Beneficial Finance Co. of St. Charles, Inc. v. Kitson

Decision Date25 November 1975
Docket NumberNo. 35806,35806
Citation530 S.W.2d 497
PartiesBENEFICIAL FINANCE COMPANY OF ST. CHARLES, INC., Plaintiff-Appellant, v. Lonnie KITSON and John Trower, Defendants-Respondents. . Louis District, Division Two
CourtMissouri Court of Appeals

Bruere & Rollings, Henry Gerhardt, St. Charles, for plaintiff-appellant.

Jess L. Mueller, Troy, for defendants-respondents.

KELLY, Judge.

Beneficial Finance Company of St. Charles, Inc., plaintiff-appellant (hereinafter the plaintiff) appeals from a judgment of the Circuit Court of Lincoln County in a suit on a promissory note wherein the trial court at the close of plaintiff's evidence sustained the motion of defendant-respondent, John Trower (hereinafter the defendant) for a directed verdict on the grounds that the note sued on was usurious and therefore unenforceable and entered judgment for the defendant. We reverse and remand.

The litigation commenced in the Magistrate Court of Lincoln County where the plaintiff brought suit on a promissory note executed by the defendant as an accommodation co-signer for one Lonnie Kitson whereby the plaintiff loaned to the said Lonnie Kitson the sum of $1,566.57 for the purchase of an automobile. The note, on one of plaintiff's forms, was executed on May 1, 1968 for a principal sum in the amount of $1,566.57 and interest in the amount of $449.43, or a total of $2,016.00, payable in 60 equal installments of $56.00 per month, commencing on June 1, 1968 with the final payment being due on May 1, 1971. The note was secured by two co-signers, the defendant and one Edna Carol Trower, 1 a security agreement on the automobile and some household contents. Life insurance and insurance on the car and household contents securing the loan was also purchased. Plaintiff sought judgment against the defendants, Kitson and John Trower, in the sum of $392.51 plus interest and costs. Service was never obtained on Kitson and he never entered his appearance. In the Magistrate Court defendant filed no Answer to plaintiff's petition but did file a counterclaim seeking to recover $89.77 allegedly paid on the note in excess of the amount stated thereon. Judgment was entered in behalf of the plaintiff in the Magistrate Court following trial to the magistrate without a jury and the cause was appealed to the Circuit Court by defendant Trower.

After the transcript of the proceedings in the magistrate court was filed in the circuit court, defendant filed his Answer to the plaintiff's petition admitting that he had executed the promissory note sued on and that the note provided that default in the payment of any installment when due rendered the entire balance due and payable; he denied all of the other allegations in plaintiff's petition. He also was permitted to reduce the prayer of his counterclaim to $56.61, and subsequent to the filing of his Answer to amend same by adding a new paragraph alleging by way of affirmative defense that plaintiff charged usurious interest and failed to comply with the 'Federal Truth and (sic) Lending Act.' 2

In the Circuit Court, on trial de novo, the cause was tried to the court without a jury. Plaintiff presented a single witness, Melvin William Bennett, who was, on the day of trial, July 24, 1973, its collection manager, but who had not been in plaintiff's employ at the time the promissory note sued on was executed, and therefore had no knowledge of the circumstances of the loan transaction other than what he had gleaned from the records of the company. He identified the promissory note offered by plaintiff as an original copy of the note signed by the defendant and the other parties to the transaction and stated that it was kept in the file of the company in the regular course of the company's business. He also identified a ledger card from plaintiff's files as the record of payments made on the note and kept and maintained in the regular course of the plaintiff's lending business and further testified that it correctly reflected the condition of the loan. According to the ledger card the 'current unpaid balance' due and owing on the note was $392.51, and despite the fact that he had made numerous demands upon both Mr. Kitson and the defendant to pay the balance due and owing on the note, the account remained unpaid. According to Mr. Bennett the plaintiff exercised its option under the terms of the note and accelerated and note on July 17, 1970, credited it with the refund due defendant because of plaintiff's exercise of the option to accelerate, and the amount of interest computed from the date of acceleration--July 17, 1970--to the date of trial--July 24, 1973--amounted to $415.80.

Cross-examination of Mr. Bennett revealed that while he had a grasp of repayment procedures in general, he exhibited a lack of knowledge of the inner-workings of the Missouri Small Loan Act. He also did not display knowledge of the effect of partial repayment on the interest rate allowed by the Small Loan Act and the concept of acceleration. He did testify, however, under cross-examination, that the first two payments on the note were paid prior to their due date and that on July 25, 1968, an insurance company payment of insurance proceeds to the plaintiff in the amount of $995.00 was credited to the loan account and at that time the ledger card showed that an entry was made thereon reducing the unpaid balance as of that date of $909.00. He was unable to testify whether this payment resulted in any reduction in the rate of interest charged on the loan. The rate of interest charged for the loan at the time of its execution was 2.218% per month on the first $500.00 and 8% per annum on the excess. The total amount of the interest charged on the loan was $449.43. This figure was arrived at by the use of a chart, first arriving at the amount of the money to be loaned, the number of months over which the loan was to be repaid, and the rates of interest to be charged on the unpaid balances. Despite the fact this chart was referred to on a number of occasions in the transcript and was on counsel table, it was never introduced into evidence by either party to this litigation and we are not the beneficiary of its contents. On the date plaintiff exercised its option to accelerate the loan there was still $607.00 due and owing and a refund of $37.12 was credited to the account as unearned interest between May 1, 1968--the date the loan was made--and July 17, 1970--the date the plaintiff chose to exercise its option to accelerate the loan. With acceleration the note became an interest bearing note at a rate of 2.218% per month on $500.00 of the balance and 8% per annum on the $107.00 balance in excess thereof. The refund figure of $37.12 was figured 'on the rule of seventy-eight.' By time of trial the plaintiff had received a total of $1603.49 on the note.

Mr. Bennett was further subjected to redirect and re-cross examination by the attorneys for the respective parties and the trial court then undertook the interrogation of the witness with respect to what the refund would have been had the note been accelerated on July 19, 1968, when the insurance payment was originally credited to the account as evidenced by some entries on the ledger card which had been lined out. Mr. Bennett testified in response to the trial court's questions that this had been done and the refund as of that date would have amounted to $239.55, but that that entry on the ledger card had been stricken because it was an error occasioned by whomever made the entry assuming that the $995.00 insurance payment was a payment in full whereas it was in fact only a partial payment. The witness was then asked by the trial court to compute the interest which would be due if he were to assume that the note was accelerated as of the date plaintiff received the insurance payment. The witness was further directed to credit the $293.55 unearned interest refund previously credited to the account on July 19, 1968, and to give credit for any payments made on the account after the date of the payment of the insurance proceeds. Following the trial court's directions, Mr. Bennett testified that his computations showed that the principal due on the note was $369.62 and the interest, from April 10, 1972, the date of the last payment on the account, to July 24, 1973, the trial date, was $134.55, a total of $504.17.

At this point the plaintiff rested its case and the defendant orally moved 'for a directed verdict and for judgment in accordance with its prayer in the counter-claim for the reason that plaintiff has failed to make a submissible case and I believe that usury is the defense of this particular case and was adequately brought out by the testimony of the plaintiff in this particular instance.' When plaintiff's counsel declined the trial court's invitation to reply by stating that he felt he had made a submissible case, the trial court made the following ruling:

'Gentlemen, the Court has done some computing on its own in this matter and the Court is taking into consideration Section 408.100 with specific reference there to sub paragraph 2 to the effect that the interest rate shall not exceed 2.218 per month on the unpaid principal balances, together with 408.130, 408.150 and 408.170, particularly Paragraph 2 with reference to no refund shall be required for any partial prepayment, and the Court is also, of course, not limiting itself to those sections but to all sections of what is commonly referred to as the Small Loans Act and the particular note in question in this case which provides that payment in advance may be made hereon in any amount at any time. After taking all those matters into consideration and the exhibits admitted in evidence and the charges made by the plaintiff in this case does find that those amounts charged were in excess of the amount set forth in the statute as the maximum amount of interest allowable and therefore find the note unenforceable on the plaintiff's claim...

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