Malespin v AB

[*1] Malespin v AB 2005 NY Slip Op 52004(U) [10 Misc 3d 1057(A)] Decided on December 7, 2005 Civil Court Of The City Of New York Gesmer, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on December 7, 2005
Civil Court of the City of New York

JACINTO MALESPIN, Plaintiff,

against

AB, Defendant.



026382/05



Plaintiff, Jacinto Malespin and defendant AB appeared pro se in the trial of this matter.

Ellen Gesmer, J.

In this action, plaintiff Jacinto Malespin is suing defendant AB, his friend and former student, for the sum of $24,600.00 which he alleges he loaned to her. In her answer, AB stated that she might owe defendant some money but not the amount claimed. These fairly simple allegations turned out to be based on a series of illegal loans, which the Court must declare void and must refuse to enforce.

At the trial on November 21, 2005, both parties appeared without counsel and each testified with the assistance of the Spanish interpreter. Neither party called other witnesses.

SUMMARY OF TESTIMONY

The parties' testimony diverged in almost all important respects. They agreed only that they became friends after AB was Mr. Malespin's student at Hostos Community College, where he teaches part-time, and that he lent her money on several occasions, starting with a loan of $1,000.00 on November 12, 2003. However, they disagreed as to the frequency, amounts and terms of the loans; the validity of the promissory notes that Mr. Malespin proffered to prove the loans; and the amount that AB paid to Mr. Malespin on account of the loans.

Mr. Malespin testified that he made a series of interest-free loans to AB which were [*2]memorialized by five promissory notes, which were identical in form (the Notes).[FN1] He stated that a friend of his had created the form of promissory note, and that he filled in the handwritten portions on each, except for the first one, which AB filled out. He stated that AB signed each Note on the date indicated in the Note, that he gave her the amount of money, in cash, stated in each Note, and that she agreed to repay the principal, without interest, on the date indicated in each Note. He explained that he lent her the money without interest because she was a friend.

Specifically, Mr. Malespin stated that, on November 12, 2003, he loaned AB $1,000.00, which she agreed to repay on November 16, 2003. Five days later, he lent her $1,335.00, which she agreed to repay on February 16, 2004. He stated that he didn't know why she needed either of those loans.

Mr. Malespin testified that on January 9, 2004, he lent AB $11,000.00, so that she could pay for prostate cancer surgery for her child's father in Santo Domingo. Mr. Malespin testified that, of that sum, $5,000.00 was his, and he obtained the remaining $6,000.00 from his brother who lent it to him, without interest, to lend to AB. He stated that he had not withdrawn the $5,000.00 from a bank because he had that amount in cash at home, consistent with his normal practice of keeping $3,000.00 to $4,000.00 in cash at his home. He testified that he gave AB an additional $265.00 on January 19, 2004, to pay for her airline ticket so she could bring the money for the surgery to Santo Domingo. He testified that she agreed to repay these loans by January 25, 2005. In addition, since she had told him that she had not been able to repay the earlier loans on time because she was beginning a business, he extended her deadline for repaying those loans until the same date.

Finally, Mr. Malespin testified that, in December 2004, he lent AB an additional $11,000.00 to pay for an attorney for her son who was in jail. He said that part of this money was his, and part of it was loaned to him, without interest, by his friend Narcisco Nunez.

Mr. Malespin testified that AB did not repay him for any of the loans. Despite this, he paid back his brother and Mr. Nunez for the money they had lent him to lend to AB.

Mr. Malespin claimed that AB "disappeared" in December 2004, and that he had to go to her sister's home to track her down. He claimed that, when he found her, she told him that she had been in jail and that, when he asked her to repay him, she had said, "Let's just leave it as it is." Then he claimed that she agreed to repay him at the rate of $500.00 per month, but that she did not do so.

Mr. Malespin receives an annual salary of approximately $22,000.00 from Hostos. In addition, he has a business selling natural products, from which he earns $2,000.00 to $3,000.00 [*3]per year. He has no other source of income. He is separated from his wife, who is a public school teacher.

AB testified that, in the fall of 2003, she mentioned to Mr. Malespin that she had a problem and needed money. He told her that he had a friend who could lend the money and that he would be the middleman. She agreed. They met on November 12, 2003. He gave her $1,000.00, and she agreed to pay him back by paying $130.00 per week for the following ten weeks. He presented her with the form promissory note. She completed it, except for the payment date, and signed it. The payment date, on the third line of paragraph (a) of the Note (Pl. Ex. 1), was blank when she signed it. Soon after, he loaned her an additional $1,000.00. They agreed that she would repay that sum by paying an additional $30.00 with each of the payments on the first loan, and, upon completion of those payments, she would pay back the principal of the second loan by paying $100.00 per week for an additional ten weeks. She signed another form promissory note (Pl. Ex. 2) on that day, but none of the handwritten words were written in when she signed it. She was willing to sign it, although it was incomplete, because she trusted Mr. Malespin. She made all of the payments agreed to.

AB testified that, in 2004, she asked Mr. Malespin to lend her more money and he did so, making two additional loans of $1,000.00 each to AB. The payment terms were as before. She took the second loan from him in order to pay for an attorney for her son. At the time she received the money from Mr. Malespin, she signed two additional promissory notes, Plaintiff's Exhibits 4 and 5, but the handwritten portions were blank when she signed them. She paid him interest of $30.00 per week through May 2005. She testified that, as of that date, she had not made any payments toward principal. She then reached an agreement with Mr. Malespin that she would pay him $500.00 per month. The next month, she gave him a money order for $500.00 which he rejected. After that, they had no further contact.

AB testified that Mr. Malespin never lent her a lump sum of $11,000.00, and that she had never told him that she needed money to help pay for medical care for her child's father, although she had mentioned that he was ill. She also testified that she had never disappeared, and that she had never told Mr. Malespin that she had been in jail. She further testified that the signature on the Note introduced as Plaintiff's Exhibit 3 was not hers.

AB testified that they met to transact the loans either at her home or at McDonald's. She commented that, when they met at McDonald's, Mr. Malespin seemed afraid, because it was a public place. She said that she knew that he was in the business of lending money because she had arranged loans from him for other people, in addition to the monies that she borrowed for herself. For example, seven friends of hers each borrowed $500.00 from him, which they were supposed to pay back in ten weeks, paying $50.00 per week toward principal and $25.00 per week as interest. Another friend borrowed $1,500.00 from Mr. Malespin. AB testified that she guaranteed each of these loans. [*4]

On rebuttal, Mr. Malespin testified that he did not give AB any money to lend to her friends. He reiterated that he had made the loans to her without interest because he wanted to help her, and that Mr. Nunez was willing to lend money to him without interest because Mr. Nunez had also been his student.

FINDINGS OF FACT

I find that AB was more credible than Mr. Malespin and, therefore, I credit her testimony over his with respect to every fact on which their testimony was at odds. Consistent with that determination, I find that the following facts are true. Mr. Malespin was AB's professor at Hostos Community College. From his part time work at Hostos, and his business selling health products, Mr. Malespin earns approximately $25,000.00 per year. Mr. Malespin made a series of loans to AB totaling approximately $4,000.00. AB agreed to pay back each loan of $1,000.00 with interest of $30.00 per week, which constitutes an annual interest rate of 150%. AB filled in the handwritten portions of the Note dated November 12, 2003 (Plaintiff's Exhibit 1), except the due date for the repayment of the loan, which was blank when she signed it. AB signed the Notes introduced into evidence as Plaintiff's Exhibits 2, 4 and 5, but the handwritten portions were blank when she signed them. She was willing to sign documents which were incomplete because she trusted Mr. Malespin, since he had been her professor. AB did not sign the Note dated January 9, 2004 (Plaintiff's Exhibit 3). In any event, the Notes do not accurately reflect the agreement between the parties as to the amounts borrowed, the due dates of the loans and the interest to be paid. AB paid Mr. Malespin $2,600.00 to repay the first two loans. She also paid him $30.00 per month for approximately a year as "interest" on the second two loans.

I base my findings of credibility on several factors. First, AB's demeanor and manner of testifying rendered her testimony very credible. In contrast, Mr. Malespin was often vague and evasive. For example, his testimony that AB had "disappeared" was unconvincing. Moreover, his demeanor changed after hearing AB's testimony, and he became very anxious.

Second, Mr. Malespin's testimony was inherently incredible. It is simply not believable that a person with a total annual income of approximately $25,000.00 would lend $24,600.00 to another person in 13 months. It is even more unbelievable that he would have made such a loan without interest, and that two other people, who had no particular relationship with AB, would have contributed a substantial portion of the funds loaned, without interest. It is also incredible that Mr. Malespin would have had the funds available to repay his brother and Mr. Nunez, given his testimony that he had received no payments from AB.

ANALYSIS

General Obligations Law 5-511 provides that all notes, contracts and the like on which any entity other than a bank charges interest at a rate in excess of the amount set by GOL §5-501 is a usurious transaction and therefore void (see GOL §5-511; see also Szerdahelyi v Harris, 67 [*5]NY2d 42, 47-48 [1986]). The maximum legal rate of interest is 16%. (GOL §5-501; Banking Law §14-a[1]). When a court finds that a transaction is usurious, plaintiff may recover neither the interest nor the principal of the loans. (Borowski v Falleder, 296 AD2d 301 [1st Dept 2002]). Indeed, once the Court determines that the loan is usurious, "the borrower can simply keep the borrowed funds and walk away from the agreement." (Seidel v 18 East 17th Street Owners, Inc., 79 NY2d 735 [1992]). This is consistent with the purpose of the usury laws, which, "from time immemorial, has been to protect desperately poor people from the consequences of their own desperation." (Schneider v Phelps, 41 NY2d 238, 243 [1977]).

In this case, I find that Mr. Malespin made several loans to AB of $1,000.00 on each of which she was required to pay interest of $30.00 per week. This constitutes, on an annual basis, interest of 150%. This interest rate exceeds not only that set by GOL§5-501, but is also in excess of the rate set by Penal Law §190.40, which makes it a criminal offense to knowingly charge interest in excess of 25% (943 Lexington Ave., Inc. v Niarchos, 83 Misc 2d 803 [1st Dept 1975]). Consequently, I find that these loans were usurious within the meaning of GOL §5-501, and are therefore void and may not be enforced. Although defendant indicated that she believed that she owed money to plaintiff, the Court will not order her to pay him, in view of the illegality of the underlying contract. Consequently, the Court need not make any finding as to how much, if anything, AB paid Mr. Malespin, as he is not entitled to any recovery at all on these illegal contracts.[FN2] The Court also notes that, in making the loan, Mr. Malespin not only violated the law but also took advantage of the trust that AB reposed in him as her former teacher.

CONCLUSION

This action is dismissed with prejudice.

Dated: December 7, 2005

ELLEN GESMER

Judge, Civil Court

Footnotes

Footnote 1:Although the promissory notes were in Spanish, I accepted them into evidence after Mr. Malespin read the text of one of them, and it was translated on the record by the official court interpreter.

Footnote 2:GOL §§ 5-511, 5-513 and 5-519 recognize not only a disqualification of the lender to recover any part of the money loaned, but also a corresponding right of the borrower to recover whatever she has paid (Hammelburger v Foursome Inn Corp., 54 NY2d 580, 591 [1981]). Since AB did not assert a counterclaim, the Court will not award her the return of any monies that she paid.