Court Opinion

ID: 5887821
Source: CourtListenerOpinion
Date Created: 2022-01-13 02:38:19.579324+00
Date Added: 2024-06-11T08:45:14.702645
License: Public Domain

Fein and Ellerin, JJ.,
dissent in part in a memorandum by Ellerin, J., as follows:
Since I find that issues of fact exist concerning the individual defendants’ satisfaction of the conditions terminating their guarantees, I would affirm the denial of the motion and cross motion for summary judgment.
Plaintiffs advanced $150,000 to defendant Bluegrass Elk-horn Coal Corporation (Bluegrass) in exchange for notes aggregating that amount and bearing interest of 10% per annum issued by Bluegrass on November 17, 1980. The notes were convertible into common stock of the company within one year of issue.
Individual defendants Daniel Broder and John Malesko, the principals of the private closed corporation Bluegrass, personally guaranteed the notes that Bluegrass issued to the plaintiffs. Each guarantee included a provision terminating it and releasing the individuals conditioned upon the occurrence of certain events. The condition here at issue states: "The Company [Bluegrass] obtaining, within 60 days from the date of issue of this Note, additional equity and/or debt financing in an amount not less than $250,000 in the aggregate”.
Bluegrass never made payments to the plaintiffs under the notes and subsequently the Kineons brought this action *985against both Bluegrass and the individual guarantors. Plaintiffs obtained a judgment against the corporation, which remains unsatisfied, and, in the instant motion seek summary judgment against the individual defendants on the guarantees. Defendants cross-moved for summary judgment dismissing the complaint, claiming that the condition was satisfied and the guarantees extinguished.
The defendants point to several transactions as satisfying the condition that the corporation obtain "equity and/or debt financing” in the amount of $250,000 within 60 days. Pertinent here is the individual defendants’ assertion that their execution and delivery of promissory notes in the amount of $250,000 to the corporation on December 31, 1980 in exchange for promissory notes from the corporation to them constituted "debt financing” within the meaning of the condition of the guarantees.
Plaintiffs assert that this exchange was merely a paper transaction, a sham and a fraud, and that the corporate veil should be pierced to invalidate the transaction. They also claim that since no cash was immediately transfused into the corporation the exchange of promissory notes cannot constitute "financing”. However, these claims should not be summarily resolved on the papers submitted on these motions, which present triable issues of fact requiring a trial.
The notes issued to the Kineons indicate that their advance of cash to Bluegrass may well have been in the nature of an investment in this recently formed corporation rather than a straight loan, as evidenced by the convertible nature thereof. Viewing the personal guarantees executed by Broder and Malesko and the termination clauses in that context, it would appear that the guarantees were designed to secure the plaintiffs’ investment should the company not continue to operate and grow. The acquisition of additional financing by the corporation would, of course, alternatively furnish the corporation the wherewithal to continue its operations and provide the plaintiffs’ investment a fair opportunity for growth, and the delivery of the individual defendants’ promissory notes to Bluegrass provided that opportunity. They represent the commitment of Broder and Malesko to inject more capital into the corporation so as to sustain its continued operation. The claim that this transfer of notes was a paper or sham transaction is not proven on these papers. Although Broder and Malesko were the sole shareholders of Bluegrass, they were under no obligation to further capitalize the corporation. The identity of the corporation as a separate entity must be respected and the *986showing on the papers submitted on the motion is insufficient to establish, for purposes of granting summary judgment, that these promissory notes constituted self-dealing or that we are otherwise required to pierce the corporate veil.
As has ofttimes been noted, in order to grant summary judgment it must clearly appear that no material and triable issue of fact is presented and that where there is any doubt as to the existence of such issues or where the issue is "arguable”, summary judgment should be denied. (Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 404). Here, the individual defendants have demonstrated that they did actually pay over $250,000 in cash into the corporation during 1981, evidenced by a series of canceled checks and records of wire transactions, all claimed to be pursuant to the promissory notes. It is also undisputed that the corporation was enabled to continue to operate by virtue of these cash contributions. Plaintiffs claim that as these payments were not made within 60 days of the Kineon convertible notes they cannot constitute " 'financing’ within sixty days” within the meaning of the termination clauses of the guarantees. However, the promissory notes to which these cash payments are purportedly referable were executed and delivered within 60 days. It is precisely because the language of the guarantees is ambiguous in this respect that the resolution of this issue must await trial.
Similarly, the references to the claims in the subsequent letters exchanged between the parties, in an apparent good-faith effort to settle the matter, also fail to provide the conclusive proof necessary to warrant summary judgment in light of the intimate relationship between the individual defendants and the corporation of which they were the sole managing officers.