Hoffman v. Lee Nashem Motors, Inc.

• Decision Date: 02 November 1967
• Parties: , 231 N.E.2d 765 George R. HOFFMAN et al., Erspondents, v. LEE NASHEM MOTORS, INC., et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 68

285 N.Y.S.2d 68

20 N.Y.2d 513, 231 N.E.2d 765

George R. HOFFMAN et al., Erspondents, v. LEE NASHEM MOTORS, INC., et al., Appellants.

Court of Appeals of New York.

Nov. 2, 1967.

Michael Berman and David H. Berman, New York City, for appellants.

Richard Bakalor, New York City, for respondents.

KEATING, Judge.

George R. Hoffman and Margaretha Wilkens commenced this action to recover sums of money owed to them by the defendants and evidenced by three promissory notes. The maker of each note is the corporate defendant, Lee Nashem Motors, Inc. The indorser of each note is the individual defendant, Leland Nashem.

Summary judgment on the notes in favor of the plaintiffs was granted by Special Term. The Appellate Division (First Department) affirmed, one Justice dissenting.

The sole question on this appeal is whether the defendants have raised a triable issue of fact, which should have precluded the granting of summary judgment in favor of the plaintiffs. We conclude that summary judgment was properly granted on the first note but that issues of fact are raised with respect to the other two notes.

The first note, in the amount of $18,250, is payable to the plaintiff Hoffman's order. It was made on February 11, 1965 and became due on October 22, 1965. For purposes of this appeal we shall assume the correctness of the defendants' contention that this note represented repayment of principal plus 11% Interest on a loan made by Hoffman.

The defendants claim that although the loan was made, in form, to the corporation Lee Nashem Motors, Inc., it was really made to Leland Nashem as an individual. Thus, they argue, the form of the loan constituted an attempt to avoid the usury laws (General Obligations Law, Consol.Laws, c. 24--A, §§ 5--501, 5--511). The defendant Nashem's affidavit does not state, however, any underlying facts upon which the conclusion is based that the loan was really made to him as an individual.

In any event, the issue which Nashem seeks to raise is clearly governed by our decision in Leader v. Dinkler Mgt. Corp., 20 N.Y.2d 393, 283 N.Y.S.2d 281, 230 N.E.2d 120. In that case, the affidavits alleged 'that the loan (in question had been) made to a corporation whose certificate was filed on the day preceding the loan agreement And which was organized for the specific purpose of avoiding the usury laws; and that (it) * * * was simply a shell corporation that had neither assets nor business of any kind' (supra, p. 398, 283 N.Y.S. p. 284, 230 N.E.2d p. 122; emphasis supplied). We also noted that the individual shareholders, as guarantors, had repaid a large portion of the loan.

Nevertheless, we held that summary judgment upholding the loan was properly granted. Our opinion makes it clear that a loan to a corporation, even a 'dummy' corporation formed to avoid the usury laws and to accept the usurious loan, is valid. (See, also, Jenkins v. Moyse, 254 N.Y. 319, 172 N.E. 521, 74 A.L.R. 205.) Thus, even if the defendants could prove upon a trial what was alleged in Leader v. Dinkler (supra), the first note nevertheless would be valid under our holding in that case. Accordingly, the order of the Appellate Division affirming the granting of summary judgment with respect to the first note should be affirmed.

The second and third notes present a somewhat different problem. The second note, in the amount of $16,000, is payable to Hoffman's order, while the third note, in the amount of $1,000, is payable to the order of Margaretha Wilkens, Hoffman's secretary. The defendants assert that both of these notes were made in payment for a loan of $16,000 which bore a separate 5% Interest. For the purpose of this appeal, we shall assume the correctness of the defendants' contention that the interest on the loan for which these notes were made amounted to 17.5%.

The second loan of $16,000 was made in the form of a check payable to Leland Nashem. Moreover, it appears that the $16,000 never went into the corporate account of Lee Nashem Motors, Inc. Leland Nashem indorsed the $16,000 check to the Irving Trust Company on behalf of the Lee Nashem Agency, Ltd., a separate corporation. Thus, since the loan was made to Leland Nashem individually, the...