Leader v. Dinkler Management Corp.
| Decision Date | 07 July 1967 |
| Citation | 20 N.Y.2d 393,283 N.Y.S.2d 281,230 N.E.2d 120 |
| Parties | , 230 N.E.2d 120 I. Theodore LEADER, Appellant, v. DINKLER MANAGEMENT CORPORATION, Respondent et al., Defendant. |
| Court | New York Court of Appeals Court of Appeals |
Joseph Eckhaus, New York City, for appellant.
Alan S. Kramer, Arthur B. Kramer and Jerome Lipper, New York City, for respondent.
The plaintiff in this action, I. Theodore Leader and the defendant Joseph Durst were the promoters and controlling stockholders of the Leader-Durst Corporation. The corporation was organized in December, 1961. Shortly thereafter the Leader-Durst Corporation made a public offering of a large block of its Class A stock at a price of $5.00 per share. In order to insure compliance with the registration statement filed with the Securities and Exchange Commission, Leader and Durst found it necessary to acquire personally 80,000 shares of the corporation's Class A stock. Finding themselves without the necessary funds with which to make the purchase, Leader and Durst sought to borrow $400,000 from the Dinkler Management Corporation (herein called Dinkler).
An agreement to this effect was negotiated by the defendant Durst and Dinkler. Dinkler agreed to the loan, but only if it were made to a corporation, and, for this purpose, Leader and Durst formed the Leatex Investing Corporation on May 8, 1962. The authorized capital of Leatex consisted of 200 shares of common stock, of which 50 shares were issued to Leader and Durst respectively. The remaining shares were not issued. Durst was elected president and Leader vice-president of the corporation. Leatex opened a bank account at the Manufacturers Hanover Trust Company.
On May 9, 1962 Dinkler agreed to lend Leatex the sum of $400,000. The agreement provided that the loan would be closed the following day. On May 10, 1962, Dinkler delivered a check for $400,000 payable to Leatex. In return Dinkler received a note from Leatex for $480,000 payable on November 10, 1962. Both Leader and Durst were listed as guarantors of the note. Some 160,000 shares of the Leader-Durst Corporation's Class A stock were pledged as security for the loan. Of these 80,000 were pledged by Leatex and 80,000 by Leader and Durst. Leatex had purchased its 80,000 shares with the proceeds of the loan agreement.
The execution of the loan agreement was approved and ratified at a special meeting of the shareholders of Leatex. At the closing of the deal there was delivered to Dinkler a certified copy of the resolutions of approval, along with an opinion letter from counsel for Leatex and the two shareholders, stating that the corporation had the authority to borrow the $400,000 and that the note and collateral security given to secure the loan were valid and legally binding.
In addition to the afore-mentioned agreements, Leader and Durst agreed to grant Dinkler an irrevocable option exercisable on or before December 31, 1964 to purchase 16,000 shares of Class B (voting) stock of the Leader-Durst Corporation at 25 cents per share.
The loan was repaid in several installments. In the course of the payments, the lender agreed to a reduction in the interest charged from $80,000 to $55,000, and, therefore, the total sum repaid was $455,000. After the loan was repaid, Dinkler gave notice of its intention to exercise its option under the loan agreement to purchase 16,000 shares of the Class B (voting) stock.
The plaintiff, concerned that the exercise of the stock option might result in the seizure of control of the corporation by Dinkler and Durst, entered into negotiations with Dinkler. These negotiations resulted in an agreement by which Dinkler agreed to give up its option to purchase the Class B stock in return for 6,667 shares of Class A stock valued at $4.00 per share and a general release of all claims including the one based upon usury.
Six months later Leader commenced an action, under section 5--513 of the General Obligations Law, Consol.Laws c. 24--A, for the return of interest paid in excess of 6% And for a return of the 6,667 shares of Class A stock. The plaintiff claimed that the release was entered into as a result of 'economic duress' and was, therefore, not enforcible.
Some two years after the commencement of the action and after pretrial testimony had been taken, Dinkler moved for summary judgment. The relief, denied by Special Term on the ground that the motion was not timely made, was granted by a unanimous Appellate Division (Second Department).
The Appellate Division held that
In addition, the court found that the six-month delay in the date on which the release had been entered into waived any alleged claim of economic duress.
Setting aside for a moment the question of the enforcibility of the release, the first question to be considered is the contention that '(t)he loan was made by respondent to appellant and defendant Durst, individually, though in form to a corporation in order to hide the fact that respondent exacted an illegal rate of interest'. It is urged by the plaintiff that triable issues exist which bar the grant of summary judgment.
After reviewing the affidavits and applicable law in this area and accepting as true the allegations contained in the plaintiff's complaint, affidavits and testimony before trial, we reach the conclusion that there were no triable issues and that summary judgment was properly granted. 1
The appellant asserts that the purpose of the loan was to further the individual interest of the appellant and defendant Durst--the individual shareholders; that the loan was 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 Leatex was simply a shell corporation that had neither assets nor business of any kind. In addition, it appears from allegations in the complaint that some $130,000 of the $455,000 was paid directly to Dinkler by the individual shareholders. Although the remainder appears to have been paid by Leatex, there is little question that the funds for the repayment came from the individual shareholders.
One of the early and significant cases in this area is Jenkins v. Moyse, 254 N.Y. 319, 172 N.E. 521. The case involved an action to cancel and discharge of record a mortgage given by a corporation on real property transferred to it by the plaintiff, the ultimate borrower. The plaintiff sought the relief on the ground that the mortgage was executed for a sum greatly in excess of the amount actually...
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