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Chemical Bank v. Meltzer

712 N.E.2d 656 (N.Y. 1999)

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Chemical Bank v. Meltzer

New York Court of Appeals

712 N.E.2d 656 (N.Y. 1999)


In 1984, the Industrial Development Agency of the Town of Brookhaven, New York (IDA) offered Major Building Products Wholesalers, Inc. favorable financing to encourage Major to build a facility in Brookhaven. IDA issued a $1.1 million bond, which it sold to a bank that eventually merged with Chemical Bank (plaintiff). IDA granted the bank a first mortgage on the property and the facility. IDA took title to the facility and entered a lease agreement for the premises with Major. IDA then assigned the lease to the bank as additional security on the bond. The lease provided that Major would occupy the facility for 15 years and make monthly rent payments to the bank in an amount equal to the monthly principal and interest owed on the bond. Once the bond was fully paid, Major would buy the facility for $1. Major, its principal, and its president, Bruce Meltzer (defendant), also executed a guaranty in which they agreed to guarantee payment on the bond if IDA defaulted. The guaranty provided that Meltzer and the other signatories were each liable to the bank “as a primary obligor and not merely as a surety.” In 1991, the bank made another loan to Major, which it secured through a second mortgage on the facility. Meltzer was not involved in the second mortgage and did not guarantee payment under the second loan. In 1993, Major defaulted on its lease payments, and IDA defaulted on the bond. The bank brought an action against Meltzer and Major to enforce the guaranty. Meltzer offered to tender the full amount due if he could be subrogated to the bank’s rights under the 1984 bond-purchase agreement. The bank refused. Meltzer moved to compel the bank to honor Meltzer’s common-law right of subrogation and assign the bond and first mortgage to him if he paid the full amount due. The trial court held that Meltzer was a guarantor and not a surety, which meant that he did not have a right of subrogation. The Appellate Division affirmed, and Meltzer appealed to the New York Court of Appeals.

Rule of Law


Holding and Reasoning (Wesley, J.)

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