Morgan Walton Properties, Inc. v. International City Bank & Trust Co.

• Decision Date: 08 October 1981
• Docket Number: No. 58879,58879
• Court: Florida Supreme Court
• Parties: MORGAN WALTON PROPERTIES, INC., et al., Appellants, v. INTERNATIONAL CITY BANK & TRUST CO., etc., et al., Appellees. Joseph F. MORGAN and Johnnie Mae Morgan, Appellants, v. INTERNATIONAL CITY BANK & TRUST CO., etc., et al., Appellees.

Page 1059

404 So.2d 1059

MORGAN WALTON PROPERTIES, INC., et al., Appellants, v. INTERNATIONAL CITY BANK & TRUST CO., etc., et al., Appellees.

Joseph F. MORGAN and Johnnie Mae Morgan, Appellants, v. INTERNATIONAL CITY BANK & TRUST CO., etc., et al., Appellees.

No. 58879.

Supreme Court of Florida.

Oct. 8, 1981.

Louis K. Rosenbloum of Levin, Warfield, Middlebrooks, Mabie & Magie, Pensacola, for appellants.

James M. Weber of Beggs & Lane, Pensacola, for appellees.

BOYD, Justice.

This cause is before the Court for decision of a question certified by the United States Court of Appeals for the Fifth Circuit. International City Bank & Trust Co. v. Morgan Walton Properties, Inc., 612 F.2d 227 (5th Cir. 1980).

Appellee International City Bank and Trust Company, a Louisiana banking corporation, now dissolved, brought two mortgage foreclosure actions in the United States District Court for the Northern District of Florida, one of them (Fifth Circuit case no. 77-3255) against two Florida corporations, a partnership, and several individuals, and the other (Fifth Circuit case no. 77-3256) against two individuals.

In case no. 77-3255, the plaintiff bank sought foreclosure of a mortgage on real property located in Walton County, Florida, given to secure two promissory notes executed and delivered by the corporate defendants in New Orleans on December 29, 1973 and April 25, 1974. The individual defendants guaranteed the notes. In case no. 77-3256, the plaintiff sought foreclosure on a separate Walton County parcel, mortgaged to secure a separate note executed and delivered in New Orleans on January 11, 1974 by Joseph F. and Johnnie Mae Morgan. According to the facts as stated by the Court of Appeals: "The notes in both cases were made payable at International City in New Orleans, and were secured by mortgages on real estate located in Walton County, Florida. The notes in case no. 77-3255 provided they should be construed according to the laws of the State of Louisiana." Id., 612 F.2d at 228.

The Federal Deposit Insurance Corporation was added as a plaintiff in both actions when it acceded to ownership of the bank's assets. The United States District Court consolidated the two cases.

The defendants-appellants raised the defense of usury. They alleged that the bank had charged them interest in excess of 25% per annum, which is criminally usurious in Florida and renders the entire obligation unenforceable in Florida courts. § 687.071(2), (7), Fla.Stat. (1973). ¹ They asserted that the notes and mortgages were unenforceable because they were against public policy in Florida.

On motion of all parties for summary judgment, the district court held that the notes were to be governed by Louisiana law. Finding that in Louisiana there is no limit on the interest that may be charged a corporate borrower, the district court held for the plaintiffs in case no. 77-3255. The bank conceded that the interest charged the individual borrowers in case no. 77-3256 was usurious under Louisiana law and that this required forfeiture of the interest. The Court of Appeals framed the certified question as follows:

Are notes executed and payable in a state other than Florida, secured by a mortgage on Florida real estate, providing for interest legal where made, but usurious under Florida law, unenforceable in Florida courts due to Florida's usury statute, public policy or otherwise, where (a) the interest charged or paid exceeds 25 percent and (b) where the interest charged does not exceed 25 percent, but exceeds the maximum interest rate allowed by law?

612 F.2d at 229.

The certified question reflects that there has been no finding of fact as to what interest rates the obligations actually carried, since the Court of Appeals wants to know the consequences both in cases of usurious rates of interest and criminally usurious rates of interest. If the loan to the individual borrowers bore interest in excess of 10% but less than 25%, then the interest would be forfeited under Florida law. As noted above, the bank conceded that the loan was usurious under Louisiana law and that the consequence under that law was forfeiture of interest. If the interest was, as alleged by defendants-appellants, in excess of 25%, then the principal amount, still an enforceable obligation in Louisiana (we assume from the facts as stated by the Fifth Circuit), would be unenforceable in Florida.

With regard to the loans to the corporate borrowers, if the interest was more than 15% but less than 25%, then the interest would be forfeited under Florida law. If the interest was more than 25%, then the principal would be unenforceable as well. In Louisiana, there is no limit on the rate of interest that may be charged corporate borrowers.

Therefore, with regard to the individuals, we have a situation where under Florida law, either the debt is unenforceable or the interest must be forfeited, depending on what the interest rate actually was, while under Louisiana law the interest must be forfeited but the principal is enforceable. With regard to the corporate borrowers, under Florida law either the debt is unenforceable or the interest must be forfeited, depending on the actual interest rate. Under Louisiana law principal and interest are enforceable regardless of the interest rate.

Florida's established rule for choice of law governing the validity and interpretation of contracts looks to the law of the place of contracting and the law of the place of performance. E. g., Brown v. Case, 80 Fla. 703, 86 So. 684 (1920); Thompson v. Kyle, 39 Fla. 582, 23 So. 12 (1897); Perry v. Lewis, 6 Fla. 555 (1856).

'The general principle (adopted) by civilized nations is, that the nature, validity, and interpretation of contracts are to be governed by the laws of the country where the contracts are made or are to be performed, but the remedies are to be governed by the laws of the country where the suit is brought, or as it is compendiously expressed, by the lex fori.' 8 Peter's S.C.Rep. 361.

Perry v. Lewis, 6 Fla. at 560. In Thompson v. Kyle, the Court said:

The authorities are not entirely unanimous on this point, but we think the weight of them, supported by principle, sustains the proposition that a note executed and payable in one State, though secured by a mortgage on lands in another, will be governed as to the rate of interest it shall bear, by the laws of the former ....

39 Fla. at 596-97, 23 So. at 17.

The certified question asks whether Florida's legislation on usurious interest establishes a public policy that prevents the application of the traditional choice of law rules to these contracts executed and to be performed in Louisiana.

Under the traditional Florida choice of law rules for contracts cases, the law of Louisiana would apply, since both the place of execution and the...