First Federal Sav. & Loan Ass'n of Atlanta v. Norwood Realty Co.

• Decision Date: 09 July 1956
• Docket Number: No. 19327,19327
• Citation: 93 S.E.2d 763,212 Ga. 524
• Court: Georgia Supreme Court
• Parties: FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF ATLANTA v. NORWOOD REALTY COMPANY, Inc.

Page 763

93 S.E.2d 763

212 Ga. 524

FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF ATLANTA v. NORWOOD REALTY COMPANY, Inc.

No. 19327.

Supreme Court of Georgia.

July 9, 1956.

Rehearing Denied July 24, 1956.

Syllabus by the Court

1. A federal savings and loan association in making loans in this State is not exempt from the operation of our usury laws and the penalty therefor, and in such transactions, it cannot take or charge as interest any amount in excess of that fixed by Title 12 U.S.C.A. § 1425; but, in addition to the rate of interest which it may lawfully charge, it may also require the borrower to pay the necessary incidental charges in connection with the making of a loan prescribed by 1956 cumulative pocket supplement § 145.6-10 of Title 24, Code of Federal Regulations.

2. In this case, the allegations of the amended petition are sufficient to show that a 'service charge' of $ 63,050, in addition to the interest charged, was taken by the lender for no service to be rendered the borrower but only for the use of the lender's money. Treating this as true, the amount so taken and retained is therefore interest, and the act of taking it constitutes a device and contrivance on the lender's part to exact usury.

3. The allegations of the amended petition meet the requirements of Code § 81-901, which prescribes the essential allegations of a plea of usury.

4. As a condition precedent to the collection of attorney's fees on any note or other evidence of indebtedness, in addition to the interest specified therein, the holder of the obligation, or his attorney, must after its maturity give the party sought to be held therefor notice in writing of his intention to enforce the attorney-fee provision; and if the party sought to be so held pays the obligation in full within 10 days from the receipt of the notice, the agreement to pay attorney's fees shall be void and no court shall enforce it. In this case, the amended petition sufficiently alleges that the required attorney fee notice was not given. This being true, a tender of the attorney's fees provided by the notes was not necessary before the equitable relief prayed for could be granted.

5. A borrower who has executed a deed to secure his debt is entitled to an injunction to prevent a sale of the property under a power of sale in the loan deed when he has either paid the secured debt in full or made a valid continuing tender of the amount due.

The plaintiff, a corporation organized and existing under the laws of Georgia, brought a suit against First Federal Savings and Loan Association of Atlanta, a corporation organized and existing under the laws of the United States, and prayed that it be enjoined from exercising a power of sale contained in a security deed which it executed and delivered to the defendant on May 6, 1953. In substance and so far as need be stated, the petition, as five times amended, alleges: The defendant agreed to make the plaintiff a construction loan not to exceed $6,840,000 for the development of a subdivision known as 'Drew Valley.' From May 6, 1953, to July 29, 1955, it gave the defendant seven notes aggregating $4,329,000, all so connected one with the other as to make a continuous course of dealing. Its first note was for $3,420,000, dated May 6, 1953, due May 6, 1954, with interest at 5% per annum on the average daily balance of advances as calculated by the defendant and payable by the plaintiff monthly. From the proceeds of this note and on the day it was given, the defendant charged the plaintiff a service charge of $85,500. On July 9, 1954, the defendant reduced the face amount of this note $921,000. The second note was for $79,000, dated January 25, 1954, due May 6, 1954, with interest at 5% per annum on the average daily balance of advances as calculated by the defendant and payable monthly. No payments were made on this note, and it was canceled by the defendant on July 9, 1954. The third note was for $300,000, dated September 20, 1954, due December 20, 1955, and from the proceeds thereof the defendant charged the plaintiff a service charge of $1,500. The fourth note was for $75,000, dated May 6 1955, due May 6. 1956, and from the proceeds thereof the defendant charged the plaintiff a service charge of $375. The fifth note was for $85,000, dated June 14, 1955, due May 6, 1956, and from the proceeds thereof the defendant charged the plaintiff a service charge of $425. The sixth note was for $50,000, dated July 29, 1955, due May 6, 1956, and from the proceeds thereof the defendant charged the plaintiff a service charge of $250. The seventh note was for $320,000, dated July 29, 1955, due May 6, 1956, and from the proceeds thereof the defendant charged the plaintiff a service charge of $1,600. The last five notes provide for the payment of interest as calculated by the defendant at the rate of 8% per annum on the average daily balance of advances, and payable monthly. The service charge of $89,650 was in addition to the amounts paid by the plaintiff for its loan application, for an appraisal of its property, a survey of it, record of the loan deed, inspection of the property, insurance on the property, fees of $21,300 paid to the defendant's attorney for his examination of the plaintiff's title and preparation of instruments incident to the loan, and a charge of $10 for each check the defendant wrote in disbursement of the loan. The service charge on the first note was reduced $25,000 by the defendant on July 9, 1954 by a credit of that amount on the plaintiff's account was also credited the plaintiff's account was also credited with $4,605 as a refund on fees paid to the defendant's attorney. For the so-called 'service charge' the defendant was to render and rendered no service to the plaintiff, and such charge was only a device and contrivance on the defendant's part to charge usury on the loan. On December 20, 1954, the interest rate on the plaintiff's note for $3,420,000 was pursuant to provisions therefor contained in the note, and the loan deed changed from 5% to 8% per annum and thereafter interest was calculated on it by the defendant and paid by the plaintiff monthly at the rate of 8% per annum on the average daily balance of advances made. The total amount which the defendant advanced to the plaintiff on the seven notes was $3,018,847.68 or $1,310,152.32 less than the face amount of them and the plaintiff never understood why he was required to give the last six notes. The highest daily balance of advances which the plaintiff had at any one time was $1,549,642.68. On the amount so advanced, the defendant calculated and charged to the plaintiff's loan account the sum of $140,848.33 as interest. This amount when added to the so-called 'service charge' of $63,050, which is disguised interest, makes the amount which the defendant charged the plaintiff for the use of its money $203,898.33 or interest at the rate of 9.29% per annum. During August, after its note for $320,000 was given on July 29, 1955, while the defendant was actively proceeding with the construction of its subdivision and when several of its houses were unfinished, the defendant notified the plaintiff that no further advances would be made on the notes, and thereafter wrongfully refused to advance any further amount. Of the $3,018,847.68 which the defendant advanced the plaintiff on the seven notes, the plaintiff has from February 8, 1954 to October 3, 1955, repaid on principal advanced $2,336,955 leaving a balance due on principal of $681,892.68. By monthly payments beginning June 5, 1953, and ending July 29, 1955, the plaintiff paid the defendant $123,770.10 as interest, and this amount together with the so-called 'service charge' of $63,050, which is in fact disguised interest taken by the defendant, should, because of the defendant's usurious charge for the use of its money, be credited on the principal amount advanced the plaintiff; and with these amounts ($186,820.10) so credited, as they should be, the plaintiff is due the defendant only $495,072.58. On October 6, 1955, the defendant started a foreclosure sale of the property conveyed by the loan deed. On October 27, 1955, the plaintiff made an actual unconditional tender to the defendant of $495,072.58--the full amount it was then due the defendant with all interest including service charges as disguised interest forfeited. The tender was refused. The amended petition was demurred to generally on the ground that it failed to state a cause of action either at law or in equity and specially on several grounds. The general demurrer was overruled, but the grounds of special demurrer were not passed on. The defendant excepted.

Johnson, Hatcher & Meyerson, Henry M. Hatcher, Jr., Atlanta, Horace Russell, Chicago, Ill., for plaintiff in error.

John H. Boman, Jr., Crenshaw, Hansell, Ware & Brandon, Atlanta, for defendant in error.

CANDLER, Justice (after stating the foregoing facts).

1. The Code, § 57-101, makes it illegal to reserve, charge, or take for any loan or advance of money any rate of interest greater than 8% per annum, either directly or indirectly by way of commission for advances, discount, or by any contract or contrivance or device whatever. As said by this court in Newcomb v. Niskey's Lake, Inc., 190 Ga. 565, 567, 10 S.E.2d 51, exaction of usury is odious, illegal and immoral. 'Any person, company, or corporation violating the provisions of section 57-101 shall forfeit the entire interest so charged or taken, or contracted to be reserved, charged, or taken.' Code, § 57-112. But by the provisions of Code § 16-101 as codified from an act which the legislature passed in 1888, Ga.L.1888, p. 47, and from subsequent amendments thereto, all building and loan associations are authorized to lend money to persons not members thereof nor shareholders therein at 8% per annum or less, and to aggregate the principal and the interest for the entire period of the loan into monthly or other...