Kaye v. Keret

In a mortgage foreclosure action, defendants George and Betty Keret appeal (1) from an order of the Supreme Court, Queens County (Kassoff, J.), dated April 7,1981, which granted plaintiff’s motion to strike their answer and for summary judgment, and appointed a referee to ascertain and compute the amount due upon a mortgage note, and (2) from a judgment of foreclosure and sale of the same court (Lerner, J.), dated October 7,1981 which, inter alia, 886 granted plaintiff’s motion to confirm the referee’s report. Appeal from the order dismissed (see Matter of Aho, 39 NY2d 241, 248). Judgment reversed, on the law, order vacated, and motion to strike appellants’ answer and for summary judgment denied and motion to confirm denied. Appellants are awarded one bill of $50 costs and disbursements. The pertinent facts upon this appeal are not in dispute. In May, 1975, plaintiff’s husband, Rubin Kaye, arranged a loan to Unistar Realty Corporation in the sum of $12,500 at an interest rate of 24% per annum. Appellants, husband and wife, were the principal owners of the corporation, which conducted a real estate business in Queens County. Appellants personally guaranteed the loan and gave the lender a second mortgage on their home as collateral for their guarantee. In late 1979 appellants ceased making payments claiming that they wanted to ascertain the remaining balance in order to pay off the loan. The instant foreclosure action was then commenced. After joinder of issue by appellants, plaintiff moved to strike their answer and for summary judgment. Special Term granted the motion and appointed a referee to, inter alia, compute the amount due on the note. In our view, appellants have raised triable issues of fact which preclude the granting of summary judgment. George Keret averrred that starting in 1971 his wife developed cancer. Within the next few years she had a mastectomy, hysterectomy and spinal operation. She required a full-time helper at home and continuous treatment. She was treated at Mt. Sinai, Flower Fifth Avenue and Beth Israel Hospitals. Keret claimed that he sought the loan because his health insurance proved inadequate to pay his wife’s doctor and hospital bills. He met with Rubin Kaye, explained that he needed the money for his wife’s medical bills, and discussed the possibility of a loan secured by a second mortgage. According to Keret, Rubin Kaye demanded an interest rate of 24%. As this was a usurious amount, Kaye suggested that a corporation be formed and that the loan be personally guaranteed by appellants and secured by a second mortgage on their house. Since, however, appellants owned Unistar Realty Corporation, it was decided to make the loan to that corporation rather than form a new entity. The law is clear that the usury defense is unavailable to a corporation and to the individual guarantor of a corporate debt (General Obligations Law, § 5-521; General Phoenix Corp. v Cabot, 300 NY 87, 95; Arrow Sav. & Loan Assn. v Wilmikwil Corp., 35 AD2d 840). An exception to the rule exists, however, when the corporate form is used to conceal what is actually a usurious loan made to an individual to discharge his personal obligations (Schneider v Phelps, 41 NY2d 238). Where a loan is in fact made to the individual parties, though in form to the corporation to hide the fact that an illegal rate of interest is being exacted, the courts will pierce the corporate veil (Jenkins v Moyse, 254 NY 319; Buoninfante v Hoffman, 48 AD2d 678; Shapiro v Weissman, 7 AD2d 752). Accordingly, if the purpose of the loan at bar was to allow appellants to discharge their personal debts, then usury would be a valid defense. In order for a defendant to successfully oppose a motion for summary judgment he must show that “ ‘he has a bona fide defense to the action, one which he may be able to establish. It must be a plausible ground of defense, something fairly arguable and of a substantial character. This he must show by affidavits or other proof’” (Di Sabato v Soffes, 9 AD2d 297, 300). The affidavit of George Keret indicates that his wife required extensive treatment for cancer which resulted in large medical bills. This case is distinguishable from Federal Deposit Ins. Corp. v Salesmen Unlimited Agency Corp. (61 AD2d 1023), cited by our dissenting colleague, where there was no showing of an extraordinary need for money which could not be avoided. Whether the loan at bar was actually obtained for the purpose of paying the medical bills is a question which should be decided at a trial. 887 Whenever a question of fact arguably exists, summary judgment should not be granted since the key to a motion for summary judgment is issue finding rather than issue determination (Falk v Goodman, 7 NY2d 87, 91). Since a trial is necessary to determine the legality of the loan, the referee’s report should not have been confirmed. Damiani, J. P., Mangano and Brown, JJ., concur.