Kamrath v. Great Southwestern Trust Corp.

• Decision Date: 23 June 1976
• Docket Number: A,CA-CIV,No. 2,No. 1212,P,No. 10943,10943,1212,2
• Citation: 27 Ariz.App. 102,551 P.2d 92
• Parties: Kenneth KAMRATH and Mary Elizabeth Kamrath, husband and wife, and Pioneer National Trust Co. of Arizona, a corporation, as Trustee under Trustppellants, v. GREAT SOUTHWESTERN TRUST CORPORATION, an Arizona Corporation, Individually and as Trustee for Trustima Mortgage Corporation, a corporation, Twin Cities Development Corporation, an Arizona Corporation, Great Southwestern Corporation, a corporation, and John Doe and Jane Doe, 1 through 10, Appellees. 2050.
• Court: Arizona Court of Appeals

Page 92

551 P.2d 92

27 Ariz.App. 102

Kenneth KAMRATH and Mary Elizabeth Kamrath, husband and wife, and Pioneer National Trust Co. of Arizona, a corporation, as Trustee under Trust No. 10943, Appellants, v. GREAT SOUTHWESTERN TRUST CORPORATION, an Arizona Corporation, Individually and as Trustee for Trust No. 1212, Pima Mortgage Corporation, a corporation, Twin Cities Development Corporation, an Arizona Corporation, Great Southwestern Corporation, a corporation, and John Doe and Jane Doe, 1 through 10, Appellees.

No. 2 CA-CIV 2050.

Court of Appeals of Arizona, Division 2.

June 23, 1976.

Rehearing Denied July 27, 1976.

Review Denied Sept. 14, 1976.

Browning & Wilson by William D. Browning, Tucson, for appellants

Russo, Cox, Dickerson & Cartin, P.C. by Thomas G. Cox, Tucson, for appellees.

OPINION

HATHAWAY, Judge.

Appellants filed an action contending that loans made to them in the amount of $235,000 at 10% Per annum, were rendered usurious by the lender requiring payment of 4% Brokerage commissions ($9,400) and a study and consultation fee in the sum of $35,000 to other corporations of the same corporate conglomerate in a sum totaling $44,400.00. After depositions were taken, judgment was entered against appellants on the basis of cross-motions for summary judgment, and this appeal was taken.

The facts are undisputed and disclose that appellees are a corporate conglomerate with Great Southwestern Corporation, the parent corporation, owning all of the stock in the other three corporations, i.e., Great Southwestern Trust Corporation, Pima Mortgage Corporation, and Twin Cities Development Corporation. All stock in Great Southwestern Corporation is owned by Walter Hall, William St. Louis, and Royce Agnew through a voting trust. The corporations have interlocking directors and officers and to a great extent share offices, which are linked by an intercom system. Mr. Hall and Mr. Agnew are either president or vice-president of all 4 corporations.

In May of 1972, appellants sought a loan from one of appellee corporations by contacting Mr. Hall. Appellants learned that in order to obtain the loan it would be necessary to pay a brokerage commission in the sum of $9,400 to Pima Mortgage Corporation and a fee of $35,000 to Twin Cities Development Corporation for a study of the contemplated use of the loan. Subsequently, appellants obtained the loan from appellee, Great Southwestern Trust Corporation, in the sum of $235,000 at 10% Interest, appellants having agreed to the charges required to be paid to the other two corporations.

Appellants maintain they are entitled to recover the brokerage commission, the feasibility study and consultation fee, and a forfeiture of all interest paid or to be paid. We agree with their position.

Usury is the exacting or charges 'directly or indirectly' for the loan of money in excess of what the law has set. A.R.S. § 44--1202. In determining whether a transaction is usurious, the court 'will disregard the form and look only to the substance.' De Wulf v. Bissell, 83 Ariz. 68, 316 P.2d 492 (1957); Modern Pioneers Insurance Company v. Nandin, 103 Ariz. 125, 437 P.2d 658 (1968). A lender will not be permitted to make unreasonable charges in addition to lawful interest and avoid the penalties of usury. In Grady v. Price, 94 Ariz. 252, 383 P.2d 173 (1963), our Supreme Court stated:

'A lender, in addition to the highest rate of interest, may charge the borrower reasonable fees for services rendered in connection with the loan, or require reimbursement of expenses incurred, such as the examination of title, recordation of papers, and perhaps traveling expenses and other similar expenses.

But such charges must be limited to specific services rendered and expenses incurred, and may not be made a device through which additional interest or profit on the loan may be exacted,

Nor may a lender charge to a borrower the ordinary overhead expenses of his business.'

In Modern Pioneers Insurance Company v. Nandin, supra, also dealing with parent-subsidiary corporation manipulations, the court approvingly quoted the following from Ballentine on Corporations (Rev.1946 edition):

"* * * (A)fter all, it comes down to a question of either agency or of good faith, honesty and fairness in the use of corporate privilege for legitimate ends. If a corporation is controlled by another and is manipulated by the parent for its own purposes and its own interests, to the prejudice of innocent third parties, or the public welfare, it may be necessary to hold the controlling party responsible." 103 Ariz. at 129, 437 P.2d at 662.

The court then reiterated from Employer's Liability Assurance Corporation v. Lunt, 82 Ariz. 320, 323, 313 P.2d 393 (1957):

'The corporate fiction will, however, be disregarded upon the concurrence of two circumstances; that is, when the corporation is, in fact, the alter ego of one or a few individuals and when the observance of the corporate form would sanction a fraud or promote...