70 Misc. 2d 918 | Suffolk County District Court | 1972
This action was brought on by the plaintiff corporation for payment of the sum of $1,276.65. This sum all allegedly represents the balance remaining from moneys paid by the plaintiff, a New York corporation, to St. Francis College, located in Loretto, Pennsylvania, for the tuition of the defendant’s daughter, one Patricia Zicari, who is presently a student at said institution.
The defendant allegedly signed an agreement entitled ‘1 Retail Installment Contract ’ ’ which sets forth the items making up the aggregate amount of the loan or contract as follows:
A — Cash payment of total tuition and other
school fees........................ $8,000.00
B — Charge for credit life insurance to be
procured by the holder.............. 154.40
D — Finance charge...................... 1,303.20
E — Annual percentage rate —14.40%
F — Deferred payment................... $9,443.60
The agreement provided for 54 monthly installment payments, each in the sum of $175.70, commencing October 1, 1969. The defendant had in fact “ borrowed ” $2,100, or that sum was advanced by the plaintiff to St. Francis College, and the defendant repaid a portion of said moneys, leaving a balance remaining in the sum of $1,276.65.
The defendant answered this complaint by alleging that:
1. He never signed the agreement herein relied upon as evidence of his indebtedness, but rather, his wife executed the agreement.
2. The agreement is a loan and not a contract for a time-price sale and therefore violates New York’s laws against usury.
The plaintiff bases its claim on the following:
1. This is not a loan but a contract with St. Francis for a time-price sale to which the laws against usury do not apply.
2. Since the college is located in Pennsylvania and the plaintiff is a mere assignee of this alleged contract, Pennsylvania law applies and the allowable finance charges on all retail installment obligations in Pennsylvania are above the charge levied against the defendant.
After trial, the court finds, as a matter of fact and law, the following:
While applying to St. Francis, the defendant’s daughter was sent a brochure informing her of the fact of the existence of “ The Tuition Plan ” and the possibility of borrowing a maximum of $8,000 over a four-year period with planned monthly repayments to commence shortly after she enrolled at the school.
Consequently, the wife of the defendant affixed his signature to this agreement for $8,000 and mailed it to the plaintiff’s offices in New York City. The defendant’s allegation that he is an improper party to this action may be quickly dismissed since at his examination before trial the defendant admitted that the tuition plan agreement was executed by his wife at his specific request and he consequently relied on her to make all the necessary arrangements. Therefore, his contention that he is an improper party is without merit.
The threshold question for this court to resolve is, namely, is this a contract for a time-sale transaction or is this really a loan, though the parties may call it by another name ? The court finds, for the reasons hereinafter stated, that this transaction
In order to form a valid contract there must be a person able to contract, a person able to be contracted with, a thing to be contracted for, a sufficient consideration, clear and explicit words to express the agreement, and the assent of both contracting parties (Justice v. Lang, 42 N. Y. 493). However, there is no consideration on the part of the college. Although the agreement in question is labeled a “ retail installment contract ” and the alleged contract purports to bind the college to render services, the court finds that the college has not bound itself to render services. It is true that an official of the college affixed his signature to a line in the agreement, beneath which stated: “accepted by SCHOOL. THIS AGREEMENT IS ASSIGNED TO THE TUITION PLAN, INC. PROVISIONS OE ASSIGNMENT ON THE REVERSE SIDE. ALL PAYMENTS DUE UNDER THIS AGREEMENT ARE PAYABLE TO THE TUITION PLAN INC.” The back of the agreement purports to assign this agreement for value but no evidence of such value appears in the plaintiff’s proof. Even though a recital of consideration is made by language in the agreement, this does not preclude the parties from disputing consideration and does not in itself give the promise any validity (Strobe v. Netherland Co., 245 App. Div. 573; Presbyterian Church of Albany v. Cooper, 112 N. Y. 517). In addition, the fortuitous presence in a transaction of some possibility of detriment, latent but unthought of, is not enough to furnish a consideration for a contract {Beck v. Sheldon, 259 N. Y. 208). The promise and the consideration must purport to be the motive each for the other, in whole or at least in part; it is not enough that the promise induces the detriment or that the detriment induces the promise if the other half is wanting (Allegheny Coll. v. National Chautauqua County Bank, 246 N. Y. 369).
The court is unable to find that the college has, expressly or by implication, agreed to provide the defendant’s daughter with a four-year education provided her parent execute the purported ‘1 contract ’ ’ with the college. Quite frankly, the court cannot find that there is consideration since the college has provided no real value to the defendant’s daughter (Mencher v. Weiss, 306 N. Y. 1). Since the college has not bound itself to provide $8,000 worth of services, the college has not entered into a contract with the defendant since a nonbinding promise is deemed insufficient consideration (Topken, Loring & Schwartz v. Schwartz, 249 N. Y. 206; Hathaway v. Bennett, 10 N. Y. 108).
The plaintiff, in its trial memorandum of law, states that ‘1 the item offered here by the school was the tuition for the student and the purchaser is the parent. It was offered either for an all cash payment or on the basis of installment payments, at a higher price.” Such a claim is patently incorrect. No college, at least none known to this court, provides services for a four year college education on the basis of a lump sum payment of tuition from the time of enrollment until the time of graduation. In Galveston & Houston Investment Co. v. Grymes (94 Tex. 609), the court held that it was usurious to add an amount equal to the maximum rate of interest on the principal for 10 years and divide repayment into 120 equal installments payable monthly, each installment representing the same proportion of principal and interest from one month to the next. The instant case has the same usurious effect since the full face amount of the agreement is never advanced. Indeed, it can never be advanced since the defendant is required to begin repayment while his daughter is still in college at an interest rate based on an amount he will never receive.
Having characterized the within transaction as a loan, the question of whether or not the laws of the State of New York or the laws of the State of Pennsylvania are applicable in making a determination with respect to the facts in this matter can be answered. The intention of the parties, express or
The court is mindful of the fact that many students in this State have been able to attend college only through the help of various loan programs. For some, it is the difference between a higher education or none at all. In a sense, these programs perform a quasi-public service in permitting those students with sufficient ability and desire to pursue careers of their own choosing without having to accept something less because they lack sufficient financial resources to pursue it. Indeed, many members of the Bar and judiciary would not be members of their profession without the aid of such programs. Therefore, this court has weighed the evidence carefully with this consideration evér present. But however noble the idea of student loans is, its implementation in the arrangement herein clearly violates this State’s laws against usury. And the law is clear that all bonds, bills, notes, assurances, conveyances and all other contracts or securities whatsoever in violation of section 5-501 of the General Obligations Law shall be void (General Obligations Law, § 5-511).
Therefore, the court finds that the contract is unenforceable since it is usurious and judgment is rendered in favor of the defendant and the complaint is dismissed. The defendant’s counterclaim is dismissed on the ground that the defendant has failed to establish it as a valid cause of action.