Leumi-Financial Corp. v. Richter, LEUMI-FINANCIAL

• Decision Date: 31 March 1966
• Docket Number: LEUMI-FINANCIAL
• Citation: 17 N.Y.2d 166,216 N.E.2d 579,269 N.Y.S.2d 409
• Parties: , 216 N.E.2d 579 CORPORATION, Respondent-Appellant, v. Morton J. RICHTER et al., Appellants-Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 409

269 N.Y.S.2d 409

17 N.Y.2d 166, 216 N.E.2d 579

LEUMI-FINANCIAL CORPORATION, Respondent-Appellant, v. Morton J. RICHTER et al., Appellants-Respondents.

Court of Appeals of New York.

March 31, 1966.

Paul F. Donohue, Albany, for appellants-respondents.

Leo Guzik, Edward H. Lehner and Robert S. Hammer, New York City, for respondent-appellant.

DESMOND, Chief Judge.

On November 15, 1962 plaintiff loaned to defendant Richter $150,000 on a long-form promissory note which stated that interest was to be at the rate of 10% Per year and the payment was to be 'On Demand'. As collateral security plaintiff received 'over the counter' corporate stock (some on November 15 and some, as agreed, a few days later) then valued in the market at $64,600, or a little more than 40% Of the amount loaned. Defendants Wolf, Spilky and Eckhaus signed and delivered to plaintiff their guarantees of payment of the note. The three guarantors are principal officers and stockholders of Wolf Corporation, which deals in real property, and the money was borrowed to finance defendant's purchases of Wolf Corporation stock. Later the pledged stocks sharply declined in price. In April and September, 1963 payments on the note totaling $17,132.78 were made with moneys realized from the sale of some of the Wolf Corporation stock pledged with plaintiff, and another principal payment of $2,867.22 reduced the principal to $130,000 which has not been paid and for which (with interest as hereafter explained) plaintiff obtained against all the defendants the summary judgment here appealed from. Interest on the note was paid to May 1, 1964.

In July, 1964 plaintiff, on service of a summons but no complaint and on affidavits showing the above facts, used the procedure authorized by CPLR 3213 in an action on an 'instrument for the payment of money only' and moved for summary judgment. Defendants by answering affidavits and argument asserted that plaintiff had no valid cause of action. They argued that, despite section 379 of the General Business Law, Consol.Laws, c. 20 (now General Obligations Law, Consol.Laws, c. 24--A, § 5--523) hereafter discussed, this loan was usurious because it was in reality made for one year and not 'On Demand' as written, also because the property pledged as collateral security to the note was worth far less than the amount loaned and because there was other security (the guarantees) not of the kind listed in former section 379 of the General Business Law.

Special Term granted plaintiff a partial summary judgment, awarding it the principal amount unpaid on the note plus 10% Interest but reserving for further disposition plaintiff's claim for a 15% Attorney's fee as provided for in the note. The Appellate Division, by a modification from which plaintiff does not press its appeal, reduced the recovery, holding that after default (date of last payment of interest) interest accrued at the rate of 6%, not 10%. Both courts held that the note complied with section 379 of the General Business Law, and was, therefore, exempt from the 6% Maximum interest or usury law (General Obligations Law, § 5--501) and that defendants' affidavits raised no triable issue.

To begin with, it would seem that any issues presented here are of law, not fact. Section 379 of the General Business Law, which without material change had been on the books since 1882, read thus as of the date the note was given: 'In any case hereafter in which advances of money, repayable on demand, to an amount not less than five thousand dollars, are made upon warehouse receipts, bills of lading, certificates of stock, certificates of deposit, bills of exchange, bonds or other negotiable instruments pledged as collateral security for such repayment, it shall be lawful to receive or to contract to receive and collect, as compensation for making such advances, any sum to be agreed upon in writing, by the parties to such transaction.' No decision is found in this court discussing the genesis and intent of this old statute (but see Wright v. Toomey, 204 N.Y. 661, 97 N.E. 1118, affg. without opn. 137 App.Div. 401, 121 N.Y.S. 721, where the law is explained and validated) but it cannot be doubted that it means just what it says and that probably, because of the difficulty of obtaining 6% Interest on essentially temporary loans the Legislature exempted from the usury law restrictions as to amount of interest, demand loans made on the security of the kinds of property described. As Justice WILLARD BARTLETT (later of this court) described the effect of the statute in 1896 in Hawley v. Kountze (6 App.Div. 217, 219, 39 N.Y.S. 897, 898): 'Such loans were thereby withdrawn from the operation of the general usury law of the state. As to them the general usury law then ceased to exist.' Justice BARTLETT called attention to the still earlier exemption from usury prohibitions of loans made to corporations.

How, then, do defendants seek to bring the usury laws back into the picture? Principally by trying to prove that plaintiff (then before name change known as Israel Foreign Trade Credits Corporation) agreed to loan the $150,000 for one year, that it was not intended to be repayable 'On Demand' and that these words were inserted to cover up usury and give an appearance of compliance with section 379. This the defendants attempt to establish factually through an affidavit by defendant Richter who alone negotiated the loan. Richter's affidavit shows that plaintiff is an affiliate of an Israeli Bank (Bank Leumi le-Israel B.M.) whose New York City branch office is plaintiff's office also. All Richter's dealings were with a man named Spinrad who was an officer of the bank but whose...