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Chemical Bank v. Meltzer, 1999 N.Y. Int. 0066 (May 4, 1999).

DEBTOR-CREDITOR - SURETY - SUBROGATION


ISSUE & DISPOSITION

Issue

Whether a guaranty should be read alone in determining whether a party is a surety entitled to subrogation.

Disposition

No. Where the guaranty is a integrated part of a complex transaction, it must be read together with the accompanying documents in determining status as a surety.

SUMMARY

Bruce G. Meltzer was a principal in Major Building Products Wholesalers, the lessee of a facility to be constructed by the Brookhaven Industrial Development Agency. Major defaulted on the lease payments, which had been earmarked to pay off a $1.1 million IDA bond. The bond went into default, as well, after which Chemical Bank sued Meltzer, who had guaranteed the bond. He, in turn, sought to be subrogated to the bank's rights as a creditor.

New York County Supreme Court awarded Chemical Bank a judgment against Meltzer of $428,180, plus $14,592 in attorney's fees, denying the right of subrogation. The Appellate Division, First department, affirmed, concluding that Meltzer's payment did not entitle him to subrogation of the first mortgage because he was not a surety.

The Court of Appeals reversed. It held that in reaching the conclusion that Meltzer was not a surety, the lower courts erroneously relied on the contradictory language of one of several instruments the guaranty. According to the Court, when the guaranty is read in conjunction with the bond purchase agreement, lease, assignment and mortgage each is incorporated into the guaranty by specific reference it is clear that Meltzer has suretyship status. As a surety, Meltzer is entitled to the right of subrogation.