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WALNUT DISCOUNT CO. v. WEISS (03/18/65)

decided: March 18, 1965.

WALNUT DISCOUNT CO., APPELLANT,
v.
WEISS



Appeal from order of County Court of Philadelphia, Dec. T., 1959, No. 10790-E, in case of Walnut Discount Co. v. Harry J. Weiss et ux.

COUNSEL

Abe Lapowsky, for appellant.

William T. Adis, for appellees.

Ervin, Wright, Woodside, Watkins, Montgomery, and Flood, JJ. (Rhodes, P.j., absent). Opinion by Flood, J.

Author: Flood

[ 205 Pa. Super. Page 162]

The plaintiff has appealed from an order of the court below opening his judgment upon the ground that the underlying obligation was usurious. He contends that the note represented a corporate obligation and the appellees, as individual guarantors of the obligation of a corporation, cannot successfully raise the defence of usury.

The defendants made an agreement dated February 19, 1960, under which they purported to guarantee the obligation of Department Store Tire Sales, Inc., a Pennsylvania corporation, giving to the plaintiff their own judgment demand note upon which judgment was forthwith entered of record. The obligation bore interest at the rate of two per cent per month. Interest payments at this rate were made until July 1, 1964, when the appellees filed a petition to show cause why the judgment should not be opened and satisfied. The court below sustained the contention that the note

[ 205 Pa. Super. Page 163]

    was usurious and opened the judgment for a determination of the amount, if any, remaining due.

The note was given to replace an existing obligation of the defendants to the appellant as guarantors of a loan made by the plaintiff on or about May 6, 1959, to Roll-In Tire Service, Inc., a corporation of which their son, Roland Weiss, was president and principal stockholder. On or about January 22, 1960, Roll-In was adjudicated a bankrupt. At that time its indebtedness to the plaintiff had been reduced to $2900 and the plaintiff demanded payment of this balance from the appellees, Harry and Sylvia Weiss. Roland Weiss endeavored to get an extension of their obligation and was told by the appellant's attorney that this could only be done if a new loan in corporate form replaced their obligation.

Roland then formed a new corporation, Department Store Tire Sales, Inc., of which he was president and sole stockholder. The appellant, on February 16, 1960, executed an agreement with Department Store Tire Sales, Inc., wherein the new corporation, purportedly borrowed $2900 from it, agreeing to pay interest of two per cent per month on the $2900 for six months and to repay the principal in weekly installments of $117 commencing six months after date. No interest was to be paid after six months, but if a delinquency should arise interest was to be paid at the rate of two per cent per month during the delinquency. The appellees signed this agreement as individuals and "guarantors" and executed the judgment note which is the subject of this proceeding. The agreement also recited that appellees, as guarantors, requested the loan from the appellant loan company. The appellant drew a check for $2900 to the new corporation which was endorsed back by the corporation to appellant, which used the proceeds to pay off the balance of $2900 on the Roll-In loan on which the appellees had also been guarantors.

[ 205 Pa. Super. Page 164]

The court below found as facts that the appellees were actually the principal obligors and Department Store Sales, Inc., the new corporation, was merely an accommodation maker or surety, that the corporate device was used by the loan company in an attempt to take advantage of § 313 of the Business Corporation Law of May 5, 1933, P. L. 364, art. III, 15 PS § 2852-313, to avoid the defence of usury, but that the appellees, as individuals, were not prevented by § 313 from asserting the defence of usury. The court consequently held, under the Usury Act of May 28, 1858, P. L. 622, § 2, 41 PS § 4, that all amounts paid in excess of ...


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