Rebman v. Flagship First Nat. Bank of Highlands County

• Decision Date: 26 July 1985
• Docket Number: No. 84-1603,84-1603
• Citation: 472 So.2d 1360,10 Fla. L. Weekly 1827
• Parties: 10 Fla. L. Weekly 1827 Virginia W. REBMAN, Appellant, v. FLAGSHIP FIRST NATIONAL BANK OF HIGHLANDS COUNTY, f/k/a First National Bank of Sebring, Appellee.
• Court: Florida District Court of Appeals

Page 1360

472 So.2d 1360

10 Fla. L. Weekly 1827

Virginia W. REBMAN, Appellant, v. FLAGSHIP FIRST NATIONAL BANK OF HIGHLANDS COUNTY, f/k/a First National Bank of Sebring, Appellee.

No. 84-1603.

District Court of Appeal of Florida,

Second District.

July 26, 1985.

John F. Howard, Sebring, for appellant.

Clifford M. Ables, III, Sebring, for appellee.

DANAHY, Judge.

This is an appeal from a summary judgment of mortgage foreclosure. The only issue involves usury. We affirm the judgment and the finding of the trial judge that the mortgagee bank did not charge the mortgagor, Virginia W. Rebman, a usurious rate of interest.

The mortgage secured three loans evidenced by three promissory notes which were made at different times. The first note was for one year in the principal amount of $21,000 and carried an interest rate of 14% per annum. The second note, executed a year later, was for a term of one year, in the principal amount of $30,000 with interest at the rate of 15 1/2% per annum. The proceeds of that note paid off the balance of the first note and the remaining $5,662.47 was deposited in the bank in a non-interest-bearing account entitled "Virginia W. Rebman Escrow Account, Mike Willingham." ¹ According to Rebman's affidavit, she signed no signature card and was not allowed to make withdrawals from this account because "the funds were there for the purpose of paying payments on the mortgage." Bank records show that the only transactions involving this account were monthly withdrawals equal to Rebman's $430.19 monthly mortgage payment of principal and interest. These account transactions continued until the funds were depleted, approximately one year later. At about the same time, Rebman executed the third promissory note for $29,360 with interest at the rate of 17% per annum. A handwritten notation on the bottom of the second note indicates that the third note was a renewal of the second note. Each of the three notes contained the following clause:

In no event shall the interest charged hereunder be in excess of the legal maximum rate of interest (if any) allowed by applicable law as the law now exists or as the law may be changed in the future to allow higher rates of interest, and in the event that interest is charged at a rate in excess of the maximum rate allowed, any excess sums collected by the Bank shall be applied as a reduction to principal, it being the intent of the Maker hereof and the Bank that the Maker pay no more and the Bank collect no more than the sums allowed using a lawful rate of interest.

Two months later Rebman executed yet another promissory note, which was unsecured, for $2,762.40 with an interest rate of 15% per annum. That sum was deposited in the bank in a new non-interest-bearing account entitled "Virginia W. Rebman Escrow, give to Mike Willingham." Contrary to Rebman's affidavit which alleges that she signed no signature card and had no access to this account for use of the funds, the affidavit of the bank vice president contains a signature card signed by Rebman whereby she authorizes the bank to debit this account in order to make her payments on the third note secured by the mortgage. According to bank records, the funds were used to pay monthly mortgage payments of principal and interest until the funds were depleted. Additionally, bank records indicate another deposit was made to this account.

Rebman contends that since she did not have use of the funds in the escrow account, those funds should be treated as an "advance" or "forbearance" in computing the effective rate of interest under Florida's general usury law, chapter 687, Florida Statutes (1983). The bank argues that there is no evidence that the opening or maintenance of the account was a requirement of the bank. The trial court rejected Rebman's contention and in doing so stated:

By placing a portion of the principal amount in escrow to assure timely repayment, the bank placed itself in the position of escrow agent for the defendant vis-a-vis the escrowed money. Since the bank did not retain an ownership interest in the money and could use it only to make the monthly loan payments, the principal amount was not thereby reduced. A usurious interest rate was not charged.

We agree with the trial court and begin our discussion by noting the four requirements necessary to establish a usurious transaction. They are:

1. A loan, either express or implied.

2. An understanding between the lender and the borrower that the money must be repaid.

3. For such loan a greater rate of interest than is allowed by law shall be paid or agreed to be paid.

4. There must be a corrupt intent on the part of the lender to take more than the legal rate of interest for the use of the money loaned.

Dixon v. Sharp, 276 So.2d 817 (Fla.1973); Clark v. Grey, 101 Fla. 1058, 132 So. 832 (1931); Stewart v. Nangle, 103 So.2d 649 (Fla. 2d DCA 1958). The burden to establish these elements of usury is on the borrower. Dixon; Swanson v. Gulf West International Corp., 429 So.2d 817 (Fla. 2d DCA 1983).

While we agree that Rebman did prove the first and second requirements, she did not prove the third and fourth. Looking first at the third element, section 687.03(1) defines unlawful rates of interest as:

Except as provided herein, it shall be usury and unlawful for any person, or for any agent, officer, or other representative of any person, to reserve, charge, or take for any loan, advance of money, line of credit, forbearance to enforce the collection of any sum of money, or other obligation a rate of interest greater than the equivalent of 18 percent per annum simple interest, either directly or indirectly, by way of commission for advances, discounts, or exchange, or by any contract, contrivance, or device whatever whereby the debtor is required or obligated to pay a sum of money greater than the actual principal sum received, together with interest at the rate of the equivalent of 18 percent per annum simple interest.

This section thus requires interest to be calculated upon the "actual principal sum received." Florida courts have defined that term to mean the actual money distributed by the lender to the borrower at the time of closing. See Mindlin v. Davis, 74 So.2d 789 (Fla.1954); Wilson v. Conner, 106 Fla. 6, 142 So. 606 (1932). In this regard, Rebman asks this court to treat the escrowed monies as a forbearance in the form of an interest reserve or alternatively as a compensating balance account. She therefore argues that the effective rate of interest should be computed according to the "spreading" formula set forth in section 687.03(3), Florida Statutes (1983), and approved in St. Petersburg Bank & Trust Co. v. Hamm, 414 So.2d 1071 (Fla.1982).

A court should seek substance over form when it analyzes the amount of "actual principal sum received" for purposes of usury calculations. See Mindlin. Accordingly, any amounts advanced by a lender which directly or indirectly benefit the borrower--as well as any amounts directly received by a borrower--should be a part of the principal used for calculating interest under our usury law. That being so, although the escrowed monies never passed through Rebman's hands, they were used exclusively to benefit her in the payment of her monthly principal and interest obligation. Consequently, we find appellant's argument that the escrow accounts were in fact compensating balance or interest reserve accounts established for the bank's benefit is without merit. In its simplest form, a compensating balance is an amount a lender contractually requires a borrower to leave on deposit during the term of the loan; an interest reserve account is an express contractual designation of a portion of the loan to be used to pay interest that will accrue on that loan. These two practices are discussed in Practice Under Florida Usury Law, sections 4.33 and 4.34 at 114 through 116 (Florida Bar Continuing Legal Education Practice Manual, 1982). ²

In the case before us, the loan documents in evidence contain no bank requirement that either the operation or maintenance of the escrow account was a condition of the loan, and in her affidavit Rebman never stated that it was. Further, the bank records revealed that the deposited funds did not remain in either escrow account during the entire loan period but instead were used to pay monthly interest and principal on Rebman's obligation until these funds were depleted. This evidence is not refuted by Rebman's affidavit. Consequently, there are no facts to be found, nor inferences which remain, after the findings by the trial judge here that the escrow account was merely encouraged by the bank and that the escrow account was established as a convenience...