## Facts

- Architects Display Buildings, Inc. (a corporation) obtained construction financing through two mortgage loans from an individual lender, later assigned to the plaintiffs.
- The first loan was a $250,000 mortgage secured by corporate real estate, with prepaid interest, a “service charge,” and a contractual post-default daily interest provision.
- The second loan was a $50,000 mortgage on the same premises, evidenced by multiple promissory notes endorsed individually by the corporation’s president, Charles S. Cohan, and also included prepaid interest and a post-default daily charge.
- The corporation defaulted on required payments in late 1957; the mortgagees accelerated and filed a Chancery Division foreclosure action to fix the amounts due and sell the property.
- Architects asserted defenses and counterclaims alleging (1) usury, (2) violations of the New Jersey Banking Act, and (3) violations of the New Jersey Real Estate Broker’s Act (arguing the “service charge” was an unlawful brokerage commission).
- The Chancery Division granted summary judgment for foreclosure; after reargument and amendment of pleadings (and limited joinder of Cohan), the court adhered to summary judgment.
- Architects and Cohan appealed, challenging enforceability of the charges and the rejection of statutory defenses.

## Issues

1. Whether a corporate mortgagor (and its officer/endorser) could assert usury, including by arguing the loans were effectively made to the officer individually rather than to the corporation.
2. Whether the contractual post-default interest and related charges were enforceable or, in equity, constituted an unconscionable penalty (as to each mortgage).
3. Whether the loans were unenforceable because they violated the New Jersey Banking Act.
4. Whether the “service charge” was unenforceable as a prohibited commission under the New Jersey Real Estate Broker’s Act.

## Decision

- The Appellate Division affirmed foreclosure by summary judgment, with modification of the amount recoverable under the $50,000 mortgage and a remand for recalculation.
- The court held Architects, as a corporation, was statutorily barred from asserting usury; the transaction was not recharacterized as a personal loan to Cohan merely because he endorsed notes.
- The court upheld the post-default charge on the $250,000 mortgage as enforceable and not unconscionable on the record presented.
- The court held the post-default charges on the $50,000 mortgage were unconscionably high and operated as an impermissible penalty to that extent; that excessive portion was disallowed.
- The court rejected the Banking Act defense, finding the statute did not invalidate a private lender’s mortgage loans on these facts.
- The court rejected the Real Estate Broker’s Act defense due to an insufficient showing that the “service charge” was a prohibited brokerage commission.

## Legal Principles

- In New Jersey, a corporate borrower may be barred by statute from pleading usury, and a court will not treat a corporate loan as an individual loan solely because an officer guarantees or endorses corporate obligations.
- Even where usury is unavailable, equity may refuse to enforce contractual default-interest provisions to the extent they are unconscionable or function as a penalty rather than compensation for delayed payment.
- A default-rate provision may be enforced when its practical effect is not punitive in relation to the parties’ agreed financing terms and the circumstances of default.
- Statutes regulating banking activity do not necessarily invalidate private mortgage lending transactions absent a statutory basis for voiding such loans.
- A fee labeled as a “service charge” will not be treated as an unlawful real estate brokerage commission without a developed factual basis showing it was paid for brokerage services covered by the licensing statute.
- Summary judgment in foreclosure is appropriate where default and loan documents are undisputed and the asserted defenses fail as a matter of law or lack evidentiary support.

## Conclusion

The appellate court sustained foreclosure and rejected the corporation’s usury and statutory defenses, but limited recovery on the second mortgage by disallowing excessive default charges as an unenforceable penalty and remanding to recompute the amount due.


Feller v. Architects Display Buildings, Inc., 54 N.J. Super. 205, 148 A.2d 634 (App. Div. 1959)