| Greenwich Capital Fin. Prods., Inc. v Negrin |
| 2010 NY Slip Op 04638 [74 AD3d 413] |
| June 1, 2010 |
| Appellate Division, First Department |
| Greenwich Capital Financial Products, Inc.,Appellant, v Metin Negrin, Respondent. |
—[*1] Deutsch, Metz & Deutsch LLP, New York (Alfred N. Metz of counsel), forrespondent.
Order, Supreme Court, New York County (Bernard J. Fried, J.), entered September 3, 2009,which denied plaintiff's motion for summary judgment and granted defendant's cross motion forsummary judgment dismissing the complaint, unanimously modified, on the law, the crossmotion denied with respect to the cause of action based on the Guaranty of Recourse Obligations(Recourse Guaranty), that cause of action reinstated, plaintiff's motion granted with respect to it,and the matter remanded for calculation of damages and entry of judgment, and otherwiseaffirmed, without costs.
Plaintiff entered into a loan agreement with Lexin Celebration III LLC (Lexin), pursuant towhich Lexin borrowed funds for a condominium conversion project in Florida. The loan wasnonrecourse as to Lexin, except with respect to particular acts and occurrences defined in section10.1 as "Borrower's Recourse Liabilities," such as failure to pay real estate taxes, and "SpringingRecourse Events," such as bankruptcy. The loan agreement also required Lexin to make certainpayments to plaintiff, to be held in a subaccount for the purpose of paying taxes and insurance,as set forth in section 3.3. Simultaneously with execution of the loan agreement, defendantNegrin executed two guaranties, the Recourse Guaranty, which refers to the borrower's recourseobligations under section 10.1, and the Special Payment Guaranty, which refers to the borrower'spayment obligation under section 3.3.
On the stated maturity date of November 1, 2007, Lexin did not pay the principal amountdue, and it thereafter failed to make a payment of about $1.2 million, demanded by plaintiffpurportedly pursuant to section 3.3 for payment of real estate taxes, or to pay the real estate taxeswhen they became due on March 31, 2008. Plaintiff paid the real estate taxes in order to preserveits lien priority, demanded that Negrin reimburse it as guarantor of Lexin's special payment andrecourse obligations, and commenced the instant action to recover against Negrin under bothguaranties.
The motion court dismissed both claims, without considering the terms of the guaranties, onthe ground that Lexin was not contractually obligated to pay real estate taxes after the statedmaturity date of the loan, and therefore Negrin's liability was not triggered under either guaranty.This was error since it is undisputed that the loan agreement expressly required Lexin to pay[*2]real estate taxes on its property throughout the "Term" of theloan, which is defined to mean "the entire term of this Agreement, which shall expire uponrepayment in full of the Debt and full performance of each and every obligation to be performed"by Lexin. Since Lexin did not pay the debt in full on the stated maturity date of the loan, itscontractual obligation to pay real estate taxes continued even after it defaulted.
Under the Recourse Guaranty, Negrin agreed "absolutely and unconditionally" to pay"Guaranteed Obligations," defined as "(i) from [and] after the date of the accrual of any ofBorrower's Recourse Liabilities and (ii) from and after the date that any Springing RecourseEvent occurs, payment of all the Debt as and when the same is due in accordance with the LoanDocuments." The guaranty refers to the loan agreement for the definition of capitalized terms.Plaintiff contends that defendant's obligation under the Recourse Guaranty was triggered whenLexin failed to pay real estate taxes, resulting in accrual of a Borrower's Recourse Liabilityunder section 10.1. Defendant, arguing that "and" signals that both conditions must occur, arguesthat his liability could be triggered only if both a Borrower's Recourse Liability accruesand a Springing Recourse Event had also occurred.
The guaranty must be read in the context of the loan agreement, which was executedsimultaneously (see Components Direct v European Am. Bank & Trust Co., 175 AD2d227, 230-231 [1991]; see Hirsch v Rifkin, 166 AD2d 293, 294 [1990]), and in a mannerthat accords the words their "fair and reasonable meaning," and achieves "a practicalinterpretation of the expressions of the parties" (Duane Reade, Inc. v Cardtronics, LP, 54 AD3d 137, 140 [2008]).Put otherwise, a "contract should not be interpreted to produce a result that is absurd,commercially unreasonable or contrary to the reasonable expectations of the parties" (Matter of Lipper Holdings v TridentHoldings, 1 AD3d 170, 171 [2003] [citations omitted]).
In this case, interpreting the two clauses in the definitional section of the Recourse Guarantyas referring to the two distinct categories of borrower's recourse obligations that are separatelydefined in section 10.1 of the loan agreement produces a commercially reasonable and practicalresult (see 111 Debt Acquisition LLC v Six Ventures, Ltd., 2009 WL 414181, *7-9,2009 US Dist LEXIS 11851, *18-27 [SD Ohio 2009]). In contrast, Negrin's argument that thetwo clauses are conjunctive, so that his liability is triggered only when and if a SpringingRecourse Event, such as bankruptcy or unauthorized transfer of the property were to occur,depends on "formalistic literalism" (Duane Reade, Inc. at 144), ignores common sense,and could lead to absurd results that would leave the first clause without meaning. Construingthe Recourse Guaranty to give it a fair and commercially reasonable meaning, the guarantor'sliability was triggered when Lexin failed to pay real estate taxes, resulting in the accrual of aBorrower's Recourse Liability under section 10.1 of the loan agreement.
Plaintiff's claim to recover on the Special Payment Guaranty, however, was correctlydismissed since Lexin fulfilled its contractual obligations to make the two payments requiredunder section 3.3, one at the time of execution of the loan agreement and a second on November1, 2006. A third payment would have been required only if the borrower elected to extend theterm of the agreement for an additional year, which did not occur. Plaintiff relies on a clause insection 3.3, which permitted it to require Lexin to make additional monthly contributions if itreasonably determined that the amount in the subaccount was insufficient to pay taxes comingdue. However, reading that clause in the context of section 3.3 as a whole, it is evident that itprovided a mechanism for interim adjustments to the required deposits, and cannot be read toextend the [*3]subaccount arrangement beyond the statedmaturity date of the loan. Concur—Gonzalez, P.J., Sweeny, Acosta, Renwick andRomÁn, JJ. [Prior Case History: 24 Misc 3d 1245(A), 2009 NY Slip Op51890(U).]