Monmouth Capital Corp. v. Holmdel Village Shops, Inc.

• Decision Date: 04 November 1966
• Docket Number: No. F--1978,F--1978
• Citation: 224 A.2d 35,92 N.J.Super. 480
• Parties: MONMOUTH CAPITAL CORPORATION, a corporation of the State of New Jersey, Plaintiff, v. HOLMDEL VILLAGE SHOPS, INC., a corporation of the State of New Jersey, Defendant.
• Court: New Jersey Superior Court

Page 480

92 N.J.Super. 480

224 A.2d 35

MONMOUTH CAPITAL CORPORATION, a corporation of the State of New Jersey, Plaintiff, v. HOLMDEL VILLAGE SHOPS, INC., a corporation of the State of New Jersey, Defendant.

No. F--1978.

Superior Court of New Jersey Chancery Division.

Nov. 4, 1966.

Francis V. Bonello, Eatontown, for plaintiff Landy, Bonello & Bonello, Eatontown, attorneys.

Edward C. Stokes, Long Branch, for defendant.

LANE, J.S.C.

This is a real estate mortgage foreclosure action instituted by Monmouth Capital Corporation, a corporation of the State of New Jersey, licensed under the Small Business Act of 1958 to provide equity capital and high-risk, long-term loans to small businesses under the provisions of the act.

On August 19, 1963, George E. Wicks and Leah, his wife, filed a business name certificate with the County Clerk of Monmouth County under the name of Holmdel Village Shops. On September 12, 1963 a building permit was issued to George Wicks by the building inspector of the Township of Holmdel for the erection of four stores in the village business area. By deed dated October 22, 1963 George and Leah Wicks received a title to the premises involved.

George Wicks had been in the contracting business for 30 years in the area from New York City to Toms River, New Jersey. He had attended courses in college and was knowledgeable in business and contracting matters. The project to be placed upon the land was to eventually cost approximately $350,000. At the time of the granting of the loan, the subject matter of this suit, he was working on the development of the first part of the project, which part was a shopping center with a restaurant and stores. When he first had contact with any representative of plaintiff, the building was closed in, storm drains had been installed, rough grading was completed and he was approximately 50% Finished with the immediate project. He had invested approximately $85,000 in the project, but he needed additional financing. There was a first mortgage on the land in the amount of $20,000, and approximately $10,000 was owed for materials. Wicks was unable to obtain financing from the Monmouth County National Bank or from South Shore Mortgage Company, primarily because he did not have any leases with triple-A tenants.

In the spring of 1964 Wicks was put in touch with plaintiff. The amount of the loan sought by him was $75,000, to be secured by a note and a first mortgage. He was advised that the plaintiff only made loans to corporations, that it would be willing to make a loan in connection with the project at 11% Interest, together with the 2% Commitment fee and a 1% Fee for attorneys' fees. Subsequently, plaintiff agreed to increase the amount of loan to $76,000 so that the 2% Commitment fee would be covered by the loan. The loan was to be paid in equal monthly payments on the first of each month commencing October 1, 1964 and concluding September 1, 1974. Security for the loan was a guarantee of Mr. and Mrs. Wicks and a first mortgage on the land, the existing mortgage to be paid out of the proceeds of the loan.

Mr. Wicks sought legal advice from his attorneys, a firm specializing in corporate and real estate matters with their offices in Newark, New Jersey. The Defendant was incorporated as a result of plaintiff's requirements. The certificate of incorporation is dated May 26, 1964, which was after Mr. Wicks had been advised that the loan would be granted by plaintiff. At no time was any written application for the loan made by defendant or Mr. Wicks. At no time was any financial statement of defendant submitted to plaintiff. Two members of plaintiff's board of directors were also directors of the Monmouth County National Bank with which Mr. Wicks had done business for a number of years. Through that source, they knew of Mr. Wicks' credit standing. The premises were conveyed by Mr. and Mrs. Wicks to defendant by deed dated June 8, 1964, but not recorded until July 15, 1964. The closing of the mortgage transaction was held July 10, 1964, and a mortgage dated that date was recorded July 15, 1964, at the same time as the deed from the Wickses to defendant. At the closing a S.B.I.C. loan agreement addressed to plaintiff was signed on behalf of defendant by George Wicks as president and Leah Wicks as secretary. There was delivered at the time of the closing an opinion letter from defendant's Newark attorneys stating, in part, that the S.B.I.C. loan agreement 'has been duly authorized, executed, and delivered by the Company and constitutes and will constitute the legal valid and binding agreements and obligations of the Company in accordance with their respective terms.'

After the formation of the corporation the project continued. Much of the work was subcontracted. The work that was not subcontracted was done by laborers paid by Mr. Wicks. However, the corporation reimbursed him for all such payments. The corporation had a bank account, adopted corporate resolutions in connection with other borrowings, applied for refinancing, paid real estate taxes, entered into leases with tenants, and has acted as a valid legal entity.

Plaintiff advanced $62,500 through November 9, 1964. No payments were made by defendant. On April 1, 1965, as the result of the agreement with defendant's president, plaintiff made a bookkeeping entry increasing the principal by $4721.32, the accrued interest to that date. On October 19 1965 plaintiff issued to defendant a check in the amount of $4395.41 representing the amount of interest accrued from April 1, 1965 to October 1, 1965, which check was endorsed back to plaintiff by defendant. Since the institution of this suit, defendant has arranged to borrow $61,000, which has been paid to plaintiff on account of the mortgage in accordance with an order dated June 15, 1966. Under the terms of such order plaintiff has assigned to the lender 'an interest in plaintiff's mortgage to the extent of $61,000. which said assigned interest shall be entitled to first priority of payment out of any funds paid in total or partial satisfaction of said mortgage.'

The amount of plaintiff's present interest in the mortgage is claimed to be: principal, $10,616.73; interest through November 1, 1966, $7,344.80.

The defense to the foreclosure action is based upon usury under R.S. 31:1--1, N.J.S.A. Plaintiff contends that defendant does not have available such defense by reason of R.S. 31:1--6, N.J.S.A.; that defendant is estopped to raise this defense because of the opinion letter given at the closing, and that federal law has preempted the field of the interest rate which a small business investment company may charge as a licensee under the Small Business Act of 1958.

15 U.S.C.A. § 685(c) provides that the maximum rate of interest to be charged under the act shall be determined by the Administration. Section 107.603 of the Small Business Administration regulations provides that the maximum annual cost to the borrower shall not exceed the lesser of (a) such maximum annual cost to borrower as may be prescribed by applicable state or local law, or (b) such maximum annual cost to borrower as may be specified in the licensee's proposal and license application. Here plaintiff's application specified a cost to the borrower not to exceed 15%. Therefore, the validity of the amount sought to be charged here is to be...