Krause v. Griffis

Decision Date16 August 1989
Docket NumberDocket No. 106623
Citation178 Mich.App. 111,443 N.W.2d 444
PartiesSherryl L. KRAUSE, Janet K. Drain, Shirley M. Krause, Michael D. Darbee, Richard A. Darbee, and Dean L. Darbee, Plaintiffs-Appellees, v. Ray GRIFFIS and Gayle Griffis, jointly and severally, d/b/a Griffis Adult Foster Care, Defendants-Appellants. 178 Mich.App. 111, 443 N.W.2d 444
CourtCourt of Appeal of Michigan — District of US

[178 MICHAPP 112] Abbey & Abbey by Thomas D. Abbey, Caro, for plaintiffs-appellees.

Braun, Kendrick, Finkbeiner, Schafer & Murphy by Michael J. Jordan and Craig W. Horn, Saginaw, for defendants-appellants.



Defendants appeal as of right the circuit court's order granting summary disposition to plaintiffs pursuant to MCR 2.116(C)(10). At issue is the interest rate applicable to a land contract.

[178 MICHAPP 113] Plaintiffs are holders of a title interest in property sold to defendants on land contract. They filed suit seeking a declaration that the fifteen percent interest rate provided in the land contract was not usurious, because the "business entity" exception applied. The circuit court agreed. It concluded that the sworn statement of business purpose required for the business entity exception was satisfied by the wording of the land contract itself. Defendants appeal as of right. We affirm.

Prior to March, 1983, defendants, Ray and Gayle Griffis, were the operators of an adult foster care facility owned by Vera Darbee. Darbee had executed a codicil to her will in 1980 granting the Griffises an option to purchase the facility, including a detached rental unit on the premises. The codicil provided that the option was to be exercised within six months of her death and that the purchase would be by land contract. The interest rate was to be one percent less than the rate being charged by banks for residential mortgages on the date of her death.

Darbee died in 1983. Within six months, defendants exercised their option and entered into a land contract following the requirements of the codicil. The contract provided that the purchase price was to be allocated as follows: $52,000 for real estate, $36,000 for income potential (foster home), and $5,000 for personal property. The annual rate of interest was fifteen percent.

On the day the contract was executed, interest rates charged for mortgages and land contracts by nonregulated, nonbank lenders such as plaintiffs could not exceed eleven percent. M.C.L. Sec. 438.31c(6); M.S.A. Sec. 19.15(1c)(6). However, the following day M.C.L. Sec. 438.61; M.S.A. Sec. 19.15(71) was amended to permit nonregulated lenders to charge interest rates not exceeding fifteen percent. To qualify, the borrower [178 MICHAPP 114] had to be a business entity. M.C.L. Sec. 438.61(1); M.S.A. Sec. 19.15(71)(1).

A controversy arose between the parties in this case as to whether the land contract was usurious. Defendants refused to sign a sworn statement of business interest when asked to do so. Plaintiffs therefore filed for declaratory relief asserting that the interest rate recited in the land contract was not usurious, because the business entity exception applied.

Initially we note that defendants cannot argue that the rate is usurious because M.C.L. Sec. 438.61; M.S.A. Sec. 19.15(71) was not amended until the day after the contract was executed. The defense of usury is not a vested right. It may be extinguished by subsequent legislative action. Paul v. U.S. Mutual Financial Corp., 150 Mich.App. 773, 784, 389 N.W.2d 487 (1986).

The business entity exception of M.C.L. Sec. 438.61; M.S.A. Sec. 19.15(71) provides in pertinent part:

(1) As used in this act "business entity" means: (a) A corporation, trust, estate, partnership, cooperative, or association; or (b) A natural person who furnishes to the extender of the credit a sworn statement in writing specifying the type of business and business purpose for which the proceeds of the loan or other extension of credit will be used, but the exemption provided by this act does not apply if the extender of credit has notice that the person signing the sworn statement was not engaged in the business indicated.

* * * * * *

(3) Notwithstanding the provisions of Act No. 326 of the Public Acts of 1966, it is lawful in connection with an extension of credit to a business entity by any person other than a state or nationally chartered bank, insurance carrier, or finance subsidiary of a manufacturing corporation [178 MICHAPP 115] for the parties to agree in writing to any rate of interest not exceeding 15% per year.

Defendants contend that the failure of plaintiffs to obtain an affidavit from them precluded the land contract from falling under the business entity exception. Plaintiffs maintain that the land contract itself was a sufficient sworn statement for the purposes of the exception. They contend that defendants are a business entity, as they operate the foster care facility as a partnership. 1

When determining whether the exception is applicable, we look beyond the form to the true nature of the transaction. Paul, supra, p. 783, 389 N.W.2d 487; Holland v....

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5 cases
  • In re Cadillac Wildwood Development Corp.
    • United States
    • U.S. Bankruptcy Court — Western District of Michigan
    • March 4, 1992
    ...are Marlowe & Sons v. Farner, 159 Mich.App. 194, 406 N.W.2d 273 (1987), lv. appeal den. 429 Mich. 877 (1987) and Krause v. Griffis, 178 Mich.App. 111, 443 N.W.2d 444 (1989). The cases involved the business entity exception found in MICH.STAT.ANN. § 19.15(71) 438.61. Both cases dealt with th......
  • Klein v. Wolf Run Resort, Inc.
    • United States
    • Vermont Supreme Court
    • April 14, 1995
    ... ... See Krause v. Griffis, 178 Mich.App. 111, 443 N.W.2d 444, 445 (1989) ("defense of usury is not a vested right [and] may be extinguished by subsequent ... ...
  • Dugan v. Vlcko
    • United States
    • U.S. District Court — Eastern District of Michigan
    • March 29, 2018
    ... ... the money loaned for the properties was being used for a business purpose); Krause v. Griffis , 178 Mich.App. 111, 443 N.W.2d 444, 445 (1989) (finding sworn statement requirement of business entity exception was satisfied by the ... ...
  • In re Corradini
    • United States
    • U.S. Bankruptcy Court — Western District of Michigan
    • April 19, 2002
    ... ... Nor was there any other evidence or documentation from which a valid business purpose could be inferred. Cf. Krause v. Griffis, 178 Mich.App. 111, 443 N.W.2d 444 (Mich.Ct.App.1989) (finding the business entity exception applicable where a signed, notarized land ... ...
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