Jersey Palm-Gross, Inc. v. Paper

• Decision Date: 06 July 1994
• Docket Number: INC,PALM-GROS,No. 93-0732,93-0732
• Citation: 639 So.2d 664
• Parties: 19 Fla. L. Weekly D1455 JERSEY, Appellant, v. Henry PAPER and Anthony V. Pugliese, III, Appellees.
• Court: Florida District Court of Appeals

Page 664

639 So.2d 664

19 Fla. L. Weekly D1455

JERSEY PALM-GROSS, INC., Appellant, v. Henry PAPER and Anthony V. Pugliese, III, Appellees.

No. 93-0732.

District Court of Appeal of Florida Fourth District.

July 6, 1994.

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

Robert M. Weinberger, Cohen, Chernay, Norris, Morici, Weinberger & Harris, North Palm Beach, for appellee Pugliese.

PARIENTE, Judge.

The plaintiff (lender) appeals the trial court's determination of usury in connection with a loan of $200,000 to defendants' (borrowers') real estate partnership. The lender limits its challenge to the trial court's finding of usurious intent. From our review of the record, the trial court's order entered after a non-jury trial is supported by substantial competent evidence. The existence of a "usury savings clause" did not preclude, as a matter of law, a finding of usury. We affirm.

The borrowers 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 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."

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.

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 four requirements necessary to establish a usurious transaction are:

1. A loan, either express or implied.

2. An understanding that the money must be repaid.

3. In consideration of the loan, a greater rate of interest than is allowed by law is paid or agreed to be paid by the borrower.

4. Intent to charge a usurious rate, sometimes referred to as corrupt intent.

Dixon v. Sharp, 276 So.2d 817 (Fla.1973); Rollins v. Odom, 519 So.2d 652 (Fla. 1st DCA 1988), rev. denied, 529 So.2d 695 (Fla.1988); Rebman v. Flagship First Nat'l Bank, 472 So.2d 1360 (Fla. 2d DCA 1985).

Under Florida law, sections 687.04 and 687.071, Florida Statutes (1993) provide statutory causes of action which allow a borrower to seek affirmative relief against a lender who has made a usurious loan. Civil usury involves loans of $500,000 or less and an interest rate of greater than 18% and less than 25%. See § 687.03, Fla.Stat. (1993). Criminal usury involves any loan amount with a rate of interest greater than 25% but not in excess of 45%. See § 687.071, Fla.Stat. (1993). The penalties for civil usury include forfeiture of all interest charged; the civil penalties for criminal usury are forfeiture of the right to collect the debt. See § 687.04, Fla.Stat. (1993). In the case of either criminal or civil usury, the lender's willfulness to charge an excessive interest rate is determined by considering all of the circumstances surrounding the transaction. Dixon; Rollins. This might involve looking beyond the terms of the loan documents. Antonelli v. Neumann, 537 So.2d 1027 (Fla. 3d DCA 1988). If a borrower promises or is otherwise required to pay a bonus or other consideration as an inducement to the lender to make the loan, such added obligations may be considered interest and can render a loan usurious. See Cooper v. Rothman, 63 Fla. 394, 57 So. 985 (1912).

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 lender does not challenge those findings on appeal. The lender also does not dispute the trial court's finding that the lender charged usurious interest when it exacted a 15% interest in the partnership as an additional condition of making the loan. 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. ¹

While the lender does not dispute the mathematical calculations on appeal, it contends it lacked the requisite intent. It asserts that knowledge of the amount received as consideration for the loan does not equate with corrupt intent to receive more than a legal rate of interest. The lender points to the trial court's findings of fact as negating the element of intent, partly because of the inclusion of the following statement:

Though the court does not believe that Jersey Palm-Gross, Inc. harbored ill will or malevolent intent in making the loan to Jersey Palm Associated in consideration of receiving both a 15% interest in the partnership and payments of interest at the rate of 15% per annum on the principal amount of the loan, the court finds that plaintiff was aware of the value of the consideration which it was receiving or had a right to receive pursuant to the Loan Documents, and that the value of this consideration, when spread over the 18 month term of the loan exceeded 25% of the amount of the loan (emphasis added).

Within the same written order the court also made the additional finding:

As Plaintiff knew the value of the consideration which it received in consideration for making the $200,000.00 loan and further, the Plaintiff knowingly and willingly charged and accepted this consideration the Court concludes that Plaintiff possessed the requisite intent to render the $200,000.00 loan transaction usurious.

The determination of intent is the responsibility of the trier of fact. Szenay v. Schaub, 496 So.2d 883 (Fla. 2d DCA 1986); Rebman. The trial court clearly found that the lender purposefully charged a usurious interest rate, and therefore, possessed the requisite intent. Its statement that "the lender did not harbor ill will or malevolent intent" is not inconsistent with its finding of willfulness. The criminal usury statute uses the terms willfully and knowingly, not "ill will or malevolent intent." ² The supreme court in Dixon cited with approval the definition of willfully and knowingly set forth in Chandler v. Kendrick, 108 Fla. 450, 146 So. 551, 552 (1933):

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.

We agree that mathematical calculations alone do not equate with usurious intent. Dixon. However, here the lender knew at the outset the total value of the amount he was receiving in consideration for making the loan. Gross, the lender's president and sole stockholder, is a developer with 40 years experience and not an unsophisticated lender. He knew that the borrowers had an urgent need for the money. He dictated the terms of the loan. The fact that the borrowers were "in distress" or "necessitous" when the loan was made is as significant as the fact that the lender dictated the terms of the loan. Compare Dixon, 276 So.2d at 819. Our supreme court explained the purpose of Florida's 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 the loans.

Dixon, 276 So.2d at 820, citing Chandler, 146 So. at 551.

The lender's claimed ignorance of the specifics of Florida's usury laws does not preclude a finding of intent. Shorr v. Skafte, 90 So.2d 604, 607 (Fla.1956); Rollins; Ross v. Whitman, 181 So.2d 701 (Fla. 3d DCA), cert. denied, 194 So.2d 624 (Fla.1966). Gross' testimony that he did not intend to charge an unlawful rate of interest is also not determinative. Rollins. Obviously, such testimony is self-serving.

Despite the lender's assertions to the contrary, the requisite intent was established by proving the lender's knowledge of the amount of interest to be received and intent to receive the amount charged. North American Mortg. Investors v. Cape San Blas...