Barnes v. Helfenbein
| Decision Date | 16 March 1976 |
| Docket Number | No. 45258,45258 |
| Citation | 548 P.2d 1014,1976 OK 33 |
| Parties | B. E. BARNES, Appellee, v. Anna Louise HELFENBEIN, formerly Welch, and Stephen A. Welch, Appellants, and Margie M. Morey, formerly Barnes, Intervenor. |
| Court | Oklahoma Supreme Court |
Hall, Estill, Hardwick, Gable, Collingsworth & Nelson by James C. T. Hardwick, Tulsa, for appellee.
Bagwell & Bagwell by Carl Bagwell, Oklahoma City, for appellant.
Holliman, Langholz, Runnels & Dorwart by Frederic Dorwart, Tulsa, for intervenor.
Lyons & Dean by Tony Jack Lyons, Pryor, amicus curiae.
The questions presented by this appeal are matters of first impression in this jurisdiction and concern the criteria for determining whether a loan is a 'consumer loan,' a 'consumer related loan' or an 'other loan' under the provisions of the Oklahoma version of the Uniform Consumer Credit Code ('UCCC'), 14A O.S.1971 § 1--101 et seq., and a determination of the maximum permissible rate of interest that may be charged by a creditor under the laws of the State of Oklahoma for the type of loan presented by this case.
Anna Louise Helfenbein ('borrower') borrowed $500,000.00 from B. E. Barnes ('lender') on September 23, 1969. The lender had made infrequent small loans in the past, but the lender was an individual who was not regularly engaged in the business of making loans. The borrower had mortgaged the real property proposed as collateral for the loan on several occasions and had extinguished each prior mortgage loan by obtaining a subsequent mortgage loan. The borrower had no apparent source of funds to pay the mortgage loans, except through a sale or refinancing of the real property collateral. At the time the loan was made, the borrower's real property was subject to a $423,000.00 mortgage loan which was in default and in the process of foreclosure. Although the borrower had received offers to sell the real property which would have discharged her obligation and yielded a profit in excess of $300,000.00, the borrower refused the offers because they did not meet the borrower's expectation of the profit to be realized from the sale of the real property. Instead, the borrower sought a new mortgage loan to permit further speculation on land values.
The lender was contacted by a representative of the borrower who proposed the terms of the loan. The loan terms were explained to the borrower by her attorney before the loan closing. The borrower also received a letter from her attorney disclosing the terms of the loan, which was signed and accepted by the borrower indicating her understanding and approval of the lending transaction.
At the loan closing, the borrower executed and delivered to the lender a written promissory note in the principal sum of $600,000.00 due on April 1, 1970, bearing interest at the rate of 38.502% Per annum. The lender simultaneously delivered $600,000.00 to the borrower who immediately redelivered $100,000.00 to the lender as the agreed prepaid finance charge for the loan term. Payment of the loan was secured by a real estate mortgage covering land which was owned by the borrower and which was not used for homestead or agricultural purposes.
The borrower defaulted in payment of the note. The lender instituted an action for payment of the promissory note, foreclosure of the real estate mortgage, and attorney's fees in the amount of $90,000.00 as provided by the note.
After overruling the motion for summary judgment filed by the lender, at the pretrial conference, the trial court ruled that the loan was neither a 'consumer loan' nor a 'consumer related loan' under the applicable provisions of the UCCC and set the case for trial before an advisory jury on the question of unconscionability of the rate of interest. At the trial of the cause, the advisory jury found that the interest rate was unconscionable. The court accepted the jury's advisory opinion and reduced the interest rate on the loan to ten percent (10%) per annum.
The lender recovered a judgment against the borrower in the amount of $500,000.00 plus interest at the rate of ten percent (10%) per annum from the date of the note, attorney's fees in the amount of $50,000.00, court costs and a decree of foreclosure of the real estate mortgage securing payment of the note. The borrower obtained a judgment holding that the rate of interest provided in the note was unconscionable and reducing the rate of interest to ten percent (10%) per annum. The trial court stated that the rate of interest had been reduced based on equitable principles and not under the applicable statutes.
Subsequent to the trial, the borrower discharged her counsel. He filed an attorney's lien of $75,000.00 against the proceeds of the mortgage foreclosure sale.
The borrower's real property was sold at the mortgage foreclosure sale on June 13, 1972, for $810,000.00. The lender received $697,000.00 in satisfaction of his judgment. The remaining sale proceeds of $113,000.00 are the subject of this appeal.
The primary questions presented for our determination are the nature of the loan involved and the maximum permissible rate of interest for loans falling into this category under the laws of the State of Oklahoma. The questions of whether the trial court's determination of unconscionability was proper and whether an attorney's fee may be recovered are secondary issues.
On September 17, 1968, the people of the State of Oklahoma amended art. 14, § 2 of the Oklahoma Constitution and granted the legislature the authority to fix maximum rates of interest. The amendment provides:
'The Legislature shall have authority to classify loans and lenders, license and regulate lenders, define interest and fix maximum rates of interest; provided, however, in the absence of legislation fixing maximum rates of interest, all contracts for a greater rate of interest than ten percent (10%) per annum shall be deemed usurious; provided, further, that in contracts where no rate of interest is agreed upon, the rate shall not exceed six percent (6%) per annum.'
Subsequently, the Oklahoma legislature adopted a modified version of the Uniform Consumer Credit Code which became effective on July 1, 1969. The effect of the passage of the UCCC was to repeal all existing ceilings on interest rates for loans. Under the UCCC, loans are divided into three all encompassing categories: 'consumer loans,' 'consumer related loans' and loans other than consumer or consumer related loans, referred to as 'other loans.' The provisions of the UCCC reflect a complete legislative treatment which fixes the maximum rates of interest for all lending transactions in Oklahoma. The first proviso of the constitutional amendment fixing the maximum rate of interest in the absence of legislation is rendered inapplicable because of the enactment of the UCCC. Under the UCCC, absolute limits on maximum interest rates are imposed on loans which fall into either of the categories of 'consumer loans' and 'consumer related loans.' The delineation of exact charges by the legislature was deemed appropriate in consumer lending transactions in the exercise of a legislative desire to regulate practices by lenders active in the areas of consumer finance where an individual borrower is without the bargaining power to adequately discover the interest rate being charged or bargain for charges which are reasonable under the circumstances. We need not concern ourselves with the varying maximum interest rates or allowable charges applicable to 'consumer loans' or 'consumer related loans' because we agree with the finding of the trial court that the loan in question is not a 'consumer loan' or a 'consumer related loan' but an 'other loan.'
The statutory standards to be utilized in determining whether a loan is a 'consumer loan' are delineated by 14A O.S.1971 §§ 3--104, 3--105. 1 In order for this loan to be a 'consumer loan,' it must meet all of the criteria set forth in both these sections. Any other interpretation would frustrate the intent of the Commissioners on Uniform State Laws and the Oklahoma legislature, and place a category of loans within the definition of 'consumer loans' that would be contrary to reason. 2
To determine whether the instant loan is a 'consumer loan,' a determination must first be made as to whether the loan is excepted from the category of 'consumer loans' by definition as a 'loan primarily secured by an interest in land' under § 3--105. To be automatically exempted from the category of a 'consumer loan' under § 3--105, the value of the collateral must be substantial in relation to the amount of the loan, and the loan finance charge must not exceed ten percent per annum. Here the value of the collateral was substantial, but the interest rate exceeded ten percent per annum. Therefore, the loan in question is not automatically excluded from the definition of 'consumer loan' by virtue of § 3--105. To determine whether the instant loan is a 'consumer loan,' we must then apply the remaining criteria set forth by § 3--104. The initial requirement of § 3--104 is not satisfied because the lender was not regularly engaged in the business of making loans. The loan also fails to satisfy the requirement that the debt be incurred for a personal, family, household or agricultural purpose. It is obvious that the loan was made in pursuit of the borrower's commercial ventures.
Section 3--105 is identical to the Uniform Consumer Credit Code. It is apparent from an analysis of the comment to the Model Act that the two sections are to be construed together to exclude the classic home mortgage from all provisions of the UCCC except those on disclosure and debtor's remedies. The Official Comment to § 3--105 of the Model Act states that the ten percent limitation was intended to include as 'consumer loans' those loans made at high rates of interest which are best exemplified by the second mortgage small loan business, i.e., where the value of the real property is...
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