Strict Enforcement of Non-Waiver Provisions in Promissory Note Agreements: Establishing a Clear Judicial Standard for Oral Modifications

Introduction

In the case of Nunzio Pace, et al. v. Raymond F. Robertson, et al. (2025 N.Y. Slip Op. 1100), the Supreme Court of New York, Second Department, addressed critical issues concerning the enforcement of promissory notes and personal guaranties within the context of non-waiver clauses. The dispute arose from a transaction involving the sale of an auto repair business and the corresponding realty. Central to the litigation was the interpretation of contractual clauses that precluded any oral modifications of the contract obligations, including the waiver of default rights. The plaintiffs, Nunzio and Filomena Pace, sought recovery on two promissory notes and two personal guaranties, while the defendants argued that the plaintiffs’ acceptance of late payments, allegedly during financial hardship amid the COVID-19 pandemic, constituted a waiver of their rights.

Summary of the Judgment

The judgment, issued on February 26, 2025, upheld most of the lower court's orders but modified the award of attorneys' fees. Specifically:

The preliminary order granting summary judgment in favor of the plaintiffs was largely affirmed, establishing that the plaintiffs had a prima facie entitlement to judgment under CPLR 3213.
The defendants' appeal from the preliminary order was dismissed, as the right of direct appeal had terminated with the subsequent judgments.
Two judgments issued on December 19, 2022, which awarded the plaintiffs sums aggregating to more than $615,000 in total (covering both the stock purchase and realty purchase promissory notes), were affirmed.
However, the judgment awarding $43,319.09 in attorneys’ fees was reversed, remanding the issue for a separate hearing on the matter. The court found that awarding fees for prosecuting a claim for an award of attorneys’ fees (i.e., “fees on fees”) was not supported by a clearly unambiguous contractual or statutory provision.
A single bill of costs was awarded to the plaintiffs.

Analysis

Precedents Cited

The Judgment draws extensively on established precedents in the realm of promissory note litigation and waiver doctrines. Notably:

Porat v. Rybina and LUGLI v. JOHNSTON: These cases underpin the application of CPLR 3213, emphasizing that a plaintiff must show an “unequivocal and unconditional obligation” to repay. The court relied on these cases to determine that the plaintiffs had met their burden once the existence of clear promissory notes was established.
Yong Lee v. Nextcom Constr., Inc.: This case was cited to clarify the shifting burden of proof. Once the plaintiff establishes a prima facie entitlement, the defendant must then raise a genuine, triable issue of fact. The court found that the defendants’ evidence regarding alleged waiver was insufficient under this standard.
Hadden v. Consolidated Edison Co. of N.Y. and subsequent cases such as Cavayero v. Cavayero and Stassa v. Stassa: These decisions elaborate on the concept of waiver, highlighting the necessity for a clear demonstration of intent to relinquish contractual rights. The court applied these principles in determining that isolated late payment acceptances did not constitute a waiver.
Del Vecchio v. Del Vecchio and related rulings: These cases reinforce the rule that prohibitions on oral modifications must be strictly enforced unless clear and unequivocal evidence of part performance exists. In this case, the evidence provided by the defendants regarding alleged oral modifications proved to be insufficient.
Matter of Lillian G. [Steven G.-Gary G.] and Ig Second Generation Partners, L.P. v. Kaygreen Realty Co.: These cases were critical in determining that an award of attorneys' fees for “fees on fees” is impermissible unless expressly provided for. The court found no contractual or statutory backing for such an award.

Legal Reasoning

The court’s legal reasoning is anchored in two principal areas: the interpretation of the promissory notes and guaranties regarding waiver, and the propriety of awarding attorneys' fees beyond the primary claim.

Prima Facie Entitlement and Waiver: Under CPLR 3213, the plaintiffs successfully demonstrated the existence of binding promissory notes and personal guaranties that required unconditional repayment. The defendants' contention that the plaintiffs waived their right to declare default by accepting late payments was critically analyzed. The court determined that early or late payments, made under financial hardship, do not automatically equate to a waiver of contractual rights. Instead, the waiver must be an intentional and unequivocal relinquishment of such rights, a threshold not met by the defendants’ submissions.
Oral Modifications and Written Prohibitions: The Judgment unequivocally states that where a written agreement contains a prohibition against oral modifications, any such modification is unenforceable unless accompanied by part performance that clearly evidences the modification. The evidence presented by the defendants, including emails and verbal assertions regarding late payments during the COVID-19 pandemic, did not rise to this standard.
Attorneys' Fees ("Fees on Fees") Contention: The lower court's decision to award attorneys’ fees for the prosecution of the claim for attorneys’ fees was scrutinized with reference to prior rulings. It was determined that such an award must be explicitly supported either by a contractual provision or a statute, neither of which applied in this case. Consequently, the award was reversed, and the matter remitted for further proceedings exclusively concerning reasonable attorneys’ fees without the “fees on fees” component.

Impact

The implications of this judgment are significant for both creditors and debtors in similar commercial transactions:

Enhanced Clarity on Waiver and Non-Modifiability: The decision reinforces the sanctity of written agreements, particularly the non-waiver clauses. Parties engaging in promissory note agreements and guaranties must ensure that any modifications to contractual obligations are executed in strict compliance with the written terms. This enhances predictability and consistency in contractual enforcement.
Burden of Proof in Waiver Claims: The court’s analysis emphasizing a clear manifestation of intent to waive contractual rights sets a higher bar for defendants. In future litigation, defendants will need to provide compelling evidence to suggest that a waiver occurred, rather than relying on circumstantial evidence such as irregular payment patterns.
Limitations on Attorneys’ Fee Awards: By reversing the “fees on fees” award without explicit contractual support, the court has delineated the boundaries of fee recovery. This serves to limit expense inflation in litigation and underscores the need for clear statutory or contractual language when fee-shifting is intended.

Complex Concepts Simplified

Several legal nuances in the judgment deserve further clarification:

Prima Facie Entitlement: This term refers to the establishment of a basic, undisputed right to recover the debt based solely on the existence of a valid, clearly written obligation. Once established, the burden shifts to the defendant to demonstrate any valid reason why the judgment should not be enforced.
Waiver: In contractual law, a waiver is when one party intentionally gives up a known right. The court clarified that such a waiver must be explicit and unmistakable. Simply accepting late payments, without more, does not necessarily imply that the party waives its right to enforce the original terms.
Oral Modification: This concept is about changing the terms of a contract through spoken agreement rather than a written amendment. However, many contracts include clauses that state any modifications must be in writing. The judgment emphasizes that adherence to the written form is crucial unless there is clear and undeniable evidence (part performance) of an alternative agreement.
Attorneys’ Fees ("Fees on Fees"): This idea involves awarding fees not only for the primary litigation but also for the costs incurred in seeking recovery of other fees. The decision underscores that such additional fees require an express contractual provision or clear statutory authorization.

Conclusion

The Nunzio Pace, et al. v. Raymond F. Robertson, et al. decision establishes a robust precedent on two key fronts. First, it underscores the strict enforcement of non-waiver provisions in contractual agreements, making it clear that any deviation from enforcing default rights must be supported by unequivocal evidence. Second, it sets clear limits on the scope of attorneys’ fee awards, particularly cautioning against the imposition of “fees on fees” without explicit contractual or statutory authority.

Overall, this judgment enhances the certainty and predictability of commercial transactions by reaffirming that deviations from written contractual obligations require clear, convincing evidence. It thus serves as an important guide for parties engaged in similar agreements and offers a precedent that will likely influence future litigation in the realm of contract enforcement and fee recovery.