall be se1-off against the amount so withheld and the remaining balance, if any, shall be paid pursuant to the Note or the Royalty Agreement, as applicable, within five (5) Business Days.

Accordingly, Section 12 of the Note makes payment under the Note, subject to the terms and conditions in Section 6. l(f) of the PA. This makes the Note conditional, and thus, unqualified for summary judgement in lieu of complaint. Accordingly, the Note is not an instrument for the payment of money only and cannot serve as a predicate for a CPLR 3213 motion. Borremans’ reliance on Craven v Rigas (71 AD3d 1220 [3d Dept 2010]) is unavailing because in that case, the court specifically stated that although the note referenced an underlying stock purchase agreement, the reference served only to describe the security interest that the plaintiff reserved in the stock. Here, however, the Note references the PA for additional purposes such as the conditions under which payment obligations may be withheld. Furthermore, in Craven v Rigas, the court noted that the evidence of setoffs did not preclude application of CPLR 3213 because the plaintiff presented an accurate accounting of the amount due, of which there was no genuine dispute. Here, Borremans has submitted no such accounting and there is a genuine issue of fact as to these set offs. Therefore, Borremans’ motion for summary judgment in lieu of complaint is denied.

(Internal quotations and citations omitted).

Cases in the Commercial Division of the New York courts usually involve a motion to dismiss at the outset and then a motion for summary judgment at the close of discovery, so such motions are a big part of our practice. The decision above is about a special procedure in New York for quickly resolving claims relating to unpaid notes or similar documents allowing the plaintiff to move for summary judgment at the beginning of an action. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions about seeking or opposing a motion for pre-trial dismissal or judgment of a commercial lawsuit.

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