Ex parte Watley

• Decision Date: 07 November 1997
• Parties: Ex parte Billie Jean WATLEY and John S. Watley. (Re Billie Jean WATLEY and John S. Watley v. TRANSAMERICA FINANCIAL SERVICES, INC.). 1961331.
• Court: Alabama Supreme Court

Page 890

708 So.2d 890

Ex parte Billie Jean WATLEY and John S. Watley.

(Re Billie Jean WATLEY and John S. Watley v. TRANSAMERICA FINANCIAL SERVICES, INC.).

1961331.

Supreme Court of Alabama.

Nov. 7, 1997.

J. Gusty Yearout, William R. Myers, and John G. Watts of Yearout, Myers & Traylor, P.C., Birmingham; and A. Dwight Blair III of Blair, Holladay & Parsons, P.C., Pell City, for petitioners.

Charles E. Robinson of Charles E. Robinson, P.C., Ashville; and Andrew J. Noble III and Stewart M. Cox of Bradley, Arant, Rose & White, L.L.P., Birmingham, for respondent.

George W. Finkbohner III and Royce A. Ray III of Finkbohner & Lawler, L.L.C., Mobile, for amicus curiae plaintiff class members in Autrey v. UCLC (Mobile Circuit Court, CV-94-1316), in support of the petition.

H. Hampton Boles and Gregory C. Cook of Balch & Bingham, L.L.P., Birmingham, for amicus curiae Alabama Bankers Ass'n, in opposition to the petition.

PER CURIAM.

This Court has granted Billie Jean Watley and John S. Watley's petition for certiorari review of the judgment of the Court of Civil Appeals in Watley v. Transamerica Financial Services, Inc., 708 So.2d 889 (Ala.Civ.App.1997). The Court of Civil Appeals affirmed a summary judgment for Transamerica Financial Services, Inc., in the Watleys' action against Transamerica alleging a violation of the cap on discount points imposed by § 5-19-4(g), Ala.Code 1975. This Court granted the petition to review the Watleys' argument that the affirmance conflicts with United Companies Lending Corp. v. McGehee, 686 So.2d 1171 (Ala.1996) cert. denied, --- U.S. ----, 117 S.Ct. 1555, 137 L.Ed.2d 703 (1997), and Smith v. First Family Financial Services, Inc., 626 So.2d 1266 (Ala.1993). The question is whether the points cap imposed by § 5-19-4(g) applies to mortgage loans for amounts of $2,000 or more, notwithstanding the provision of § 8-8-5(a), Ala.Code 1975, that allows parties to agree to such an interest rate as they may determine, provided that the loan is for an amount not less than $2,000.

Subsection (g) was added to § 5-19-4 on March 11, 1988, effective "from and after June 30, 1988," by Act No. 88-87, 1988 Ala. Acts p. 112. Subsection (g), as set out in the Act, read as follows: ¹

"(g) Notwithstanding the provisions of this or any other section of this chapter, a creditor may, pursuant to contract, in a consumer loan or consumer credit sale secured by an interest in real property, charge and collect points in an amount not to exceed five percent of the original principal balance in the case of a closed-end loan or credit sale, or five percent of the total line of credit in the case of an open-end credit plan. Points may be paid in cash at the time of the loan or credit sale, or may be deducted from the proceeds and included in the original principal balance. Points shall be in addition to all other charges and are fully earned on the date of the loan or credit sale and may be excluded from the finance charge for the purpose of computing the finance charge refund."

Thus, § 5-19-4(g) prohibits the charging or collecting of points in excess of 5% of the original principal balance of a consumer loan secured by an interest in real property.

The Court of Civil Appeals held, however, that this prohibition does not apply to loans of $2,000 or more, because of the operation of § 8-8-5(a), which reads, in pertinent part:

"Any person or persons, [or] corporations ... may agree to pay such rate or rates of interest for the loan or forbearance of money and for any credit sales as such person [or] corporation ... may determine, notwithstanding any law of this state otherwise prescribing or limiting such rate or rates of interest; provided, that the original principal balance of the loan or forbearance of money or credit sales is not less than $2,000; provided further, that all laws relating to unconscionability in consumer transactions including but not limited to the provisions of Chapter 19 of Title 5, known as the Mini-Code, shall apply to transactions covered by this section."

The Court of Civil Appeals also quoted the last sentence of § 8-8-5(c), which provides: "The term 'interest' as used herein shall include all direct or indirect charges imposed as an incident to a loan, forbearance of money, or credit sales." That court concluded: "Therefore, because the loan in this case was greater than $2,000, the Mini-Code provisions relating to the points charged on this loan do not apply; rather, § 8-8-5 applies." 708 So.2d at 890.

As we understand its opinion, the Court of Civil Appeals held that the points limitation of § 5-19-4(g) is superseded by § 8-8-5(a) because discount points are "interest," defined in § 8-8-5(c) as "direct or indirect charges imposed as an incident to a loan." However, even the assumption that points are includable among the "direct or indirect charges" contemplated by § 8-8-5(c) does not put § 5-19-4(g) into conflict with § 8-8-5(a), because the two statutes can be reconciled simply by interpreting them to mean that discount points cannot constitute the entire interest on a loan, but may only be a component of the total finance charge, not to exceed five percent. This is the only reasonable construction of the two statutes' operation in pari materia, as we shall explain below.

Section 8-8-5 was last amended in 1984, by Act No. 84-308, 1984 Ala. Acts p. 683, which "reduce[d] the amount on which interest may be negotiated" from $5,000 to $2,000. ² Thus, § 8-8-5(a) appeared in its present form when the legislature adopted § 5-19-4(g) in 1988. The construction by the Court of Civil Appeals would mean that the legislature, when it adopted a cap of 5% on points, intended for that cap to apply to loans "secured by an interest in real property," but only to loans of amounts less than $2,000.

This amounts to saying that the legislature intended for § 5-19-4(g) to have virtually no application at all. Virtually no purchase-money mortgages for residential property would be for such small amounts. The median cost of a house and land in Alabama in 1990, just two years after § 5-19-4(g) was enacted, was $53,700, according to the U.S. Bureau of the Census, County and City Data Book: 1994, p. 8. Even a second mortgage or other consumer loan would not ordinarily be made for an amount less than $2,000. Loans secured by an interest in real property require payment of expenses for such items as title searches or abstract updates, title insurance, recording of mortgages, appraisals, surveys, attorney fees, mortgage preparation, and other such costs. A charge for these costs is specifically allowed by § 5-19-4(f). These costs would be prohibitively high in relation to the amount financed if the loan amount is less than $2,000.

The legislature will not be presumed to have done a futile thing in enacting a statute. "[I]t is presumed that the legislature does not enact meaningless, vain or futile statutes." Druid City Hospital Bd. v. Epperson, 378 So.2d 696, 699 (Ala.1979). Indeed, in one of the earliest cases interpreting the Mini-Code, this Court said: "There is a strong presumption that the legislature did not do a futile thing when it expressly brought real estate mortgage loans within the regulatory purview of the Mini-Code." Fletcher v. Tuscaloosa Federal Savings &amp Loan Ass'n, 294 Ala. 173, 176, 314 So.2d 51, 53 (1975).

" 'It has been called a golden rule of statutory interpretation that unreasonableness of the result produced by one among alternative possible interpretations of a statute is reason for rejecting that interpretation in favor of another which would produce a reasonable result.... It is fundamental ... that departure from the literal construction of a statute is justified when such a construction would produce an absurd and unjust result and would clearly be inconsistent with the purposes and policies of the act in question. A construction resulting in absurd consequences as well as unreasonableness will be avoided.'

"Norman J. Singer, Sutherland Statutory Construction § 45.11, p. 61 (5th ed.1993)."

Ex parte Meeks, 682 So.2d 423, 428 (Ala.1996).

No departure from the literal language of § 5-19-4(g) is needed. It may be given full effect, and § 8-8-5(a) may be given full effect, without any deviation from the terms of either Code section. Section 8-8-5(a) applies to the total amount of interest on a loan; § 5-19-4(g) applies only to points, which are simply one example of a "finance charge" as defined by § 5-19-1(1). ³ They presumably may be one component of a permissible rate of "interest" as defined by § 8-8-5(c). Thus, although the total "interest" may be at such a rate as the parties may determine, § 8-8-5(a), the points included in a "finance charge" may not exceed 5% of the original principal balance or the total line of credit, § 5-19-4(g).

Statutes should be construed to operate in harmony with each other, if possible.

"In determining legislative intent, statutes are, where possible, construed in harmony with statutes existing at the time of enactment, so that each is afforded a field of operation. Waters v. City of Birmingham, 282 Ala. 104, 209 So.2d 388 (1968)."

Sullivan v. State ex rel. Attorney General, 472 So.2d 970, 973 (Ala.1985). Sections 8-8-5 and 5-19-4(g) can be construed together without limiting or modifying either.

The enactment of Act No. 88-87 in 1988 should be looked at in light of the facts and circumstances shown in Williams v. E.F. Hutton Mortgage Corp., 555 So.2d 158 (Ala.1989). Before 1986, First American Mortgage Company had been making mortgage loans that included nonrefundable prepaid finance charges of 40%. E.F. Hutton had purchased these loans. On February 17, 1986, a class action, Murphree v. E.F. Hutton, was filed against E.F. Hutton in the Jefferson County Circuit Court. On May 21, 1987, Brenda Williams and others filed a similar action, which was the subject of the opinion in Williams v. E.F. Hutton. Both of these actions...