Jersey Palm-Gross, Inc. v. Paper

• Decision Date: 20 July 1995
• Docket Number: INC,No. 84158,PALM-GROS,84158
• Citation: 658 So.2d 531
• Parties: 20 Fla. L. Weekly S389 JERSEY, Petitioner, v. Henry PAPER, et al., Respondents.
• Court: Florida Supreme Court

Page 531

658 So.2d 531

20 Fla. L. Weekly S389

JERSEY PALM-GROSS, INC., Petitioner, v. Henry PAPER, et al., Respondents.

No. 84158.

Supreme Court of Florida.

July 20, 1995.

Daniel S. Pearson and Lucinda A. Hofmann of Holland & Knight, Miami, for petitioner.

Robert W. Weinberger of Cohen, Chernay, Norris, Morici, Weinberger & Harris, North Palm Beach, for respondents.

ANSTEAD, Justice.

We have for review Jersey Palm-Gross, Inc. v. Paper, 639 So.2d 664 (Fla. 4th DCA 1994), in which the Fourth District certified conflict with Forest Creek Development Co. v. Liberty Savings & Loan Ass'n, 531 So.2d 356 (Fla. 5th DCA 1988), review denied, 541 So.2d 1172 (Fla.1989). We have jurisdiction. Art. V, Sec. 3(b)(3), Fla.Const. We approve the decision below, and disapprove Forest Creek insofar as it holds that a usury savings clause precludes, as a matter of law, a finding of usury.

FACTS AND PROCEDURAL HISTORY

We quote the following relevant facts from the Fourth District opinion below:

The borrowers [Henry Paper and Anthony V. Pugliese, III] were partners in a real estate partnership which required capital to build a multi-tenant office building. The partnership owned land consisting of three prime lots in West Palm Beach worth $1,700,000, subject to a purchase money mortgage of $1,100,000 that was due shortly. To satisfy the purchase money mortgage and construct an office building on the land, the borrowers went to a The borrowers approached Walter Gross (Gross), a real estate developer, and suggested that he become an equity partner in the partnership for an investment of $200,000. Gross reviewed the partnership assets and appraisal. Fully aware of the partnership's financial picture and needs, he refused to become an investor, but agreed to lend the partnership $200,000 and charge an interest rate of 15% for eighteen months, amounting to $45,000 in interest charges. By the time of closing, Gross had formed the appellant corporation, Jersey Palm-Gross, Inc., for the purpose of making the loan.

bank to secure a loan. After obtaining an appraisal of the partnership assets and the project, the bank agreed to lend the partnership most of the needed capital. The loan amount, however, was $200,000 short of the estimated partnership needs. The borrowers needed a "bridge-the-gap loan."

Shortly before closing, Gross presented the borrowers with loan documents which included a demand for a 15% equity interest in the partnership as additional consideration for making the loan. Gross did not attempt to hide his motives for exacting an interest in the partnership. He testified that the partnership interest was an inducement to make the loan, even though he had previously agreed to loan the money at a 15% interest rate. Gross knew the value of the partnership based on the borrowers' disclosures and was aware of the borrowers' urgent need for funds. The borrowers were in desperate financial straits. With closing imminent, they were in no position to bargain or to seek another source of the money.

The lender brought suit when the borrowers failed to repay the loan. The borrowers' defense was that the loan was usurious from its inception, and therefore, an unenforceable debt because the consideration for the loan, which included the partnership interest and the 15% interest rate, totaled 45% per annum in interest.

....

The trial court here made factual findings, on the evidence presented, that the net equity value of the partnership at the time the loan was made, based on partnership assets of $1,700,000 and debts of $1,100,000, was $600,000.... The trial court correctly calculated the effective interest rate at 45% per annum over the eighteen month loan period, with the partnership interest of $90,000 (15% interest in partnership valued at $600,000) added to the $45,000 in interest charges (15% interest rate on loan of $200,000). The cost of the loan totaled $135,000, which was an effective interest rate of 45% on a loan of $200,000 for the eighteen month period of the loan.

639 So.2d at 666. After a non-jury trial, the trial court concluded that Gross had "knowingly and willingly" charged and accepted a usurious consideration in exchange for making the $200,000 loan transaction. Consequently, the trial court found the promissory note and guarantee unenforceable as usurious and ordered that Gross forfeit the entire principal amount of the loan pursuant to section 687.071(7), Florida Statutes (1991).

On appeal, Gross argued that the trial court had failed to properly consider a usury savings clause contained in the promissory note in determining the issue of intent. The Fourth District upheld the trial court's finding of usury and, in its analysis, posed the following question:

[W]hether the existence of a contractual disclaimer of intent to violate the usury laws commonly known as a "usury savings clause" in the loan documents in this case removes the determination of usurious intent from a factual inquiry and conclusively proves as a matter of law that the lender could not have "willfully" or knowingly charged or accepted an excessive interest rate.

639 So.2d at 668. In answering this question in the negative, the Fourth District held that "[a] usury savings clause is one factor to which the finder of fact should look in determining whether all of the circumstances surrounding the transaction support a finding of intent on the part of the lender to take more than the legal rate of interest for the use of the money loaned." Id. at 671.

LAW AND ANALYSIS

The Florida Legislature enacted Chapter 687, Florida Statutes (1993), to protect borrowers from paying unfair and excessive interest to overreaching creditors. This chapter sets limits on interest rates and prescribes penalties for the violation of those limits. Section 687.071(2), Florida Statutes (1993), defines criminal usury as the willful and knowing charge or receipt of interest in excess of 25% per annum. Id. The civil penalty for violating this statute is forfeiture of the entire principal amount. Sec. 687.071(7), Fla.Stat. (1993).

In Chandler v. Kendrick, we defined "willful" in the following manner:

A thing is willfully done when it proceeds from a conscious motion of the will, intending the result which actually comes to pass. It must be designed or intentional, and may be malicious, though not necessarily so. "Willful" is sometimes used in the sense of intentional, as distinguished from "accidental," and, when used in a statute affixing a punishment to acts done willfully, it may be restricted to such acts as are done with an unlawful intent.

108 Fla. 450, 452, 146 So. 551, 552 (1933). We also explained the purpose and meaning of the usury statute:

The very purpose of statutes prohibiting usury is to bind the power of creditors over necessitous debtors and prevent them from extorting harsh and undue terms in the making of loans.... It is not fully determined by the fact of whether the lender actually gets more than the law permits, but whether there was a purpose in his mind to get more than legal interest for the use of his money, and whether, by the terms of the transaction and the means employed to effect the loan, he may by its enforcement be enabled to get more than the legal rate.

Id. Subsequently, in Dixon v. Sharp, 276 So.2d 817, 820 (Fla.1973), we noted that: "[U]sury is largely a matter of intent, and is not fully determined by the fact that the lender actually receives more than law permits, but is determined by existence of a corrupt purpose in the lender's mind to get more than legal interest for the money lent." Id. Moreover, "the question of intent is to be gathered from the circumstances surrounding the entire transaction." Id. at 821 (quoting River Hills, Inc. v. Edwards, 190 So.2d 415, 423-24 (Fla. 2d DCA 1966)). Consequently, the ultimate arbiter on the issue of intent is the trial court because "the question of intent is one of fact." Rebman v. Flagship First Nat'l Bank, 472 So.2d 1360, 1364 (Fla. 2d DCA 1985).

SAVINGS CLAUSES

A usury savings clause is a provision in a loan agreement that attempts to negate any other provisions in the agreement that might result in the extraction of an illegal rate of interest. The effect of a usury savings clause on a claim of usury has been addressed by several of our appellate courts. In Forest Creek, the Fifth District affirmed, without discussion, the dismissal of a count based on usury where the mortgage note contained a usury savings clause which provided:

In no event shall the amount of interest due or payment in the nature of interest payable hereunder exceed the maximum rate of interest allowed by applicable law, as amended from time to time, and in the event any such payment is paid by the undersigned or received by the Holder, then such excess sum shall be credited as a payment of principal, unless the undersigned shall notify the Holder, in writing, that the undersigned elects to have such excess sum returned to it forthwith.

531 So.2d at 357.

The Second District has approved of the trial court's consideration of a similar savings clause in determining whether a lender intended to charge excessive interest. In Szenay v. Schaub, 496 So.2d 883, 884 (Fla. 2d DCA 1986), the lenders contended that a genuine error had been made in calculating the amount of interest in the promissory note. Pursuant to the provisions of a usury savings clause, the trial court denied a usury claim and made an adjustment to the parties' agreement to bring the interest charged within legal limits. The district court held that although the agreement may have technically We do note that provisions in loan documents limiting the amount of interest payable to that authorized under applicable law have been recognized as valid and enforceable in this state and provide a complete defense to a charge of usury. In a case such as this, where the...