Opinion
March 30, 1995
Appeal from the Supreme Court, New York County (Rosemary Pooler, J.).
It is clear from the record that New Horizons Realty, Inc., the purported corporate borrower under the loan agreement is non-existent. It was never created. The reason for the failure to form this corporation is not established in the record. This is not a situation where the corporate form was used to shield from usury a loan to an individual for personal debts as in Schneider v. Phelps ( 41 N.Y.2d 238). Rather, it appears that the purpose of the loan was to purchase a building for investment purposes, a valid corporate venture.
We are satisfied that both the plaintiff-lender and the two individual defendants, Grant and Anderson, were acting in good faith under a mutual mistake as to the bona fide existence of New Horizons Realty, Inc., and intended that New Horizons be the borrower under the loan agreement. In the absence of a validly created corporate borrower, it is conceded that the defense of usury would bar enforcement of the loan agreement both as to principal and interest (see, General Obligations Law § 5-511; Seidel v. 18 E. 17th St. Owners, 79 N.Y.2d 735). Under the circumstances we exercise our equitable power, sua sponte, to award rescission of the loan agreement on the grounds of mutual mistake and put the parties in the status quo ante (see, De Mayo v. Yates Realty Corp., 35 A.D.2d 700, affd 28 N.Y.2d 894).
With respect to the second cause of action, defendants persuasively argue that the evidence does not support the court's finding that they had engaged in fraudulent conduct. The law is settled that in order to demonstrate fraud, a party must show the following elements: (1) misrepresentation of a material fact, (2) scienter, (3) justifiable reliance, and (4) injury or damages (Gouldsbury v. Dan's Supreme Supermarket, 154 A.D.2d 509, 510-511, lv denied 75 N.Y.2d 701). In that regard, there is little indication that defendants Grant and Anderson either intended to defraud plaintiff or that plaintiff was justified in relying upon the representations that he was extending a loan to New Horizons Realty.
Leave to appeal to the Court of Appeals denied, and reargument granted to the extent of substituting a new decision and order released simultaneously herewith for the unpublished decision and order (Appeal No. 53025) entered on November 3, 1994, as indicated.
Concur — Murphy, P.J., Rosenberger, Wallach, Kupferman and Asch, JJ.