First International Bank of Israel, Ltd. v. L. Blankstein & Son, Inc.

Appellate Division of the Supreme Court of New York

First International Bank of Israel, Ltd. v. L. Blankstein & Son, Inc.

88 A.D.2d 501, 33 U.C.C. Rep. Serv. (West) 1422, 449 N.Y.S.2d 737, 1982 N.Y. App. Div. LEXIS 16625

Appellate Division of the Supreme Court of the State of New York·Decided May 4, 1982·Published·Cited by 7 cases

Opinions

Order, Supreme Court, New York County (Riccobono, J.), entered August 4, 1981, denying plaintiff-appellant’s motion for summary judgment in lieu of a complaint, reversed, on the law, and summary judgment granted in favor of plaintiff-appellant against defendants-respondents, with costs. Order, Supreme Court, New York County (Kirschenbaum, J.), entered September 17, 1981, denying plaintiff-appellant’s motion for summary judgment in lieu of a complaint, reversed, on the law, and summary judgment granted in favor of plaintiff-appellant against defendants-respondents, with costs; the cross claim of the defendants-respondents Klein asserted against defendant-respondent Siegman is severed, summary judgment denied therein, the parties directed to serve formal pleadings, and the matter remanded for further proceedings. From 1976 on, plaintiff bank lent money to diamond merchant Siegman on the credit of his accounts receivable, which often took the form of promissory notes made payable to Siegman by other diamond merchants to whom he had sold gems. One such note had been issued to Siegman in the principal sum of $50,000 by L. Blankstein & Son, Inc. Another note had been issued to Siegman in the sum of $71,550 by Jacob Klein & Son, Inc.

*Siegman in turn indorsed the notes in blank and delivered them and almost all of his inventory of diamonds to plaintiff bank in consideration of a loan. The notes were dishonored when plaintiff presented them for payment, and the bank has moved for summary judgment in lieu of complaint (CPLR 3213). The diamond merchants argue [502]*502that the bank was not a holder in due course because it took the notes with full knowledge that they were merely to record a transaction upon which plaintiff could proceed, as was a general custom in the diamond business, to provide a line of credit to Siegman. However, the note speaks for itself; it is an unconditional promise to pay, completely naked of any condition. Parol evidence is inadmissible to vary the terms of the written instrument. (Leumi Fin. Corp. v Richter, 17 NY2d 166, 173.) While the defendants argue that the note was really given as collateral whereby the payee would release the maker and cancel the note upon the happening of a future event, parol evidence of this condition subsequent is inadmissible to directly contradict the terms of the note. (Jamestown Business Coll. Assn. v Allen, 172 NY 291; Smith v Dotterweich, 200 NY 299, 306-307.) “The necessity of applying the parol evidence rule to a condition subsequent operating to defeat liability upon a note is most clearly demonstrated where it lies within the power of the obligor to determine whether or not he is relieved from payment.” (22 NY Jur, § 633, p 145.) Before parol evidence will be received to complete the entire agreement of the parties, of which the note may only be part, the writing must not appear upon inspection to be a complete contract, embracing all the particulars necessary to make a perfect agreement and designed to express the whole arrangement between the parties, and the parol evidence must be consistent with and not contradictory to the written instrument. (Jamestown Business Coll. Assn, v Allen, supra, at p 295.) The instrument presented by the bank is complete. “The note itself requires the defendants to make payment and nothing else.” (Hogan & Co. v Saturn Mgt., 78 AD2d 837.) Even if the notes were issued to Siegman in exchange for his promise of future diamond delivery, the existence, and even the subsequent breach, of an executory promise does not create a defense against a holder in due course. (Uniform Commercial Code, § 3-304, subd [4], par [b]; Aryeh v Eastern Int., 54 AD2d 850.) Furthermore, plaintiff, a secured creditor, did not have to first proceed against the diamonds as collateral before seeking satisfaction of the debt by enforcing the terms of the note. (Uniform Commercial Code, § 9-501, subd [1].) The motions should have been granted. Concur — Kupferman, Sandler, Markewich and Asch, JJ.

Abraham Klein, who signed the note, is personally liable since there is no statement therein that he was signing in his representative capacity. (Uniform Commercial Code, § 3-403, subd [2].)

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Order, Supreme Court, New York County (Riccobono, J.), entered August 4, 1981, denying plaintiff-appellant’s motion for summary judgment in lieu of a complaint, reversed, on the law, and summary judgment granted in favor of plaintiff-appellant against defendants-respondents, with costs. Order, Supreme Court, New York County (Kirschenbaum, J.), entered September 17, 1981, denying plaintiff-appellant’s motion for summary judgment in lieu of a complaint, reversed, on the law, and summary judgment granted in favor of plaintiff-appellant against defendants-respondents, with costs; the cross claim of the defendants-respondents Klein asserted against defendant-respondent Siegman is severed, summary judgment denied therein, the parties directed to serve formal pleadings, and the matter remanded for further proceedings. From 1976 on, plaintiff bank lent money to diamond merchant Siegman on the credit of his accounts receivable, which often took the form of promissory notes made payable to Siegman by other diamond merchants to whom he had sold gems. One such note had been issued to Siegman in the principal sum of $50,000 by L. Blankstein & Son, Inc. Another note had been issued to Siegman in the sum of $71,550 by Jacob Klein & Son, Inc.

*Siegman in turn indorsed the notes in blank and delivered them and almost all of his inventory of diamonds to plaintiff bank in consideration of a loan. The notes were dishonored when plaintiff presented them for payment, and the bank has moved for summary judgment in lieu of complaint (CPLR 3213). The diamond merchants argue [502]*502that the bank was not a holder in due course because it took the notes with full knowledge that they were merely to record a transaction upon which plaintiff could proceed, as was a general custom in the diamond business, to provide a line of credit to Siegman. However, the note speaks for itself; it is an unconditional promise to pay, completely naked of any condition. Parol evidence is inadmissible to vary the terms of the written instrument. (Leumi Fin. Corp. v Richter, 17 NY2d 166, 173.) While the defendants argue that the note was really given as collateral whereby the payee would release the maker and cancel the note upon the happening of a future event, parol evidence of this condition subsequent is inadmissible to directly contradict the terms of the note. (Jamestown Business Coll. Assn. v Allen, 172 NY 291; Smith v Dotterweich, 200 NY 299, 306-307.) “The necessity of applying the parol evidence rule to a condition subsequent operating to defeat liability upon a note is most clearly demonstrated where it lies within the power of the obligor to determine whether or not he is relieved from payment.” (22 NY Jur, § 633, p 145.) Before parol evidence will be received to complete the entire agreement of the parties, of which the note may only be part, the writing must not appear upon inspection to be a complete contract, embracing all the particulars necessary to make a perfect agreement and designed to express the whole arrangement between the parties, and the parol evidence must be consistent with and not contradictory to the written instrument. (Jamestown Business Coll. Assn, v Allen, supra, at p 295.) The instrument presented by the bank is complete. “The note itself requires the defendants to make payment and nothing else.” (Hogan & Co. v Saturn Mgt., 78 AD2d 837.) Even if the notes were issued to Siegman in exchange for his promise of future diamond delivery, the existence, and even the subsequent breach, of an executory promise does not create a defense against a holder in due course. (Uniform Commercial Code, § 3-304, subd [4], par [b]; Aryeh v Eastern Int., 54 AD2d 850.) Furthermore, plaintiff, a secured creditor, did not have to first proceed against the diamonds as collateral before seeking satisfaction of the debt by enforcing the terms of the note. (Uniform Commercial Code, § 9-501, subd [1].) The motions should have been granted. Concur — Kupferman, Sandler, Markewich and Asch, JJ.

Abraham Klein, who signed the note, is personally liable since there is no statement therein that he was signing in his representative capacity. (Uniform Commercial Code, § 3-403, subd [2].)

First International Bank of Israel, Ltd. v. L. Blankstein & Son, Inc., 88 A.D.2d 501, 33 U.C.C. Rep. Serv. (West) 1422, 449 N.Y.S.2d 737, 1982 N.Y. App. Div. LEXIS 16625 (N.Y. Ct. App. 1982).

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88 A.D.2d 501 (First International Bank of Israel, Ltd. v. L. Blankstein & Son, Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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