Northway Lanes v. HACKLEY UNION NATIONAL BANK & T. CO.
| Decision Date | 07 July 1971 |
| Docket Number | No. CA 6072.,CA 6072. |
| Citation | 334 F. Supp. 723 |
| Parties | NORTHWAY LANES, a co-partnership, and Marshull, Inc., a Michigan corporation, Plaintiffs, v. HACKLEY UNION NATIONAL BANK AND TRUST COMPANY, a National banking corporation, Defendant. |
| Court | U.S. District Court — Western District of Michigan |
Arthur M. Rude, Muskegon, Mich., for Northway Lanes.
H. Winston Hathaway, Muskegon, Mich., for Hackley Bank.
John Milanowski, U. S. Atty., William D. Ruckelshaus, Asst. Atty. Gen., and C. Westbrook Murphy, Office of Comptroller of Currency, Washington, D. C., amicus curiae.
This action was instituted by Northway Lanes, a co-partnership consisting of Ralph G. Kuris and Bessie Shull, and Marshull, Inc., a Michigan Corporation, as plaintiffs, against the Hackley Union National Bank and Trust Company, a National Banking Association, under the provisions of Sections 85 and 86, Title 12, United States Code. Plaintiffs sue to recover the sum of $113,333.24, being double the amount of alleged usurious interest paid by them to defendant, basing their right thereto upon the provisions of 12 U.S.C. § 86 which provides:
On November 10, 1967, defendant, a National Banking Association, loaned to plaintiff co-partnership $600,000.00, evidenced by a so-called mortgage note in the face amount of $350,000.00 and a so-called installment note in the face amount of $337,500.00, of which latter amount $87,500.00 was interest reserved by the Bank in advance.
The mortgage note was payable in monthly installments of $5,283.00, with such payments to be applied first on interest, at the rate of 7% per annum on the unpaid balance, and the balance on principal. This note also reserved the privilege of prepayment in the maker, subject to payment of a prepayment charge of 5% if prepaid during the year 1968. Provision also was made for payment of a late charge not to exceed 4% on any delinquent installment.
The installment note was payable in 40 monthly installments of $8,437.50 each, commencing November 20, 1967, and continuing on the same day of each month except May, June, July and August of each year. There was no specific provision in the note for the application of a portion of any payment upon interest. This note contained similar provisions regarding prepayment and late charges.
Both notes contained the recitation that they were secured by a real estate mortgage and security agreement of even date therewith. The notes were, in fact, secured by the same real estate mortgage and security agreement, and therefore, by the same collateral.
At the time the loans were made, the defendant Bank remitted $600,000.00 to plaintiff co-partnership. The plaintiff in turn deposited money with defendant in escrow upon which defendant drew its cashier's checks, showing the plaintiff co-partnership as remitter, in payment to various creditors of the partnership and also to others for total closing charges of $1,595.00.
On February 27, 1968, the partners comprising plaintiff co-partnership filed articles of incorporation for plaintiff corporation, Marshull, Inc., with the State of Michigan, with the partners as officers and sole stockholders. The corporation was formed to assume the ownership and operation of the bowling alley business previously operated by the partnership, in order that the Bank loan could be refinanced by the corporation with another bank.
On March 1, 1968, the partnership conveyed the business real estate to the corporation by deed which contained the recital that the land was conveyed subject to the real estate mortgage to defendant Bank, which the plaintiff corporation assumed and agreed to pay. The personal property covered by the security agreement also was conveyed by the partnership to the corporation by bill of sale executed the same day.
During the period of the corporate formation and later conveyance of real and personal property by the partnership, the defendant was not notified nor did it have knowledge that incorporation and assumption of the partnership debts had occurred. Lacking knowledge of the existence of Marshull, Inc., no arrangement was made between Hackley Bank and Marshull, Inc., to relieve Mr. Kuris and Mrs. Shull individually from liability on the existing indebtedness.
Commencing March 1, 1968, the partnership ceased to function as a going business and the corporation, Marshull, Inc., became the operating entity for the bowling alley business previously owned and operated by the partnership.
The plaintiff partnership paid interest on the mortgage note prior to March 1, 1968, totaling $5,448.50, and made monthly payments on the installment note of $8,437.50 on November 10 and December 26, 1967, and January 26 and February 27, 1968, totalling $33,750.00.
The plaintiff corporation, subsequent to March 1, 1968, made payments directly to the defendant on the mortgage note including interest in the amount of $5,054.37 on or before payment in full on April 16, 1968. The corporation also made one monthly payment on the installment note on April 9, 1968, of $8,437.50. Both notes were paid off in full on April 16, 1968, when Muskegon Bank and Trust Company issued cashier's check No. 58202 in the amount of $592,073.04 to the order of Marshull, Inc. This check was endorsed restrictively by Mr. Kuris and Mr. Rude, as corporate officers, to the order of Northway Lanes, a co-partnership consisting of Ralph G. Kuris and Bessie Shull. The partners then endorsed the check to the order of Hackley Union National Bank and Trust Company. This final transaction satisfied the plaintiffs' entire indebtedness and discharged the outstanding mortgage and security agreement.
Included in the amount of the final payment made on April 16, 1968 by the plaintiffs was a prepayment charge of $30,000.00, $17,500 attributable to the so-called mortgage note and $12,500 to the so-called installment note.
Based on the foregoing facts, plaintiffs claim that the total charges which constitute usurious interest, for which they seek double damages under 12 U.S.C. § 86 are:
Interest at 7% for 158 days $25,071.62
Prepayment charges 30,000.00
Title Insurance on mortgagee's interest
only 876.00
Land survey 125.00
Bank's attorney fees 575.00
Recording new mortgage (2 counties) 14.00
Financing search 3.00
Security Instrument filing fee 2.00
____________
Total $56,666.62
Defendant claims that in its status as a National Banking Association, the above charges may lawfully be made by it without rendering the transaction usurious under the statute.
In measuring the actions of a national banking association against the provisions of Sections 85 and 86, Title 12, United States Code, this court must carefully follow the directions given by the United States Supreme Court in 1873 when Mr. Justice Strong, speaking for a unanimous Court stated:
Tiffany v. National Bank of Missouri, 85 U.S. (Wall.) 409, 410, 21 L.Ed. 862 (1873).
The history of the National Banking Act consistently shows an intent that in lending money to a borrower within a state, a national bank shall be in a position equal to the most favored position of a state institution in loaning money to a particular type of borrower. Tiffany v. National Bank of Missouri, supra.
The National Bank Act of 1864, 13 Stat. 99, substantially amended and replaced the National Currency Act of 1863, 12 Stat. 665. The paramount intention of both of these statutes was to ". . . give every possible support to the public credit . . . ." by a uniform currency ". . . . furnished by national associations, organized under a general act of Congress . . ." Abraham Lincoln, Special Message on Financing the War, Senate Journal, pp. 121-122 (37th Cong., 3rd Sess., Jan. 17, 1863). Consistent with this intention Congress gave special competitive advantages to national banks over state banks in order to induce the state banks either to convert into national associations or go out of business altogether.
To continue reading
Request your trial
-
Metropolitan Life Ins. Co. v. Promenade Towers Mut. Housing Corp.
...reinvestment costs. Warrington 611 Associates v. Aetna Life Ins., 705 F.Supp. 229 (D.N.J.1989); Northway Lanes v. Hackley Union National Bank and Trust Co., 334 F.Supp. 723 (W.D.Mich.1971), aff'd, 464 F.2d 855 (6th Cir.1972). See also 3 R. Powell, Powell on Real Property § 37-279, par. 460 ......
-
Promenade Towers Mut. Housing Corp. v. Metropolitan Life Ins. Co.
... ... 957, 965-66 (D.Mass.1991); Northway ... Page 594 ... Lanes v. Hackley Union Nat'l Bank & Trust Co., 334 F.Supp. 723, 732 ... ...
-
Northway Lanes v. Hackley Union Nat. Bank & Trust Co., 71-1987.
...Court for the Western District of Michigan, to recover from appellee the penalty imposed by that section. From an adverse judgment, 334 F.Supp. 723, they This controversy began on November 10, 1967, when the appellee bank, a national banking association, loaned to appellants Kuris and Shull......
-
MUNICIPAL LEAS. SYS., INC. v. NORTHAMPTON NAT. BK. OF EASTON
...borrower may charge a corporate borrower any rate of interest agreed upon by such borrower. See Northway Lanes v. Hackley Union National Bank and Trust Co., 334 F. Supp. 723, 727 (W.D.Mich.1971). Plaintiff, however, contends that a statute adopted and effective as of January 30, 1974 (Pa.St......