relieved him of liability under preceding guarantees. Second, he asserts that "all parties understood that the guaranty extended to the particular line of credit only for which the guaranty related to and was sought by the Bank," Chisena Aff. P3, and thereby a question of material fact exists as to his intent when he signed the guarantee dated July 26, 1990. Third, Lee asserts that "no legal consideration of any kind or nature [was] given and/or received by [him] with (sic) plaintiff pertaining to the alleged July 26, 1990 'Continuing Guarantee.'" Lee Aff. P10.
Lee first argues that the Bank, by its requests for renewed guarantees established a course of conduct that irrevocably established a limit upon the guarantors' obligation contrary to the wording of the guarantees. This is simply untenable under basic principles of contract law. The guarantees he signed contain a provision that "[no] modification or waiver of the provisions of this guaranty [may] be effective unless in writing." The fact that the Bank requested new guarantees did not render previous guarantees ineffective in the absence of written notification to that effect. "Plaintiff's action in requesting that defendants sign an additional guarantee [does not] warrant application of the doctrine of estoppel." Nanuet Nat'l Bank v. Rom, 96 A.D.2d 898, 466 N.Y.S.2d 68 (2d Dep't 1983).
As a second defense, Lee alleges that the guarantees "extended to the particular line of credit only." In support of this representation, again contrary to the language of the guarantees, he has presented only affirmations that such a representation was made by an official of LCL, who obviously had no authority to bind the Bank.
As an experienced businessman and as a substantial stakeholder in LCL (through his holdings of Pan Pac), Lee was in a particularly good position to understand the importance of the routine availability of continued credit for LCL's working capital requirements represented by the Bank's renewals of LCL's outstanding indebtedness. As the New York Court of Appeals stated in Chemical Bank v. Sepler: "Unless the parties to a continuing guarantee provide otherwise in the writing, such a guarantee is not limited to the life of loans executed contemporaneously therewith, . . . and generally cannot expire by mere conduct, . . . change of circumstances, . . . or lapse of time." 60 N.Y.2d 289, 294, 469 N.Y.S.2d 609, 457 N.E.2d 714 (1983) (citations omitted).
In a case with far more compelling facts for the defendant than are presented here, where the debtor corporation had repaid its original, guaranteed indebtedness prior to the Bank's extension of the credit upon which the default occurred, the Appellate Division for the Second Department enforced the wording of the guarantee despite the plaintiff's claim of termination: "Parol evidence cannot be utilized to contradict or vary the express terms of the writing, . . . the alleged oral agreement cannot operate to terminate defendants' obligation and does not create a triable issue of fact." Nanuet Nat'l Bank v. Rom, 96 A.D.2d 898, 466 N.Y.S.2d 68 (1983) (citations omitted). Parol evidence of representations by Fan Wong, an officer of the debtor, who was not ever an agent of the Bank, is clearly insufficient to raise an issue of material fact sufficient to defeat summary judgment.
Lee further asserts that a question of material fact exists as to his intent when he signed the guarantee dated July 26, 1990. He asserts that he signed the guarantee in blank in or about early December 1990 at the request of Fan Wong, the president of LCL, because "[Wong] had to have on file, as requested by plaintiff, a blank 'Continuing Guarantee' signed by me." Lee Aff. P6. Lee asserts that Wong "stated that this document . . . had no relationship of any kind or nature to the $ 700,000.00 line of credit which plaintiff had extended to LCL . . . but pertained to the past lines of credit [he] had guaranteed . . ." Id. See also Yoi Kin Li Aff. P5, Lee Affirm. in Opp'n, Ex. F. Jack Lee is a sophisticated businessman who knew - or should have known - what he signed. Lee, not the Bank, should bear the risk he created by signing a guarantee in blank for his business associate, Fan Wong.
Under New York law, which controls here, relief from enforcement of a guarantee because of misrepresentations is frowned upon. Under circumstances far more sympathetic than presented by Lee's signing a blank guarantee for an associate, the Appellate Division, Second Department, in Dunkin' Donuts of America, Inc. v. Liberatore, 138 A.D.2d 559, 526 N.Y.S.2d 141 (1988), dismissed a wife's claim for relief from enforcement of a guarantee of her husband's business undertaking where she claimed she did not know the significance of the document, stating:
It has been uniformly held that if the facts represented are not matters peculiarly within the representor's knowledge, and the other party has the means available to him of knowing by the exercise of ordinary intelligence the truth or real quality of the subject of the representation, he must make use of those means or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations (citations omitted).
Id. at 560.
As was outlined above with respect to Li's defenses, the law is clear as to the continuing validity of guarantees regardless of the intent of the guarantors to cease to be obligated. Obviously the purpose of guarantees is to secure loans. Only when the loan becomes problematic do its guarantees become operative. Permitting guarantors, who are often in a far better position to perceive problems than are lending institutions, to withdraw because they become aware of reasons for concern, would deprive guarantees of all value.
Moreover, Lee did far less than Mrs. Li to give the Bank formal notice that he wished to end the guarantor relationship. Lee provided no written notice to the Bank. Mrs. Li substantially conformed with the contractual language of the guarantee with regard to terminating the guarantor relationship. She at least provided written notice that would have been effective to cut off liability for future increases in the line of credit, had any been extended.
As noted in the discussion with respect to defendant Li, contrary to both defendants' assertions, this case does not present a new extension of credit to LCL subsequent either to Mrs. Li's attempt to cancel her guarantee or Mr. Lee's alleged refusal to sign a new guarantee in July 1990. Both defendants' 1989 guarantees more than adequately support the Bank's recovery in this action.
Lee also appears to base a number of his assertions on the factually erroneous proposition that the line of credit was increased to $ 700,000 in July 1990. The Bank has, however, produced an affidavit from the loan officer and documentary evidence that the credit line had been extended to $ 700,000 by February of 1989, one month prior to Lee's execution of a guarantee whose validity he does not contest. Thus the language of Corn Exchange Bank Trust Co. v. Gifford, supra, is applicable here as it was to Mrs. Li's defense: "[The guarantee] looked into the future and anticipated new or additional transactions. Renewals of the present existing indebtedness thereafter would be included in these words." 268 N.Y. at 158.
Lee's third defense is his assertion of a lack of consideration for the guarantee. His position as a stakeholder in LCL, even if indirectly through his holdings in Pan Pac, makes this a particularly inapt argument.
However, even if Lee had a less direct economic relationship with LCL, the lack of consideration is not a valid defense to enforcement of a guarantee. In Atlantic Bank of N.Y. v. J.D. Bertolini Indus., Ltd., the Appellate Division stated: "The law is clear, that 'where, as here, a guarantee is continuing, applicable to after-acquired obligations and terminable only by writing, it may not be said to have terminated due to lack of further consideration.'" 183 A.D.2d 591, 584 N.Y.S.2d 25 (1992) (quoting Chemical Bank v. Sepler, 60 N.Y.2d 289, 294, 469 N.Y.S.2d 609, 457 N.E.2d 714 (1983)). The Appellate Division also dismissed this defense in Dunkin' Donuts, supra:
It is well established that 'where one party agrees with another party that, if such party for a consideration performs a certain act for a third person, he will guarantee payment of the consideration by such person, the act specified is impliedly requested by the guarantor to be performed and, when performed, constitutes a consideration for the guarantee'
138 A.D.2d at 561 (1988) (citations omitted).
Here especially, where Lee was a majority shareholder of a corporation holding a one-third interest in LCL, he has no basis for asserting a lack of consideration in guaranteeing LCL's debt.
Finally, Lee's own description of his purpose in signing the 1990 guarantee in blank - "pertaining to past lines of credit [he] had guaranteed" - is sufficient to eliminate any triable issue of fact. Lee Aff. P6. Even if the 1990 guarantee were only a "continuing guarantee" for past lines of credit, that alone is sufficient (indeed, more than sufficient, given the continuing nature of the prior guarantees) to make him liable for LCL's deficiency.
Accordingly, P.T. Bank Central Asia's motion for summary judgment against Ching Fun Li and Jack Lee and for attorney's fees and costs pursuant to the terms of the guarantees are granted. Ching Fun Li's cross-motion for summary judgment and sanctions is denied.
Dated: Brooklyn, New York
October 11, 1995
David G. Trager
United States District Judge