http://law.justia.com/cases/new-york/other-co...28069.html
Funding Group v Water Chef inc.
In opposition, plaintiff argues that defendant should be estopped from asserting the defense of usury where "defendant's own express conduct" induced plaintiff into making the loan, and where defendant "drew up the notenow in hindsightcomplained of." Plaintiff further argues that defendant cannot avail itself of a defense of criminal usury because the law of usury does not apply here where the transaction was in the nature of a joint venture. In support of plaintiff's arguments,{**19 Misc 3d at 489} plaintiff's principal, Norman Levine, avers in his affidavit that the personal conversations he had with defendant's president, David Conway, belies the assumption that the transaction at issue was that of a borrower and a lender as "[p]laintiff was enticed by defendant into entering into the . . . transaction, with the promise of obtaining what was to be a valuable interest in an up and coming public company." Levine further avers that " t was David Conway, personally, that induced plaintiff into accepting stock in the company, in lieu of various cash payments," and that "[d]uring the course of ongoing negotiations, plaintiff was furnished with a list of up and coming 'opportunities' [that] defendant . . . would be involved in, as a further means of inducing plaintiff to 'come on board' with [defendant]."
The Court of Appeals has "recognized that a borrower may be estopped from interposing a usury defense when, through a special relationship with the lender, the borrower induces reliance on the legality of the transaction" (Seidel v 18 E. 17th St. Owners, 79 NY2d 735, 743 [1992]). The court emphasized, however, that "[a]n indispensable requisite of an estoppel in pais, is that the conduct or representation was intended to, and did, in fact, influence the other party to [its] injury" (id., quoting Payne v Burnham, 62 NY 69, 73 [1875]). The fact that the borrower suggests the interest rate, standing alone, does not relieve the lender of the usury defense (Pemper v Reifer, 264 AD2d 625 [1999]). Plaintiff has failed to prove that the parties shared a "special relationship" within the meaning of this exception to the usury defense. The plain reading of the letter agreement clearly indicates that the transaction was a loan. Moreover, the complaint alleges that the parties "entered into an agreement whereby plaintiff was to lend defendant the sum of $25,000"; that "said agreement provided for defendant's prepayment of interest . . . in the form of convertible preferred stock"; that "on or about March 27, 2003, plaintiff advised defendant of several additional terms the parties needed to incorporate in the agreement, which included a signed promissory note for the $25,000.00, and an additional 'incentive' for the loan in the form of convertible preferred stock that would yield 150,000 shares of common stock upon conversion."the
Funding Group v Water Chef inc.
In opposition, plaintiff argues that defendant should be estopped from asserting the defense of usury where "defendant's own express conduct" induced plaintiff into making the loan, and where defendant "drew up the notenow in hindsightcomplained of." Plaintiff further argues that defendant cannot avail itself of a defense of criminal usury because the law of usury does not apply here where the transaction was in the nature of a joint venture. In support of plaintiff's arguments,{**19 Misc 3d at 489} plaintiff's principal, Norman Levine, avers in his affidavit that the personal conversations he had with defendant's president, David Conway, belies the assumption that the transaction at issue was that of a borrower and a lender as "[p]laintiff was enticed by defendant into entering into the . . . transaction, with the promise of obtaining what was to be a valuable interest in an up and coming public company." Levine further avers that " t was David Conway, personally, that induced plaintiff into accepting stock in the company, in lieu of various cash payments," and that "[d]uring the course of ongoing negotiations, plaintiff was furnished with a list of up and coming 'opportunities' [that] defendant . . . would be involved in, as a further means of inducing plaintiff to 'come on board' with [defendant]."
The Court of Appeals has "recognized that a borrower may be estopped from interposing a usury defense when, through a special relationship with the lender, the borrower induces reliance on the legality of the transaction" (Seidel v 18 E. 17th St. Owners, 79 NY2d 735, 743 [1992]). The court emphasized, however, that "[a]n indispensable requisite of an estoppel in pais, is that the conduct or representation was intended to, and did, in fact, influence the other party to [its] injury" (id., quoting Payne v Burnham, 62 NY 69, 73 [1875]). The fact that the borrower suggests the interest rate, standing alone, does not relieve the lender of the usury defense (Pemper v Reifer, 264 AD2d 625 [1999]). Plaintiff has failed to prove that the parties shared a "special relationship" within the meaning of this exception to the usury defense. The plain reading of the letter agreement clearly indicates that the transaction was a loan. Moreover, the complaint alleges that the parties "entered into an agreement whereby plaintiff was to lend defendant the sum of $25,000"; that "said agreement provided for defendant's prepayment of interest . . . in the form of convertible preferred stock"; that "on or about March 27, 2003, plaintiff advised defendant of several additional terms the parties needed to incorporate in the agreement, which included a signed promissory note for the $25,000.00, and an additional 'incentive' for the loan in the form of convertible preferred stock that would yield 150,000 shares of common stock upon conversion."the
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