Opinion
101521/07.
April 1, 2009.
Upon the foregoing papers, defendants' cross motion for summary judgment and dismissal of the complaint is denied.
While plaintiff's motion (No. 3854) to strike defendants' answer has been withdrawn, exhibits annexed to same have been referenced by the Court.
This action arises out of a personal loan in which plaintiff claims that defendants Apparao Raguthu and Meena Apparao a/k/a Meena Raguthu (hereinafter "defendants") are in default as a result of their having failed to make the required payments. The loan in the amount of $100,000 is evidenced by a promissory note executed and delivered to plaintiff on or about December 15, 2005. In the note, defendants promise to pay plaintiff the sum of $100,000 plus interest at the rate of thirty percent (30%) in 12 monthly installments of principal and interest until December 15, 2006, at which time the balance would become payable in full (Plaintiff's Exhibit "E"). It is undisputed that defendants stopped making payments in October of 2006 (EBT of Apparao Raguthu, p 72). Although defendants admit a debt to plaintiff, i.e., that "there is currently due and owing . . . the sum of $87,607.84 plus interest at 16% per annum" ( see Verified Answer at para 4), they dispute plaintiff's further claim that the parties subsequently entered into a mortgage in which defendants pledged 214 Bishop Street on Staten Island as security for the promissory note (Plaintiff's Exhibit "E").
Defendants challenge the validity of the mortgage contract, but admit signing the acknowledgment page (EBT of Apparao Raguthu, p 74; Affidavit of Meena Raguthu para 3). In explanation, defendant Apparao Raguthu testified at his deposition that plaintiff faxed him the acknowledgment page only, and that he "signed and sent it" back (EBT of Apparao Raguthu, p 73). Defendants claim that the "rest of the documents were fabricated and added to [the acknowledgment page] and therefore, the mortgage is invalid and "falsely created" (Affidavit of Apparao Raguthu, pp 2-3). Alternatively, defendants assert that they signed the mortgage under duress and coercion because plaintiff was holding money allegedly owed to defendants on an unrelated transaction involving the sale of a gas station (Affidavit of Apparao Raguthu, p 2; Verified Answer, para 3).
In moving for summary judgment and dismissal of the complaint, defendants claim that the note violates the laws against criminal usury (see Penal Law § 190.40). In addition, the loan is claimed to be usurious under General Obligations Law § 5-501. As a result, defendants contend that General Obligations Law § 5-511 renders the note and mortgage void and unenforceable. Defendants also assert that plaintiff's intentional and knowing inclusion of the maximum allowable interest rate under New Jersey law in a loan to New York residents at a rate of interest that constitutes, e.g., criminal usury in their home state, caused them undue and irreparable harm.
In opposition, plaintiff asserts that the $100,000 loan was based on an oral agreement that defendants would pay his mortgage of $3,000 per month for one year, at which point the remainder of the loan would be repaid in full ( see Affidavit of Reddy, para 4-5). Plaintiff further claims that on December 15, 2005, in pursuance of their agreement, defendants gave plaintiff 12 post-dated checks of $3000 each and signed the promissory note (Affidavit of Reddy, para 6; EBT of Apparao Raguthu pp 60, 70). Finally, although plaintiff admits that the monthly mortgage payments represent a rate of interest of 30% per annum ( id. at 5), he claims that the note was "prepared . . . under the instruction" of the defendants, and that they "deliberately sought to render the note unenforceable by inserting an interest rate which they knew was in excess of that which is legally enforceable in New York" ( see Verified Complaint, para 6-8).
In this regard, defendant Apparao Raguthu purports to have signed the note on behalf of himself and his co-defendant wife (EBT of Apparao Raguthu p 60).
Defendants deny that the 30% rate of interest was inserted at their request, and claim that it was insisted upon by plaintiff ( see Verified Answer, para 3). In any event, in New York, the mere fact that the borrower may have set the rate of interest does not prevent the assertion of a usury defense against the lender ( see Pemper v. Reifer, 264 AD2d 625 [1st Dept 1999]). Moreover, it has been held that a note will be considered usurious so long as the lender intended to extract a rate of interest in excess of the legal rate, irrespective of any intent to violate the usury laws, and notwithstanding that the borrower actually prompted the loan or set the interest rate ( see Angelo v. Brenner, 90 AD2d 131 [3rd Dept 1982]).
It is undisputed that plaintiff drafted the note (EBT of Reddy p 11).
In response to defendants' usury defense, plaintiff argues that defendants should be precluded from asserting same to avoid the repayment of principal and interest under the doctrine of estoppel in pais. In support, plaintiff maintains that he was induced by defendants into making the usurious loan, and that based on their special relationship, he relied upon defendants in the matter of the legality of the interest rate (Plaintiff's Memorandum of Law, p 8).
In determining whether a transaction is usurious, the court is enjoined to consider the loan in its totality in order to determine its real character, rather than relying upon the name, color, or form which the parties have seen fit to give it ( see Abir v. Malky, Inc., ___ AD3d ___, 2009 NY Slip Op 1432 [2nd Dept]; Ujueta v. Euro-Quest Corp , 29 AD3d 895 [2nd Dept 2006]). Moreover, whether or not a particular transaction constitutes "a cover for usury" has been held to present a jury question ( see Abir v. Malky, Inc., 2009 NY Slip Op 1432 at 3; Ujueta v. Euro-Quest Corp, 29 AD3d at 895). To render a loan usurious, it must appear that the real purpose of the transaction was, on the one side, to lend money at usurious interest reserved in some form by the contract and, on the other side, to borrow upon usurious terms ( see Abir v. Malky, Inc., 2009 NY Slip Op 1432 at 3). Under the General Obligations Laws, a transaction is usurious when it imposes an annual interest rate exceeding 16% ( see General Obligations Law § 5-501; Banking Law § 14-a). The crime of usury requires an annual rate of interest in excess of 25% ( see Penal Law §§ 190.40, 190.42; Abir v. Malky, Inc., 2009 NY Slip Op 1432 at 3). Usurious contracts are void in New York, and relieve the borrower of the obligation to repay both principal and interest ( see General Obligations Law § 5-511; Abir v. Malky, Inc., 2009 NY Slip Op 1432 at 3).
Here, the parties do not dispute that the interest rate on the loan is 30 percent, and thus in excess of the limits for both civil and criminal usury. In addition, since the interest charged on the subject loan exceeds the criminal usury rate, it is considered usurious per se, i.e., without regard to the plaintiff-lender's intent ( see DeSantis v. General Advisory Funding Corp , 21 AD3d 1051 [2nd Dept 2005]). Nevertheless, in view of the evidence before the Court, including defendants' own deposition testimony, a triable issue of fact exists as to whether defendants should be estopped from raising usury as a defense ( see DeSantis v. General Advisory Funding Corp, 21 AD3d at 1051). In this regard, it has been held that an estoppel in pais may operate to prevent a borrower from successfully avoiding a usurious debt obligationwhen, through a special relationship with the lender, he or she "induces reliance on the legality of the transaction" ( Seidel v. 18 E 17th St Owners, 79 NY2d 735, 743; Angelo v. Brenner, 90 AD2d at 133).
In this case, the parties are alleged to have been family friends who have enjoyed a close relationship for over twenty years (EBT of Apparao Raguthu, pp 17-18, 52-53; EBT of Reddy, pp 6, 13). Under these circumstances, it is a question of fact whether plaintiff was induced to make the usurious loan in reliance upon the parties' special relationship (Plaintiff's Memorandum of Law, p 8). If the foregoing is ultimately proven to the satisfaction of a jury, a judgment voiding the transaction would permit defendants to achieve a windfall through subterfuge and deception. This result is contrary to both public policy and the salutary purpose to be served by the laws against usury ( see Seidel v. 18 E 17th St Owners, 79 NY2d at 743; Angelo v. Brenner, 90 AD2d at 131).
Beyond the alleged familial relationship, there are further questions of facts touching upon the issue of trust, as defendants appear to have a background in investment and real estate financing ( see EBT of Apparao Raguthu, pp 26-31, 72, 76-77), while plaintiff maintains that he is not in the business of lending money. However, given plaintiff's deposition testimony regarding his own business and investing experience (EBT of Reddy, pp 9, 14-15, 19), the relative strength of the parties' business acumen and the extent, if any, to which plaintiff may have reposed trust in defendants as to the legality of the transaction cannot be determined on these papers. Therefore, issues of fact underlying, e.g., plaintiff's assertion of an estoppel in pais, render summary judgment unavailable ( see DeSantis v. General Advisory Funding Corp, 21 AD3d at 1051; Pemper v. Reifer, 264 AD2d at 626; Angelo v. Brenner, 90 AD2d at 132-133; cf. Seidel v. 18 E 17th St Owners, 79 NY2d at 743; Abramovitz v. Kew Realty Equities, Inc., 180 AD2d 568 [1st Dept 1992]).
Accordingly, it is
ORDERED that defendants' motion for summary judgment is denied.