ESTHER SEIDEL ET AL., RESPONDENTS, v. 18 EAST 17TH STREET OWNERS, INC. ET
AL., APPELLANTS, ET AL., DEFENDANTS.
79 N.Y.2d 735, 598 N.E.2d 7, 586 N.Y.S.2d 240 (1992).
July 2, 1992
1 No. 143
Decided July 2, 1992
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This opinion is uncorrected and subject to revision before publication
in the New York Reports.
Jacob B. Ward, for Appellant Southside Development.
Submitted, for Appellant 18 East 17th Street.
Matthew Dollinger, for Respondents.
KAYE, J.:
In this mortgage foreclosure action, plaintiff-lenders seek to
preclude a defense of usury, on the ground that the defense was waived
by defendant-borrowers, that they are estopped from raising the
defense, or that it is otherwise unavailable to them. We reject the
lenders' arguments, and dismiss their action to enforce a concededly
usurious loan.
I.
In October 1982, Southside Development Co., a partnership, borrowed
$150,000 from Eta Herbst (plaintiffs' decedent), to help finance its
purchase of an eight-story loft building in Manhattan, which it
planned to convert to cooperative ownership. In exchange for the loan,
Southside executed in Herbst's favor a $225,000 bond bearing 8%
interest, secured by a second mortgage on the building. The bond was
to mature in 37 months, with quarterly interest-only payments due in
the interim. Under the parties' written agreement, $150,000 was to be
prepaid to Herbst when title passed to the cooperative corporation. In
addition, Herbst was given an option to exchange the remaining $75,000
due on the bond for the shares and proprietary lease to a floor of the
building. The same arrangement was made with Ellen Raacke, who is not
a party to this litigation.(n 1)
In late 1985, Southside conveyed the building to the cooperative, 18
East 17th Street Owners, Inc. (Owners). In mid- August 1986, Owners
made a principal payment of $75,000 and, by separate check, a payment
of interest then due. A few days later, Herbst, having previously
SNIPPETS:
Jacob B. Ward, for Appellant Southside Development.
In this mortgage foreclosure action, plaintiff-lenders seek to preclude a defense of usury,
In October 1982, Southside Development Co., a partnership, borrowed $150,000 from Eta Herbst
In exchange for the loan, Southside executed in Herbst's favor a $225,000 bond bearing 8%
Under the parties' written agreement, $150,000 was to be prepaid to Herbst when title passed
In late 1985, Southside conveyed the building to the cooperative, 18 East 17th Street Owners,
In mid- August 1986, Owners made a principal payment of $75,000 and, by separate check, a
A few days later, Herbst, having previously exercised her option for a floor of the building,
Owners moved to dismiss the complaint and cancel the bond and mortgage, asserting that the
Supreme Court computed the actual interest rate of the loan to be 28.6%, and the lenders do
Although the deed conveying the property from Southside to Owners did not explicitly mention
Finally, on the estoppel claim, the court found issues of fact regarding Reichman's conduct
On defendants' appeal, the Appellate Division--over a two- Justice dissent--affirmed for the
The Appellate Division opined that the transaction could be viewed as a joint venture, thus
Statutes prohibiting usurious loans were enacted in 15th century England, became part of New
(Schneider v Phelps, 41 NY2d
In its present form, the usury statute provides: "No person or corporation shall, directly or
When "any bond, bill, note, assurance, pledge, conveyance, contract, security or any evidence
The consequences to the lender of a usurious transaction can be harsh: the borrower is
Southside's partners were the officers and principals of Owners.
The law recognizes that it would be inequitable for the mortgagor to later claim that there
Balancing the competing interests of law and equity, "the innocent assignee is permitted to
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