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NY Courts Revisit CPLR 3213 Statute’s Applicability to “Bad Boy” Guarantees

Financial institutions seeking to recover on promissory notes and unconditional guarantees can often obtain quick relief from CPLR 3213, but only if claims are “for the payment of money only.” However, not all guarantees are eligible for expedited treatment under CPLR 3213. The Court of Appeals has long held that even instruments for payment of money do not qualify if too much outside proof is needed. 

Non-recourse carve-out guarantees, sometimes referred to as “bad boy” guarantees, are enforceable only if preceded by a triggering or “springing” event, such as insolvency or bankruptcy of the borrower. Some lenders and lawyers incorrectly cling to older precedent and believe that non-recourse carve-out guarantees do not qualify for expedited treatment because they are either not “for the payment of money only” or the outside proof needed for summary judgment is not sufficiently simple or de minimis under Court of Appeals precedent.

Given recent court developments, it’s time to reconsider these outdated ideas.

Click here to read more in the New York Law Journal.

Lenders should take care in drafting their non-recourse carve-out guarantees so that the repayment obligations are fully separated from any other obligations in the guaranty, and the outside proof needed to enforce the guaranty is as limited as possible."


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