Thrift Funds of Baton Rouge, Inc. v. Jones

• Decision Date: 10 November 1971
• Docket Number: No. 8588,8588
• Citation: 259 So.2d 587
• Parties: THRIFT FUNDS OF BATON ROUGE, INC. v. Charlie JONES.
• Court: Court of Appeal of Louisiana — District of US

Page 587

259 So.2d 587

THRIFT FUNDS OF BATON ROUGE, INC. v. Charlie JONES.

No. 8588.

Court of Appeal of Louisiana, First Circuit.

Nov. 10, 1971.

Rehearing Denied Dec. 20, 1971.

Writ Granted Feb. 3, 1972.

On Application for Rehearing

Ashton L. Stewart, of Laycock & Stewart, Baton Rouge, for appellant.

George R. Covert, Baton Rouge, for appellee.

Robert Hawthorne, Jr., of Sanders, Miller, Downing & Kean, Baton Rouge, amici curiae.

Before LANDRY, BLANCHE and TUCKER, JJ.

LANDRY, Judge.

Defendant appeals the judgment of the trial court awarding plaintiff recovery upon a promissory note and rejecting defendant's reconventional demand for judgment declaring the entire note void and uncollectible for usurious violation of our 'Small Loan Act', and for damages and attorney's fees for alleged violation of the Federal 'Truth in Lending Act.' Plaintiff has answered the appeal seeking recovery of the amount disallowed by the trial court as usurious, together with attorney's fees thereon. We affirm in part and reverse in part.

Except as hereinafter noted, the facts are undisputed.

On May 9, 1967, appellant executed a note to plaintiff aggregating $1,152.00, with interest at the rate of 8% After maturity. Of said sum, $700.00 represented principal consisting of $650.00 cash paid one creditor of appellant and $50.00 cash paid another creditor. The balance consisted of $452.00 discounted interest. The note was payable in 48 installments of $24.00 each. Between June 12, 1967, and October 18, 1969, appellant made 28 payments totaling $689.20. Of this sum, $59.20 was charged appellant as 23 delinquent payment charges, and $375.14 was credited to discounted interest due.

On or about October 22, 1969, appellant contracted a second loan with plaintiff in the sum of $1,277.76, payable in 48 installments of $26.62 each. The instrument provided for 8% Interest after maturity and contained the usual acceleration clause granting the holder the option to demand payment in full upon default of payment of any installment when due. This latter note, the one sued on herein, represented cancellation of the balance of $522.00 due on the prior note,.$7.00 advanced by plaintiff for miscellaneous fees, and $100.00 cash advanced to appellant, a total of $627.00, there being a discrepancy of $2.00 in this calculation as noted by the trial court. To the $627.00 (sic) was added $650.76 as discounted interest making the note a total of $1,277.76. Prior to default, appellant made five payments of $26.62, from which late charges of $2.66 were deducted from four of said payments, making a total of $10.64 charged defendant as 'late charges.' Plaintiff's suit seeks judgment for the balance of $1,144.66, plus 8% Interest and 25% Attorney's fees to be not less than $30.00 in any event, all as provided for in the note.

Defendant answered contending that the entire loan was void and uncollectible in that it violates the provisions of LSA-R.S. 6:583, a section of our Small Loan Act which is found at LSA-R.S. 6:571 et seq. Alternatively, appellant charges the loan was in violation of 15 U.S.C. 1601 et seq. (May 29, 1968), the Federal and commonly called 'Truth in Lending Statute', and consequently, appellant is entitled to damages and attorney's fees as therein provided.

The trial court dismissed appellant's reconventional demand upon finding that the provisions of our own Small Loan Act and the Truth in Lending Statute are not applicable herein. In effect, the trial court found that the interest provided for by the note in question exceeds the 8% Maximum legal limit prescribed in LSA-C.C. 1935 in that the four 'late payments' thereon constituted interest in addition to the interest provided therein, thereby rendering the interest rate usurious. Relying upon LSA-R.S. 9:3501, which provides that the penalty for charging usurious interest is forfeiture of all interest called for in the note, the trial court held that all interest, both capitalized interest and interest due after maturity, was forfeited and awarded plaintiff judgment in the sum of $627.00, the principal of the note sued upon, subject to a credit of.$133.10 paid thereon by appellant. Additionally, the trial court awarded plaintiff the contracted attorney's fee of 25%, or $123.47, making a total judgment in favor of plaintiff in the sum of $617.37. Defendant's appeal seeks reversal of the awards made in plaintiff's favor and judgment in favor of defendant for the amounts claimed in defendant's reconventional demand. Plaintiff has answered the appeal praying for judgment in the amount of the note sued upon.

According to appellant, the principal on the note in question is only $187.66, the remainder of $1,090.10 being discounted interest. Appellant so concludes on the basis that a balance of only $87.66 was due on the first note when subject note was executed. Appellant maintains that since the former note was for $1,152.00, of which $700.00 was principal and $422.00 discounted interest, and since the late charges paid in the sum of $59.20 also represent interest, usury resulted so that the whole interest is forfeited. In so contending, appellant relies upon LSA-R.S. 9:3501; Gordon Finance Company v. Chambliss, La.App., 236 So.2d 533, and Busada v. Goeders, La.App., 236 So.2d 669. Appellant reaches the foregoing conclusion by deducting the forfeited usurious interest of $375.14 from the $1,152.00 face value of the former note and crediting the balance due thereon with admitted payments of $630.00 and conceded late charge payments aggregating $59.20, leaving the asserted balance of $87.66. Appellant then argues that since he received only $100.00 cash when the current note was executed, the total principal of the present loan is only $187.66, leaving a remainder of $1,090.00 as discounted interest. On this basis defendant maintains that ther current loan is less than $300.00, and consequently subject to and in violation of the maximum allowable interest of 3 1/2% Per month (42% Annually) provided for by our Small Loan Act. Therefore, according to appellant, the entire transaction is void pursuant to LSA-R.S. 6:583. In so arguing, appellant relies upon Liuzza Credit Service, Inc. v. Taliancich, La.App., 217 So.2d 509, for the proposition that the amount of money actually received by a borrower when a loan is made determines whether the loan falls within the ambit of the Small Loan Act whose provisions apply to loans of $300.00, or less.

Liuzza, above, is inapplicable factually. In Liuzza, above, the debtor executed a note for $435.36, of which sum he received only $292.29. As a condition for obtaining the note, the debtor was obligated to pay $8.71 for a life insurance policy taken out to further secure the loan. The lender claimed the amount of the policy premium should be added to the amount received in determining the amount of the loan. The court there properly held that the amount received was the determining factor in deciding whether the transaction was subject to the Small Loan Act's provisions.

The present matter is entirely different. It is conceded a balance of $522.00 was due on the former note when subject note was executed. It is settled law that absent fraud or coercion, and neither has been shown in this instance, the voluntary refinancing of a discounted loan constitutes a willing prepayment pursuant to which the debtor is not entitled to credit for the unearned capitalized interest due and remaining unpaid. Merit Finance Company v. Voorhies, La.App., 241 So.2d 90.

Although defendant correctly argues the interest on the former note was usurious, it is clear that he waived his right to relief when he voluntarily refinanced the loan and signed a new note including the usurious interest forming part of the prior transaction. Where interest and principal are capitalized in a new note, recovery may be had in full thereon notwithstanding the included interest was usurious. Vosbein v. Leopold, 230 La. 21, 87 So.2d 715.

Since appellant paid a total of $689.20 on his original note, of which sum $700.00 represented principal, it follows that a portion of the principal due on the first note remained unpaid when the second note was negotiated. When appellant refinanced the outstanding principal and interest due on the first loan, which amounted to $522.00, said sum in effect became principal on the second note. Said amount, added to the $100.00 actually received by appellant, in legal effect constituted a loan in excess of $300.00, consequently the transaction in question does not fall within the purview of our Small Loan Act. Appellant's claim that the note in question is completely void pursuant to our Small Loan Act is groundless.

The Truth in Lending Act, 15 U.S.C.A. § 1601 et seq., in essence requires that all charges, including interest, fees, carrying charges or other costs added as consideration for a loan or deferred payment of account, be itemized and that the total thereof be expressed in an annual percentage rate. See 15 U.S.C.A. § 1639(a). Appellant contends that the Loan Disclosure Statement issued by plaintiff in this instance is false in that the amount financed is stated therein to be $627.00 instead of $187.66 which defendant contends, for reasons given above, was the amount actually financed. Appellant further contends the Loan Disclosure Statement is also false in that it lists a finance charge of $650.76, instead of $1,090.10, which latter amount appellant maintains, for reasons shown above, is the actual finance charge. On this premise, appellant urges that the Loan Disclosure Statement reflects an interest rate of 41% Whereas the true rate is 284%.

Appellant's argument is without merit because our law permits capitalization of a balance, including usurious interest, into a new obligation upon which full recovery may be had. Vosbein v. Leopold, above. Under Louisiana law, plaintiff's figures are correct. Since the true circumstances of the current...