Sparkman and McLean Income Fund v. Wald, 2031--I
| Decision Date | 18 March 1974 |
| Docket Number | No. 2031--I,2031--I |
| Citation | 10 Wn.App. 765,520 P.2d 173 |
| Court | Washington Court of Appeals |
| Parties | SPARKMAN & McLEAN INCOME FUND, a business trust, Appellant, v. Felix A. WALD et al., Respondents. |
Montgomery, Purdue, Blankinship & Austin, Gale D. Barbee, Lynn O. Hurst, Seattle, for appellant.
Gerald F. Collier, Terry L. Kukuk, Lee R. McNair, Seattle, for respondents.
Sparkman & McLean Income Fund, assignee of two promissory notes which the Walds executed to Retirement Income Corporation, brought suit on the notes. The Walds counterclaimed alleging usury. Sparkman Fund appeals from judgment for the Walds on their counterclaim.
In July, 1965, the Walds approached Sparkman & McLean Company (which the trial court found acted as agent of Retirement Income Corporation, the lender) to obtain a loan for the purpose of purchasing 2,800 acres of land near Christmas Valley, Oregon. On July 23, 1965, the Walds executed a promissory note in the amount of $100,000 to Retirement Income Corporation for 2 years at 8 percent per year. The note was secured by mortgages on certain real property in which the Walds held an interest, located in King and Snohomish Counties, Washington, and the Christmas Valley, Oregon property.
When the Walds went to the offices of Sparkman & McLean Company to close the loan, they were advised that a portion of the proceeds was to be deducted for the payment of loan fees, commissions, and discounts: $4,000 to Sparkman & McLean Company and $4,000 to Retirement Income Corporation. In order to obtain sufficient net proceeds to accomplish the purpose of the loan, the Walds executed an additional promissory note in the amount of $8,000 to Retirement Income Corporation for 2 years at 6 percent per year, secured by second mortgages on all of the properties which had been mortgaged as security for the $100,000 note. Net proceeds of $100,000 were then disbursed to the Walds.
Sometime in 1968, Retirement Income Corporation assigned the loans and the mortgages securing them to Sparkman Fund. The trial court sitting without a jury found as a fact that Sparkman & McLean Company was the agent of Sparkman Fund at the time of the assignment. In December, 1970, Sparkman Fund, along with Sparkman & McLean Company and Retirement Income Corporation went into receivership. The Walds made payments on principal and interest until April 15, 1971, at which time they made their last payment. A balance remained due on that date.
Sparkman Fund, through its receiver, brought this action to recover the outstanding balance on the loans. The Walds alleged that the loans were usurious under RCW 19.52.020 and counterclaimed under RCW 19.52.030 for damages. The trial court held for the Walds and entered judgment on their counterclaim in the amount of $100,645.47 plus $18,000 attorney fees. The trial court also ordered that Sparkman Fund's mortgage interest on the Wald's real property in King and Snohomish Counties, Washington and Christmas Valley, Oregon be extinguished. This appeal followed.
RCW 19.52.080 provides:
Corporations, Massachusetts trusts, associations, limited partnerships, and persons engaged in the business of lending money or the development or improvement of real estate in the state of Washington may not plead the defense of usury nor maintain any action thereon: Provided, however, That this section shall apply only to a transaction which involves an amount in excess of one hundred thousand dollars.
The trial court found that the Walds were in the business of developing or improving real estate within the meaning of the above statute, but that the transaction at issue was not in excess of $100,000 so that the statute did not bar the usury defense and counterclaim. To reach this decision, the trial court found that the two loans constituted a single transaction and that the $8,000 loan represented interest rather than compensation for services performed for the Walds; therefore the transaction totaled $100,000 instead of $108,000.
Sparkman Fund argues that the trial court erred in failing to include the $8,000 loan in the total amount of the transaction. We disagree; only the money actually received by the borrower is relevant in allegedly usurious transactions. A lender may not evade the usury laws by executing a note which is nonusurious on its face while actually disbursing less than the principal amount of the note. Financial Commerce, Inc. v. McLean, 73 Wash.2d 52, 55, 435 P.2d 932 (1968); Clausing v. Virginia Lee Homes, Inc., 62 Wash.2d 771, 775, 384 P.2d 644 (1963). Whether the $8,000 note represented interest or legitimate costs of the loan was a question of fact which the trial court resolved upon substantial evidence.
The legislature exempted certain high risk, high return transactions from the strictures of the usury laws in 1970. This followed its 1967 creation of affirmative relief as a penalty for usury in RCW 19.52.030. The $100,000 transaction exemption must be strictly construed against the lender who is gaining the benefit of a narrow exemption from the usury laws. To expand 'transaction' to include sums which in effect are interest is broadening the ordinary meaning of the term inconsistent with such a narrow exemption.
A transaction involving an amount in excess of $100,000 could nevertheless involve two notes, each less than $100,000, but having a sufficient degree of relation. The amount of a 'transaction' therefore is not to be defined by the principal amount of a note.
Sparkman Fund argues secondly that the trial court incorrectly characterized as interest the $4,000 fee which the Walds paid to Sparkman & McLean Company. Services performed for a borrower reasonably worth the amount the borrower agreed to and did pay are not to be characterized as interest. Testera v. Richardson, 77 Wash. 377, 379, 137 P. 998 (1914). However, the trial court here found that the $4,000 fee was not compensation for any services performed other than for making the loan and for the use of the money. Though evidence on the issue was disputed, the record includes testimony of C. O. Causey, an expert in the field of mortgage lending, that Sparkman & McLean Company performed no services other than those for the benefit of the lender which are normally incident to such a transaction. In addition, there was no evidence that the Walds authorized Sparkman & McLean Company to engage in any of the activities for which the $4,000 fee was charged. The trial court's characterization as interest of the $4,000 fee is therefore supported by substantial evidence; we will not disturb it on appeal. Thorndike v. Hesperian Orchards, Inc., 54 Wash.2d 570, 343 P.2d 183 (1959).
Third, Sparkman Fund argues that it was a holder in due course and that the Walds therefore were barred under RCW 62A.3--305 1 from asserting the usury defense. The trial court found that Sparkman & McLean Company was the agent of Retirement Income Corporation at the time of the original loan transaction and was the agent of Sparkman Fund at the time of Sparkman Fund's purchase of the notes. The trial court concluded that Sparkman Fund took the notes with actual notice of their usurious nature and therefore could not be a holder in due course.
RCW 62A.3--302 provides:
(1) A holder in due course is a holder who takes the instrument
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(c) without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person.
RCW 62A.1--201(25) provides that a 'person,' which term under RCW 62A.1--201(28) and (30) includes corporations,
has 'notice' of a fact when (a) he has actual knowledge of it; or
(b) he has received a notice or notification of it; or
(c) from all the facts and circumstances known to him at the time in question he has reason to know that it exists. A person 'knows' or has 'knowledge' of a fact when he has actual knowledge of it. 'Discover' or 'learn' or a word or phrase of similar import refers to knowledge rather than to reason to know. The time and circumstances under which a notice or notification may cease to be effective are not determined by this Title.
In general, the knowledge of an agent will be imputed to his principal. E.g., L. J. Dowell, Inc. v. United Pac. Casualty Ins. Co., 191 Wash. 666, 681, 72 P.2d 296 (1937). However, where the agent has forgotten whatever information he may once have known, this imputation of knowledge to the principal is not applicable. Meyers v. Gerhart, 54 Wash. 657, 103 P. 1114 (1909). There is substantial evidence in the record to support the trial court's finding that Sparkman Fund took the notes with actual notice of the usury by Sparkman & McLean Company, its agent. Robert Price was employed by Sparkman & McLean Company when the notes were executed and understood the details of the transaction at that time. In about August, 1967, Price's memory was refreshed when Wald...
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