Guaranty Precluding Defenses Dooms Defense to Motion for Summary Judgment in Lieu of Complaint

On June 9, 2015, the Court of Appeals issued a decision in Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. v. Navarro, 2015 NY Slip Op. 04753, holding that where a guaranty precludes defenses, those defenses cannot be raised in opposition to a motion for summary judgment in lieu of complaint.

In Cooperatieve Centrale Raiffeisen-Boerenleenbank, the defendant gave "an unconditional and absolute guaranty in favor of plaintiff" and explicitly waived any defenses. The plaintiff brought an action for summary judgment in lieu of complaint to enforce the guaranty. the defendant opposed, raising various defenses. The trial court denied the plaintiff's motion, finding that there were questions of fact regarding enforcement of the guaranty. The First Department reversed. The Court of Appeals affirmed the First Department's reversal, explaining:

Pursuant to CPLR 3213, when an action is based upon an instrument for the payment of money only or upon any judgment, the plaintiff may serve with the summons a notice of motion for summary judgment and the supporting papers in lieu of a complaint. CPLR 3213 was enacted to provide quick relief on documentary claims so presumptively meritorious that a formal complaint is superfluous, and even the delay incident upon waiting for an answer and then moving for summary judgment is needless. An unconditional guaranty is an instrument for the payment of money only within the meaning of CPLR 3213.

. . .

A guaranty is a promise to fulfill the obligations of another party, and is subject to ordinary principles of contract construction. Under those principles, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.

Guarantees that contain language obligating the guarantor to payment without recourse to any defenses or counterclaims, i.e., guarantees that are absolute and unconditional, have been consistently upheld by New York courts. Absolute and unconditional guaranties have in fact been found to preclude guarantors from asserting a broad range of defenses.

This Court has acknowledged the application of these absolute guarantees even to claims of fraudulent inducement in the execution of the guaranty, as illustrated by the holding in Citibank, N.A. v Plapinger (66 NY2d 90 [1985]). In that case, defendants were officers, directors and shareholders in a company which secured a line of credit from plaintiff banks. After the company defaulted, it restructured its debt as a term loan, guaranteed by defendants. When the company subsequently filed for bankruptcy, the banks declared the term loan and interest immediately due, and sued defendants on the guaranty. Among their defenses to the litigation, defendants asserted fraud in the inducement, based on alleged false or recklessly made statements of the banks that they would provide the company with an additional line of credit as part of the debt restructuring. Defendants argued that but for verbal assurances that the banks would issue the credit, defendants would not have signed the guaranty on the term loan.

The Court held that under the absolute and unconditional language of the guaranty, defendants were foreclosed from asserting their fraud in the inducement defense. In reaching this conclusion the Court rejected the need for defendants' specific disclaimer of reliance on the banks' oral representations. Instead, the Court determined, quoting from the guaranty, that defendants agreed that the absolute and unconditional nature of their guarantee was irrespective of (i) any lack of validity of the Loan Agreement or any other agreement or instrument relating thereto, or '(vii) any other circumstance which might otherwise constitute a defense' to the guarantee. Given the substance of the guaranty, to permit defendants to assert that the Bank induced them to sign "would in effect condone defendants' own fraud in deliberately misrepresenting their true intention when putting their signatures to their absolute and unconditional guarantee. In other words, because defendants had assured the banks that their guaranty to pay the loan was not subject to any defenses, they were bound to their promise.

(Internal quotations and citations omitted).