Golden Horse Farms, Inc. v. Parcher

• Court: Washington Court of Appeals
• Writing for the Court: CALLOW
• Citation: Golden Horse Farms, Inc. v. Parcher, 629 P.2d 1353, 29 Wn.App. 650 (Wash. App. 1981)
• Decision Date: 22 June 1981
• Docket Number: 7539-0-I and 8045-8-I,Nos. 7270-6-
• Parties: GOLDEN HORSE FARMS, INC., a Washington Corporation, Plaintiff, v. Joe PARCHER, et al., Defendants and Third Party Plaintiffs, and The Estate of Arthur Swanson, et al., Third Party Plaintiffs, and Penm Financial Services, Ltd., a Canadian Corporation, et al., Respondents, and National Realty Service, Ltd., a Canadian Corporation, et al., Appellants. NATIONWIDE REALTY SERVICE, LTD., a Canadian Corporation, and Robert Hannes Nelson, a married man, Appellants, v. PENM FINANCIAL SERVICES, LTD., a Canadian Corporation, and Phyllis Ann Eson, a married woman, and Norman Eson, a married man, and Marc Eson, a single man, Respondents. GOLDEN HORSE FARMS, INC., a Washington Corporation, Respondent, v. NATIONWIDE REALTY SERVICE LTD., a Canadian Corporation, Appellants, and Joe Parcher, Defendant.

Page 650

29 Wn.App. 650

629 P.2d 1353

GOLDEN HORSE FARMS, INC., a Washington Corporation, Plaintiff, v. Joe PARCHER, et al., Defendants and Third Party Plaintiffs, and The Estate of Arthur Swanson, et al., Third Party Plaintiffs,

and

Penm Financial Services, Ltd., a Canadian Corporation, et

al., Respondents,

and

National Realty Service, Ltd., a Canadian Corporation, et

al., Appellants.

NATIONWIDE REALTY SERVICE, LTD., a Canadian Corporation, and Robert Hannes Nelson, a married man, Appellants, v. PENM FINANCIAL SERVICES, LTD., a Canadian Corporation, and Phyllis Ann Eson, a married woman, and Norman

Eson, a married man, and Marc Eson, a

single man, Respondents.

GOLDEN HORSE FARMS, INC., a Washington Corporation, Respondent, v. NATIONWIDE REALTY SERVICE LTD., a Canadian Corporation, Appellants, and Joe Parcher, Defendant.

Nos. 7270-6-I, 7539-0-I and 8045-8-I.

Court of Appeals of Washington.

June 22, 1981.

Mucklestone & Mucklestone, John P. Mucklestone, Barry A. Keech, Seattle, for appellants.

Smith, Rosellini & Carpenter, Timothy W. Carpenter, Lynden, for respondents.

CALLOW, Judge.

Nationwide Realty Service, Ltd. appeals from a judgment awarded to Penm Financial Services, Ltd. for $104,459.86, representing principal and interest on three promissory notes, court costs, and attorney's fees. Both companies are Canadian corporations. The trial court also ordered a mortgage foreclosed on property in Whatcom County owned by Golden Horse Farms, Inc., a Washington corporation. Golden Horse had mortgaged the property to Nationwide, which assigned its interest to Penm. Robert Hannes Nelson, a Canadian citizen, is president of Golden Horse and Nationwide.

The three promissory notes are corporate obligations of Nationwide, signed by Nelson in his capacity as president. Nelson, as an individual, is not obligated on the notes. The trial court expressly refused to find "(t)hat the affairs of Golden Horse Farms, Inc., and Nationwide Realty Services, Ltd., have been conducted by Robert Hannes Nelson as a single entity." The court also refused to conclude "(t)hat the corporate fiction of separate entities for Golden Horse Farms, Inc., and Nationwide Realty Services, Ltd., shall be disregarded so as to avoid injustice."

Nationwide transferred its mortgage on the Whatcom County property to Penm by assignments dated July 8, 1977 (1/2 interest), September 14, 1977 (1/4 interest), and October 24, 1977 (1/4 interest). The promissory notes from Nationwide to Penm accompanying each assignment were payable in Canadian funds. The first note for $56,250 bore a 13 percent interest rate; the second and third notes, each for $23,125, bore a 14 percent interest rate. Nationwide defaulted on all three notes in July 1978, entitling Penm to declare the notes due and payable immediately.

Nationwide argues on appeal that it is entitled to an offset on the judgment because the three promissory notes provided for interest rates above the 12 percent limit set forth in RCW 19.52.020. Corporations may not assert the usury defense if the loan was exclusively for commercial or business purposes unless the loan was for $50,000 or less. RCW 19.52.080. For the purposes of this appeal, we accept Nationwide's assertion that the promissory note for $56,250 in Canadian funds equals $48,937.50 in U. S. dollars.

Penm argues that Washington usury law does not apply to these notes because British Columbia was the situs of the transactions and because the parties agreed that B.C. law would control the validity of the interest rates. The promissory notes each provided:

It is agreed that the principals of NATIONWIDE REALTY SERVICE LTD. are Canadian citizens and that the lendor herein is a Canadian corporation and both parties are fully aware of the laws of the State of Washington governing interest on loans. The parties hereby further state that all negotiations have taken place in British Columbia and that the parties fully agree that they wish to be bound by the laws of British Columbia governing interest on negotiable security.

Penm's position is persuasive.

O'Brien v. Shearson Hayden Stone, Inc., 90 Wash.2d 680, 687, 586 P.2d 830 (1978), reconsidered, 93 Wash.2d 51, 605 P.2d 779 (1980), approved the choice of law principle stated in Restatement (Second) Conflict of Laws § 203 (1971).

The validity of a contract will be sustained against the charge of usury if it (1) provides for a rate of interest that is permissible in a state to which the contract has a substantial relationship and (2) is not greatly in excess of the rate permitted by the general usury law of the state of the otherwise applicable law under the rule of § 188 (Law Governing in Absence of Effective Choice by the Parties).

The initial O'Brien opinion, 90 Wash.2d 680, 586 P.2d 830, refused to uphold the parties' choice of New York law to govern the interest rates charged Washington residents who maintained margin accounts with the defendant brokerage firm. Under the margin account agreement, with its choice of law provision, the broker charged interest at fluctuating rates, which could rise as high as 25 percent under New York law. The second O'Brien decision, 93 Wash.2d 51, 605 P.2d 779, explained that, under Restatement § 203, Comment a,

the fact that New York authorizes up to 25 percent interest is immaterial if the rate of interest stipulated or provided for in the contract is not greatly in excess of that permitted by the laws of Washington, i. e., 12 percent. Thus, even though the contract was governed by New York law, if it had a provision/stipulation that 13 or 14 percent would be the highest rate permitted, the contract would be valid.

O'Brien v. Shearson Hayden Stone, Inc., 93 Wash.2d at 52, 605 P.2d 779.

The first O'Brien opinion directed the trial court on remand to divide the certified class into subclasses. Washington usury law would govern the interest rates charged Washington residents who contracted and negotiated with, made...