Opinion
No. 52/300.
11-16-1922
OVSIOVITCH v. FEDERAL TOOL & MFG. CO.
Harry Green, of Newark, for the motion. Russell Fleming, of Newark, opposed.
Suit by Joseph Ovsiovitch against the Federal Tool & Manufacturing Company. On motion by Charles Karsh for the payment to him by the receiver of the defendant company of moneys loaned to the company. Payment directed of the amount of the loan and legal interest.
Harry Green, of Newark, for the motion.
Russell Fleming, of Newark, opposed.
BACKES, V. C. Shortly before the defendant corporation was declared insolvent, it borrowed from Charles Karsh $2,000, and gave him its promissory notes aggregating $2,500, with interest at 6 per cent., and secured the notes by a chattel mortgage on its machinery, tools of trade, etc. The receiver sold the chattels free and clear of the mortgage incumbrance and Karsh now petitions to be paid the amount of the notes out of the proceeds. That the notes and mortgage were given on a usurious bargain is admitted, but Karsh claims that usury cannot be set upin defense by the receiver because of section 7 of the Usury Act (C. S. p. 5706), which provides that:
"No corporation shall hereafter plead or set up the defense of usury to any action brought against it to recover damages or enforce a remedy on any obligation executed by said corporation."
It has been held that this statute does not apply to transactions of a private nature, such as is here presented. Mr Justice Garrison, in Mazarin v. Hudson County Real Estate & Building Co., 80 N. J. Law, 35, 76 Atl. 822, said that
"In view of the uniform legislative policy of the state in the matter of usury, the words 'obligation executed' by a corporation refers to corporate obligations in the sense of bonds, mortgages, debentures, and the like that go on the market and into the hands of the public."
And Vice Chancellor Foster entertained and expressed the same view in a ease to foreclose a mortgage given to secure, in part, notes tainted with usury. Seacoast Keal Estate Co. v. American Timber Co. et al., 89 N. J. Eq. 293, 104 Atl. 437. See, also Lembeck v. Jarvis Terminal Cold Storage Co., 70 N. J. Eq. 757, 64 Atl. 126.
Karsh will be allowed the amount of his loan, $2,000, and legal interest. Had the defense of usury been strictly pleaded, interest would have been disallowed. Dunlap v. Chenoweth, 88 N. J. Eq. 496, 104 Atl. 822.