Cusick v. Ifshin

• Decision Date: 08 June 1972
• Citation: 70 Misc.2d 564,334 N.Y.S.2d 106
• Parties: , 11 UCC Rep.Serv. 113 Charles CUSICK and James Cusick v. Stephen N. IFSHIN and Henry Mendler, as Administrator of the Estate of Marc Mendler.
• Court: New York City Court

Page 106

334 N.Y.S.2d 106

70 Misc.2d 564, 11 UCC Rep.Serv. 113

Charles CUSICK and James Cusick v. Stephen N. IFSHIN and Henry Mendler, as Administrator of the

Estate of Marc Mendler.

Civil Court of City of New York, New York County, Special

Term, Part I.

June 8, 1972.

Stanley M. Klein, New York City, for plaintiffs.

Fred Lichtblau, New York City, for defendant Henry Mendler.

Simeon F. Gross and Elliot S. Gross, New York City, for defendant Stephen N. Ifshin.

BENTLEY KASSAL, Judge.

Motions #155 and #156, cross-motions for summary judgment, are consolidated and both decided herein.

The facts: On March 28, 1969, Carmona Construction Company, Incorporated, by its president, Marc Mendler, acknowledged receipt of a loan of $10,000 from plaintiffs and of another $10,000 from Daniel Ifshin, not a party here. In exchange, the corporation promised to pay the principal in two years with interest at the rate of 20% Per annum. In addition, the corporation promised that if certain specified real estate were sold 'by the present contract vendees thereof' during the two-year period, the loan was to become immediately due and the lenders were to receive an 'additional capital payment of $4,000.00 which will be a capital gain.'

In the same instrument Marc Mendler and Stephen N. Ifshin, agreed to 'personally guarantee the obligation' of the corporation and 'jointly and severally, to be responsible for payment of the sums owed pursuant to such loan.'

Marc Mendler died on February 9, 1971 and Henry Mendler, his father, as Administrator of his estate, is co-defendant here with Stephen N. Ifshin, co-surety on the loan.

On July 30, 1971, Stephen N. Ifshin alone entered into an agreement with plaintiffs whereby his obligation, as guarantor, was extended from March 28, 1971 to October 31, 1971 in consideration of the payment by him by August 10, 1971 of $2,000 representing part of the interest due with the balance to be paid by September 10, 1971. The letter covering this understanding and addressed to Ifshin states that it is 'regarding your payment, as guarantor.'

A.

Plaintiffs move under CPLR 3213 for summary judgment against both sureties for $10,000, plus interest from March 28, 1971. There is no claim asserted for the bonus sum or 'additional capital payment', since it is alleged that the real estate was not sold during the stated period.

Between them, the two defendants raise the following objections: (1) that the individual defendants were guarantors of collection and not guarantors of payment, and thus a judgment must first be obtained against the corporation and returned unsatisfied; (2) that the loan was actually made to individuals and not to a corporation and thus is in violation of the usury laws; and (3) that even assuming the loan were made to a corporation, the alleged 'bonus' would in effect be interest and the transaction thus 'criminally usurious,' since the interest exceeded 25%.

(In addition, there is a defense personal to the administrator of the estate of Marc Mendler in which it is asserted that it is released as a matter of law since an extension of payment was granted to the co-surety without its consent. This and the claim of part payment will be discussed in Part B pertaining to this defendant's cross-motion.)

(1)The language of the guarantee is clear and unambiguous in that, by its terms and as a matter of law, the two individuals were guarantors of payment and not collection. (Uniform Commercial Code, § 3--416.) No factual issue has been raised as to the nature of the guarantee, only as to its legal interpretation. Accordingly, plaintiffs may sue the sureties 'without resort by the holder to any other party.' (Uniform Commercial Code, § 3--416(1).) Whether or not the corporation is still in existence (apparently it is) and whether or not it has any funds (apparently it does not) are not relevant to plaintiffs' right to sue the guarantors directly.

(2)The manner in which the original $10,000 was paid to Carmona Construction, Inc. was indeed circuitous; however, despite defendant Mendler's vigorous argument he has not successfully challenged the allegation that the loan was to a corporation: The two checks, (Defendant Mendler's Exhibits 'A--3' and 'A--4'), of which plaintiffs were payees, were endorsed to an intermediary 'Harry Macklowe Special,' who has never been satisfactorily identified. He, in turn, endorsed the checks to Carmona, and the corporation's stamped endorsement shows that the checks were actually deposited in the corporate account. Macklowe thus served merely as a conduit, and it is clear the loan was not to him. Moreover, there is no evidence that the loan was to the individual defendants. Where a loan is made to a bona fide corporation even a 'dummy' corporation formed to receive a usurious loan, the defense of usury may not be interposed by the corporation and thus may not be raised by the sureties or guarantors. Leader v. Dinkler Mgt. Corp., 20 N.Y.2d 393, 283 N.Y.S.2d 281, 23 N.E.2d 120 (1967); Hoffman v. Lee Nashem Motors, Inc., 20 N.Y.2d 513, 285 N.Y.S.2d 68, 231 N.E.2d 765 (1967).

(3)The defense of criminal usury is, however, available to a corporation. (General Obligations Law, sec. 5--521; Penal Law, sec. 190.40.) Criminal usury is committed when a lender knowingly charges interest in excess of 25% Per annum. Defendants argue that the loan is criminally usurious in that the effective annual rate of interest is 30%. This figure is obtained by adding the stated interest rate of 20% Per annum to the 'additional capital payment' of $4,000.00, payable to the lenders under specified circumstances, which amounts to 20% Of the total loan or 10% Per annum. They argue that this 'bonus' arrangement is merely a ruse to avoid the usury laws. Concededly the sale on which this bonus depended never went through, although this fact is not dispositive of the issue.

It has been held that a loan is usurious where the lender is entitled to the return of the principal and the full legal rate of interest plus a bonus to be paid upon a contingency over which the borrower has no control. This contingent right to a bonus is something of value and this value added to the maximum interest results in total interest in excess of the legal rate. Browne v. Vredenburgh, 43 N.Y. 195 (1870); Clarke v. Sheehan, 47 N.Y. 188, 195 (1872); Diehl v. Becker, 227 N.Y. 318, 125 N.E. 533 (1919); Webster v. Roe, 212 App.Div. 756, 210 N.Y.S. 366 (1925), aff. 241 N.Y. 570, 150 N.E. 559; Moore v. Plaza Commercial Corp., 9 App.Div.2d 223, 192 N.Y.S.2d 770 (1959), aff'd 8 N.Y.2d 813, 202 N.Y.S.2d 321, 168 N.E.2d 390; McGee v. Friedman, 138 Misc. 817, 247 N.Y.S. 24 (Sup.Ct., Schenectady Co., 1931). 'Whenever the lender stipulates even for a chance of an advantage beyond the legal interest the contract is usurious, if he is entitled by the contract to have the money lent with the interest thereon repaid to him at all events.' Cleveland v. Loder, 7 Paige Ch. 557, 559, 4 N.Y.Ch.Rep. 273, 274 (1839).

On the other hand, a loan has been deemed not usurious where the money is in fact advanced for the purpose of a joint venture (Salter v. Havivi, 30 Misc.2d 251, 215 N.Y.S.2d 913 (Sup.Ct., N.Y.Co., 1961); Niebuhr v. Schreyer, 13 N.Y.S. 809 (Common Pleas, 1891)), or where the lender is to receive a percentage of profits but no stipulated interest Trask v. Hazazer, 4 N.Y.S. 635 (Super. Ct., N.Y.C.1888), Mueller v. Brennan, 68 N.Y.S.2d 517 (Sup.Ct., N.Y.Co., 1947); Leibovici v. Rawicki, 57 Misc.2d 141, 144--145, 290 N.Y.S.2d 997, 1001 (Civil Ct., N.Y.Co., 1968), aff'd 64 Misc.2d 858, 316 N.Y.S.2d 181), or where there is no certainty that the bonus (e.g., potential profits) plus the stipulated interest will exceed or even equal the legally allowable rate of interest (Richardson v. Hughitt, 76 N.Y. 55, 59 (1879)). See also 32 N.Y.Jur., Interest and Usury sec. 41; Annot'n, 16 A.L.R.3d 475. '. . . (A)n agreement to pay an amount which may be more or less than the legal interest, depending upon a reasonable contingency, is not Ipso facto usurious, because of the possibility that more than the legal interest will be paid.' Hartley v. Eagle Ins. Co., 222 N.Y. 178, 184, 118 N.E. 622, 624 (1918); In re Bechtoldt's Estate, 159 Misc. 725, 289 N.Y.S. 838 (Surr.Ct., Clinton Co., 1936).

In the instant case, the property was not sold. There could hardly have been any 'certainty' that the interest plus bonus would exceed the legal rate of interest (25%). Although the amount of the bonus if realized, was a sum certain, the realization of this amount was not a certainty. In all of the cases involving contingent bonuses, which are cited above as examples of usurious loans, the courts never ascribed or needed to ascribe a value to the contingency since Any value added to a loan on which the full amount of interest was already payable would give the lender consideration above the legally allowable amount.

Although there is a strong presumption against finding usury or criminal usury, which is a class E felony, usurious intent is a question of fact which must be resolved by the trier of fact. Not one of the parties has offered any explanation as to why the sizable sum of $4,000, allegedly dependent on a real estate deal, was included in this loan agreement. Denominating it a 'capital payment' does not make it one. It is substance rather than form which determines whether such a bonus provision is in the nature of a joint venture or other legitimate arrangement, or whether it is merely a cover for exacting a greater sum in interest than the law allows. The question of whether the agreement is fair and reasonable or a mere device to evade the usury statutes cannot be determined summarily on the affidavits of interested parties. This issue necessitates a trial. Hartley v. Eagle Ins. Co., 222 N.Y. 178, 185, 118 N.E. 622, 624 (1918) supra; Graham v. Weiss, 3 Misc.2d 28, 149 N.Y.S.2d 676 (Sup.Ct., Queens Co., 1956); Oleet v. Pennsylvania...