Continental Mortg. Investors v. Sailboat Key, Inc.

• Decision Date: 12 February 1981
• Docket Number: No. 53490,53490
• Citation: 395 So.2d 507
• Parties: CONTINENTAL MORTGAGE INVESTORS, a Massachusetts Business Trust, Petitioner, v. SAILBOAT KEY, INC., a Florida Corporation, Respondent.
• Court: Florida Supreme Court

Page 507

395 So.2d 507

CONTINENTAL MORTGAGE INVESTORS, a Massachusetts Business Trust, Petitioner, v. SAILBOAT KEY, INC., a Florida Corporation, Respondent.

No. 53490.

Supreme Court of Florida.

Feb. 12, 1981.

Rehearing Denied April 13, 1981.

Thomas G. Schultz of Holland & Knight, Miami, for petitioner.

Richard L. Lapidus of Lapidus & Stettin, Miami, for respondent.

SUNDBERG, Chief Justice.

This petition for writ of certiorari arises from a money judgment awarded to Sailboat Key, Inc., a Florida borrower. The award was based on a claim that an interstate loan made by Continental Mortgage Investors, a Massachusetts business trust, violated Florida usury laws. Chapter 687, Fla.Stat. (1975). Though a myriad of issues was presented by both sides, we find the conflict of laws issue to be dispositive. ¹ The question presented is whether the courts of this state will recognize a choice of law provision designating foreign law in an interstate loan contract which calls for interest prohibited as usury under Florida law but supportable under the chosen foreign law. We conclude that in an interstate commercial loan transaction with which several states have contacts and in which usury is implicated, Florida courts will recognize a choice of law provision provided by the parties so long as the jurisdiction chosen in the contract has a normal relationship with the transaction. Under the circumstances of this case, we hold that Continental Mortgage Investors, a real estate investment trust organized under the laws of Massachusetts with its only office in Massachusetts where it carries on its business, has a sufficient nexus with Massachusetts to support a choice of law provision in favor of that state's law.

I. Factual Background

In late 1969, Sailboat Key, Inc. (Sailboat Key), a Florida real estate development corporation, applied for a land development loan through Mortgage Consultants, ² a Coral Gables management firm contracted by Continental Mortgage Investors to originate, underwrite and recommend loans for the trust. Continental Mortgage Investors (Continental) is a Massachusetts business trust dealing in extensive multistate lending, formed in 1961 with its only office in Boston, residence of a majority of the original trustees. On December 30, 1969, after approval by the trustees in Boston, Continental sent a loan commitment letter to Sailboat Key which included among its thirty terms the following: (1) a two-year loan of $3,500,000 at 14% per annum, secured by the property to be developed; (2) a discount, stock interest in the borrower corporation, and a commitment fee; and (3) a choice of law provision declaring the intent of the parties to be that Massachusetts law govern all parts of the loan commitment. Mortgage Consultants prepared the loan documents, and the closing took place in Boston on January 22, 1970, at which time a loan agreement, a note secured by a first mortgage, a stock pledge agreement, and guarantees were executed. Each of these documents, except for the stock pledge agreement, contained a choice of law provision specifying Massachusetts law as the applicable law. It is undisputed by the parties that applicable Massachusetts law does not provide usury penalties to the borrower in these circumstances. ³ The note was made payable at Continental's Boston office.

In late 1971, Sailboat Key because of its default found it necessary to enter a settlement agreement with Continental, which advanced an additional $400,000 and certain other considerations in return for Sailboat Key's promise to pay $740,000 plus an amount for the stock which Continental held. The settlement agreement modifying the loan agreement was signed on October 22, 1917, in Boston and Sailboat Key executed two new notes. Sailboat Key, to implement the agreement, borrowed $6,000,000 from another lender, Fidelity Mortgage Investors, to refinance the land development. On November 5, 1971, Sailboat Key paid Continental all of the money then due under the settlement agreement, leaving approximately $550,000 owing on one of the settlement agreement notes, due to Continental on November 1, 1976. Continental had agreed to subordinate its mortgage position for this amount to a second lender, Fidelity Mortgage Investors.

Three years later, Sailboat Key and Continental were joined as defendants by Fidelity Mortgage Investors in the foreclosure of its first mortgage. Sailboat Key cross-claimed for usury against Continental; Continental cross-claimed to foreclose its subordinated mortgage. These cross-claims were severed from the main action upon motion, and a special master was appointed as a fact finder with regard to interest computations. Continental then voluntarily dismissed its cross-claim, leaving only Sailboat Key's usury claim. Based upon the special master's findings and after hearing testimony, the trial court, applying Florida law, found the entire loan agreement to be usurious and assessed a penalty of twice the interest charged, plus costs. The District Court of Appeal, Third District, affirmed the award, upholding the application of Florida law on the basis of public policy and a finding by the trial court that the parties' choice of Massachusetts law was made in bad faith and was an effort to avoid Florida usury laws. Continental Mortgage Investors v. Sailboat Key, Inc., 354 So.2d 67 (Fla. 3d DCA 1977).

II. Conflict of Laws: Usury

A. Public Policy

As with most shibboleths, the invocation of strong public policy to avoid application of another state's law is unwarranted in this case. Although a few jurisdictions do attach such a public policy to their usury laws, it is generally held that usury laws are not so distinctive a part of a forum's public policy that a court, for public policy reasons, will not look to another jurisdiction's law which is sufficiently connected with a contract and will uphold the contract. See Ury v. Jewelers Acceptance Corp., 227 Cal.App.2d 11, 38 Cal.Rptr. 376 (1st Dist. 1964); Santoro v. Osman, 149 Conn. 9, 174 A.2d 800 (1961); Big Four Mills, Ltd. v. Commercial Credit Co., 307 Ky. 612, 211 S.W.2d 831 (1948); Exchange Bank & Trust Co. v. Tamerius, 200 Neb. 807, 265 N.W.2d 847 (1978); 45 Am.Jur.2d, Interest and Usury § 19 (1969). The few courts that do rely on a public policy exception in a usury-choice of law situation invariably are dealing with the individual, and often consumer, borrower. See, e. g., Lyles v. Union Planters National Bank, 239 Ark. 738, 393 S.W.2d 867 (1965). ⁴ We do not think the mere fact that there exists in Florida a usury statute which prohibits certain interest rates establishes a strong public policy against such conduct in this state where interstate loans are concerned.

The usury statute itself, fraught as it is with exceptions, belies the imputation of a strong public policy. See § 687.031, Fla.Stat. (1975). In 1975 The Florida Consumer Finance Act allowed interest on small loans as high as 30% per annum, in contrast to the general usury ceiling of 10% per annum. § 516.031, Fla.Stat. (1975). The Savings Association Act made usury limits simply inapplicable to building and loan associations. §§ 665.395, 687.031, Fla.Stat. (1975). Under the Banking Code, banks could charge up to 18% per annum on certain loans. § 659.181, Fla.Stat. (1975). Florida has long recognized the general exception to usury laws of the time-price doctrine. See Davidson v. Davis, 59 Fla. 476, 52 So. 139 (1910). The usury law does not apply to the sale of bonds, or mortgages on those bonds, section 687.03(1), Florida Statutes (1975), or to the transfers of negotiable paper in certain cases, section 687.04, Florida Statutes (1975).

The legislature recently raised the maximum interest rates allowable under the usury laws, demonstrating that this public policy is at very least relatively flexible in a confrontation with commercial reality. See Ch. 79-274, § 13, Laws of Florida. Nor do we consider usury protections fundamental to a legal system. The defense of usury is a creature entirely of statutory regulation, and is not founded upon any common-law right, either legal or equitable. Matlack Properties, Inc. v. Citizen & Southern National Bank, 120 Fla. 77, 162 So. 148 (1935). Finally, we note the limited effect of the usury laws upon a contract. "(T)he usury statutes in this jurisdiction do not have the effect of invalidating contracts for (usurious) interest ... but only accord to the obligor the personal privilege of setting up ... affirmative defenses of usury in respect to such contracts." Yaffee v. International Co., 80 So.2d 910, 912 (Fla.1955).

The cases cited by the district court are not strong support for its invocation of public policy. Bond v. Koscot Interplanetary, Inc., 246 So.2d 631 (Fla. 4th DCA 1971), cert. denied, 283 So.2d 866 (Fla.1973), merely stands for the truism that an agreement against public policy is unenforceable, but does not delineate public policy in terms of usury. Davis v. Ebsco Industries, Inc., 150 So.2d 460 (Fla. 3d DCA 1963) and C & D Farms, Inc. v. Cerniglia, 189 So.2d 384 (Fla. 3d DCA 1966), are inapposite since they deal with covenants-not-to-compete, and do not help us understand the strength of the very different policies underlying the usury laws. ⁵

Finding no real support in our case law for the use of the public policy exception under these circumstances, and in view of the pervasive exceptions to the usury laws and the actual operation of these laws, we are unable, particularly in the commercial setting of this case, to glean any overriding public policy against usury qua usury in a choice of law situation.

B. Conflict of Laws Rule

The courts of this state have never directly confronted conflict of laws in a usury setting when another state's law chosen by the parties will uphold the agreement. A general rule for choice of laws in a contracts situation might be derived from Thomson v. Kyle, 39 Fla. 582, 23 So. 12 (1897), which followed...