New Jersey, the other jurisdiction with a significant interest in this litigation, is the place of performance of the contract because the note requires payment at plaintiff's residence in that state. From the foregoing, it is apparent that New York has more significant contacts with this dispute. Therefore New York law governs the guarantees and the note.
Under New York law, guarantees are governed by the rules generally applicable to contracts. If, in a written instrument a person "guarantees" payment of another's debt and describes with precision the obligation to which the person is bound, the instrument is a guaranty. See Chicago Title & Trust Co. v. Fox Theatres Corp., 91 F.2d 907, 909 (2d Cir. 1937); Bank of Italy v. Merchants' Nat'l Bank, 236 N.Y. 106, 140 N.E. 211, cert. denied 264 U.S. 581, 68 L. Ed. 860, 44 S. Ct. 331 (1923). Consideration for a guaranty must be expressly or impliedly stated in the instrument, and the instrument must be delivered to and accepted by the guarantor. See Sun Oil Co. v. Heller, 248 N.Y. 28, 161 N.E. 319 (1928); Hauswald v. Katz, 216 A.D. 92, 214 N.Y.S. 705 (1st Dept. 1926). Defendants' guarantees, described supra, satisfy all these requirements. Since liability under the terms of a guaranty depends on that established by the underlying obligation, defendants' liability will be governed by the terms of the promissory note.
The promissory note is a negotiable instrument governed by Article 3 of the Uniform Commercial Code (the "U.C.C."). Article 3 requires that the note be signed by the maker, contain an unconditional promise to pay a sum certain, and be payable to order or bearer, in order to be a negotiable instrument. See U.C.C. § 3-104(1). The note is signed by Tarulli and contains no conditions on payment. The note's designation that it is payable to "Nari Lakhaney or order" is sufficient to meet the requirement that it be payable to order. See id. § 3-110(1).
The sum payable is also required to be certain for the note to be a negotiable instrument. See id. §§ 3-104(1), 3-106. The note provides for interest payable "from the date hereof until August 1, 1990 [unreadable] at the rate of $ 5,000 per month until payment in full." This is written in by hand in the margin. This writing could be interpreted to mean that the interest was to be $ 5,000 per month only until August 1 or that interest was to be $ 5,000 per month until payment in full. The "until payment in full" phrase makes the rate ambiguous. Below this writing, the interest rate is designated numerically as 2% per month.
See Facts, supra. The U.C.C. provides that handwritten terms control typewritten or printed ones. See U.C.C. § 3-118(b). Hence at least until August 1, the $ 5,000/month controls the 2%/month rate. After this date, the handwritten notation is ambiguous as to whether the $ 5,000 per month rate continues or not. However, the U.C.C. also provides that if words are ambiguous then figures control words. See id. § 3-118(c). Since the 2% per month rate is written as a figure and the ambiguous "until payment in full" statement is written in words, the 2% rate controls for the period after August 1. Therefore the interest rate meets the requirement that its sum be certain.
Article 3 also requires the note to be payable on demand or at a definite time to be negotiable. See id. § 3-104(1). The note, however, does not designate a time of payment or indicate that it is payable on demand. Such a note is presumed to be payable on demand unless there is some indication that a date of payment was intended and mistakenly omitted. See U.C.C. § 3-108; Comment 2, U.C.C. § 3-115; Nuri Farhadi, Inc. v. Anavian, 58 A.D.2d 546, 396 N.Y.S.2d 26 (1st Dept. 1977). Since there is no indication of this, the note is payable on demand.
A negotiable instrument must also be supported by consideration, see U.C.C. § 3-408, and there is a common law requirement of delivery. However, both lack of consideration and lack of delivery are made defenses by the U.C.C. See U.C.C. §§ 3-408, 3-306(c). The defendant has the burden of establishing them once the signature on the instrument has been proven genuine. See U.C.C. § 3-307(2). Signatures are presumed to be valid. See id. § 3-307(1)(b). As this motion is unopposed, defendants have not challenged signature, consideration or delivery. Therefore the instrument is presumed to be valid in all these respects.
Presentment, dishonor and notice of nonpayment, to the extent that they may have been applicable to the note, are waived by the terms of the guarantees. See Ex. E, para. 3; Ex. F, para. 3. Such waivers are enforceable. See Security Nat. Bank v. De Joy, 34 A.D.2d 839, 312 N.Y.S.2d 525 (2d Dept. 1970). In addition, there is no indication that liability has been discharged.
The only remaining issue is whether the post-default rate of interest, 2 per cent per month, is usurious. Under New York law, notes providing for interest in excess of the maximum rate prescribed by statute are void. See N.Y. Gen. Oblig. Law §§ 5-501(1),(2), 5-511 (McKinney 1989). However, corporations are prohibited from interposing a defense of usury in any action. See id. § 5-521. This prohibition extends to guarantors of loans to corporations, except where a loan is actually made to the individual guarantor to be used to discharge the guarantor's personal obligations. See Am-Elm Realty, Inc. v. Stivers, 55 A.D.2d 349, 390 N.Y.S.2d 732 (4th Dept. 1977). In the present case there is no indication that plaintiff's loan was made to defendants for their personal use rather than to 5550 Corp., therefore the defense of usury is not available to the defendants in this action.
Since the note appears to be a valid negotiable instrument and no defenses to enforcement have been established, plaintiff is entitled to enforce it against the defendants. See U.C.C. § 3-301.
Under the terms of the note, plaintiff is entitled to collect (a) $ 510,000 plus $ 60,000 interest accrued up to March 8, 1990, (b) $ 5,000 per month interest from March 8, 1990 to August 1, 1990, and (c) 2 per cent per month interest thereafter, compounded monthly, as follows:
Principal $ 510,000.00
Interest to March 8, 1990 60,000.00
Interest from March 8 to August 1, 1990 23,871.00
Interest from August 1, 1990 to February 1, 1992 254,323.00
Total $ 848,194.00
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