Howes v. Curtis

• Decision Date: 24 March 1983
• Docket Number: No. 13760,13760
• Parties: Anne T. HOWES, Plaintiff-Counter-defendant-Respondent, Cross-Appellant, v. Carl CURTIS, Defendant-Counter-claimant, Third-Party Plaintiff, Appellant and Cross-Respondent, v. James B. DONART, Third-Party Defendant and Respondent.
• Court: Idaho Supreme Court

Page 729

661 P.2d 729

104 Idaho 563

Anne T. HOWES, Plaintiff-Counter-defendant-Respondent, Cross-Appellant, v. Carl CURTIS, Defendant-Counter-claimant, Third-Party Plaintiff, Appellant and Cross-Respondent, v. James B. DONART, Third-Party Defendant and Respondent.

No. 13760.

Supreme Court of Idaho.

March 24, 1983.

E. Lee Schlender, Ketchum, for Carl Curtis.

Paul M. Beeks, of Smith & Beeks, Twin Falls, for Anne T. Howes.

John P. Howard, of Quane, Smith, Howard & Hull, Boise, for James B. Donart.

DONALDSON, Chief Justice.

The controversy which comes before the Court on this appeal had its beginning in a loan transaction involving the plaintiff, Anne T. Howes, and the defendant, Carl Curtis.

Howes, who owned a lounge in Hailey, Idaho, found herself in financial straits and needed to secure a loan of about $35,000.00. Howes arranged for a loan with Curtis, a self-professed mortgage banker, financier and real estate investor who had made similar loans in the past. Curtis charged a 5% finder's fee and a 5% loan payment guarantee fee based on the loan.

The necessary financing and loan paperwork was prepared by the third-party defendant, James B. Donart, acting as Howes' attorney. This paperwork was executed on January 27, 1977. Among the papers was a promissory note which was filled out as a result of advice from Curtis and which had a face amount of $48,750 payable in monthly installments with 10% interest on deferred payments with a final balloon payment to pay the note in full one year later. At the instruction of Curtis, another person was used in the transaction by the third-party defendant as an intermediary between Curtis and Howes. This person was Howes' sister. The sister was given a trust deed on Howes' real property (the lounge), a security interest in Howes' personalty including her beverage licenses, and the promissory note signed by Howes. Upon execution of the loan papers, Curtis credited a fictitious prepayment of one year's principal and interest upon the promissory note. Howes received $35,000.00 and was to repay $44,666.03. The sister then assigned the deed of trust, the security agreement and the note to Curtis.

After default occurred on the note, Curtis foreclosed on the trust deed. Thereafter, following a trustee's sale, a trustee's deed which recited a consideration of $47,526.48 was issued to Curtis.

Sometime later, Howes filed suit against Curtis seeking to recover immediate possession of the beverage licenses, her personalty, and past and future damages resulting from the deprivation of her possession. Howes also sought an order directing Curtis to satisfy of record the financing statement filed in connection with the security interest. By an additional count, Howes sought from Curtis the statutory penalty for collecting usurious interest. Curtis counterclaimed and filed a third-party complaint against Donart. After a trial before the court, findings of fact and conclusions of law were entered. The trial court found the loan agreement to be usurious.

Appellant Curtis attempts to raise four issues on this appeal: (1) would the disclosure of the total amount of interest charged satisfy the statutory requirement that the "rate of interest charged" be disclosed, (2) is there any evidence in the record to support the finding of the trial court that appellant Curtis knew that he was charging interest greater than that permitted by law, (3) is the owner's opinion as to value of property admissible when it is based entirely upon hearsay, and (4) is an attorney subject to liability for injury to a nonclient third-party? On cross-appeal, respondent-cross-appellant Howes attempts to raise three additional issues: (1) did the trial court err in computing the amount of interest charged by appellant by improperly deducting the 5% finder's fee and the 5% loan payment guarantee fee, (2) did the trial court err in failing to award to plaintiff judgment for an additional sum of $256.55 which represented the excess bid on the foreclosure sale for the trustee's fees over the trustee's fees actually incurred, and (3) should additional punitive damages be assessed against the appellant on appeal? Additionally, all parties have requested attorney fees on appeal.

I.

A. Disclosure of rate of interest.

For many years Idaho has had usury statutes. Among the statutes relevant to this cause is a provision concerning the maximum legal rate of interest. This statute provided at the time of the loan transaction that under certain conditions

"parties may agree in writing which clearly sets forth the rate of interest charged, to pay any rate of interest in excess of the maximum rates [ten per cent (10%) per annum] provided in this section on money due, or to become due, or on any extension or renewal thereof, if:

(a) the contract is not subject to the rate limitations of the Uniform Consumer Credit Code; and

(b) the original indebtedness to be repaid is not less than twenty-five thousand dollars ($25,000) ....

On any obligation complying with the provisions of paragraphs (a) and (b) above the claim or defense of usury by the obligor ... is prohibited." 1976 Idaho Sess. Laws ch. 126, p. 475, 476 (current version at I.C. § 28-22-105).

Appellant contends that usury is unavailable as a claim or defense because the loan at issue disclosed the total amount of interest and therefore complied with the statutory conditions of former I.C. § 28-22-105. We are unconvinced.

Because the issue of usury does not appear on the face of the note, it was necessary for the trial court to "take into account all of the circumstances surrounding the transaction." D & M Development Co., v. Sherwood and Roberts, Inc., 93 Idaho 200, 207, 457 P.2d 439, 446 (1969); Meridian Bowling Lanes, Inc. v. Brown, 90 Idaho 403, 412 P.2d 586 (1966); Milo Theater Corp. v. National Theater Supply, 71 Idaho 435, 233 P.2d 425 (1951); Olson v. Caufield, 32 Idaho 308, 182 P. 527 (1919). See also Boyd v. Head, 92 Idaho 389, 443 P.2d 473 (1968). The trial court found with respect to the loan that the parties did not agree in a writing which clearly set forth the rate of interest charged. This finding is supported by substantial and competent evidence and will not be disturbed. The promissory note as executed reflected a face amount of $48,750.00 and set forth the interest rate as 10% per annum from the date of execution. As amended at some point, the note reflected a remaining balance of $44,666.03. From the evidence, the trial court found that the basic loan made from Curtis to Howes was $35,000.00. In such a posture, the note lost efficacy as a valid disclosure of the rate of interest which would bar the issue of usury. Only by reference to extrinsic evidence could the total amount of interest charged or the rate of interest be determined. Therefore, the disclosure did not comport with statutory condition requiring a writing which clearly sets forth the rate of interest charged, 1976 Idaho Sess. Laws ch. 126, p. 475, and a claim of usury could be properly raised. Furthermore, the insufficiency of the disclosure established, as a matter of law, that the maximum legal rate of interest applicable to these circumstances would be 10% per annum. Id.

B. The element of intent with respect to usury.

The Idaho usury law provides that when a transaction is determined to be usurious then statutory relief from the usury may be accorded the injured party. I.C. § 28-22-107 provides the statutory framework by which usury is determined and also provides for the forfeiture of interest and penalties when a person knowingly takes, receives, reserves or charges usurious interest. ¹ We have expressed in numerous cases that one form of usury is excessive interest or compensation on a loan of money. Transportation Equipment Rentals, Inc. v. Ivie, 96 Idaho 223, 526 P.2d 828 (1974); Meridian Bowling Lanes, Inc. v. Brown, 90 Idaho 403, 412 P.2d 586 (1966); Freedman v. Hendershott, 77 Idaho 213, 290 P.2d 738 (1955); Bell v. Idaho Finance Co., 73 Idaho 560, 255 P.2d 715 (1953).

"The usury rule is a harsh rule, but it is made for the beneficial purpose of protecting the necessitous debtor against extortion which he is practically helpless to resist. Such harshness appears to be the intent of the legislature as necessary to the elimination--or the holding to a minimum--of the exacting of usurious rates of interest." Freedman v. Hendershott, 77 Idaho 213, 219, 290 P.2d 738, 741 (1955); see also Bethke v. Idaho Savings & Loan Association, 93 Idaho 410, 414, 462 P.2d 503, 507 (1969).

The trial court finding that appellant Curtis "knew this loan exceeded the statutory interest maximum" has been challenged by the appellant as not supported by the evidence. Our standard when considering such a challenge has long been that a finding supported by substantial, competent evidence despite conflicting evidence will not be disturbed on appeal. E.g., I.R.C.P. 52(a); Barnes v. Huck, 97 Idaho 173, 177, 540 P.2d 1352, 1356 (1975); Thompson v. Fairchild, 93 Idaho 584, 468 P.2d 316 (1970). Appellant contends that there is no evidence in the record to support this finding and therefore it must be reversed. Appellant points to excerpts of his testimony to demonstrate that he had no knowledge that the loan was usurious. In the absence of other evidence, this argument might be convincing. However, it must be noted that this Court has previously held that even where there is uncontradicted testimony, if that testimony is by an interested party, a finding of fact contrary to that testimony is not necessarily reversible. C.I.T. Corporation v. Hess, 88 Idaho 1, 7-8, 395 P.2d 471, 474 (1964). Here, the trial court could properly weigh all the evidence and draw permissible inferences which would enable him to find that appellant knew the loan exceeded the maximum statutory interest rate. See Olson v. Caufield, 32 Idaho 308 312, 182 P. 527, 529 (1919) ("The fact at issue in such cases may be...