On appeal from the Superior Court, Chancery Division, Union County.
Pressler, Gaulkin and Ashbey. The opinion of the court was delivered by Gaulkin, J.A.D.
Alfred and Sophie Gottesfeld brought this action to foreclose a second mortgage given to secure payment of a $15,000 note executed by John G. Kaminski as president of Next Flight Out, Inc. (NFO), and guaranteed by Kaminski individually. Kaminski answered that the mortgage was in violation of the Secondary Mortgage Loan Act (SMLA), N.J.S.A. 17:11A-34 et seq., and of the usury laws, N.J.S.A. 31:1-1 et seq. In a letter opinion issued following a plenary hearing, the trial judge concluded that (1) the SMLA did not apply to the transaction, (2) the loan to NFO "was simply a device employed to circumvent the usury law" and (3) plaintiffs were entitled to recover the principal balance of the loan together with interest at the rate of 9%. The judgment of foreclosure thereupon entered was later amended to disallow any recovery of interest. Defendant appeals from that amended judgment, urging again that the note and mortgage are unenforceable under the SMLA. Plaintiffs cross-appeal, contending principally that they should have been awarded interest at the legal rate.
The operative facts are undisputed. Kaminski was in the tavern business. In 1977, he was introduced to the Gottesfelds by Robert H. Chester, the Gottesfelds' attorney. Kaminski was referred to Chester by a real estate agent. Chester testified that the agent "understood that I represented potential lenders"; he had brought approximately ten other borrowers to the
Gottesfelds. The Gottesfelds and Kaminski engaged in a series of loan transactions which culminated in the execution of the note and mortgage here at issue on May 17, 1978. The mortgage encumbers Kaminski's residence at 308 Crawford Terrace, Union, New Jersey. The note fixes interest at 24% per annum; attached to it is a resolution, signed by Kaminski as President-Secretary of NFO, certifying that at a special joint meeting of stockholders and directors, the officers of NFO were authorized to enter into the mortgage note.
Chester testified that NFO was a corporation he had formed for a client who had never utilized it. Although Kaminski apparently wanted the loan proceeds because he was purchasing another tavern, the record shows that he never conducted any business activities or held any assets through NFO. Indeed, the record is barren of any suggestion that Kaminski had any connection at all with NFO other than to execute the mortgage note as ostensible President-Secretary of the corporation.
The Gottesfelds paid the loan proceeds to Chester, who deposited them in his firm account. After making various deductions, Chester forwarded the net proceeds by checks drawn to Kaminski individually. Kaminski, whose memory had since been impaired by a stroke, testified that he believed he had used the loan proceeds for his newly acquired tavern.
The Gottesfelds concededly were not licensed under the SMLA to engage in the secondary mortgage loan business. As recited by the trial judge in his letter opinion, they contended "that they were not engaged in the business of making secondary loans as defined in the [SMLA] at the time of this transaction and were therefore not obliged to comply with the licensure provision and other conditions contained therein." The trial judge found that contention to have merit:
There is not sufficient evidence before me to establish that Gottesfeld regularly made loans to individuals by second or other inferior liens on real estate. The evidence of other loans made by Gottesfeld are not enough to establish that Gottesfeld was in the business of making second mortgage loans. In dealing with what constitutes doing business our courts have held that conduct which constitutes only a single transaction or a few isolated transactions does not fall ...