First Mortg. Corp. of Vero Beach v. Stellmon

• Decision Date: 09 December 1964
• Docket Number: No. 4558,4558
• Citation: 170 So.2d 302
• Parties: FIRST MORTGAGE CORPORATION OF VERO BEACH, a Florida corporation, Appellant, v. John W. STELLMON and Velma I. Stellmon, his wife, Appellees.
• Court: Florida District Court of Appeals

Page 302

170 So.2d 302

FIRST MORTGAGE CORPORATION OF VERO BEACH, a Florida corporation, Appellant, v. John W. STELLMON and Velma I. Stellmon, his wife, Appellees.

No. 4558.

District Court of Appeal of Florida, Second District.

Dec. 9, 1964.

Rehearing Denied Jan. 6, 1965.

Charles F. Clark, and Stanley W. Rosenkranz, of Macfarlane, Ferguson, Allison & Kelly, Tampa, Elton H . Schwarz, Stuart, for appellant.

Charles A. Sullivan, Vero Beach, for appellees.

WILLSON, J. H., Associate Judge.

The appellees, John W. Stellmon and Velma I. Stellmon, his wife, executed and delivered to appellant, First Mortgage Corporation of Vero Beach, their promissory note in the sum of $20,320, dated August 25, 1961, and payable in 120 equal monthly installments of $167.65, with interest from maturity at the rate of 10% per annum until paid. The appellees received for their note the sum of $12,840.60, which included $140.60 in closing costs. The amount of the note was obtained by making a 5% add-on for the period of ten years, and adding the closing costs. It was stipulated by parties, that in event the note had run to maturity, the plaintiff would have received slightly less than 10% per annum interest. To secure the note the appellees mortgaged to appellant certain lands in Indian River County.

The note contained the following acceleration clause:

'If any sum of money herein referred to be not promptly paid within fifteen days next after the same becomes due, then the entire sum mentioned herein, or the entire balance unpaid thereon, shall forthwith or thereafter, at the option of the holder, become due and payable. Two (2) years after date, the makers shall have the privilege of prepayment without penalty.'

There was also an acceleration in the mortgage which reads as follows:

'If any sum of money herein referred to be not promptly paid within fifteen days next after the same becomes due, or if each and every the agreements, stipulations, conditions and covenants of said note and this mortgage, or either, are not fully performed, complied with and abided by, then the entire sum mentioned in said note, and this mortgage or the entire balance unpaid thereon, shall forthwith or thereafter, at the option of the mortgagee, become and be due and payable, anything in said note or herein to the contrary notwithstanding. Failure by the mortgagee to exercise any of the rights or options herein provided shall not constitute a waiver of any rights or options under said note or this mortgage accrued or thereafter accruing.'

Default having been made in some of the monthly payments on the note, appellant instituted an action to foreclose the mortgage as to the defaulted payments, subject, however, to the remaining unmatured installments. The chancellor, in his final decree dated September 27, 1963, held that the acceleration clause in the note, without any provision for the elimination of unearned interest in the installments precipitated to maturity in the event of default, rendered the note civilly usurious. Appellant challenges the correctness of this decision.

The Courts of our sister states have held, for the most part, that an acceleration clause does not, of itself, render the contract usurious, even though the amount of the interest that may become due by reason of an acceleration exceeds the lawful rate, the excess interest being treated as a penalty that can neither be collected nor retained. N. 84 A.L.R. 1283. The Courts of this state have declined to follow the general rule with respect to the effect of an acceleration clause, and have adopted one which appears to be sui generis.

The reason generally assigned for the majority rule is that the borrower has it in his power to forestall the operation of the acceleration clause, and avoid the payment of the higher rate of interest, by discharging the debt when due. The answer to this is, of course, that unless the borrower has the means to discharge his debt when due, he does not have the power to do so. There is a full discussion of this subject in the dissent of Mr. Justice Buford to the first opinion in Benson v. First Trust & Savings Bank, 105 Fla.App., 135, 134 So. 493, 142 So. 887, 145 So. 182, and in Mr. Justice Terrell's dissent to the second opinion in that case.

The humanitarian purpose of the usury law is to protect the needy borrower by penalizing the unconscionable moneylender. Stubblefield v. Dunlap, 148 Fla.App., 401, 4 So.2d 519. The general rule substitutes commercial policy for the legislative intent. Maxwell v . Jacksonville Loan & Imp. Co., 45 Fla.App., 425, 34 So. 255. This conflict of the humanitarian spirit that lies behind the usury law with commercial policy has existed in Anglo-American society since at least the early part of the Middle Age, and is basically a contest between human values and material values.

In reaching his decision, in the case now before us, the chancellor relied, in part, on Maxwell, a factually similar but not identical case, the difference being a penalty of three per centum per month on delinquent installments. In that case the Supreme Court declined to follow the majority rule, due to the language of the then existing usury statute--Chapter 4022, Laws of Florida, 1891--which made unlawful 'any contract, contrivance or device whatever, whereby the debtor is required or obligated to pay a greater sum than the actual principal sum received, together with interest at the rate of ten per centum per annum.' Although our present usury statute--Chapter 687, Fla.App.,Stat., F.S.A.--is, in some respects, different from the Act of 1891, it still contains the language which furnished the basis for the Court's decision.

The decision in Maxwell is embodied in the following portion of the Court's opinion:

'In other words, under all the disguises of the language employed, the complainant was really lending or advancing money at the rate of 10 per cent. per annum, with additional liability to 10 per cent. damages for default of payment of any one of these monthly installments, and with liability 7 per cent. additional interest on them upon default, and with liability to have the whole debt mature if any three consecutive monthly payments were not made, with no provision in the contract for eliminating unearned interest, etc., when precipitated to maturity. The possible liability which the defendants incurred, if these defaults were made for 120 months, amounts to something like $75,000 on a loan or advance of $6,570. We think the answer, in bringing out clearly all these facts growing out of the original transaction, was responsive to the bill, and that the facts set up show contrivances and devices whereby the borrower was 'obligated' to pay a greater sum than the actual principal sum received, together with interest at the rate of 10 per centum per annum.' (Our emphasis.)

The import of this language is plain: the usurious nature of the contract depends upon the liability of the borrower under its terms, or, to put it another way, upon what may be demanded of the borrower, under the terms of the contract, rather than what is demanded from him. This is, of course, consonant with the wellsettled principle that the usurious nature of a contract is to be determined as of the date of its inception. Carter v. Leon Loan and Finance Company, 108 Fla.App., 567, 146 So. 664; Shorr v. Skafte, Fla ., 90 So.2d 604; Kay v. Amendola, Fla.App.,App., 129 So.2d 170; Home Credit Company v. Brown, Fla.App.,, 148 So.2d 257, 55 Am.Jur. 387.

After the decision in Maxwell, a new usury statute--Chapter 5960, Laws of Florida, 1909--was enacted. As we have pointed out, this statute retained the language upon which the decision in Maxwell was based. It forbade interest in excess of ten per centum per annum, and provided that 'any person * * *wilfully violating' this provision should 'forfeit the entire interest so charged, or contracted to be charged or reserved.' It also provided that 'any person * * * who shall wilfully and knowingly charge or accept any sum of money greater than the sum of money loaned, and an additional sum of money equal to twenty-five per centum per annum upon the principal sum loaned' should 'forfeit the entire sum, both the principal and interest.' The charging of interest at such rate was made a misdemeanor, punishable by fine or imprisonment. The term 'criminal usury' has its source in this provision.

With some changes, only one of which is relevant to the instant case, the Act of 1909 has been carried forward in the successive statutory revisions, and now appears as Sections 687.02, 687.03, 687.04, 687.06, 687.07, 687.08 and 687.09, Fla.App.,Stat., F.S.A. These Sections, and their predecessors in the Revised General Statutes of 1920, and subsequent revisions, are, therefore, peculiarly subject to construction in pari materia. The change in the Act of 1909 to which we refer is the introduction of scienter into the statute, an element that did not appear in the Act of 1891. The terms 'wilfully' and 'wilfully and knowingly' are, to all intents and purposes, synonymous, Lee Construction Corp. v. Newman, Fla.App.,App., 143 So.2d 222; Fry v. Hubner, 35 Or. 184, 57 P. 420; Catlett v. Young, 143 Ill. 74, 32 NE. 447; Galveston, H. & S. A. Ry. Co. v. Bowman, 25 S.W. 140 (TexCiv.App.), so that scienter is as much an element in civil usury as in criminal usury.

Subsequent to the enactment of Chapter 5960, Laws of Florida 1909, the question we are considering came before the Supreme Court in Benson v. First Trust & Savings Bank, supra. It is in this case that the present confusion as to the effect of an acceleration clause had its origin. The borrower had received $11,500 for his note of $14,000, the lender reserving a bonus of $2,500. The note bore interest at the rate of 8% per annum and 10% per annum on deferred payments. Default occurred in interest payments, and suits was filed to recover the principal sum of $14,000, and interest at...