Sunburst Bank v. Keith, 91-CA-00619

• Decision Date: 12 January 1995
• Docket Number: No. 91-CA-00619,91-CA-00619
• Parties: SUNBURST BANK, v. Robert M. KEITH, Jr.
• Court: Mississippi Supreme Court

Page 1147

648 So.2d 1147

SUNBURST BANK, v. Robert M. KEITH, Jr.

No. 91-CA-00619.

Supreme Court of Mississippi.

Jan. 12, 1995.

Terry L. Caves, W. Dal Williamson, Caves Williamson & Caves, Laurel, for appellant.

James D. Hester, Laurel, for appellee.

Before DAN M. LEE, P.J., and PITTMAN, J.

INTRODUCTION

McRAE, Justice, for the Court:

Robert Keith, Jr. commenced suit against Sunburst Bank (hereinafter the "Bank") in the Second Judicial District of the Jones County Chancery Court to recover the statutory forfeitures for usury collected by the Bank on fifty-eight pre-computed installment notes, plus prejudgment interest. The lower court held the Bank's actions to be usurious and awarded Keith two hundred eighty-nine thousand two hundred sixty-one dollars and ninety-seven cents ($289,261.97) which included prejudgment interest. The Bank, thereafter, appealed, assigning the following as error:

I. The chancery court erred in finding that each oral request by Keith to extend a written promissory note constituted a separate and distinct oral contract between the parties.

II. The chancery court erred in finding that each postponement of monthly payments was a separate and distinct oral credit transaction governed by the eight percent limitation in Miss.Code Ann. Sec. 75-17-1(1) (Supp.1989).

III. The trial court erred in finding that the Bank charged Keith a usurious rate of interest since any over charge of interest was a result of a bona fide error or mistake of fact.

IV. The trial court erred in not finding that the erroneous interest pre-calculated on Notes 57 and 58 was an accident, mistake and bona fide error not constituting usury.

V. The trial court erred in awarding prejudgment interest.

On cross-appeal, Keith asks:

I. Whether the lower court erred in failing to decree a forfeiture of "all interest" in each of the fifty-eight pre-computed installment notes which became tainted by usury.

II. Whether the lower court erred in failing to find that each of the fifty-eight notes became tainted by usury as a result of the Bank's admitted failure to conform each of the notes to the lower interest rate which We find that the appellant's assignments of error have no merit and, therefore, affirm on direct appeal. We, however, do find merit in appellee's cross-appeal and hold that, as a matter of law, appellee is entitled to a forfeiture of all interest. For purposes of simplicity and economy, we have combined some of the assignments of error and redefined the issues accordingly.

prevailed on the date of each forbearance contract.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

Between November, 1983 through May, 1986, Robert M. Keith, Jr. executed fifty-eight (58) separate written promissory notes in favor of the Bank of Laurel, a predecessor of the Sunburst Bank. All of the loans were for business purposes, and the face amount of each note included interest which had been pre-calculated based on the term of the note. During the terms of these monthly installment notes, Keith would orally request and the Bank would orally approve and grant a thirty-day forbearance. Each forbearance contract extended or deferred the monthly payment for that period and the maturity date by one additional month. Each of the fifty-eight notes was deferred at least once, and altogether, there was a total of two hundred three (203) contracts of forbearance. Upon such an extension, Keith paid a fee for said postponement of payment. The extension added one month to the term of the note but did not add any additional payments to the note other than the forbearance fee.

The Bank calculated the forbearance fee by dividing the number of months of the term of the original note into the pre-calculated interest specified in the note. For example, if the pre-computed interest shown in the note was $1,000.00 and the term of the note was forty-eight months, the fee charged for the forbearance was $1,000.00 divided by forty-eight, or $20.83, regardless of the balance then owed on the note or the number of months remaining on the original term.

Keith commenced suit in the Chancery Court of the Second Judicial District of Jones County against the Bank charging that it exacted an illegal, exorbitant, usurious rate of interest for each of the two hundred three (203) oral contracts of forbearance. The Bank denied that it charged any usurious interest on the fifty-eight notes but argued, in the alternative, that if any usurious interest was received, it was the result of a mistake or misapprehension. Keith argued that each oral request for a forbearance, when accepted by the Bank, resulted in a contract within the meaning of Miss.Code Ann. Sec. 75-17-1 (Supp.1989), and as such, the maximum legal rate of interest was eight percent (8%) per annum on each monthly installment deferred. Keith contended that every time he was charged a forbearance fee, the fee should have been calculated using the interest rate shown in the note based upon the balance at the time of the extension. The court took the case under advisement and entered its opinion on May 6, 1991. The chancellor found that each forbearance fee paid by Keith constituted a separate oral contract, subject to the eight percent (8%) per annum provision of Miss.Code Ann. Sec. 75-17-1(1) (Supp.1989). The court found that all notes, with the exception of Notes 25, 57 and 58, were not usurious on their face. The Bank admitted, at trial and its brief, that the pre-calculated interest rates on Notes 25, 57 and 58 were over the annual percentage rate allowed by law. Based on the testimony of the Bank's president, Fred Abney, and the stipulated data presented at trial, the chancellor rendered judgment against the Bank for $289,261.97.

STANDARD OF REVIEW

This Court may not disturb a chancellor's findings "unless the Chancellor was manifestly wrong, clearly erroneous, or applied an erroneous legal standard." Tinnin v. First United Bank of Mississippi, 570 So.2d 1193, 1194 (Miss.1990). See Bell v. Parker, 563 So.2d 594, 596-97 (Miss.1990); Mullins v. Ratcliff, 515 So.2d 1183, 1189 (Miss.1987). Regarding issues of fact as to which a chancellor did not make specific findings, this Court is required to assume that the chancellor resolved all such factual issues in the appellee's favor. Bryant v. Cameron, 473 So.2d 174, 179 (Miss.1985). This Court does not have the authority to grant an appellant

relief "if there [is] substantial credible evidence in the record undergirding the determinative findings of fact made in the chancery court." Johnson v. Black, 469 So.2d 88, 90 (Miss.1985).

DISCUSSION OF LAW

I. Did the chancery court err in finding that each oral request to extend a written promissory note was governed by the eight percent limitation in Miss.Code Ann. Sec. 75-17-1(1) (Supp.1989)?

In his conclusions of law, the chancellor first addressed the question of whether a forbearance granted as a result of an oral agreement was to be considered a separate contract or as part of the original written agreement. The chancellor specifically found:

The Court is of the opinion that extensions and forbearances, not in writing, are to be considered separate oral contracts subject to the eight per cent per annum provision of the usury law. The transaction as it developed between these parties was an oral agreement to grant forbearance of monthly payments due on a written contract. If not treated as a separate contract, then would the entire transaction, (to-wit: a written installment contract with specified monthly installments coupled with oral agreements of forbearance) be treated as a oral contract or a written contract under the usury laws? The logical way, providing the most guidance to one dealing with usury laws, would be to consider the oral agreement of forbearance as subject to the provision relating to [sic] oral contract.

The Bank argues that each forbearance agreement was merely an amendment to the original written promissory notes so that the yield should have been computed at the time of discharge over the life of the written promissory notes. The Bank contends that the eight percent (8%) interest rate limitation set forth in Miss.Code Ann. Sec. 75-17-1(1) (Supp.1989) does not apply. Mississippi Code Ann. Sec. 75-17-1(1) (Supp.1989) provides:

The legal rate of interest on all notes, accounts and contracts shall be eight percent (8%) per annum, calculated according to the actuarial method, but contracts may be made, in writing, for payment of a finance charge as otherwise provided by this section or as otherwise authorized by law.

The Bank argues that a written contract can be orally modified even when the original contract provides that any modification must be in writing. Eastline Corp. v. Marion Apartments, Ltd., 524 So.2d 582, 584 (Miss.1988). See City of Mound Bayou v. Roy Collins Constr. Co., 499 So.2d 1354, 1359 (Miss.1986); New York Life Ins. Co. v. O'Dom, 100 Miss. 219, 56 So. 379, 382 (1911). In Eastline, this Court held that the oral modification to the written agreement was valid since the parties pattern of conduct waived the stipulation. Eastline, 524 So.2d at 584.

The Bank and Keith both concede that each of the fifty-eight pre-computed installment notes was orally modified and that each forbearance contract deferred the maturity date of each note by one month. The Bank contends that the forbearance contracts were only intended to alter or amend the final payment of the written contracts. The Bank argues that in order for Miss.Code Ann. Sec. 75-17-1 (Supp.1989) to apply, Keith would have had to receive loan proceeds as a result of his oral request for extension. The Bank argues that there exists no testimony in the record indicating the Bank loaned money or extended credit to Keith as a result of the oral request by Keith. However, the appropriate inquiry is not what the debtor received but, rather, what the lender got in exchange for granting a forbearance. Keith cites Carper v. Kanawha...