Failed to pay obligation under the guaranty

New York Appellate Division Reports

DAVIMOS v. HALLE, 8783 [1st Dept 12-19-2006] 2006 NY Slip
Op 09514 Richard H. Davimos, Jr., Plaintiff-Respondent, v.
John Halle, Defendant-Appellant. 8783, Index 111013/02.
Appellate Division of the Supreme Court of New York, First
Department. Decided on December 19, 2006.

Judgment, Supreme Court, New York County (Karla Moskowitz,
J.), entered July 19, 2005, in an action on a guaranty,
awarding plaintiff the principal sum of $1 million,
unanimously reversed, on the law, with costs, the judgment
vacated, plaintiff’s motion for summary judgment denied and
the matter remanded for further proceedings.

Thomas M. Lancia, New York, for appellant.

Reiss Einsenpress LLP, New York (Matthew Sheppe of
counsel), for respondent.

MAZZARELLI, J.P., ANDRIAS, NARDELLI, GONZALEZ, MALONE, JJ.

In his amended complaint, plaintiff alleged that in
exchange for his advance of $1 million in the film project
“My First Mister,” defendant guaranteed payment of any
unpaid principal and interest to plaintiff in the event
nonparty 1st Mister, Inc. or its parent company, Total Film
Group (TFG), defaulted on their respective obligations to
repay the loan. Plaintiff further alleged that he was also
induced by two other guaranties arranged by defendant that
were represented to plaintiff as guaranteed sources of
complete and prompt repayment of the $1 million loan.

In support of his motion for partial summary judgment,
plaintiff asserted that he and his father lent 1st Mister,
Inc. $1 million that has not been repaid, that on December
20, 1999, defendant executed a guaranty with respect to
that loan, that additional guaranties were executed on
December 20, 1999 by TFG and its president Gerald Green,
that defendant failed to pay his obligation under the
guaranty, and that defendant was paid $50,000 by TFG for
having secured plaintiff’s investment. The guaranty annexed
to plaintiff’s moving papers is dated December 20, 1999,
and provides, in pertinent part that “[t]he Guarantor
[defendant] hereby unconditionally and absolutely guarantees
the full and prompt payment of One Million Dollars
($1,000,000) of the Two Million Dollars ($2,000,000) due on
December 17, 2001 under that certain promissory note dated
December 17, 1999 (the note), executed by the Company [1st
Mister, Inc.] in favor of [plaintiff] . . . referred to
herein as the Guaranteed Obligation'” [emphasis added]. The
guaranty further provides that it is a continuing, absolute
and unconditional obligation regardless of any “amendment
or modification of, or supplement to, or extension or
renewal of, the Guaranteed Obligation.” The promissory note
annexed to plaintiff’s moving papers is dated December 20,
1999, and was made by 1st Mister, Inc. to plaintiff for $1
million.

In opposition, defendant asserted that he gave a $1 million
personal guaranty for a $2 million loan pursuant to a
December 17, 1999 promissory note, that such note was never
executed by plaintiff and TFG, and that in January 2000,
plaintiff and TFG entered negotiations and came to terms on
a different agreement that was executed in March 2000 and
with respect to which defendant was neither a party nor a
guarantor. Defendant further asserted that neither he nor
plaintiff intended that he act as guarantor of the later
loan, that in fact he never did, that the various documents
were not intended to be a unified transaction, and that the
subsequent loan agreement between plaintiff and TFG was
amended several times without his knowledge or consent.

The IAS court granted plaintiff summary judgment on his
first cause of action sounding in breach of contract,
finding relevant TFG’s receipt of plaintiff’s money and
failure to pay it back, the guaranty signed by defendant,
defendant’s bringing the parties together and active
participation in the transaction and TFG’s payment to
defendant of a $50,000 fee upon the closing of the deal. We
reverse.

A guaranty must be construed “in the strictest manner”
(White Rose Food v Saleh, 99 NY2d 589, 591 [2003]). While
an absolute and unconditional guaranty agreement is
independent and stands alone in imposing obligations on the
guarantor, a guarantor’s obligation “cannot be altered
without its consent; if the original note is modified
without its consent, a guarantor is relieved of its
obligation” (id.). On a motion for summary judgment to
enforce an unconditional guaranty, the creditor must prove
the existence of the guaranty, the underlying debt and the
guarantor’s failure to perform under the guaranty (City of
New York v Clarose Cinema Corp., 256 AD2d 69, 71 [1998]).

The various guaranties, promissory notes and loan
agreements in the record undermine, rather than support,
plaintiff’s claim that, read together, they create a
binding obligation on defendant. Rather than elucidate
plaintiff’s claim, the documents obscure it, creating
factual issues as to whether the unpaid note is the one
referred to in the guaranty, and whether the loan terms
were changed or replaced in such a manner that the deal was
never consummated and the guaranty rendered null and void.
Accordingly, the motion for summary judgment was
erroneously granted.

More particularly, issues of fact include, but are not
limited to, the existence of a note dated December 17,
1999, referred to in the guaranty but never produced.
Plaintiff weakly explains that the note actually guaranteed
was the one dated December 20, 1999, and that the reference
in the guaranty to a December 17, 1999 note was a clerical
error. However, clerical errors cannot fully explain other
differences between the guaranty and the December 20 note,
such as the change of loan amount from $2 million to $1
million, the addition of a new term specifying two $500,000
installments, and the maturity date change from December
17, 2001 to December 19, 2001. Whether, as plaintiff
contends, the date and dollar amount changes resulted from
“sloppy” draftsmanship is itself essentially a factual
issue. Further undermining the alleged connection between
the guaranty and the December 20 note is the lack of any
reference in that note to the guaranty. The very formal
“Loan and Security Agreement” dated January 1, 2000, which
is specifically referred to in the December 20 note, also
lacks any reference to the guaranty and does not in any way
indicate that the December 17 note was being modified or
rescinded. No claim is made that defendant signed a second
guaranty in connection with either the January 1, 2000
agreement or the second note.

In addition, plaintiff’s own testimony, which equivocated
as to what documents, if any, he signed and when he signed
them, creates rather than eliminates issues of fact. His
insistence that his deals were with only defendant is
contrary to the documentary evidence, most of which bears
1st Mister’s name. TFG’s attorney during part of the
relevant time period recalled that the December 20 note and
January 1, 2000 agreement were vigorously negotiated and
renegotiated subsequent to the guaranty that defendant
executed, and that defendant had been willing to guaranty
$1 million of a $2 million deal (as reflected in the
December 17 note) but that he was not willing to guaranty
$1 million of a $1 million deal. According to the attorney,
because the numbers had changed, he believed a new personal
guaranty would have to be issued, raising additional issues
of fact as to whether the December 20 note and January 1
agreement were new and separate agreements rather than mere
modifications of the December 17 note.

THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME
COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: DECEMBER 19, 2006

CLERK