A New York trial court recently granted Capital One summary judgment in lieu of a complaint for payment due under promissory notes and related guarantees issued in favor of its predecessor bank, North Fork. Capitol (sic.) One, N.A. v. Alarm Warehouse, LLC, 37900-2010, 2011 WL 1601572 (Suffolk Co. 2011). In rejecting the defense argument that Capitol One failed to submit an assignment of the notes and guarantees to it, the court relied on Section 602 of the New York Banking Law which provides that a merged financial institution is considered the same legal entity as each of its predecessor institutions.  

Background

In 2008, North Fork Bank was merged into Capital One. Thereafter, Capital One, as North Fork’s successor, brought a motion for summary judgment in lieu of complaint pursuant to Section 3213 of the New York Civil Practice Law and Rules against Alarm Warehouse LLC for payment on two promissory notes made in favor of North Fork in 2007 and 2009, respectively. The motion was also brought against Peter Siegel and Jonathan Scott Siegel who signed guarantees in 2007 as guarantors of the notes. Capital One sought recovery of almost $800,000 due plus interest.

The Parties’ Arguments  

The defendants opposed Capital One’s motion on two grounds. First, the defendants asserted that Capital One lacked standing as it failed to show any written assignment of the notes or guarantees from North Fork to Capital One. The defendants emphasized the need for a plaintiff to establish on a motion for summary judgment that there are no issues of material fact and that it had failed to prove that it was the owner and holder of the notes and guarantee at issue. Second, defendants argued that the 2007 guarantees did not extend to the 2009 note, despite the fact that it covered the 2007 note obligations and any other obligations “incurred in the future.” They argued that extending the 2007 note would be invalid under New York law because past consideration cannot support a new contractual obligation. The guarantors noted that New York General Obligations Law Section 5-1105 is the only exception to this rule regarding past consideration. It provides:  

“A promise in writing and signed by the promisor or by his agent shall not be denied effect as a valid contractual obligation on the ground that consideration for the promise is past or executed, if the consideration is expressed in the writing and is proved to have been given or performed and would be valid consideration but for the time when it was given or performed.”  

Citing Umscheid v. Simnacher, 106 A.D.2d 380, 482 N.Y.S.2d 295 (2d Dep’t 1984), defendants argued that, for this exception to apply, the relevant writing must promise to pay a sum certain at a date certain, and must express the consideration for the promise. The 2007 guarantees at issue did not contain this specific language.  

Capital One replied to defendants’ arguments by first pointing to Section 602 of the New York Banking Law which renders a merged financial institution (Capital One, N.A.) the same entity as the previous institution (North Fork Bank), and further that Capital One is deemed to have stepped into North Fork Bank’s shoes in any contractual rights that took effect before the merger. Capital One also responded to defendants’ contention that it had failed to establish how Capital One became the holder of the notes and guarantees by pointing to the affidavit of its vice president which stated that Capital One was the successor by merger to North Fork Bank. In addition, Capital One argued that the New York law rendering past consideration as insufficient to support a promise, and the exception provided in New York General Obligations Law Section 5-1105, were inapplicable because such specificity is required where the only consideration for the promise is past consideration, whereas the guarantees at issue here guaranteed future obligations as well. Capital One argued that a guarantee given in consideration of future extensions of credit is enforceable.  

The Court’s Reasoning

New York’s procedural law permits a party to bring a motion for summary judgment without first filing a complaint when the claim is based on an instrument for the payment of money and where the plaintiff can establish failure of the debtor to make payment as required by the instrument. Thus, as a threshold matter, the court found that it was procedurally proper for Capital One to bring this motion as the notes and the guarantees were in fact instruments for the payment of money only.  

The court found that the no written assignment defense lacked merit. Section 602 of the New York Banking Law provides that “the receiving corporation is the same entity as the merged corporation and is considered to have been actually named in any document which took effect prior to the merger.” Id. at *1, citing Landino v. Bank of America, 52 A.D.3d 571, 861 N.Y.S.2d 683 (2d Dep’t 2008); Barclay’s Bank of New York, N.A. v. Smitty’s Ranch, Inc., 122 A.D.2d 323, 504 N.Y.S.2d 295 (3d Dep’t 1986). Capital One’s vice president’s affidavit attesting to the fact that plaintiff is the successor by merger to North Fork demonstrated its entitlement under the New York Banking Law to bring this motion just as North Fork would have been entitled before the merger. Additionally, the court agreed with the plaintiff that the 2007 guarantees were given in consideration of both past and future extensions of credit, and thus were enforceable under New York General Obligations Law Section 5-1105 and applied to the 2009 note.  

The court concluded that the plaintiff was entitled to summary judgment in lieu of complaint pursuant to CPLR Section 3213 with pre-judgment interest as requested.