Jansen v. Nu-West, Inc.
| Decision Date | 17 August 2000 |
| Docket Number | No. 18262-2-III.,18262-2-III. |
| Citation | 6 P.3d 98,102 Wash. App. 432 |
| Court | Washington Court of Appeals |
| Parties | Calvin W. JANSEN, individually, and Calvin W. Jansen, Personal Representative of the Estate of Bertha G. Jansen, Deceased, Respondents, v. NU-WEST, INC., a Washington corporation, Appellant, Steward & Williams, Inc., a Washington Corporation; and Kenneth D. Beckley, P.S., a Washington Professional Services Corporation; Merrill L. Klocke and Patricia C. Klocke, husband and wife, and the community comprised thereof; and also all other persons or parties unknown claiming any right, title, estate, lien, or interest in the real estate described in the Third-Party Complaint herein, Respondents. |
James A. Perkins, Larson & Perkins, Yakima, for Appellant.
Kenneth D. Beckley, Ellensburg, for Respondents.
Loans made primarily for commercial purposes are exempt from the usury law. In this usury action, a jury determined that the loan was primarily for a noncommercial purpose and that the usury statute applied. However, while the factual circumstances of making a loan are within the province of the jury, the ultimate determination of the primary purpose of the loan is a question of law. We hold that the determination of the loan's purpose was improperly submitted to the jury, and that the primary purpose of the loan here was commercial, as a matter of law. We therefore reverse the judgment and remand for consideration of statutory attorney fees.
Nu-West, Inc., is a Washington corporation engaged in commercial lending. Georg Frey is its president.
On April 16, 1993, Nu-West loaned $175,000 to Calvin Jansen. Mr. Jansen signed a promissory note with interest at 14 percent per annum, and 30 percent on default. The promissory note also declares that the purpose of the loan is exclusively commercial. Mr. Jansen represented that the purpose of the loan was "to take the land out of an existing foreclosure, and to enable him to develop ... a residential subdivision."
The Nu-West loan was a third generation farm loan. In 1990, Mr. Jansen borrowed $60,000 from General Acceptance Corporation (GAC), a commercial lender. The GAC promissory note included a business purpose declaration. Nu-West arranged a private loan of $135,000 (the "Victor" loan) to pay off the GAC loan to avoid foreclosure by GAC. The April 1993 loan paid off the Victor loan.
This third loan was secured by a deed of trust on the farm property. Mr. Jansen made six interest payments, the last in September 1993, but paid nothing after that. Mr. Jansen was also in default because he had failed to pay insurance and taxes. Mr. Jansen was affiliated with Nu-West as a "finder" from 1994 to 1995. During this time, according to Mr. Jansen, Mr. Frey told him not to worry about the loan. Mr. Jansen relied on those assurances. Mr. Frey denies he promised to forbear from enforcing the note.
Procedural History. Nu-West started nonjudicial foreclosure proceedings. Notice of default finally issued on December 14, 1995. The trustee's sale was set for May 17, 1996. But on May 8 Mr. Jansen filed a complaint to quash the trustee's sale and for a declaration of the amount owed. Nu-West conceded the deed of trust was defective. It omitted statutory language that the land was not primarily used for agriculture. The court entered an order on May 28 quashing the trustee's sale.
Nu-West counterclaimed to judicially foreclose on the deed of trust as a mortgage. Nu-West alleged the business exception to the usury laws applied. Mr. Jansen did not reply because "no request was apparently made for the filing of a reply to the counterclaim." In September 1996, Nu-West moved for summary judgment on that counterclaim. Nu-West supported its motion with Mr. Frey's declaration and documentation that the purpose of the loan was to save Mr. Jansen's property from foreclosure on previous loans—a business purpose. Mr. Frey declared that Mr. Jansen assured him that the loan would be used to pay off the previous debt and to further develop the property for sale. Mr. Jansen also made a written declaration of commercial purpose included in the promissory note.
Mr. Jansen's sole challenge to the motion concerned "a defect pertaining to the notice of procedure" and the nature of certain subsequent payments.
A hearing on the summary judgment motion was set for November 4, 1996, but repeatedly continued for further discovery.
On July 7, 1997, Nu-West again filed a motion for summary judgment. This time, Mr. Jansen filed a responding memorandum, reciting the well-established law that direct conflict between a borrower's written and oral statements concerning the purpose of a loan requires fact-finding by a jury. Mr. Jansen presented no evidence, however, that he made any conflicting statements to Mr. Frey at the time of the loan.
On August 14, 1997, the court granted Nu-West's summary judgment motion and issued a decree of foreclosure. The court concluded that Nu-West met its burden of establishing the business purpose exemption to the usury laws. It concluded the remaining issues were limited to the calculation of the amount of the debt and interest, credits and the fair market value of the farm. The order was entered September 22, 1997.
On July 2, 1998, Mr. Jansen filed a "Reply" to Nu-West's June 10, 1996 counterclaim for judicial foreclosure and pleaded the affirmative defense of usury for the first time. After numerous continuances, a four-day jury trial was set for December 15, 1998.
Consistent with the summary judgment order, Nu-West filed a trial brief defining the issues as calculation of the amounts owed, interest, and upset price for the foreclosure sale. Nu-West argued that Mr. Jansen was estopped from asserting usury, based on (1) the court's prior judgment, (2) the parol evidence rule, and (3) equitable estoppel based on Mr. Jansen's prior allegation that the land was being farmed at the time of the loan. Mr. Jansen had taken the position during the deed of trust proceedings that the land was being farmed, and prevailed.
Mr. Jansen redefined the issue as whether the loan was for business purposes. The court rejected Nu-West's position and went forward with a jury trial on the single issue of the purpose of the loan. The jury returned a special verdict:
Question: WAS THE LOAN OF APRIL 16, 1993 PRIMARILY FOR AGRICULTURAL, COMMERCIAL, INVESTMENT, OR BUSINESS PURPOSES?
Answer: No.
The court entered judgment on the verdict, extinguished the debt, and awarded Mr. Jansen attorney fees. The court entered conclusions of law based on the jury verdict that the loan was not exempt from the usury laws.
Nu-West's motions for judgment notwithstanding the verdict and a new trial were denied.
The determination of the purpose of the loan was improperly submitted to the jury for two reasons: the issue was barred by principles of res judicata, and the application of the business purpose exception to the usury law results in a conclusion of law.
Nu-West contends that the usury issue was resolved by the court's summary judgment in Nu-West's favor. Nu-West's counterclaim for judicial foreclosure specifically pleaded the business exception to the usury laws. And Mr. Frey's declaration addressed and extensively briefed the issue.
The court's summary judgment was necessarily based on a conclusion that the loan was for business purposes. All that remained was for the court to determine the amount owed. It was therefore error to submit the usury issue to the jury. Mr. Jansen argues that the summary judgment did no more than to establish Nu-West's priority to the security interest and thereby allow judicial foreclosure to proceed. By reserving the issue of computation of the precise amount owed, he contends, the court left the door open for Mr. Jansen to come forward later with additional defenses.
The Superior Court Civil Rules require a reply to a counterclaim; it is not optional. CR 7(a). The reply must fairly meet the substance of any averment denied. CR 8(b). Failure to deny an averment in a counterclaim constitutes an admission. CR 8(d). Nu-West's averment of the business exception was therefore admitted at the time of the summary judgment. Mr. Jansen offers no authority to support his contention that defenses to a counterclaim are preserved without filing a reply unless the court asks for one. And we can find none.
The court here issued a memorandum opinion and summary judgment order establishing that Nu-West had satisfied its burden of proving the business exception to the usury statute. It resolved the question summarily because the allegation was unrefuted. A year later, Mr. Jansen simply filed a "Reply" to the counterclaim and relitigated the issue. A reply must be filed within 20 days. CR 12(a)(4). And while a motion for reconsideration (CR 59) might have resurrected the issue, none was filed here.
Nu-West further argues that the usury issue should never have gone to the jury because the primary purpose of a loan and therefore the applicability of RCW 19.52.080 is a conclusion of law, not a question of fact. Mr. Jansen disagrees and argues that, because the original GAC loan had been paid off and the balance of the proceeds was used for nonbusiness purposes, the jury's verdict is supported by the evidence.
Standard of Review. We review de novo the purpose of a loan and the applicability of RCW 19.52.080. Pacesetter Real Estate, Inc. v. Fasules, 53 Wash.App. 463, 471-72, 767 P.2d 961 (1989).
To prevail on the defense of usury, a defendant must establish (1) a loan, (2) an understanding that the principal must be repaid, (3) the exaction of an unlawful interest rate, and (4) intent to violate the law. Liebergesell v. Evans, 93 Wash.2d 881, 887, 613 P.2d 1170 (1980). RCW 19.52.080 creates an exception to the usury laws for business and...
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