Maynard v. England
| Decision Date | 21 July 1975 |
| Docket Number | No. 3059--I,3059--I |
| Court | Washington Court of Appeals |
| Parties | , 17 UCC Rep.Serv. 1036 Robert A. MAYNARD et al., Appellants, v. Jack ENGLAND et al., Defendants, Armand J. Ravetti and Jane Doe Ravetti, his wife, Respondents and Cross- Appellants, Mabel's Tavern, Inc., a Washington Corporation, and Heerschap, Ryon & Hack, Inc., a Washington Corporation, Defendants. |
James C. Young, Seattle, for appellant.
Douglas Millard, Seattle, for respondent.
Robert and Irene Maynard commenced this action alleging that they had been defrauded in the purchase of the corporate stock of Mabel's Tavern, Inc. The Ravettis counterclaimed on a negotiable note and mortgage given by the plaintiffs Maynard in the transaction. The plaintiffs subsequently alleged that the note and mortgage were usurious under the provisions of RCW 19.52. Prior to trial, a default judgment was granted as to one defendant and dismissals and covenants not to sue were obtained as to all other defendants except Mabel's Tavern, Inc. The matter proceeded to trial only upon the issues between the Maynards and the Ravettis. The findings adequately set forth the factual situation:
1. During the Summer of 1970, plaintiffs entered into negotiations for the purchase of all of the capital stock of Mabel's Tavern, Inc., a Washington corporation. A $76,000 price was agreed and a contract of sale executed.
2. As part of the sale price, plaintiffs made and delivered their negotiable promissory note in the amount of $22,000 to Mabel's Tavern, Inc. Said promissory note provided for installment payments of $250 per month commencing September 15, 1970, and interest on the declining balance at the rate of ten percent (10%) per annum. Said promissory note further provided for an award against the maker of all collection costs, including attorney's fees, in the event of the maker's default. Said note was secured by a mortgage in favor of Mabel's Tavern, Inc. to the following described real property in King County, Washington:
Said mortgaged property was the separate property of plaintiff Irene Maynard. . . .
3. There is no satisfactory explanation of why the note and mortgage were made in favor of Mabel's Tavern, Inc., rather than in favor of Claude M. Groff and Ernest P. Warner, the parties who were selling their stock to plaintiffs. In any event, Groff and Warner have made no claim herein that the $22,000.00 was not to be credited against the purchase price. Plaintiffs were in fact given full credit for the entire face amount of the note as part payment of the purchase price.
4. Because it was necessary to the parties that a certain amount of cash be available at closing in order to pay certain agreed corporate obligations and for other purposes, and because the Maynards did not make any cash down payment, the sellers, through the broker of the tavern sale, Harrison Heerschap, and his associate, Durand Fooks, sought financing (of) the note and security. Fooks advised two separate mortgage brokers of the availability of the note and mortgage.
5. One of the mortgage brokers contacted by Fooks was Norman Dubinsky of Liberty Mortgage Co. Dubinsky discussed the note and mortgage with defendant and counterclaimant Armand Ravetti and showed Ravetti the real properties secured by the mortgage. Ravetti proposed to purchase the note and mortgage for Fifteen Thousand Dollars ($15,000.00) cash, provided that the mortgagor would provide the additional security of a quitclaim deed and power of attorney to record it in the event of the maker's default on the installment note. The additional security was provided, and the note was negotiated and the mortgage assigned to Ravetti by Mabel's Tavern, Inc., through the corporation's officers, Warner and Groff, on August 12, 1970. Ravetti then issued his Fifteen Thousand Dollar ($15,000.00) check to Liberty Mortgage, and those funds were disbursed, consistent with the sales agreement, by Liberty Mortgage.
6. Neither Ravetti (except for taking an assignment of the note and mortgage) nor Dubinsky met or dealt with any of the parties to, or others involved in, the tavern transaction, and neither was advised of the terms of sale or of any of subjects discussed during negotiation of the sale or of any inducements made to the Maynards for their purchase. Ravetti took assignment of the note without knowledge of any defense to it.
7. On or about August 28, 1970, the Maynards took possession of Mabel's Tavern, and thereupon determined that its business and financial condition had been misrepresented in certain respects by representatives of Harrison Heerschap Company, the broker. Throughout negotiations for the sale of the tavern, the Maynards never dealt directly with the sellers, but only through the broker.
8. The first communication between the Maynards and the Ravettis occurred at approximately the end of September or beginning of October, 1970, when Mrs. Ravetti called Mrs. Maynard about a delinquency in installment payments due on the promissory note.
9. The only payments made by the Maynards on their promissory note were as follows:
Date Amount
----------------- -------
October 6, 1970 $250.00
October 15, 1970 250.00
November 16, 1970 250.00
The Maynards are in default of their mortgage obligation.
10. Following the Maynards' filing of their action, the Ravettis elected to accelerate the balance owed under the Maynard note, and sued for the balance and for foreclosure of the mortgage.
* * *
* * *
Based upon the above findings, the trial court concluded, Inter alia, that
1. Because of his participation through Dubinsky in drafting the original loan documents, Ravetti is not a holder in due course of the Maynard note.
2. Ravetti is not entitled to judgment on the promissory note from the Maynards.
3. Robert Maynard and Irene Maynard, individually, and the community composed of them have been unjustly enriched by Ravetti's advance of Fifteen Thousand Dollars ($15,000.00), for which Ravetti is entitled to judgment against the Maynards . .
4. The Ravetti's mortgage described in Finding number 2 is the first and paramount lien upon the real property therein described and the whole thereof as security for the judgment and interest and costs hereinabove set forth, and the mortgage should be foreclosed and the property sold by the sheriff of King County, Washington A judgment for $18,650.35 and a decree of foreclosure, based on these findings and conclusions, was awarded the defendants Ravetti on their counterclaim. The amount of the judgment included the $15,000 said to have unjustly enriched the plaintiffs Maynard, less payments to the Ravettis credited against the $15,000 principal, plus interest from November 17, 1970 to April 25, 1974.
Both parties appeal. Two issues are raised:
(1) was the transaction involving the transfer of the plaintiffs' promissory note and mortgage usurious under RCW 19.52;
(2) were the Ravettis holders in due course of the note executed by the Maynards.
We first hold that, except as hereinafter discussed, the trial court's findings of fact are supported by the evidence. Findings of fact are verities on appeal if there is substantial evidence to support them. Hays Merchandise, Inc. v. Dewey, 78 Wash.2d 343, 474 P.2d 270 (1970); Enterprise Timber, Inc. v. Washington Title Ins. Co., 76 Wash.2d 479, 457 P.2d 600 (1969). Findings of fact which are conclusions of law will be interpreted as such. State v. Reader's Digest Ass'n, Inc., 81 Wash.2d 259, 501 P.2d 290 (1972); Hanson v. Lee, 3 Wash.App. 461, 476 P.2d 550 (1970).
The Maynards contend that the Ravettis violated the usury statute, RCW 19.52, because of the $7,000 discount imposed when the Ravettis accepted the negotiable instrument from Mabel's Tavern, Inc. We observe, initially, that usury is an affirmative defense to an action on a note. The burden of establishing usury is on the party who pleads it, and therefore was on the Maynards. Malotte v. Gorton, 75 Wash.2d 306, 450 P.2d 820 (1969); McCall v. Smith, 184 Wash. 615, 52 P.2d 338 (1935); Bayless v. Gordon, 123 Wash. 316, 212 P. 169 (1923); Schmitt v. Matthews, 12 Wash.App. 654, 531 P.2d 309 (1975). The elements of usury are set forth in National Bank of Commerce v. Thomsen, 80 Wash.2d 406, 410, 495 P.2d 332 (1972), quoting from Hafer v. Spaeth, 22 Wash.2d 378, 156 P.2d 408 (1945), as follows (1) a loan or forbearance, express or implied; (2) money or its equivalent constituting the subject matter of the loan or forbearance; (3) an understanding between the parties that the principal shall be repayable absolutely; (4) the exaction of something in excess of what is allowed by law for the use of the money loaned or for the benefit of the forbearance; and, in some jurisdictions, (5) an intent to exact more than the legal maximum for the loan or forbearance.
To determine whether all these essential elements are present, the courts will look through the form of the transaction and consider its substance. If all the requisites are found to be present, the transaction will be condemned as usurious, but, if any one or more of them are lacking, the parties cannot be charged with a usurious practice. 22 Wash.2d at 382, 156 P.2d at 410.
The word 'loan,' this court said, imports an advancement of money or other personal property to a person, under a contract or stipulation, express or implied, whereby the person to whom the advancement is made binds himself to repay it at some future time, together with such other sum as may be agreed upon for the use of the money or thing advanced. 22 Wash.2d at 384, 156 P.2d at 411.
The party seeking to establish usury must produce evidence of the existence, at the inception of the contract, of each of the elements of usury. Baske v. Russell, 67 Wash.2d 268, 407 P.2d 434 (1965). See Comment, Purchase of Note Constitutes Usurious Loan, 41 Wash.L.Rev. 914 (1966).
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