Seidel v. 18 East 17th Street Owners
| Decision Date | 29 August 1991 |
| Parties | Esther SEIDEL and Harvey Donenfeld, Plaintiffs-Respondents, v. 18 EAST 17TH STREET OWNERS and Southside Development Company, Defendants-Appellants, and John Doe "1" through John Doe "100", etc., et al., Defendants. |
| Court | New York Supreme Court — Appellate Division |
Before MURPHY, P.J., and MILONAS, ELLERIN, WALLACH and KASSAL, JJ.
Order, Supreme Court, New York County (Kristin Booth Glen, J.), entered December 4, 1990, which, inter alia, denied defendants-appellants' motion to dismiss the complaint pursuant to CPLR § 3211(a)(7), affirmed, for the reasons stated by the trial court, without costs.
In addition to the issues delineated in Justice Glen's well-reasoned and comprehensive analysis, we note that the transaction in question may be susceptible to interpretation as a joint venture, and that the covenant of good faith implicit in all contracts would, in any event, dictate that plaintiffs realize the full benefit of this "investment opportunity", as did Ellen Raacke, whose mortgage loan and terms were identical to those of Eta Herbst.
We further note that Ellen Raacke, who was represented by her own, independent counsel throughout this transaction, received her full payment on September 25, 1986, three and one-half weeks after the death of Eta Herbst. Both had executed, as one party, a single agreement with defendant-appellant Southside Development Company ("Southside") on October 18, 1982. Paragraph 2 of that agreement contained an express covenant that the two second mortgages were co-equal, and specified as follows:
There shall be no preference of either second Mortgage over the other, regardless of whether one second Mortgage is recorded and the other is not, and any action on one second Mortgage to enforce its provisions will be deemed taken on behalf of both.
These circumstances raise the question of whether defendants have dealt fairly with plaintiffs, a factual issue for resolution at trial. R.W. Kern, Inc., v. Circle Industries Corp., 158 A.D.2d 363, 551 N.Y.S.2d 218.
Nor would it be appropriate, as urged by the dissent, to reject, as a matter of law, the applicability of estoppel in pais at this juncture. Maurice A. Reichman, who proposed the transaction to Eta Herbst, acted as attorney for Southside and was one of its principals. For the purposes of CPLR § 3211(a)(7), we must accept plaintiffs' allegations as true, Marcus v. Jewish National Fund, 158 A.D.2d 101, 557 N.Y.S.2d 886, and they have asserted that Mrs. Herbst relied upon the representations of Southside largely because of her relationship with Reichman, whom she considered a friend and expert in these matters. In short, we would conclude that dismissal under these circumstances "does not appear to be required in order to fulfill the public policy and purposes of the usury laws." Angelo v. Brenner, 90 A.D.2d 131, 133, 457 N.Y.S.2d 630.
In this action brought by the estate of a deceased lender, Eta Herbst ("Lender"), to foreclose a mortgage based upon an alleged default in payment of the principal sum of $75,000, the corporate owner of the encumbered cooperative building known as 18 East 17th Street Owners Inc. ("Owners") and a partnership stockholder in the cooperative and original mortgagor, Southside Development Company ("Southside"), have both moved to dismiss the complaint under CPLR 3211(a)(1), asserting a defense based on documentary evidence, and, under subd. (a)(7), urging failure to state a cause of action. We all would affirm the ruling of the motion court that based on the documents contained in the record, the interest rate of this mortgage (28.6 percent per annum) is usurious on its face as exceeding 16 percent, the maximum permitted by law (see Gen. Obligations Law §§ 5-501, 5-511; Banking Law § 14-a). Thus, absent any disabilities to assert the usury defense, the mortgage is void and must be surrendered together with the bond and the action dismissed (Szerdahelyi v. Harris, 67 N.Y.2d 42, 47-8, 499 N.Y.S.2d 650, 490 N.E.2d 517).
It further appears that even the finding of a 28.6 percent annual rate does not fully describe the windfall already recovered by plaintiffs' decedent in connection with her loan to Southside of $150,000, for which she received a bond and this mortgage in the face amount of $225,000. The loan agreement annexed to the complaint provided (Par. 7) that "Lender shall have the option to exchange the outstanding balance of $75,000 remaining on each of the Mortgages for shares of stock and the proprietary lease allocated to any of the floors from 2 through 7 which have not been sold ..." The agreement further provided (Par. 7[c] that upon the Lender's exercise of this option, and delivery to her of the appropriate shares of stock and proprietary lease pertaining to the elected floor, "the Lender shall give Southside a duly executed and notarized satisfaction of mortgage" (emphasis added). There is no dispute that Lender exercised this option and resold her interest at a profit of $162,000, thus triggering her obligation to satisfy the mortgage.
Somewhat inexplicably, defendants have not directly urged the applicability of Par. 7 in support of their motion, but since plaintiffs-executors invoke the agreement and the complaint rests squarely upon it, they are clearly bound by duty imposed upon their decedent to deliver a satisfaction of the mortgage they seek to foreclose. And, of course, this duty bears heavily upon the equities involved in the doctrine of estoppel in pais, which plaintiffs also invoke. Also relevant on that score is the undisputed fact that as a result of her exercise of the option and subsequent sale of the shares and lease appertaining thereto, Lender's ultimate recoupment on her $150,000 loan was $312,000 of principal plus $67,500 interest at 12 percent from October, 1982 through August, 1986, amounting in all to $379,000.
In denying defendants' motion to dismiss, the motion court identified two issues which allegedly gave rise to questions of fact for trial: (1) whether the conveyance of title from the sponsor, Southside, to the coop corporation, Owners, "was made subject" to the Lender's mortgage (thus, in effect, waiving the availability of the usury defense at least to Owners); and (2) whether the role played in the transaction by one Maurice A. Reichman, Esq., who was and is a partner in Southside, an officer of Owners, and who, as an attorney at law, had prepared the loan papers, could create an estoppel in pais to bar invocation of the usury defense by either defendant. I disagree. In my view these two contentions present only issues of law which must be resolved on this record against plaintiffs.
(1) The "waiver" issue: Justice Glen, in her thoughtful opinion, recognized that while a corporation such as Owners is generally barred from interposing the defense of usury (General Obligations Law § 5-521[1], an exception exists where a corporation succeeds to the rights of another (such as the partnership Southside here) which is entitled to raise the defense (The Merchants Exchange National Bank of the City of New York v. The Commercial Warehouse Co. of New York, 49 N.Y. 635; Bennett v. Bates, 94 N.Y. 354). Further, where a grantee takes a deed expressly subject to a usurious mortgage, that grantee cannot challenge the mortgage on that ground (Del Rubio v. Duchesne, 284 App.Div. 89, 130 N.Y.S.2d 572), but no such bar exists where the deed is taken subject to a general reference to unspecified liens and encumbrances (Purdy v. Coar, 109 N.Y 448, 17 N.E. 352; see also Matter of Oakes, 248 N.Y. 280, 162 N.E. 79). The deed at bar is barren even of a general reference to encumbrances. Thus as a matter of well settled real estate law the usury defense would be available.
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Seidel v. 18 East 17th Street Owners, Inc.
...Division--over a two-Justice dissent--affirmed for the reasons stated by Supreme Court, and identified two additional issues for trial. 175 A.D.2d 770, 573 N.Y.S.2d 612. The Appellate Division opined that the transaction could be viewed as a joint venture, thus unregulated by usury laws, an......