On October 24, 2023, Justice Ruchelsman of the Kings County Commercial Division issued a decision in Gabriel v. 1580 President LLC, 2023 NY Slip Op. 33773(U), dismissing a fraud claim based on an alleged oral promise to guaranty of loan, explaining:
On November 4, 2.0.22 the lender, JPMorgan Chase Bank issued a letter which required each plaintiff to provide a guaranty as a condition that would then permit assumption of the mortgages. The defendants concede that condition constituted a modification of the material business terms in the Existing Mortgage and would have been appropriate grounds in which to cancel both contracts. However, the defendants argue the plaintiffs agreed to that condition and still sought to obtain the lenders approval.
The only evidence presented supporting the plaintiff’s interest in continuing with the application is contained within the affidavit of Kenneth Rosenblum Esq., the managing member of both 1580 President LLC and Lana LLC. Mr. Rosenblum states that “in my discussions with Plaintiff Arthur Gabriel, he told me that the Purchasers agreed to assume the loans under the terms provided by Chase, including the repayment guaranty”. Thus, essentially, the defendants argue that the plaintiff orally agreed to waive Section 9. 2. L 5 of both contracts. However, Section 17 of both contracts states that “this Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the party to be charged or by its agent duly authorized in writing or as otherwise expressly permitted herein”. Thus, there can be no reasonable reliance upon any oral communications allegedly made by the plaintiffs since a writing was required by the contracts themselves. Indeed, it is well settled that a merger clause which states the agreement represents the entire understanding between the parties is to require full application of the parole evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing. In this case both contracts state that “this Agreement (including
all exhibits annexed hereto) contains the entire agreement between the parties with respect to the subject matter hereof”. Thus, parole evidence cannot be used to modify or vary the terms of a written agreement that contains a merger clause. Moreover, there is no ambiguity regarding the agreement. that might permit oral modifications.Furthermore, a guaranty of a debt underlying a mortgage is a special promise to answer for the debt, default or miscarriage of another person which is unenforceable under the Statute of Frauds unless it is embodied in a written note or memorandum subscribed by the party sought to be charged. In this case there is no written guaranty at all. Rather, the defendants assert the plaintiffs orally promised they would be bound by a future guaranty each of them intended to execute. However, as noted, without a signed guaranty there can be no such existing guaranty binding any party and thus there can be no such reliance.
(Internal quotations and citations omitted).