Court Opinion

ID: 5887807
Source: CourtListenerOpinion
Date Created: 2022-01-13 02:38:17.178481+00
Date Added: 2024-06-11T08:45:14.434015
License: Public Domain

Kupferman, J. P.,
dissents in a memorandum as follows: I dissent and would reverse to deny the cross motion to stay the action.
In January 1981, plaintiff-appellant Arnold Goodridge, a principal and 50% shareholder of an electronics supply firm, Components Plus, Inc. (Old CPI), sold his interest in the company to defendant-respondent and third-party plaintiff Frank Fernandez, who became the firm’s sole shareholder and principal. In exchange therefor, Old CPI made a cash payment *946to Goodridge, assumed certain of his obligations, and incurred various deferred obligations. These deferred obligations included, inter alia, (1) payment, pursuant to an employment agreement among Goodridge, Old CPI and Fernandez, to plaintiff-appellant New Wave Electronics, Inc. (New Wave), a consulting firm wholly owned and controlled by Goodridge; (2) monthly payments to Goodridge under a promissory note issued by Old CPI in favor of Goodridge; and (3) payment to Goodridge pursuant to a consulting agreement among Old CPI, New Wave and Fernandez.
The instant action arose out of a guarantee which Fernandez executed in favor of Goodridge and New Wave to guarantee payment of the Old CPI obligations. It provided in part: "This Guarantee shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (i) the validity, regularity or enforceability of the Stock Purchase Agreement, the CP [Old CPI] Note, the Employment Agreement, the Consulting Agreement, or any of the Obligations * * * (iv) any defense, setoff or counterclaim which may at any time be available to or be asserted by CP against Goodridge or Consultant, or (v) any other circumstance whatsoever (with or without notice to or knowledge of CP or the Guarantor) which constitutes, or might be construed to constitute, in bankruptcy or in any other instance, an equitable or legal discharge of CP for the Obligations or of the Guarantor under this Guarantee.” (Emphasis added.)
Fernandez later sold Old CPI to third-party defendant the Harvey Group, Inc. (Harvey), which merged Old CPI into one of its subsidiary companies, Neboc, Inc. The newly formed company retained the name of Components Plus, Inc. (New CPI). As part of the merger agreement, Harvey agreed to indemnify Fernandez on the Old CPI obligations and the guarantee.
New CPI assumed the obligations of Old CPI until September 1982, when, due to a discovery of improprieties allegedly committed by Goodridge and Fernandez while they were principals of Old CPI, it stopped making the payments on those obligations. Litigation ensued as a result of the terminated payments.
In December 1982, Goodridge and New Wave commenced actions in New York State Supreme Court based on the promissory note and the employment and consulting agreements. These were removed to the United States District Court for the Southern District of New York and consolidated *947as one action. In August 1984, Goodridge and New Wave commenced the instant action against Fernandez based on his unconditional guarantee. Fernandez impleaded Harvey based on the indemnification agreement.
This appeal is from so much of an order which granted Fernandez’ cross motion to stay the instant action until a final determination has been made in the pending Federal action. Special Term found the parties and circumstances surrounding the instant action to be the same as those in the Federal litigation. That court determined that resolution of the Federal action would, in effect, be dispositive of the issues in the case at bar.
The majority is affirming Special Term’s stay of the instant action. I disagree based on the terms of the guarantee. None of the issues before the Federal court bears directly on this action inasmuch as the guarantee of payment, by its terms, is enforceable regardless of the enforceability of the agreements guaranteed by Fernandez. Moreover, the guarantee itself is not at issue in the Federal action. (See, Hope’s Windows v Albro Metal Prods. Corp., 93 AD2d 711, 712, appeal dismissed 59 NY2d 968.)
Fernandez contends that the guarantee was obtained by fraudulent means. Although fraud in the inducement is a defense to a guarantee or surety (57 NY Jur, Suretyship and Guaranty, § 86), it is unavailable to the guarantor where the guarantee is absolute and unconditional (Citibank v Plapinger, 66 NY2d 90, 92), as is the case here. Not only does the language of the instant guarantee preclude Fernandez from asserting such a defense (Citibank v Plapinger, supra, at p 92), but his failure to specifically raise such a defense in his answer, pursuant to CPLR 3018 (b), forecloses him from arguing the fraud defense at this juncture. Plaintiffs-appellants should therefore not be prohibited from proceeding with their motion for summary judgment on the guarantee.