Derlly v Fitzpatrick
Annotate this CaseDecided on February 17, 2005
Supreme Court, Nassau County
Guido Derlly and Vincent Corrao, Plaintiffs,
against
James F. Fitzpatrick and Joseph F. LaBella, Defendants.
6085-04
COUNSEL FOR PLAINTIFF
Guilbert & Brown, LLP
320 Old Country Road
Garden City, New York 11530
COUNSEL FOR DEFENDANT
Law Offices of Avrum J. Rosen
38 New Street
Huntington, New York 11743
Leonard B. Austin, J.
Defendant, James F. Fitzpatrick moves for summary judgment pursuant to CPLR 3212, dismissing this action.
BACKGROUND
On August 29, 2003, Defendants James F. Fitzpatrick ("Fitzpatrick") and Joseph F. LaBella ("LaBella") borrowed the sum of $120,000.00 from Plaintiffs, Guido Derlly ("Derlly") and Vincent Corrao ("Corrao"). The loan was evidenced by a promissory note dated August 29, 2003. The money was borrowed for the purpose of capitalizing a business being formed by Fitzpatrick, LaBella, Derlly and Corrao known as Earth Recycling, LLC.
Fitzpatrick and LaBella made a payment of $5,000.00 on the note and defaulted on all other payments. Derlly and Corrao brought this action to recover the balance due on the note.
Fitzpatrick moves to dismiss the action on the grounds that the note is usurious and, therefore, unenforceable. General Obligations Law §5-511. The promissory note provides that the makers, Fitzpatrick and LaBella, were to pay to the order of Derlly and Corrao:
"...the principal sum of ONE HUNDRED TWENTY THOUSAND DOLLARS AND ZERO CENTS ($120,000.00) with interest at the rate of NINE PERCENTUM (9%) PER ANNUM, to be paid in six (6) equal monthly instalments of TWENTY ONE THOUSAND EIGHT HUNDRED DOLLARS AND ZERO CENTS
($21,800.00), consisting of principal in the sum of TWENTY THOUSAND DOLLARS and interest in the sum of ONE THOUSAND EIGHT HUNDRED DOLLARS AND ZERO CENTS ($21,800.00) per month, with the first installment payment to be received from the Maker of this Note on or before the 1st day
of October, 2003 and with the final installment payment to be received from the Maker of this Note on or before the 1st day of March, 2004."
Defendants assert that a loan that is payable in accordance with the aforementioned terms actually bears interest at the rate of approximately 30% per annum is usurious.
Plaintiffs assert that they agreed to loan $120,000.00 to the Defendants which sum was to be repaid over six months with interest at the rate of 9%. Plaintiffs argue that any other language in the agreement is unnecessary or, alternatively, the promissory note should be reformed to reflect the proper payment for a loan of $120,000.00 with interest at 9% to be repaid in equal installments over six months.
DISCUSSION
Defendants move for summary judgment. A motion for summary judgment must be supported by a copy of the pleadings. CPLR 3212(b). In this case, the pleadings should consist of, at a minimum, a complaint and an answer. CPLR 3011. Failure to submit copies of the pleadings to the court in support of a motion for summary judgment renders the moving papers defective requiring the court to deny the motion. Hamilton v. City of New York, 262 AD2d 283 (2nd Dept., 1999); and Lawlor v. County of Nassau, 166 AD2d 692 (2nd Dept., 1990).
Fitzpatrick has failed to submit a copy of the pleadings with the moving papers in [*2]support of his motion. For that reason alone, the motion should be denied.
However, denying the motion for this procedural reason will not result in the resolution of the issue. The motion will almost certainly be remade on proper papers. A second summary judgment will unnecessarily delay and prolong the resolution of this action. Therefore, the Court will determine the motion on its merits.
A usurious loan is void. General Obligations Law §5-511. A loan is usurious if the rate of interest is more than the legally permitted rate. General Obligations Law
§5-501. The maximum legal rate of interest is 16% per annum. Banking Law §14-a(1). The borrower does not have to pay back either the principal or interest on a usurious loan. Seidel v. 18 East 17th Street Owners, Inc., 79 NY2d 735 (1992); and Pemper v. Reifer, 264 AD2d 625 (1st Dept., 1999).
A loan in the principal amount of $120,000.00 repayable over a term of six months with monthly payment of $21,800.00 reflects an interest rate of approximately 30% per annum. Such a loan would be usurious and, thus, unenforceable.
However, Plaintiffs assert that the monthly payment amount stated in the note is an error. Indeed, it is inconsistent with the stated rate of interest. The parties clearly intended this to be a loan of $120,000.00 payable over six months in equal monthly installments with interest at 9% per annum. Such a loan would have monthly payments of $20,528.27 which would not be usurious.
Plaintiffs assert that this loan was made by Derrly and Corrao to Fitzpatrick and LaBella as part of business transaction. Derrly, Corrao, Fitzpatrick and LaBella were forming Earth Recycling, LLC. Derrly and Corrao were putting up seed money needed for the business to purchase the equipment necessary to commence operations. Rather than advance the money to the business, the funds were treated as a loan to
Fitzpatrick and LaBella with the specific understanding that this money would be invested in the business.
While the parties agreed as to amount that was being loaned, they did not initially agree as to the terms of the note. The parties engaged in prolonged negotiations regarding the interest rate and the term of repayment of the note. When they finally agreed upon the term and interest rate, their attorney filled in the information provided by the parties, Fitzpatrick and LaBella then signed the note.
The parties were allegedly in a great rush to get this transaction completed. The funds being lent by Derrly and Corrao were going to be used to purchase the specialized equipment needed to operate Earth Recycling. The business could not begin its operations until this equipment had been purchased.
One attorney appears to have represented Derlly, Corrao, Fitzpatrick and LaBella in regard to the preparation of the note. This attorney never consulted or prepared an amortization schedule before placing the payment amount in the note.
The Court may grant reformation of a written agreement on the grounds of mutual mistake. Chimart Assoc. v. Paul, 66 NY2d 570 (1986). Reformation will be granted when the parties have orally reached an agreement and, unknown to either party, the written agreement does not reflect that agreement. Philips v. Philips, 300 AD2d 642 (2nd Dept. 2002); and Simek v. Cashin, 292 AD2d 439 (2nd Dept. 2002).
To establish a claim for reformation, the party seeking reformation must establish by [*3]clear and convincing evidence that the written agreement contains a mistake; and the terms of the actual agreement between the parties. Miller v. Seibt, 13 AD3d 496 (2nd Dept. 2004).
A party seeking summary judgment must make a prima facie showing of entitlement to judgment as a matter of law. Alvarez v. Prospect Hosp., 68 NY2d 320 (1986); and Zuckerman v. City of New York, 49 NY2d 557 (1980). Once the party seeking summary judgment has established a prima facie right to recovery, the party opposing the motion must come forward with proof in evidentiary form establishing the existence of triable issues of fact. Zuckerman v. City of New York, supra; Davenport v. County of Nassau, 279 AD2d 497 (2nd Dept. 2001); and Bras v. Atlas Construction Corp., 166 AD2d 401 (2nd Dept. 1991).
When deciding a motion for summary judgment the court must view the evidence in a light most favorable to the party opposing the motion and must also give the party opposing the motion the benefit of all reasonable inferences that can be drawn from the evidence. Negri v. Stop & Shop, Inc., 65 NY2d 625 (1985); and Erikson v. J.I.B. Realty Corp., 12 AD3d 344 (2nd Dept. 2004).
While Fitzpatrick has established a prima facie case that repayment in the amount indicated by the note is usurious, Derlly and Corrao have established that questions of fact exist regarding whether the note should be reformed to reflect the actual intent of the parties. Fitzpatrick does not deny that he borrowed the money from Plaintiffs or that it was the intent of the parties that the loan be repaid over six months with interest at the rate of 9% per annum. The note incorrectly states the amount of the monthly payments to be made on such a loan. When read together with the agreed rate of interest, the stated monthly payments appear to be a mistake from which Plaintiffs may be relieved so as to avoid a windfall to Defendants.
Where the loan is usurious due to a mistake of fact involving the calculation of the monthly payment amount, the court may reform the written agreement to reflect proper, non-usurious payments. See, Freitas v. Geddes Savings and Loan Assoc., 63 NY2d 254 (1984).
Under the circumstances herein, the Court finds that Plaintiffs have set forth sufficient evidence to establish a claim for reformation of the note negating Defendants' demand for summary judgment. Thus, summary judgment must be denied.
Accordingly, it is,
ORDERED, that the motion for summary judgment by the Defendant Fitzpatrick for summary judgment dismissing this action is denied; and it is further
ORDERED, that counsel for the parties are directed to appear for a preliminary conference on March 16, 2005 at 9:30 a.m.
This constitutes the decision and Order of the Court.
Dated: Mineola, NY _____________________________
February 17, 2005 Hon. LEONARD B. AUSTIN, J.S.C.
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