Guaranty Is Instrument for Payment of Money Only Despite Reference to "Performance"

On August 2, 2024, Justice Anar Rathod Patel of the New York County Commercial Division issued a decision in Acquiom Agencies Services LLC v. Fox Capital LLC, 2024 WL 3643594, granting a motion for summary judgment in lieu of complaint on a guaranty and rejecting the guarantors' argument that the guaranty was not an instrument for the payment of money only because it included the word "performance," explaining:

Defendants argue that the Guaranty Agreement is not an “instrument for the payment of money only” as required by CPLR § 3213 because of the reference to “the payment and performance ... of all Obligations” in the Guaranty Agreement. NYSCEF Doc. No. 26 at 3 (alteration and emphasis in original). This argument does not withstand even minimal scrutiny when viewing the unaltered provision from the Guaranty Agreement:

1. Guaranty. In consideration of the benefit derived or to be derived by it from the Credit Agreement from and after the Closing Date, each Guarantor hereby jointly and severally unconditionally and irrevocably guarantees to Administrative Agent for the benefit of the Secured Parties, as a primary obligor and not merely as a surety, the faithful, prompt and complete payment and performance in full in cash of all Obligations, including (x) amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code (as defined below) or similar laws, and (y) any default interest provided for under the Credit Agreement or any other Loan Document (including default or other interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, whether or not a claim for such interest is allowed or allowable in such proceeding).

NYSCEF Doc. No. 8 at 1 (emphasis added). Further, when consulting the Credit Agreement for a definition of “Obligations” 3 , it remains clear that the “Obligations” are entirely monetary in nature. See NYSCEF Doc. No. 4 at 16. Defendants point to the terms “performance” and “Obligations,” but do not identify specific non-monetary performance obligations that are condition precedent to repayment under the Guaranty Agreement.

“[T]he mere addition of the words ‘and performance’ does not necessarily remove the guaranty from the category of instruments for the payment of money only ....” 27 West 72nd Street Note Buyer v. Terzi, 194 AD3d 630, 632 (1st Dept. 2021). Where Defendants do identify specific elements of performance, they are mischaracterized and create requirements for Defendants’ performance where no such obligation exists.

The “performance of numerous affirmative obligations, duties, and covenants of sweeping scope” are drawn from the Credit Agreement and are covenants between Borrower and the Administrative Agent and Lenders—not the Guarantors. See NYSCEF Doc. No. 4 at §§ 5.01 5.16 (Affirmative Covenants), §§ 6.01—6.10 (Negative Covenants).

While a contract that requires both payment and performance is typically not an instrument for the payment of money only, recent case law, including from the First Department, has held that the inclusion of the word "performance" in a guaranty does not remove it from the ambit of C.P.L.R. 3213 as long as there are no performance obligations that are "condition precedent to repayment" under the contract.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning whether a guaranty qualifies as an instrument for the payment of money only under C.P.L.R. 3213.