USURY DEFENSE NOT AVAILABLE TO CORPORATION

Is a corporation a person? Not when it comes to the defense of usury.

Principis Capital LLC v FNI Healthcare, Inc., 2019 NY Slip Op 51202(U), Decided on July 18, 2019, Supreme Court, New York County, Reed, J. :

"In opposition, defendants failed to raise a triable issue of fact. They do not contest that they owe money to plaintiff pursuant to the agreements. The only legal stance in opposition to the motion is that the contract is usurious (see NYSCEF Doc No. 23). However, a "corporation ... is prohibited from asserting the defense of usury" (Schneider v Phelps, 41 NY2d 238, 242 [1977]). "Likewise, an individual guarantor of a corporate obligation is also precluded from asserting such a defense" (id.). Defendants' defense of usury must therefore be stricken pursuant to CPLR 3211(b) (dismissing a defense where it has no merit). Likewise, their counterclaim for usury must be dismissed (see Intima-Eighteen, Inc. v A.H. Schreiber Co., Inc., 172 AD2d 456, 457 [1st Dept 1991])."

This is codified in General Obligations Law 5-521:

"1. No corporation shall hereafter interpose the defense of usury in any action. The term corporation, as used in this section, shall be construed to include all associations, and joint-stock companies having any of the powers and privileges of corporations not possessed by individuals or partnerships.

2. The provisions of subdivision one of this section shall not apply to a corporation, the principal asset of which shall be the ownership of a one or two family dwelling, where it appears either that the said corporation was organized and created, or that the controlling interest therein was acquired, within a period of six months prior to the execution, by said corporation of a bond or note evidencing indebtedness, and a mortgage creating a lien for said indebtedness on the said one or two family dwelling; provided, that as to any such bond, note or mortgage executed by such a corporation and effective prior to April sixth, nineteen hundred fifty-six, the defense of usury may be interposed only in an action or proceeding instituted for the collection, enforcement or foreclosure of such note, bond or mortgage.

Any provision of any contract, or any separate written instrument executed prior to, simultaneously with or within sixty days after the delivery of any moneys to any borrower in connection with such indebtedness, whereby the defense of usury is waived or any such corporation is estopped from asserting it, is hereby declared to be contrary to public policy and absolutely void.

3. The provisions of subdivision one of this section shall not apply to any action in which a corporation interposes a defense of criminal usury as described in section 190.40 of the penal law."