New York Law Review

Tag: Guarantees

  • Citibank, N.A. v. Plapinger, 66 N.Y.2d 90 (1985): Enforceability of Unconditional Guarantees Despite Fraud Claims

    Citibank, N.A. v. Plapinger, 66 N.Y.2d 90 (1985)

    An unconditional guarantee, explicitly waiving defenses, is enforceable despite claims of fraudulent inducement unless the alleged fraud contradicts the specific disclaimers within the guarantee itself.

    Summary

    Citibank, N.A. sued corporate officers Plapinger et al. on a guarantee after United Department Stores defaulted on a loan. The officers claimed fraudulent inducement, alleging the banks promised an additional line of credit that never materialized. The New York Court of Appeals held that the “absolute and unconditional” nature of the guarantee, containing waivers of defenses, precluded the officers from claiming they relied on the banks’ oral promise of additional credit. The court reasoned that enforcing the guarantee prevented the officers from contradicting their written agreement.

    Facts

    The Plapingers, officers of United Department Stores, secured a $15.2 million line of credit from Citibank and other banks. After United defaulted, restructuring was discussed involving a term loan guaranteed by the Plapingers and an additional $8 million line of credit. The term loan closed, but the line of credit was never funded. United filed for bankruptcy, and the banks sued the Plapingers on their guarantee.

    Procedural History

    Citibank sued the Plapingers in New York Supreme Court. The Plapingers asserted fraud in the inducement, negligent misrepresentation, and failure of a condition precedent as defenses and counterclaims. The Supreme Court struck these defenses and counterclaims and granted summary judgment to Citibank. The Appellate Division affirmed, finding the fraud allegations “shadowy” and the disclaimer in the guarantee sufficient to bar the defenses. The Court of Appeals affirmed, holding the disclaimer sufficiently specific to foreclose the defenses.

    Issue(s)

    Whether an “absolute and unconditional” guarantee, containing waivers of defenses, can be enforced despite the guarantor’s claim of fraudulent inducement based on an oral promise that contradicts the terms of the guarantee.

    Holding

    Yes, because the guarantors’ explicit agreement to an unconditional guarantee, irrespective of potential defenses, forecloses their ability to claim reliance on prior oral representations that contradict the guarantee’s terms.

    Court’s Reasoning

    The court relied on the rule established in Danann Realty Corp. v. Harris, 5 N.Y.2d 317 (1959), which held that a specific disclaimer of reliance on oral representations in a contract precludes a party from later claiming fraud based on those representations. While the guarantee did not contain an explicit disclaimer like in Danann, the court found the “absolute and unconditional” nature of the guarantee, coupled with waivers of defenses, served the same purpose. The court emphasized the sophistication of the parties and the extensive negotiations leading to the agreement. Permitting the Plapingers to claim fraud would condone their misrepresentation of their true intention when signing the guarantee. The court stated, “To permit that would in effect condone defendants’ own fraud in ‘deliberately misrepresenting [their] true intention’ when putting their signatures to their ‘absolute and unconditional’ guarantee.” Finally, the court held that the alleged oral condition precedent (the funding of the additional line of credit) could not be proved because it contradicted the express terms of the written agreement, citing Hicks v. Bush, 10 N.Y.2d 488 (1961). The court distinguished Millerton Agway Coop. v. Briarcliff Farms, 17 N.Y.2d 57 (1966), noting that the guarantees in that case lacked both a general merger clause and a specific disclaimer. The court acknowledged criticism of the Danann rule but found it applicable given the negotiated nature of the guarantee and the explicit waiver of defenses.

  • Marine Midland Bank v. Triple A Resources, Inc., 66 N.Y.2d 687 (1985): Enforceability of Guarantees Based on SEC Filings

    Marine Midland Bank, N.A. v. Triple A Resources, Inc., 66 N.Y.2d 687 (1985)

    Corporate officers’ guarantees of company debt may be enforced based on the company’s filings with the Securities and Exchange Commission (SEC), even if the officers claim the guarantees were incomplete when signed, if the filings suggest the guarantees were validly completed and delivered.

    Summary

    Marine Midland Bank sought to recover $500,000 under notes issued by NRX Technologies, Inc., and guaranteed by its officers Anderson, Tribble, and Gluck. The officers admitted signing the guarantees but claimed they were incomplete and they lacked knowledge of their subsequent handling. The bank presented SEC filings (Forms 8-K and 10-Q) signed by Tribble, detailing the notes and guarantees. The Court of Appeals affirmed the Appellate Division’s decision to grant summary judgment against the officers, finding no triable issue of fact given the information contained in the SEC filings which suggested valid completion and delivery of the guarantees.

    Facts

    NRX Technologies, Inc. issued notes for which Marine Midland Bank sought repayment. Robert Anderson (Chairman), Joseph Tribble (President), and Joseph Gluck (Vice-President) of NRX signed written guarantees for the notes. The bank produced Forms 8-K and 10-Q filed with the SEC, signed by Tribble, outlining the notes and guarantees. Anderson received stock and stock options as inducement for providing his guarantee.

    Procedural History

    Marine Midland Bank commenced an action for summary judgment. Special Term granted summary judgment against NRX but ordered a trial to determine the validity of the guarantees. The Appellate Division modified the order by granting summary judgment against the individual guarantors. The guarantors appealed to the Court of Appeals.

    Issue(s)

    Whether summary judgment was appropriately granted against the corporate officers who guaranteed the notes, given their claim that the guarantees were incomplete when signed and the existence of SEC filings suggesting valid completion and delivery.

    Holding

    Yes, because NRX’s SEC filings revealed that NRX accepted the proceeds of the notes and Anderson received stock and stock options for his guarantees, suggesting the guarantees were completed and delivered in accordance with authorization, even if incomplete when signed.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division, emphasizing that no triable issue of fact existed. The court relied heavily on NRX’s SEC filings, noting that these filings indicated that NRX had received the proceeds from the notes and that Anderson received stock and stock options as consideration for his guarantee. This evidence strongly suggested that the guarantees were completed and delivered as authorized, even if they were initially incomplete when signed by the officers. The court found the officers’ allegations of unauthorized completion and delivery, along with their other conclusory assertions, insufficient to raise a material question of fact that would necessitate a trial. The court referenced Merritt Hill Vineyards v Windy Hgts. Vineyard, 61 NY2d 106, 110-112, indicating a precedent for granting summary judgment even without a cross-appeal when appropriate. The decision emphasizes the weight given to official corporate filings with the SEC as evidence of corporate actions and obligations. The court implied that corporate officers have a duty to ensure the accuracy of SEC filings and cannot later disavow the implications of those filings to avoid personal liability. Essentially, the SEC filings served as a powerful form of estoppel against the officers’ claims. The case underscores the importance of accurate and consistent reporting to regulatory bodies and the potential consequences for corporate officers who attempt to contradict these filings in subsequent litigation. The court did not explore dissenting or concurring opinions, as this was a memorandum decision.

  • Jamaica Tobacco & Sales Corp. v. Ortner, 398 N.Y.S.2d 865 (1977): Distinguishing a Guarantee from a Primary Obligation

    Jamaica Tobacco & Sales Corp. v. Ortner, 398 N.Y.S.2d 865 (1977)

    A writing described as a guarantee may actually constitute a primary agreement to pay one’s own debt if the writing reflects an intent to be directly responsible for purchases made on one’s own account.

    Summary

    Jamaica Tobacco & Sales Corp. sued Ortner to recover payment for goods. Ortner signed a document labeled a “guarantee” for credit extended to 91 East End Corporation. The court held that despite the label, the writing was actually Ortner’s agreement to pay for goods delivered to and used by Ortner. The court emphasized that the plaintiff’s business records showed the materials were delivered to Ortner’s address and credited to its account, and that Ortner admitted the goods were supplied and used at its construction project. Because the goods were supplied to Ortner and used for Ortner’s benefit, Ortner was primarily liable, and the mislabeling of the document did not alter that liability.

    Facts

    1. Jamaica Tobacco & Sales Corp. agreed to extend credit to Ortner if Ortner signed a “guarantee.”
    2. Ortner signed and returned the “guarantee,” which stated that Ortner guaranteed payment for any debt 91 East End Corporation had incurred or would incur.
    3. Jamaica Tobacco’s business records showed that materials were delivered to Ortner’s address and credited to Ortner’s account.
    4. Ortner admitted that the materials were supplied and used in a construction project at its premises.

    Procedural History

    The trial court found in favor of Jamaica Tobacco, holding Ortner liable for the debt. The Appellate Division affirmed the trial court’s decision. Ortner appealed to the New York Court of Appeals.

    Issue(s)

    Whether a document labeled a “guarantee” should be interpreted as a primary agreement to pay one’s own obligation when the evidence demonstrates that the goods were delivered to and used by the purported guarantor.

    Holding

    Yes, because the evidence established that the materials were delivered to the appellant’s address and credited to its account, and the appellant admitted that the materials were supplied and used in the construction project at its premises.

    Court’s Reasoning

    The court reasoned that despite being described as a guarantee, the writing was actually an agreement by Ortner to pay its own obligation for purchases made on its own account. The court relied on the case of Deeves & Son v. Manhattan Life Ins. Co., 195 N.Y. 324, 331, which supported the principle that such a writing can constitute an agreement to pay one’s own obligation. The Court emphasized that the plaintiff’s business records established that the materials were delivered to Ortner’s address and credited to its account. Furthermore, Ortner admitted at trial that the materials were supplied and used in the construction project at its premises. The court stated, “On this record we agree with the trial court that the evidence established appellant’s obligation to pay for the goods sold, delivered and credited to its account.” Therefore, the label attached to the document was not determinative; rather, the substance of the transaction established Ortner’s direct liability.

  • Chemical Bank v. Weiss, 393 N.Y.S.2d 1026 (1977): Enforceability of ‘No Oral Modification’ Clauses in Guarantees

    Chemical Bank v. Weiss, 393 N.Y.S.2d 1026 (1977)

    A written guarantee containing a ‘no oral modification’ clause is enforceable, and an alleged oral agreement to terminate the guarantee is ineffective under New York General Obligations Law § 15-301.

    Summary

    This case addresses the enforceability of a written guarantee with a clause requiring written notice for termination. Weiss guaranteed a loan to a corporation from Chemical Bank. The guarantee covered subsequent loans and required written notice for termination. Weiss claimed an oral agreement with a bank officer terminated her obligations after the initial loan was satisfied. The court held that the alleged oral agreement was ineffective due to the ‘no oral modification’ clause in the written guarantee and General Obligations Law § 15-301, which requires modifications or terminations to be in writing when the agreement stipulates such.

    Facts

    In December 1967, Chemical Bank loaned money to a corporation, with Weiss guaranteeing the loan. The guarantee was continuing, covering subsequent loans. It also stipulated that Weiss could only terminate her liability with written notice to the bank. In January 1970, the corporation repaid the 1967 loan. In November 1970, the bank extended a second loan to the corporation, which later defaulted. Weiss claimed an oral agreement with a bank officer in 1970 terminated her obligations under the guarantee.

    Procedural History

    Chemical Bank sued Weiss to enforce the guarantee after the corporation defaulted on the second loan. The lower court initially ruled in favor of Chemical Bank. The Appellate Division affirmed the lower court’s decision, granting summary judgment to Chemical Bank, finding no triable issue of fact existed because of the ‘no oral modification’ clause. Weiss appealed to the New York Court of Appeals.

    Issue(s)

    Whether an alleged oral agreement can effectively terminate a written guarantee that requires written notice for termination, especially when the guarantee contains a ‘no oral modification’ clause in light of General Obligations Law § 15-301.

    Holding

    No, because General Obligations Law § 15-301 renders oral modifications or terminations ineffective if the written agreement stipulates that changes must be in writing. The oral agreement alleged by Weiss is insufficient to terminate her obligations under the written guarantee.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division’s decision, emphasizing the ‘no oral modification’ clause in the guarantee and the applicability of General Obligations Law § 15-301. The court stated that the alleged oral notice was “completely ineffectual to terminate appellant’s obligations under the written guarantee which here specifically provided that it could not be modified or terminated, unless such modification or termination was communicated to the respondent in writing.” The court distinguished the case from Green v. Doniger, clarifying that while Green addressed the abandonment of an agreement through oral understanding under the former Personal Property Law, § 15-301 now precludes both oral modifications and terminations. The court reinforced the importance of upholding written agreements and preventing parties from circumventing clear contractual terms through unsubstantiated oral claims. The court cited several prior cases including Rothschild v Manufacturers Trust Co., Mount Vernon Trust Co. v Bergoff, and Bay Parkway Nat. Bank v Shalom to support the enforcement of the written agreement.

  • Mill Factors Corporation v. Irving Trust Company, 27 N.Y.2d 53 (1970): Admissibility of Parol Evidence to Prove Fraudulent Inducement

    Mill Factors Corporation v. Irving Trust Company, 27 N.Y.2d 53 (1970)

    Parol evidence of a fraudulent misrepresentation, including a misrepresentation of intent, is admissible to avoid an agreement induced by such fraud, even if the written agreement is unconditional and makes no mention of the alleged misrepresentation.

    Summary

    Mill Factors sued Irving Trust and others on guarantees. The defendants claimed they were fraudulently induced into signing the guarantees by Mill Factors’ oral promises of extended credit and forbearance, promises Mill Factors allegedly never intended to keep. The lower courts granted summary judgment to Mill Factors, finding the fraud defense “feigned.” The New York Court of Appeals reversed, holding that a triable issue of fact existed regarding the alleged fraudulent inducement. The court emphasized that parol evidence is admissible to prove fraud, even if the written contract is unconditional.

    Facts

    Mill Factors sold cattle feed to Briarcliff Farms. The individual defendants, controlling shareholders and directors of Briarcliff, guaranteed Briarcliff’s debts to Mill Factors. Originally, the guarantee was for $400,000. When Briarcliff’s debt exceeded this amount, Mill Factors requested an increased guarantee of $1,000,000. The defendants alleged that Mill Factors orally promised additional credit up to $1,000,000 and forbearance from demanding payment until the debt reached that limit, inducing them to increase their guarantee. The written guarantees were unconditional and silent on these promises. Shortly after the new guarantees were signed, Mill Factors demanded payment, leading to the lawsuit.

    Procedural History

    The trial court initially granted summary judgment for Mill Factors. After reargument based on affidavits alleging fraudulent inducement, the trial court denied summary judgment and allowed the defendants to amend their answer. The Appellate Division reversed, granting summary judgment to Mill Factors, concluding the defense of fraudulent inducement was “feigned.” The Court of Appeals reversed the Appellate Division’s decision, reinstating the trial court’s order denying summary judgment.

    Issue(s)

    Whether parol evidence is admissible to prove that a written guarantee was fraudulently induced by oral misrepresentations regarding future credit and forbearance, despite the absence of such terms in the written agreement.

    Holding

    Yes, because parol evidence of a fraudulent misrepresentation, including a misrepresentation as to intent, is admissible to avoid an agreement induced by such fraud. The court found a triable issue of fact existed as to whether the guarantee was fraudulently induced.

    Court’s Reasoning

    The court reasoned that summary judgment is inappropriate when there is a material and triable issue of fact. The Appellate Division erred in concluding that the defendants’ fraud defense was “feigned.” The Court of Appeals acknowledged arguments against the defendants’ claim, such as the absence of the alleged promises in the written guarantees. However, the court also noted the improbability that the defendants would increase their guarantees from $400,000 to $1,000,000 without some assurance of continued credit for Briarcliff. The court cited Sabo v. Delman, 3 N.Y.2d 155, 160-161, stating that “Parol evidence of a fraudulent misrepresentation including a misrepresentation as to intent is admissible to avoid an agreement induced by such fraud.” The court emphasized that the truth should be determined through trial, where witnesses can be examined and cross-examined. The court stated, “The truth as to these matters must be arrived at in the lawful and customary way, this is, by a trial where the witnesses can be examined and cross-examined and their demeanor and their versions put under the scrutiny of the triers of the facts.”