Begelfer v. Najarian

• Decision Date: 18 July 1980
• Citation: 381 Mass. 177,409 N.E.2d 167
• Parties: David I. BEGELFER et al. 1 v. Richard A. NAJARIAN et al. 2
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 167

409 N.E.2d 167

381 Mass. 177

David I. BEGELFER et al. ¹ v. Richard A. NAJARIAN et al. ²

Supreme Judicial Court of Massachusetts, Middlesex.

Argued April 9, 1980.

Decided July 18, 1980.

Joseph E. Sandler, Cambridge, for plaintiffs.

Joseph Saklad, Belmont, for defendants.

Before HENNESSEY, C. J., and QUIRICO, BRAUCHER, WILKINS and ABRAMS, JJ. ABRAMS, Justice.

The Legislature has provided that any person who charges more than twenty per cent a year for interest and expenses on a loan must register with the Attorney General. ³ Any person who obtains a loan in which the interest and expenses exceed twenty per cent a year may request that the loan be declared void by the Superior Court or this court if the lender failed to register with the Attorney General. G.L. c. 271, § 49.

The plaintiffs seek a declaration that a promissory note executed by them is void because the defendants' exercise of their rights under the default provision caused the interest and expenses to exceed twenty per cent a year and the defendants failed to register with the Attorney General. The plaintiffs suggest that, in any event, the amount of damages sought to be recovered from them after default is unconscionable. Lastly, the plaintiffs also contend that violation of G.L. c. 271, § 49, is an unfair and deceptive act which entitles them to damages and attorneys' fees pursuant to § 11 of G.L. c. 93A. The defendants answered, denying that interest and expenses exceeded twenty per cent a year, and counterclaimed for enforcement of the note. Each party filed an affidavit and moved for summary judgment. Mass.R.Civ.P. 56, 365 Mass. 824 (1974).

After hearing the cross-motions for summary judgment, the judge allowed the defendants' motion. He ruled that there was no genuine issue of fact; that the note in question was an enforceable obligation, not in violation of G.L. c. 271, § 49; and that the defendants had not engaged in any unfair or deceptive practice as that term is used in G.L. c. 93A, § 11. Judgment was entered in the amount of $99,522.50. ⁴ The plaintiffs appealed, and we transferred the case on our own motion. We hold that the default provision of the note does, indeed, violate G.L. c. 271, § 49. Therefore, we reverse the judgment, which ordered enforcement of the entire note including the default provision. We agree with the judge that the plaintiffs are not entitled to relief pursuant to § 11 of G.L. c. 93A, but we do so for different reasons.

We summarize the pleadings. The plaintiffs are in the business of buying, selling, renting, constructing, and renovating residential properties. On or about September 26, 1973, the plaintiffs executed nine separate notes to various payees to evidence a total loan of $300,000. The nine votes were secured by a junior mortgage on real estate located in Cambridge. The proceeds of the loan were to be used for the renovation of rental property.

The defendant Richard Najarian owns a pharmacy in Waltham, at which his wife occasionally works. The defendants were asked to participate in the loan by two of the other investors; the defendants did not know the plaintiffs. On or about September 30, 1973, the plaintiffs, as comakers, executed a promissory note dated September 26, 1973, payable to the defendants in the amount of $30,000 with interest from the date of the note at the rate of fifteen per cent (15%) a year on the unpaid balance until paid. Principal and interest were payable in monthly installments to be applied first to interest, then to principal. All unpaid balances were to be paid one year from the date of the note. In addition, the parties included a provision calling for default charges. ⁵ An amendment to the note was executed in October, 1974, extending the time for payment until September 26, 1975, and increasing the interest to seventeen per cent a year.

The plaintiffs did not pay the note when due and failed to make the interest payments from March 26, 1976, to the date of the judgment. ⁶ The defendants made a written demand for payment of the amount due under the provisions of the note on July 5, 1977, and shortly thereafter the plaintiffs commenced this action. The central issue is the effect to be given the default provision of the note in light of G.L. c. 271, § 49.

1. General Laws c. 271, § 49. "The word interest in its usual sense is the compensation fixed by the parties or allowed by law for the use of money or as damages for its detention." Hayes v. Commissioner of Corps. & Taxation, 261 Mass. 134, 136, 158 N.E. 539, 540 (1927). Usury is generally defined as the taking of interest in excess of the rate permitted by law. 45 Am.Jur.2d Interest and Usury § 2 (1969). 6A Corbin, Contracts § 1498 at 677 (1962). Hopkins v. Flower, 256 Mass. 367, 371-372, 152 N.E. 635 (1926). From 1641 to 1867, Massachusetts laws prohibited the taking of usury. See, e. g., St.1783, c. 55; St.1825, c. 143; St.1826, c. 27. See generally Gray v. Bennett, 3 Met. 522, 527-528 (1842). After 1867, Massachusetts had no general usury statute until 1970, although loans at a rate of interest greater than six per cent were required to be in writing. St.1867, c. 56. See also St.1898, c. 577 (Small Loans Act). ⁷ In 1965 the Special Commission on Laws Relative to Loans and Credit declined to recommend passage of a usury law since, in their opinion, existing and recommended legislation in the areas of small loans, home mortgages, retail credit sales, and credit disclosure provided ample protection to borrowers. 1965 House Doc. No. 3915 at 12. However, in 1970, the Governor recommended passage of a usury law to provide an effective tool against organized crime and "the vicious offense of loansharking." Message of the Governor, 1970 House Doc. No. 5439 at 3. Beach Assocs. v. Fauser, 80 Mass.App. 525 ^a, 401 N.E.2d 858 (1980). General Laws c. 271, § 49, was thereafter enacted by St.1970, c. 826. The law is designed to protect the necessitous debtor from outrageous demands by lenders. 14 S. Williston, Contracts, § 1683 n.17 (3d ed. 1972). Gray v. Bennett, supra at 527-528. See Goldstock and Coenen, Controlling the Contemporary Loanshark: The Law of Illicit Lending and the Problem of Witness Fear, 65 Cornell L.Rev. 127, 180-184 (1980).

As defined by G.L. c. 271, § 49, "the amount to be paid upon any loan for interest or expenses shall include all sums paid or to be paid by or on behalf of the borrower for interest, brokerage, recording fees, commissions, services, extension of loan, forbearance to enforce payment, and all other sums charged against or paid or to be paid by the borrower for making or securing directly or indirectly the loan . . . ." The plaintiffs contend that the overdue charges fall squarely within this statutory prohibition. The defendants, on the other hand, argue that the note does not violate § 49(a ), because the interest was only seventeen per cent and the default charges are not interest within the meaning of § 49(a ). We disagree with the defendants because the all-inclusive language utilized by the Legislature in § 49 brings within its ambit the default provision of the note in issue.

Analogous statutes regulating installment sales or loans limit the maximum amount to be charged and specifically include or exclude default charges. See G.L. c. 255B, §§ 11, 20 (Motor Vehicles Installment Sales Act); G.L. c. 255D, §§ 9C(12)(4), 20, 21 (Retail Installment Sales Act); G.L. c. 140, § 114A. Statutes regulating small loans and certain home mortgage loans do not mention default charges specifically, but their language requires that the maximum charge permitted under these statutory provisions include all but specially enumerated items. G.L. c. 140, §§ 90A, 96, 100; Greenleaf Fin. Co. v. Small Loans Regulatory Bd., --- Mass. ---, --- ^b, 385 N.E.2d 1364 (1979). See also G.L. c. 140C, § 3(e) (Truth-in-Lending); 12 C.F.R. § 226.8(b)(4) (Federal Truth-in-Lending regulation). ⁸ We think that the Legislature's decision to employ language similar to the language found in statutes regulating small loans and certain home loans, coupled with the Legislature's failure specifically to exclude default charges from G.L. c. 271, § 49(a ), is fatal to the defendants' claim that the note does not violate § 49(a ). Our interpretation is consistent with decisions from other jurisdictions interpreting similar statutes. See State ex rel. Turner v. Altoona, 274 N.W.2d 366, 367 (Iowa 1979); Watson v. Cargill, Inc., 573 S.W.2d 35, 42 (Tex.Civ.App.1978); Thrift Funds of Baton Rouge, Inc. v. Jones, 274 So.2d 150 (La.), cert. denied, 414 U.S. 820, 94 S.Ct. 115, 38 L.Ed.2d 53 (1973); Gordon Fin. Co. v. Chambliss, 236 So.2d 533 (La.App.1970).

The defendants' next argument is that the contract rate in the note must be enforced because under G.L. c. 107, § 3, ⁹ it is lawful to contract for any rate of interest except as provided under certain sections of the Small Loans Act, G.L. c. 140. The defendants' premise is correct in so far as it goes. While parties may contract for interest in an amount greater than twenty per cent, the Legislature has determined that as a matter of public policy persons who charge more than twenty per cent interest must register with the Attorney General. No reason suggests itself why we should not give effect to the legislative policy express in G.L. c. 271, § 49, as well as G.L. c. 107, § 3. Reading these statutes together permits parties to contract for an amount of interest greater than twenty per cent so long as the lender complies with the registration and record-keeping requirements of G.L. c. 271, § 49. In the absence of compliance with these requirements, the maximum amount to be charged for interest and expenses on any loan is limited to twenty per cent a year. "If reasonably practicable and there is no positive repugnancy, a rational and workable effect must be given to both statutes, to the end that there may be a harmonious and consistent body of legislation." ...