Demopolis v. Galvin

• Court: Washington Court of Appeals
• Writing for the Court: WINSOR
• Citation: Demopolis v. Galvin, 786 P.2d 804, 57 Wn.App. 47 (Wash. App. 1990)
• Decision Date: 20 February 1990
• Docket Number: No. 22060-8-I
• Parties: Chris DEMOPOLIS, Appellant/Cross-Respondent, v. Dale J. GALVIN, Trustee, Respondent, Lorna E. Benedict and Helen M. Oltman, Respondents/Cross-Appellants.

Page 47

57 Wn.App. 47

786 P.2d 804

Chris DEMOPOLIS, Appellant/Cross-Respondent, v. Dale J. GALVIN, Trustee, Respondent Lorna E. Benedict and Helen M. Oltman, Respondents/Cross-Appellants.

No. 22060-8-I.

Court of Appeals of Washington Division 1.

Feb. 20, 1990.

Reconsideration Denied March 27, 1990.

James E. Lobsenz, Anne M. Wehrly, Seattle, for appellant/cross-respondent.

Watson & Longley, Jordan Hecker, Seattle, for Oltman & Benedict.

Dale Galvin, Seattle, for Galvin.

WINSOR, Judge.

In 1984, defendants/respondents Helen and Donald Oltman and Lorna Benedict (hereinafter Lenders), loaned $18,000 to Irene Primeau and a co-borrower. The loan was secured by a deed of trust on residential real property owned by Primeau, and was evidenced by an installment note. The interest stated on the face of the note was not usurious.

Primeau sold the encumbered property to Chris Demopolis for $35,000 in October 1985. The sale was made subject to Lenders' deed of trust. The trial court found that Demopolis did not assume the loan, note, or deed of trust. ¹ It is undisputed, however, that Demopolis did thereafter make Primeau's loan payments. Contemporaneously with the sale, Demopolis granted Primeau a 6-month repurchase option on the property.

Less than 2 weeks after the sale, Primeau and Demopolis inspected documents related to Lenders' loan. They discovered that as a result of a $3,000 loan broker's fee, the loan had a usurious effective annual interest percentage rate of 21.04 percent. Primeau subsequently assigned Demopolis "all causes of action arising from all the loans I was forced to take out to protect myself from the county [and] all proceeds and monies derived from these actions". ²

Demopolis satisfied existing arrearages on Lenders' loan and made monthly payments on it until April 1986, when he advised Lenders that he would make no additional payments. Lenders instituted a non-judicial foreclosure on the deed of trust. Demopolis asserted usury defenses and Lenders suspended the foreclosure pending litigation of the usury claims. Demopolis then filed a complaint to determine usury; for damages, including a Consumer Protection Act (CPA) claim; and for injunctive relief.

Demopolis' claims were tried to the court. The judge found that the loan was not within the commercial exception to the usury laws, and that due to the loan fee, the loan was usurious. Nevertheless, the trial court dismissed Demopolis' usury claims because it concluded that Demopolis was not in legal privity with Primeau, and usury claims and defenses are not assignable. The trial court also dismissed Demopolis' CPA claim.

DISMISSAL OF USURY CLAIMS

As a general rule, only the original debtor and those in privity with him or her can assert the defense of usury. A.A.C. Corp. v. Reed, 4 Wash.App. 777, 779-80, 483 P.2d 1293 (1971). One who purchases encumbered property from the original borrower, but does not assume liability on the underlying note, is not in privity for usury purposes. A.A.C. Corp., 4 Wash.App. at 779, 483 P.2d 1293.

Several rationales support this general rule. First, the public policy underlying our usury laws to protect borrowers "driven to borrow money at any cost", Baske v. Russell, 67 Wash.2d 268, 273, 407 P.2d 434 (1965), is inapplicable to a subsequent purchaser. The subsequent purchaser "is perfectly free and unfettered, can buy the property or not as he chooses, and when he does he buys at the best price he can get it at". Annot., Right of a Purchaser Assuming a Mortgage Debt, with the Authorization of the Mortgagor, to Set Up Usury in Mortgage as a Defense or Rely Upon it as a Ground of Relief in Equity, 82 A.L.R. 1153 (1933). Second, because the subsequent purchaser knows that the property being purchased is encumbered, he or she may be estopped from asserting the original debtor's usury claim. See, e.g., Berk v. Isquith Prods., 98 N.J.Eq. 608, 131 A. 526 (1926). Finally, a

mortgage debt does not represent a stipulation to pay interest for the use or detention of money. It represents a flat sum, a part of the stipulated purchase price, which ... the grantor has required the purchaser to pay....

Norton v. Commerce Trust Co., 71 F.2d 136 (5th Cir.1934).

There are exceptions to the general rule requiring privity. One permits a subsequent purchaser to assert usury when the original debtor joins in the claim, or gives the purchaser consent or authorization to pursue the claim. See generally Annot., 82 A.L.R. 1153, supra. Demopolis contends that this exception applies here. To this end, he assigns error to the trial court's failure to make a finding of fact as to whether or not he had Primeau's consent to raise her usury claims and defenses against Lenders.

We decline to reach the merits of this assignment of error. ³ There is no evidence in the record that a proposed finding on consent was presented to the trial court. If it was, Demopolis does not set it out verbatim in his brief. This violates RAP 10.3(g) and 10.4(c), and is grounds for refusing to consider this issue. Additionally, the absence of findings on an issue for which a party had the burden of proof is presumed to result from a lack of proof on the issue. E.g., Smith v. King, 106 Wash.2d 443, 451, 722 P.2d 796 (1986).

Demopolis next contends that his usury claims were improperly dismissed because the trial court erroneously concluded that usury claims and defenses are not assignable. The trial court apparently concluded that because the usury statute is penal, usury claims cannot be assigned. We agree with this conclusion insofar as it applies to Demopolis' statutory usury claims. A cause of action for the recovery of a penalty is not assignable absent specific statutory authorization. Heitfeld v. Benevolent & Protective Order of Keglers, 36 Wash.2d 685, 691, 220 P.2d 655 (1950). A statutory cause of action allows for recovery of a penalty when it imposes an obligation to pay an amount beyond compensation sufficient to make the injured person whole. Heitfeld, 36 Wash.2d at 694, 220 P.2d 655.

RCW 19.52.030(1) provides that if a loan is usurious, the creditor is entitled to only "the principal less twice the amount of the interest paid, and less the amount of all accrued and unpaid interest". The creditor must pay all of the debtor's costs and reasonable attorney fees, and reimburse the debtor for amounts paid that exceed the amount to which the creditor is entitled.

These provisions mandate damage awards exceeding compensation sufficient to make the injured party whole. We therefore conclude that RCW 19.52.030(1) allows for recovery of a penalty. Accordingly, we hold that under Heitfeld, a statutory usury cause of action cannot be assigned. ⁴

Demopolis relies on State v. Ralph Williams' North West Chrysler Plymouth, Inc., 82 Wash.2d 265, 278, 510 P.2d 233, 59 A.L.R.3d 1209 (1973), as support for a different result. The Ralph Williams' court stated that the existence of penalties in an act does not necessarily make the act penal. However, this statement was made in conjunction with an analysis of whether the CPA's penalty provisions required the act to be interpreted under the strict rules of construction pertaining to penal statutes. 82 Wash.2d at 278. We are not here concerned with construction of RCW 19.52.030(1), but rather with whether or not the statute allows for recovery of penalty. Ralph Williams' is therefore inapposite.

Our holding that statutory usury claims cannot be assigned does not encompass common law usury claims. Statutory usury remedies do not abrogate the common law action to recover usurious interest. Flannery v. Bishop, 81 Wash.2d 696, 700, 504 P.2d 778 (1972); Lee v. Hillman, 74 Wash. 408, 415-17, 133 P. 583 (1913). The common law action is nothing more than an action to recover unlawfully taken money or property. Lee, 74 Wash. at 416, 133 P. 583. As such, the common law usury action is remedial, and the rule of Heitfeld, that penal claims cannot be assigned, does not apply.

Lenders do not dispute that common law usury claims are assignable. Instead, they argue that the Primeau-to-Demopolis assignment is invalid and unenforceable and therefore does not allow Demopolis to assert any usury claims, including those derived from common law. They claim that the assignment fails for lack of specificity as to which loans and claims were assigned, and for lack of irrevocability.

A valid assignment must describe the subject matter of the assignment "with such particularity as to render it capable of identification." 6A C.J.S. Assignments § 46 (1975); accord, 6A C.J.S., supra at § 49. "No greater particularity, however, is required than is actually necessary to do this, with the aid of the attendant and surrounding circumstances." 6A C.J.S. supra § 46.

Here, it is undisputed that Primeau did not make the assignment until after she and Demopolis went to the loan broker and it became clear that she was being charged a usurious rate. The loan at issue is within the general nature of the assigned claims: "loans ... to protect [Primeau] from the county." We find this sufficient to establish that the broad language of Primeau's assignment includes Lenders' loan. See generally Andrews v. Adams Drive, Ltd., 142 Ga.App. 32, 234 S.E.2d 835 (1977) (upholding an assignment of accounts receivable). Alternatively, Lenders argue that the assignment is invalid because it does not comply with the rule that for an assignment to be valid, the assignor must relinquish all control and rights or power of revocation over the subject matter of the assignment. Mercantile Ins. Co. of Am. v. Jackson, 40 Wash.2d 233, 236, 242 P.2d 503 (1952). Lenders contend that Primeau's option to repurchase the encumbered property establishes the revocable nature of her assignment.

Lenders' argument is meritless. Primeau's option to repurchase does not empower her to revoke the assignment. Even if Primeau had exercised her repurchase option, the assignment of...