Plaintiffs have moved for summary judgment against defendant Anthony Zarriello on a promissory note. The defense is usury. It is conceded that the note was given in an amount which exceeded the moneys actually advanced at the time the loan was made, but plaintiffs contend that usury doesn't apply because the excess was for past-due interest on a loan previously made by plaintiffs to the corporate defendant, Zarriello Bros. Inc.
In 1958 plaintiffs made a loan to Zarriello Bros. Inc. and received a note in the sum of $5,000, dated March 28, 1958, payable on demand, with interest at 6%. This note was personally
indorsed by defendant Daniel Zarriello, who was president of the corporation at the time. Thereafter, plaintiffs made a new loan to defendants Daniel A. Zarriello and Anthony Zarriello, and they executed and delivered to plaintiffs their promissory note, dated September 24, 1962, in the sum of $3,000, payable two months after date, "with interest." It is on this note that plaintiffs have moved for summary judgment against Anthony Zarriello. (Default judgments had previously been entered against the corporate defendant and Daniel Zarriello, personally, for the claims asserted against them in the complaint. The action against Elaine Zarriello, who executed the first note as secretary of the corporation, has been dismissed by consent order. The action, then, continues solely as against Anthony Zarriello.)
Anthony Zarriello asserts by affidavit that the note executed by the corporation for $5,000 was for a loan of $4,500, with the balance of $500 representing a premium or bonus in addition to the 6% interest called for by the note. It is further asserted that the later note of $3,000 was for a fresh loan of $2,100, with the balance of $900 representing interest due on the earlier corporate obligation. It is contended that since the original loan by the plaintiffs to the corporate defendant was at an interest rate in excess of the 6% annual rate permitted by N.J.S.A. 31:1-1, the note signed by Anthony Zarriello individually is usuriously infected by the inclusion therein of such past-due interest. Plaintiffs concede that the later note did include some past-due interest owed on the corporate obligation, but they dispute the amount.
Under New Jersey law if a loan is usurious, the lender may nevertheless recover the principal of the loan, the amount or value actually lent, without interest or costs of the action. N.J.S.A. 31:1-3; Ditmars v. Camden Trust Co., 10 N.J. 471, 496-498 (1952); Gorrin v. Higgins, 73 N.J. Super. 243, 249 (Ch. Div. 1962). Accordingly, on this motion the court has allowed the entry of a partial summary judgment pursuant to R.R. 4:58-1 in the amount of $2,100, without interest or costs. What remains in issue is the balance
of the note sued upon, consisting of the past-due interest on the corporate note and interest, costs and attorneys' fees as provided in the new note. On this issue it is not significant that the corporate loan called for interest in excess of 6% per annum. A corporation cannot set up the defense of usury to an obligation executed by the corporation. N.J.S.A. 31:1-6; Gelber v. Kugel's Tavern, Inc., 10 N.J. 191 (1952). Moreover, individual indorsers of a corporate note cannot plead usury if the note represents a true corporate borrowing and is not a subterfuge for a loan to individuals. Ibid., at p. 196; Fine v. H. Kline, Inc., 10 N.J. Super. 295 (Cty. Ct. 1950); cf. Lane & Co. v. Watson, 51 N.J.L. 186 (Sup. Ct. 1889), affirmed 52 N.J.L. 550 (E. & A. 1890), applying New York law; Union Estates Co. v. Adlon Construction Co., 221 N.Y. 183, 116 N.E. 984, 12 A.L.R. 363 (Ct. App. 1917); Winkle v. Scott, 99 F.2d 299 (8 Cir. 1938), certiorari denied 306 U.S. 634, 59 S. Ct. 484, 83 L. Ed. 1036 (1939). This rule applies notwithstanding that personal liability is imposed for loans at an interest rate that would be usurious had the loans been made to the individuals. But see Lesser v. Strubbe, 39 N.J. 90, 91 (1963) (Francis, J., dissenting). Therefore the fact that a corporate obligation bears interest at more than 6% per annum does not make the defense of usury available to one who, for consideration, later undertakes to pay or to guarantee payment of that antecedent obligation. Winkle v. Scott, supra.
Rejecting the assertion of usury in the loan to the corporation, nevertheless the later loan to Anthony Zarriello and Daniel Zarriello, as individuals, must be examined for its own usurious content. It is asserted that plaintiffs loaned $2,100 in exchange for the promised repayment by Anthony Zarriello and Daniel Zarriello of $2,100, plus repayment of an antecedent debt, which Anthony Zarriello was not previously obligated to pay, plus interest. Generally speaking, usury is the exaction of more than lawful interest in exchange for a loan. See Williston, Contracts (rev. ed. 1938), § 1684, p. 4765; In re Greenberg, 21 N.J. 213, 219 (1956); State
v. Martin, 77 N.J.L. 652 (E. & A. 1909); Borcherling's Executor v. Trefz, 40 N.J. Eq. 502 (Ch. 1885); Hughson v. Newark Mortgage Loan Co., 57 N.J. Eq. 139 (Ch. 1898); Norton v. Nathanson, 85 N.J. Eq. 409 (Ch. 1916), affirmed per curiam, 86 N.J. Eq. 433 (E. & A. 1916). Since the promissory note calls for interest without specifying its rate, the law implies that the legal rate of interest is payable. Jersey City v. O'Callaghan, 41 N.J.L. 349 (E. & A. 1879); Mathushek & Son Piano Co. v. Hudson, 3 N.J. Misc. 757, 130 A. 2 (Sup. Ct. 1925). Thus, on its face, this transaction is usurious. In addition to interest it exacts from Anthony Zarriello his promise to pay the debt of another. Notwithstanding that the debt assumed was not itself usurious, in the eyes of the law the exacted assumption of another's debt makes the loan to a new borrower usurious unless the exaction is supported by consideration other than the money newly loaned. Canal-Commercial Trust & Sav. Bk. v. Brewer, 143 Miss. 146, 108 So. 424, 47 A.L.R. 45 (Sup. Ct. 1926), writ of error dismissed, 273 U.S. 638, 47 S. Ct. 96, 71 L. Ed. 816 (1926); Simpson v. Charters, 188 Ga. 842, 5 S.E. 2 d 27 (Sup. Ct. 1939); Bishop v. Exchange Bank, 114 Ga. 962, 41 S.E. 43 (Sup. Ct. 1902); Janes v. Felton, 99 W. Va. 407, 129 S.E. 482 (Sup. Ct. 1925); Darden v. Schuessler, 154 Ala. 372, 45 So. 130 (Sup. Ct. 1907); Restatement, Contracts, § 528 (1932); 6 Williston, Contracts (rev. ed. 1938), § 1693, fn. 2, p. 4790.
Not all exactions from a borrower, in addition to his promise to repay principal with interest, are illegal. Exceptions are recognized for expenses of making the loan, attorney's fees, broker's commissions and the like, when taken in good faith and not as a device for evading the usury laws. Lesser v. Strubbe, 56 N.J. Super. 274, 295 (Ch. Div. 1959), modified on other grounds, 67 N.J. Super. 537 (App. Div. 1961), and, per curiam, 39 N.J. 90 (1963); Roth & Miller v. Temkin, 90 N.J.L. 39 (Sup. Ct. 1917); ...