Opinion
109288/08.
February 4, 2009.
DECISION AND ORDER
Plaintiff moves under CPLR 3213 for summary judgment in lieu of a complaint for principal and interest due under a promissory note executed by defendant (the "Note"). Defendant opposes the motion on the following grounds; (1) there is a triable issue of fact as to whether full payment was made; (2) the Note is unenforceable because it provides for the accrual of interest at a usurious rate; and (3) plaintiff's action is not based on an instrument for the payment of money only.
Defendant borrowed $70,000 from plaintiff and executed a promissory note (the "Note") in return. The Note obligated defendant to pay plaintiff $5,000 per month "on the fifteenth of each month beginning on January 15, 2008." It also permits
defendant to reduce the amount due under the Note by causing a "distribution or payment" made to defendant by either International Power Group, Ltd. ("IPWG") or Biomass Investment Group, Inc. ("BIG") to be paid directly to plaintiff by IPWG or BIG.
In the event of a default, the Note provides that "at the option of the holder of this Note but without notice, which is waived, the entire unpaid balance of principal, inclusive of interest, shall become immediately due and payable." The Note also provides that defendant "agrees to pay all costs and reasonable attorney's fees incurred" in connection with defendant's default. The Note sets the post-default interest rate at 18% per annum or the maximum legal rate (whichever is greater) until the Note is paid in full.
Defendant defaulted on the Note by failing to make the monthly payments for May and June of 2008. Defendant claims that he did not make the payments because he could not contact the plaintiff. After he had already been served with plaintiff's motion, defendant (through his attorney) delivered an IPWG stock certificate made out to Kevin Books (the "Stock Certificate"). The Stock Certificate provides that the transfer and sale of the shares registered by the Stock Certificate is restricted by the Securities Act of 1933.
Defendant claims that the stock certificate was worth $82,000 when delivered. In his affidavit, plaintiff argues that the stock certificate is worthless because a stop-transfer order had been placed on it.
"The purpose of CPLR § 3213 is to provide a speedy and effective means of securing a judgment on claims that are presumptively meritorious." J.D. Structures, Inc. v. Waldbaum, 282 A.D.2d 434, 436 (2nd Dept. 2001). Plaintiff has made out a prima facie showing of entitlement to summary judgment. In opposition, defendant fails to raise a "triable issue of fact with respect to a bona fide defense." Bank Leumi Trust Co. of New York v. Rattet Liebman, 182 A.D.2d 541, 542 (1st Dept. 1992). "[C]onclusory and unsubstantiated allegations" do not raise a triable issue of fact. Id. at 542.
First, there is not a triable issue of fact about whether full payment was made under the Note. The Note provided for monthly payments in the amount of $5,000. Plaintiff complied with this provision by making the requisite payments for the first four months. Plaintiff argues that he stopped making the payments because he had no way of contacting defendant. However, plaintiff has submitted e-mails exchanged between the parties that listed plaintiff's cell phone number and personal e-mail address. Plaintiff has also shown that his address could be found by a simple internet search.
While defendant concedes that he stopped making his monthly payments, he argues that he made full payment by tendering the Stock Certificate after he was sued for defaulting on the Note. Even if the Stock Certificate was a "distribution or payment" within the meaning of the relevant clause, the Note does not state that a post-default payment can be made using this method. The default provisions of the Note are clear and unambiguous. They provide that the defendant shall pay the entire unpaid balance of principal and accrued interest ($50,000 because defendant made four $5,000 payments) plus post-default interest until payment is made in full. Defendant has not done so.
It should be noted that defendant claims that the Stock Certificate was valid and worth $82,000 without submitting any documentary evidence in support of his contention. Therefore, even if defendant's post-default debt could have been satisfied by tendering a stock certificate, defendants unsubstantiated claim about its value is insufficient to raise a genuine issue of fact for trial.
Defendant's argument that a post-default interest rate of 18% is usurious and not permitted by law is without merit. As plaintiff correctly argues, penalty interest rates that apply after a default has occurred are not usurious. In re Integrated Resources, Inc. Real Estate Ltd. P'ships Secs. Litig., 851 F. Supp. 556, 565 (S.D.N.Y. 1994) (applying New York law).
Lastly, defendant unpersuasively argues that the Note is not an instrument for the payment of money only and cites Russo v. O'Meara, 300 A.D.2d 563 (2nd Dept. 2002) in support of his argument. "A promissory note is an instrument for the payment of money only for the purpose of CPLR 3213." Nussdorf v. Lekach, 22 Misc. 3d 1111(A), 2009 WL 129905, at *4 (Sup.Ct. Nassau Co. 2009). In Russo, the Court restated the proposition that a document falls 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." 300 A.D.2d at 563 (quoting Weissman v. Sinorm Deli, Inc., 88 N.Y.2d 437, 444 [in turn quoting Interman Indus. Prods. Ltd. v. R.S.M. Electron Power, Inc., 37 N. Y.2d 151, 155 (1975)]) (internal quotation marks omitted). The Court further held that an "instrument does not qualify if outside proof is needed, other than simple proof of nonpayment or a similar de minimis deviation from the face or the document." Id. at 564 (quoting Weissman, 88 N.Y.2d at 444).
Here, no outside proof was needed to show that defendant defaulted by failing to make the requisite monthly payments. The Note provides for $5,000 monthly payments, and defendant admits that he stopped making them. Upon defendant's default, it is clear from the terms of the Note that the defendant was required to pay the entire amount due plus 18% interest from the date of the default. Although defendant claims that he satisfied the debt by tendering the Stock Certificate, the Note's default provisions do not provide for the making of a post-default payment by delivery of a stock certificate.
Accordingly, it hereby is
ORDERED that plaintiff's motion for summary judgment in lieu of complaint is granted in the amount of $50,000 with interest at 18% from May 15, 2008, plus attorney's fees, and costs and disbursements as taxed; and it is further ORDERED that the amount plaintiff is entitled to recover from defendant as reasonable attorney's fees in connection with defendant's default is referred to a Special Referee to, hear and report,, unless the parties consent to a determination by the Special Referee, in which case the Special Referee may hear and determine the issue; and it is further
ORDERED that this motion and entry of judgment is held in abeyance pending receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403 or receipt of the determination of the Special Referee or the designated referee; provided however that if plaintiff does not seek to pursue attorney's fees, the Clerk shall enter judgment at plaintiff's request pursuant to the first decretal paragraph above; and it is further
ORDERED that plaintiff shall serve a copy of this order with notice of entry on the Clerk of the Reference Part (Room 119) to arrange a date for the reference to a Special Referee and the Clerk shall notify all parties of the date of the hearing.