Kennedy v. Brand Banking Co.

• Decision Date: 25 October 1979
• Docket Number: No. 58504,58504
• Citation: 152 Ga.App. 47,262 S.E.2d 177
• Parties: KENNEDY v. BRAND BANKING COMPANY.
• Court: Georgia Court of Appeals

Page 177

262 S.E.2d 177

152 Ga.App. 47

KENNEDY v. BRAND BANKING COMPANY.

No. 58504.

Court of Appeals of Georgia.

Argued Sept. 6, 1979.

Decided Oct. 12, 1979.

Rehearing Denied Oct. 25, 1979.

J. C. Rary, Robert P. Hoyt, Decatur, for appellant.

C. Wilson DuBose, Benita S. Baird, J. Lanier Meeks, Atlanta, for appellee.

DEEN, Chief Judge.

This is a suit to recover an amount due on a promissory note plus interest and attorney fees.

The note sued upon was executed on April 14, 1977, in the amount of $40,000 with 10 percent per annum interest, payable on October 14, 1977. It was the sixth in a series of renewal notes on a note executed on February 19, 1974, for $50,000 bearing an 8 percent per annum interest rate, payable quarterly. (This note was renewed on February 18, 1975, at a 12 percent annual interest rate, the second note was renewed on February 19, 1976, at an 11 percent annual interest rate, the third note was renewed on May 27, 1976, at an 11 percent annual interest rate, the fourth note was renewed on July 23, 1976, at an 11 percent annual interest rate, the fifth note was renewed on December 13, 1976, at an 11 percent annual interest rate, and the sixth note was renewed by the April 14, 1977, note.) Kennedy brings this appeal from an order granting appellee's motion for summary judgment.

1. Appellant does not dispute his liability to the bank on the note, but contends that interest payments of $6,862.62 made on the renewal notes preceding the April 14, 1977, note were usurious and must be credited as principal against the outstanding balance of the note. (No interest payments were made on the last note.)

In ruling on the motion, the trial court held: "The burden of proving usury is upon the party making such allegation." While this rule would be true at the trial of this case under Franco v. Bank of Forest Park, 118 Ga.App. 700, 165 S.E.2d 593 (1968), on a motion for summary judgment the burden of proof is always placed upon the movant even as to those issues which the opposing party would have the trial burden. Hip Pocket, Inc. v. Levi Strauss & Co., 144 Ga.App. 792, 242 S.E.2d 305 (1978). Thus, the ruling of the trial court was in error, but we will examine the record to see if appellee did in fact meet his burden of proof as to all issues involved in this case.

In February of 1974, when the first note was executed the maximum legal rate of interest on loans secured by real estate was 9 percent per annum. Code Ann. § 57-101.1 (Ga.L.1970, p. 1974). When the note was renewed in February of 1975, a 12 percent annual interest rate would have been usurious under that code section and the usury would infect any renewal note for the debt. See Hartsfield v. Watkins, 67 Ga.App. 411, 20 S.E.2d 440 (1942). However, in 1974 Congress enacted Public Law 93-501, Title II, § 202, known as the "Brock Bill" which amended 12 U.S.C. § 1831a(a) to read as follows: "In order to prevent discrimination against State-chartered insured banks with respect to interest rates, if the applicable rate prescribed in this subsection exceeds the rate such State bank would be permitted to charge in the absence of this subsection, a State bank may in the case of business or agricultural loans in the amount of $25,000 or more, notwithstanding any State constitution or statute, which is hereby preempted for the purposes of this section, take, receive, reserve, and charge on any loan or discount made, or upon any note, bill or exchange, or other evidence of debt, interest at a rate of not more than 5 per centum in excess of the discount rate on ninety-day commercial paper in effect at the Federal Reserve bank in the Federal Reserve district where the bank is located, and such interest may be taken in advance, reckoning the days for which the note, bill, or other evidence of debt has to run." The provisions of this act applied to ". . . any loan made in any State after the date of enactment of this title (October 29, 1974), but prior to the earlier of July 1, 1977, or the date (after the date of enactment of this title) on which the State enacts a provision of law which prohibits the charging of interest at the rates provided in the amendments made by this title." 12 U.S.C.A. § 1831a note.

In Green v. Decatur Federal Savings &c. Assoc., 143 Ga.App. 368, 238 S.E.2d 740 (1977), this court has already determined that changes in Code Ann. §§ 57-101 and 57-101.1 (Ga.L.1975, pp. 370, 153) did not repeal the provisions of Public Law 93-501.

Appellant argues that the legislative intent of 12 U.S.C.A. § 1831a as revealed in 1974 U.S.Code Congressional and Administrative News, p. 6249, shows that this law was not meant to apply to loans made prior to its effective date. While we agree with this contention, we do not believe that a renewal note executed for a new consideration would violate the intent of Congress; 12 U.S.C.A. § 1831a(a) expressly provides that it applies to ". . . any loan or discount made, or Upon any note, bill or exchange, or other evidence of debt . . ." made after October 29, 1974. (Emphasis supplied.) The second through seventh notes were all executed after the effective date of this law and meet the requirements for the type of indebtedness subject to its provisions. Appellant's reliance upon Arkansas Savings etc. Assoc. v. Mack Trucks of Arkansas, 566 S.W.2d 128 (Ark.1978) is misplaced. The allegedly usurious note in that case was executed prior to the effective date of the statute. Here, the notes alleged to be usurious were executed after the effective date of the federal statute.

Appellant's contention that the trial court erred in finding that the loan was made for a business purpose and thus the provisions of 12 U.S.C.A. § 1831a preempted the Georgia usury law is without merit. In his affidavit, he claimed that the loan ". . . was made as a personal investment." We agree with the trial court's holding; a loan made for the purpose of investing in real estate is unquestionably made for a business purpose.

Appellant argues that appellee failed to meet its burden of proving that the notes were not usurious. The court can take judicial notice of the Federal Reserve discount rate on ninety-day commercial paper that was in effect on the dates the notes were executed because the rates are published in the Federal Register. Sims v. Southern Bell Tel. etc., Co., 111 Ga.App. 363, 141 S.E.2d 788 (1965); 44 U.S.C.A. § 1507. On February 18, 1975, the discount rate was 6.75% (40 F.R. 6769); on February 19, 1976, the discount rate was 5.50% (41 F.R. 4540); on May 27, 1976, the discount rate was 5.50% (41 F.R. 4540); on July 23, 1976, the discount rate was 5.50% (41 F.R. 4540); and on December 13, 1976, the discount rate was 5.25% (42 F.R. 52979). As the interest rate charged on the February 18, 1975 note was 12%, and the rate charged on four of the succeeding notes was 11%, these five notes were clearly usurious.

12 U.S.C.A. § 1831a(b) provides: "If the rate prescribed in subsection (a) of this section exceeds the rate such State bank would be permitted to charge in the absence of this paragraph, and such State fixed rate is thereby preempted by the rate described in subsection (a) of this section, the taking, receiving, reserving, or charging a greater rate of interest than is allowed by subsection (a), when knowingly done, shall be deemed a forfeiture of the entire interest which the note, bill, or other evidence of debt carries with it, or which has been agreed to be paid thereon. If such greater rate of interest has been paid, the person who paid it may recover in a civil action commenced in a court of appropriate jurisdiction not later than two years after the date of such payment, an amount equal to twice the amount of the interest paid from the State bank taking or receiving such interest."

As 12 U.S.C.A. § 1831a(b) expressly provides that it preempts state usury laws, we find that the penalty provisions contained therein preempt any state statute which is in conflict. The penalty provision contained in 12 U.S.C.A. § 1831a(b) is essentially the same as that found in 12 U.S.C.A. § 86 which provides a penalty for usury on loans made by national banks. Any state statute in conflict with 12 U.S.C.A. § 86 has been held to be preempted. First National Bank of Mena v. Nowlin, 509 F.2d 872 (8th Cir. 1975); Young v. First Nat. Bank, 22 Ga.App. 58, 95 S.E. 381 (1918). We believe that this same rule applies to 12 U.S.C.A. § 1831a(b). Although the note which is the subject matter of the suit in the instant case did not charge a usurious interest rate, the usurious interest rates on the five preceding renewal notes infect the sixth renewal note. Young, supra.

We find that the trial court erred in holding that the appellant had the burden of proving usury on the motion for summary judgment. Appellee, however, brought to this court's attention the Federal Reserve discount rates that were published in the Federal Register and admits that five of the notes carried usurious interest rates and we agree that the penalties provided under federal law must govern.

While the penalties provision in 12 U.S.C.A. § 1831a(b) have not been interpreted, they are virtually identical with those imposed under 12 U.S.C.A. § 86. Under that section the "taking, receiving, reserving or charging" of a greater rate of interest than that permitted by law must be also "knowingly done" to constitute usury. When the contract shows on its face that the charge of greater rate of interest than the law allows, the intent is apparent. Armstrong v. City Nat. Bank of Galveston, 16 S.W.2d 954 (Tex.Civ.App.1929), cert. den. 281 U.S. 737, 50 S.Ct. 333, 74 L.Ed. 1152. Therefore, we find that the bank must forfeit the entire amount of interest the note carries with it. Appellant cannot set-off the amount of usurious interest paid against the principal balance as permitted under state law, Thomas v. Estes, 139 Ga.App. 738, 229 S.E.2d 538 (1976), because...