Indosuez v. PandeffIndosuez v. Pandeff
This is an appeal from the grant of a
Plaintiff, Banque Indosuez, a French bank doing business in Switzerland, extended a series of loans in the form of a line of credit to Axa Capital Corporation (524,000 deutschmarks), Sophia Technologies, S.A. ($750,000) and Flexible Computer Corp. ($375,000), as to each of which defendant, Eftim Pandeff, a New York resident and principal therein, signed a letter agreeing to the terms of the line of сredit. The Axa and Sophia loans were collateralized by pledges of Flexible stock. In consideration of the loan to Sophia and plaintiff’s promise to forebear against Axa, by then in default on its loan, defendant, on December 17, 1987, еxecuted a guarantee of Axa’s indebtedness. Thereafter, on August 23, 1989, in exchange for plaintiff’s forebearance with respect to all three loans, defendant executed a superseding joint guarantee unconditionally guaranteeing, to the extent of $1,592,894.50 with interest to June 30, 1989 and costs, payment of the Axa, Sophia and Flexible loans. By express provision, the guarantee was to be governed by Swiss law, plaintiff need not first sue the debtor in default before looking to the guarantor and the guаrantor waived the benefit of any non-Swiss law which would act to prevent repayment.
By early 1990 Flexible had gone into bankruptcy and plaintiff decided to call in the loans, which were in default. When its demand for payment was ignored, plaintiff exercisеd its rights under the joint guarantee and demanded payment from defendant for $1,624,422. Defendant failed to respond and plaintiff commenced this action by service of a summons, notice of motion for summary judgment in lieu of complaint and supporting affidavits.
In thе interim, on April 2, 1990, after notice of default to the debtors and prior to the demand for payment from defendant, plaintiff and Axa, represented by defendant, entered into a written agreement whereby plaintiff, as part of Flexible’s liquidation in bankruptсy, consented to the private sale of Flexible’s assets, the proceeds of which were to be held, pro rata, for the account of the secured creditors, including plaintiff, whose share would be 22.45%.
A minimum upset bid of $100,000 was set and the purchase
Among the numerous defenses raised, only two are relevant to this appeal. In one, a partial defense, defendant contends that one of the three loans underlying the joint guarantee was fully satisfied by plaintiff’s receipt оf its pro rata allocation of the Multicomputer stock. The IAS Court rejected this claim, finding that no evidence had been presented to support such a defense. In his other defense, defendant contends that the loans underlying the joint guarаntee were made in violation of the margin rules under the Securities Exchange Act of 1934 (Securities Exchange Act) and that any guarantee of such an obligation is void under section 29 (b) of the Act (
A plaintiff suing on a guarantee establishes a prima facie case when he shows an obligation for the payment of money under the terms of the instrument and the failure to pay in accordance with such terms. (See, e.g., European Am. Bank v Lofrese,
At the outset, with respect to defendant’s claim that the court lacked subject matter jurisdiction based on his margin rules violation defense, we note that the assertion of a Federal law defense cannot deprive a New York court of the power to adjudicate a complaint, which, as here, is based on common-law principles. As to the question whether the Federal courts have exclusive jurisdiction over a defense based on a Securities Exchange Act violation, an argument which the IAS Court accepted,
This Court, in New York Stock Exch. v Goodbody & Co. (
Turning to the merits of the defense, defendant, as a matter of law, may not plead a violation of Federal regulations governing margin requirements under the Securities Exchange Act to avoid liability under his guarantee. In accordance with the unanimous view of the Federal circuit courts that have considered the issue, defendant lacks the standing to assert such a claim since section 7 (
Since the interposition of an affirmative defense based on a section 7 violation would be the functional equivalent of asserting a cause of action thereunder, such a defense must be rejected. A party who does not have a private right of action under section 7 to seek affirmative relief may not assert a defеnse based on the same violation. (See, Hinnant v American Natl. Bank & Trust Co., 406 So 2d 1206 [Fla App 1981].) Stonehill v Security Natl. Bank (68 FRD 24 [SD NY 1975]) and National Bank v Quest (
We recognize that in this Court’s decision in Berliner Handels-und Frankfurter Bank v Coppola (
Nor, contrary to the IAS Court’s finding, do we believe that defendant’s partial defense based on satisfaction of the Flexible loan should have been summarily rejected. It is, of course, axiomatic that "the payment or satisfaction of the principal obligation discharges the guarantor.” (Union Trust Co. v Willsea,
Accordingly, the order of the Supreme Court, New York County (Beverly S. Cohen, J.), entered May 3, 1991, which, inter alia, granted plaintiff summary judgment in lieu of complaint, and the judgment thereon, entered March 24, 1993, in the sum of $2,028,769.29, should be modified, on the law, to deny summary judgment with respect to the underlying Flexible lоan, to reduce the judgment accordingly and remand for further proceedings on that issue and, except as thus modified, affirmed, without costs or disbursements.
Judgment and order, Supreme Court, New York County, entered on March 24, 1993 and May 3, 1991, respectively,
Notes
Both Alkoff and Western Capital misread Levy v Lewis (635 F2d 960, 967 [2d Cir 1980]) where the court, in stating that "only the federal courts can provide affirmative relief’, was referring to jurisdiction to adjudicate a cause of action under the Securities Exchange Act. Levy, in turn, cited Movielab, Inc. v Berkey Photo (supra), which takes a position contrary to that taken in Alkoff and Western Capital.