Written By: Harry C. Beatty, Esq. and Joshua B. Katz, Esq.
Kent, Beatty & Gordon, LLP
New York, New York
It is common commercial practice to draft a separate promissory note evidencing the debt created in a transaction. New York State offers an attractive expedited procedure for collecting on such a note, and also for domesticating and collecting on a foreign default judgment, that could be of interest to attorneys from other jurisdictions.
In many jurisdictions, collecting on an instrument for money owed, such as a promissory note, can be a lengthy process. In addition to the delays and inefficiencies inherent in all litigation, when a defendant indisputably owes money on an unambiguous note, his only “defense” may be to delay collection in hopes that the creditor will grow frustrated and agree to compromise on the amount owed or, worse, so that he can secrete assets.
Typically, the first step in collecting on a note is to prepare a summons and complaint and attempt to effect service on the defendant, which can be difficult if the defendant chooses to be evasive. After service is effected, the defendant typically has anywhere from 20 to 60 days to respond initially to the complaint. The initial response may be a dilatory tactic, such as a request for more time to respond, or a meritless motion to dismiss that nevertheless delays matters while the court sorts out the issues raised in the motion. And although many jurisdictions, in theory, permit the plaintiff to move for summary judgment at any time, the reality is that many judges are loath to entertain summary judgment motions before the defendant has had an opportunity to conduct discovery, even if his defenses are highly dubious.
New Yorkprovides an attractive alternative to this morass. Briefly stated, pursuant to Section 3213 of New York’s Civil Practice Law and Rules (“CPLR 3213”), if an action is based upon an “instrument for the payment of money only” or upon a judgment, the plaintiff may commence the action by immediately moving for summary judgment on the instrument or judgment. Thus, instead of preparing a formal complaint, the plaintiff files and serves a summons and motion for summary judgment. The defendant then is required to submit opposition to the motion as his initial response. The judges who sit inNew York’s commercial parts are familiar with this procedure, and generally will not permit a defendant to delay judgment by raising spurious defenses in opposition. Furthermore, even if the court does deny the motion, the moving and answering papers generally are treated as the complaint and answer, so the case can proceed as an ordinary action even if the motion fails.
This procedure can be particularly useful if you wish to domesticate a default judgment against a debtor that has a bank account or other attachable assets inNew York, as many commercial firms do. Saving time in those circumstances can be the difference between collecting on a judgment, and having a defendant who has rendered himself judgment proof.
If you will be suing on an instrument, the question of whether the action is based upon an instrument for the payment of money only is crucial. The plaintiff must be able to establish the elements of its case by proving only, first, the existence of the instrument and, second, the amount of money owed. If anything needs to be proved beyond the existence of the instrument and a failure to make the payments called for by its terms, the procedure might lead into objections and detours about the propriety of invoking CPLR 3213, and end up creating delay instead of expediting recovery. The rule thus should be used only in clear cut cases. There is much case law debating what qualifies as an instrument for the payment of money only, but courts generally agree that the two quintessential examples are promissory notes and dishonored checks.
Happily, it is possible to structure transactions to maximize the availability of this procedure. In an acquisition, for example, an instrument for deferred purchase price can be drafted to be uncluttered with reference to extraneous documents or other factors. Indeed, an express statement might be added to the effect that the instrument is one for the payment of money only within the meaning of CPLR 3213. AndNew Yorkis very liberal in enforcing a forum selection clause in commercial contracts, so a provision can be inserted into the instrument, and the other transactional documents, choosingNew Yorklaw and submitting to jurisdiction in appropriateNew Yorkcourts, to ensure that the expedited procedure is available.
If you would like an assessment about whether the facts of your case might be amenable to invoking CPLR 3213, contact Jack A. Gordon of this firm’s litigation department. If you would like advice in structuring a transaction to maximize the potential availability of CPLR 3213, contact Harry C. Beatty of our corporate department.