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decided: November 14, 1967.


Appeal from order of Court of Common Pleas of Delaware County, No. 5028 of 1964, in case of All Purpose Finance Corp. v. Nicholas D'Andrea and Hannah E. D'Andrea.


Malvin L. Skaroff, for appellants.

Marvin Allanoff, for appellee.

Bell, C. J., Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice O'Brien. Mr. Justice Musmanno took no part in the consideration or decision of this case. Dissenting Opinion by Mr. Justice Roberts.

Author: O'brien

[ 427 Pa. Page 342]

On April 25, 1965, appellee caused judgments to be entered against appellants by confession, on a note executed by them. Appellants thereafter filed a petition to open the judgment, alleging that the loan was usurious, and that $3,500 was paid to appellee on account of the obligation, for which credit was not received. A hearing on the petition and rule was held on March 15, 1966, and on May 16, 1966, the court signed an order discharging the rule. This appeal followed.

Appellants executed this judgment note pursuant to a loan agreement between appellee and Jay-Bee Plumbing and Heating Company, a New Jersey Corporation, under the terms of which Jay-Bee was the borrower and appellants, as well as other parties, became liable as surety for the loan. The court below found as follows: "The record discloses, according to Mr. D'Andrea, one of the defendants, that the Jay-Bee Plumbing and Heating Company, Inc., (hereinafter referred to as Jay-Bee), was in financial need and that it was unable to negotiate, based on its own assets, a loan in the amount required. Negotiations were then conducted initially through one Mr. Howard Lipkin who in turn introduced the defendants and others interested in Jay-Bee to plaintiff. Certain properties belonging to the defendants, inter alia, were to be pledged as security for the loan, some in Pennsylvania and some in New Jersey. Mr. D'Andrea owned one share of stock

[ 427 Pa. Page 343]

    in Jay-Bee and the balance of stock in Jay-Bee (20 shares total) was owned by a Mr. LaSassa and his wife. At the time of the transaction, Jay-Bee had approximately fifteen jobs, of varying size, running in Pennsylvania and New Jersey; the loan was required, according to Mr. D'Andrea, because the 'company needed the money.' In addition, the record discloses, according to Mr. D'Andrea, that the money borrowed was actually used by Jay-Bee.

"On or about May 1, 1964, a check was issued to Jay-Bee by plaintiff in the amount of $24,400 same being negotiated by Jay-Bee. On the same date, a written agreement was entered into between plaintiff, Jay-Bee, the defendants and Mr. and Mrs. LaSassa. In this agreement, the defendants and the other individual signatories were designated as sureties for a $25,000 loan to be made to Jay-Bee, payable within one year, with interest at the rate of 2% per month; the loan was to be repaid in eleven $500 installments and a final installment of $25,500, a total of $31,000. The agreement further provided for an optional method of repayment which is not material to the issues presented in the instant case. In addition, the corporate resolution of Jay-Bee was introduced into evidence approving and authorizing, inter alia, the execution of judgment notes relative to this loan in accordance with the aforesaid agreement."

In reviewing the record, we reach the same conclusion as the court below that the loan was usurious. However, we further agree with the court below in its conclusion that this loan was made to Jay-Bee, a New Jersey corporation, for its business purposes, and therefore reach the same issue as was before the trial court, that is: "May individual sureties to a usurious loan made to a corporation raise the defense of usury where the corporation itself is precluded from raising the defense of usury?" We agree with the court below that

[ 427 Pa. Page 344]

    this question must be resolved adversely to the appellants.

The Business Corporation Law, Act of May 5, 1933, P. L. 364, § 313, 15 P.S. § 2852-313, provides as follows: "No business corporation shall plead or set up usury, or the taking of more than six per cent interest, as a defense to any action brought against it to recover damages on, or to enforce payment of, or to enforce any other remedy on, any mortgage, bond, note, or other obligation executed or effected by the corporation." With this Act in mind, it is clear that Jay-Bee could not itself raise the defense of usury. An issue involving usury was before the Superior Court in the case of Walnut Discount Co. v. Weiss, 205 Pa. Superior Ct. 161, 208 A.2d 26 (1965), where the late Judge Flood, speaking for a unanimous court, reviewed in great detail pertinent matter that is before us. He stated: "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 6% simple interest should be credited on the principal sum of $2900 and opened the judgment in order that the amount, if any, remaining due might be determined.

"We have been referred to no case in our appellate courts determining the effect of § 313 of the Business Corporation Law upon the obligation of individual endorsers of a corporate obligation bearing usurious ...

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