Gelber v. Kugel's Tavern

• Decision Date: 26 June 1952
• Docket Number: No. A--151,A--151
• Citation: 89 A.2d 654,10 N.J. 191
• Parties: GELBER et al. v. KUGEL'S TAVERN, Inc. et al.
• Court: New Jersey Supreme Court

Page 191

10 N.J. 191

89 A.2d 654

GELBER et al. v. KUGEL'S TAVERN, Inc. et al.

No. A--151.

Supreme Court of New Jersey.

Argued June 16, 1952.

Decided June 26, 1952.

Jack L. Cohen, Newark, argued the cause for appellants.

Joseph Kraemer, Newark, argued the cause for respondents.

The opinion of the court was delivered by

WILLIAM J. BRENNAN, Jr., J.

At the close of the proofs upon trial in the Essex County Court before a jury the court granted the motion of defendant Louis Kugel for judgment upon his counterclaim for the recovery of usurious bonuses. Plaintiff appealed to the Appellate Division, and we certified the appeal of our own motion.

The plaintiffs, Irving Gelber, a member of the bar of this State, and Morris Safris, trading as M & I Discount Co., are money lenders operating their business out of Gelber's law offices. The defendant Louis Lugel and his wife owned a tavern at 118 Clinton Place in Newark. In April 1948 Louis Kugel's brother Nathan was opening a new business, the Hub Grill, at 66 Market Street in Newark, and Louis Kugel wanted to buy an interest in that business for his son. He did not have the $13,000 in cash required for the purpose. Through Nathan he was put in contact with the plaintiffs and applied to them for a loan of $13,000. The loan was made June 16, 1948, not in his name, but was made ostensibly to a corporation which was organized subsequent to the application and incorporated the Clinton Place tavern business as Kugel's Tavern, Inc. The loan on its face was for one year in the amount of $15,900 with interest at 6% Secured by a chattel mortgage on the tavern. The actual loan was $13,000, the $2,900 excess being a bonus for the loan. Fifty-two notes of $100 each due weekly and a final note for $10,700 due in one year, all endorsed by Louis Kugel, his wife and son, were delivered. The corporation was organized by plaintiffs' attorney, Kalman Friedman, who also prepared the chattel mortgage and the notes and in whose office the transaction was closed.

Kugel invested the $13,000 in the Hub Grill, but the venture failed. The weekly notes were paid as they became due, but it was not possible to pay the $10,700 note when it matured. Kugel therefore went again to plaintiffs and asked for additional money. Plaintiffs agreed to make a new loan if the $10,700 balance of the old loan was paid from the proceeds of the new loan and if there was also paid from the proceeds a $1,400 debt owed to plaintiffs by the Hub Grill incurred before defendant bought his interest in that tavern. Plaintiffs also demanded a bonus of $3,400. On June 9, 1949 the second loan was made, again ostensibly to the corporation, in the face amount of $19,300 secured by a new chattel mortgage and to be repaid in one year. The loan was to be repaid by payment of 52 weekly notes of $150 each and a final note of $11,500. The aggregate of $19,300 again called for interest at 6%. Plaintiffs retained or received $15,500 of the proceeds to cover the $10,700 balance on the old loan, the $1,400 owing by the Hub Grill, and $3,400 as bonus. The weekly notes were paid as they became due until April 1950 when Jugel advised plaintiffs there were no funds to make further payments. Plaintiffs refused an extension and instead referred Kugel to the Arrow Discount Co., another money lending concern, where Kugel obtained a loan of $13,000 out of which he paid the $12,700 balance owing plaintiffs on the second loan. After Kugel's successful application for the loan from Arrow Discount Co., plaintiffs agreed to advance an additional $3,600, upon payment of a $900 bonus. The third loan was consummated, again in the name of the corporation, in the amount of $4,500 to be repaid by payment of 105 weekly postdated checks of $30 each and a final postdated check of $1,350. Twenty-three of the $30 checks were paid when there was a default. Plaintiffs exercised their option to accelerate the due dates of the remaining postdated checks and brought suit against the corporation as maker and against the defendants Louis Kugel and his wife and son as endorsers to recover the balance of $3,810 due thereon plus interest. The defendant Louis Kugel counterclaimed for recovery of the $7,200 which was the aggregate of the bonuses paid on the three loans. At the close of the trial counter-motions for judgment were made and the trial court entered a judgment in plaintiffs' favor for the $3,810 plus interest, and a judgment on the counterclaim in favor of defendant Louis Kugel for the $7,200.

It will be noted that the total amount of loans actually received from plaintiffs was $21,800 for which bonuses totaling $7,200 were charged and in addition 6% Interest was charged on the $29,000 total.

The trial court ruled that the loans although in form made to the corporation were, upon the proofs, in fact made to defendant Louis Kugel individually and that the corporation was merely a device for the purpose of attempting to evade the usury laws of the State. R.S. 31:1--1 et seq., N.J.S.A. In our view, that, on this record, was an issuable question of fact which should have been submitted to the jury for determination.

R.S. 31:1--6, N.J.S.A., provides that 'No corporation shall plead or set up the defense of usury to any action or suit brought against it to recover damages or enforce a remedy on any obligation executed by said corporation.' It is generally recognized, however, that an individual may recover usurious payments on loans made in fact to the individual though in form disguised as loans to a corporation and evidenced by obligations executed by it to hide the fact that the lender has exacted an illegal rate of interest from the real borrower. Anam Realty Co. v. Delancey Garage, Inc., 190 App.Div. 745, 180 N.Y.S. 297 (App.Div.1920); Sherling v. Gallatin Improvement Co., 145 Misc. 734, 260 N.Y.S. 229 (Sup.Ct.1932), reversed, but on other grounds, 237 App.Div. 535, 261 N.Y.S. 747; 237 App.Div. 891, 261 N.Y.S. 751 (App.Div.1933), appeals dismissed 262 N.Y. 641, 188 N.E. 101 (Ct.App., 1933); First Nat. Bank v. American Near East & Black Sea Line, Inc., 119 Misc. 650, 197 N.Y.S. 856 (Sup.Ct.1922); Arona Holding Corp. v. West Twenty-fifth St. Realty Corp., 198 N.Y.S. 660 (City Ct.N.Y. 1923). If, however, the loans are actually made to the corporation direct, usury is not a defense even to the endorsers of the corporate obligations issued for the loans. Silberman v. Isaac Cades, Inc., 107 N.J.Eq. 574, 153 A. 473 (E. & A.1931); Jenkins v. Moyse, 254 N.Y. 319, 172 N.E. 521, 74 A.L.R. 205 (Ct.App.1930); Union Dime Savings Inst. v. Wilmot, 94 N.Y. 221 (Ct.App.1883); Dunham v. Cudlipp, 94 N.Y. 129 (Ct.App.1883); Bradley v. Selengut, 269 App.Div. 209, 54 N.Y.S.2d 457 (App.Div.1945); Kings Mercantile Co., Inc., v. Cooper, 199 Misc. 381, 100 N.Y.S.2d 754 (Sup.Ct.1950); Werger v. Haines Corporation, 94 N.Y.S.2d 691 (Sup.Ct.1949), affirmed 277 App.Div. 1108, 101 N.Y.S.2d 361 (App.Div.1950), affirmed 302 N.Y. 930, 100 N.E.2d 189 (Ct.App.1951); Rabinowich v. Eliasberg, 159 Md. 655, 152 A. 437 (Ct.App.1930).

There was in Kugel's testimony support for his contention that plaintiffs fraudulently caused the corporation to be created to subvert the usury laws. He testified that the...