Williams v. First Bank & Trust Co.

Decision Date16 June 1980
Docket NumberNos. 59859,s. 59859
Citation269 S.E.2d 923,154 Ga.App. 879
CourtGeorgia Court of Appeals
PartiesWILLIAMS v. FIRST BANK & TRUST COMPANY et al. HENDERSON v. FIRST BANK & TRUST COMPANY et al. BROWN v. FIRST BANK & TRUST COMPANY et al. FIRST BANK & TRUST COMPANY v. WILLIAMS et al. to 59862.

Irma B. Glover, Marietta, for appellant (No. 59859).

John H. Moore, Marietta, Henry Angel, Atlanta, William D. Perkins, Joseph C. Parker, Marietta, for appellees.

Henry Angel, William E. Turnipseed, Atlanta, for appellant (No. 59860).

John H. Moore, Irma B. Glover, William D. Perkins, Joseph C. Parker, Marietta, for appellees.

William D. Perkins, Marietta, for appellant (No. 59861).

John H. Moore, Irma B. Glover, Marietta, Henry Angel, Atlanta, Joseph C. Parker, Marietta, for appellees.

John H. Moore, Joseph C. Parker, Marietta, for appellant (No. 59862).

Irma B. Glover, Marietta, Henry Angel, Atlanta, William D. Perkins, Marietta, for appellees.

BANKE, Judge.

The First Bank & Trust Company, a state-chartered banking corporation, sued defendants Williams, Henderson, and Brown to collect on a "consumer collateral installment note." Williams and Brown had signed the note as co-makers, and Henderson had signed as a surety. The bank declared a default and accelerated the unpaid balance after the defendants failed to meet several payments.

The case was tried before a jury, and a verdict was returned for the full amount of the accelerated balance as calculated by the bank, to wit: $44,477.71. The jury also awarded $6,648.50 interest on that amount, calculated at 8 percent annum from the date of acceleration to the date of trial, and $7,668.93, or 15 percent of the sum of those two figures, as statutory attorney fees.

The defendants contend on appeal that the amount sought and obtained by the bank was usurious because the bank used what is known as the Rule of 78's to calculate the rebate of unearned interest on acceleration, rather than the pro rata method. The trial court originally rejected this contention and refused to submit it to the jury. However, when the issue was again raised in post trial motions for judgment notwithstanding the verdict and for new trial, the court reconsidered and ruled that the use of the Rule of 78's to calculate unearned interest was unlawful. The $6,648.50 interest award was thereupon stricken from the judgment, and the award of attorney fees was correspondingly reduced from $7,668.93 to $6,671.66, although, as noted previously, the $6,648.50 interest award contained in the verdict represented not the interest contained in the accelerated balance but rather interest on the accelerated balance from the date of acceleration to the date of trial. The defense motions for new trial and for judgment notwithstanding the verdict were otherwise denied. From this order the defendants each appealed, and the bank cross appealed.

The note was executed on March 31, 1973. The stated principal, or "amount financed," was $60,830. It was repayable over an 8-year period in 96 monthly installments of $887. "Add-on" interest was included in the installments at the rate of 5 percent per annum, resulting in a "finance charge" of $24,322 and a "total of payments" of $85,152. The note provided that in the event of prepayment, interest would be refunded in accordance with the "sum of the digits method," otherwise known as the Rule of 78's. However, there was no provision as to how interest would be refunded in the event of default and acceleration.

The bank declared a default and accelerated the balance after 46 of the 96 payments had fallen due. A total of 40 payments had been made, leaving six payments in arrears and 50 payments to be accelerated. The bank determined that the total of the accelerated payments and the past-due payments was $51,446, which represents 58 installments of $887 and is therefore inconsistent with the uncontroverted testimony that 40 payments had been made. In any event, from this $51,446 the bank deducted unearned interest in the amount of $7,163.29, computed in accordance with the Rule of 78's and added $195 in accrued late charges to obtain the total of $44,477.71 alleged to be due on acceleration.

At the time the load was made, the maximum interest allowable on installment notes was 6 percent per annum "add-on," that is, 6 percent of the entire amount financed for the entire term of the loan. See Ga.L. 1937, p. 463 (former Code § 57-116). Held:

1. We reject the bank's contention that because the defendants failed to enumerate as error the denial of their motions for new trial no question is presented for review on appeal. Such has not been the rule in this court since 1972. See Slay v. Brady, 126 Ga.App. 249 (1), 190 S.E.2d 445 (1972); Checker Cab Co. v. Fedor, 134 Ga.App. 28 (1), 213 S.E.2d 485 (1975). Accord Gold Kist, Inc. v. Stokes, 235 Ga. 643 (1), 221 S.E.2d 49 (1975).

2. We also reject the bank's contention that usury cannot be asserted as a defense but must be asserted either as a counterclaim or in a separate suit. See Thomas v. Estes, 139 Ga.App. 738, 229 S.E.2d 538 (1976), citing Lott v. Peterson, 23 Ga.App. 458, 98 S.E. 361 (1919). The court's language at page 872 of Thomas v. Universal Guardian Corp., 144 Ga.App. 869, 243 S.E.2d 101 (1978) does not hold to the contrary but is merely an observation that the law allows the debtor to raise the issue of usury in a counterclaim.

3. The defendants contend that in addition to its use of the Rule of 78's to calculate unearned interest on acceleration, the bank also committed usury by imposing a $600 "service charge" for which it rendered no service. "(T)his court has uniformly and consistently held that a lender's charge for service, when no service was in fact rendered or to be rendered the borrower, is a charge for the use of the money advanced and is therefore interest." First Fed. etc. Assn. v. Norwood Realty Co., 212 Ga. 524 (2), 531, 93 S.E.2d 763, 768 (1956). We agree with the defendants that there is no evidence the bank performed any service in return for the $600. One of the bank officers who testified on the issue stated that he did not know what the fee was for. The other stated, "I'm having to assume what this service charge went for, but what I feel it probably went for was inspections (of collateral). . . ." These statements prove nothing. Thus, we must treat the $600 as a reduction of the amount of credit extended. However, we do not agree with the defendants that this automatically renders the loan usurious. Interest was added on at the rate of 5 percent per annum; whereas, as indicated previously, the maximum such interest charge allowable at the time was 6 percent. The exaction of the $600 service charge did not raise the effective add-on interest rate above 6 percent, and thus no usury resulted from it. Accord, Knight v. First Fed. etc. Assn., 151 Ga.App. 447 (1), 260 S.E.2d 511 (1979).

4. We now turn to the defendants' contention that the use of the Rule of 78's to refund unearned interest rendered the bank's claim usurious.

"To constitute usury it is essential that there be, at the time the contract is executed, an intent on the part of the lender to take or charge for the use of money a higher rate of interest than that allowed by law. Bellerby v. Goodwyn, 112 Ga. 306, 37 S.E. 376. If the intent be to take only legal interest, a slight and trifling excess, due to mistake or inadvertence, will not taint the transaction with usury. Rushing v. Willingham, 105 Ga. 166, 31 S.E. 154." Loganville Banking Co. v. Forrester, 143 Ga. 302, 305, 84 S.E. 961, 962 (1915). See also Cook v. Young, 225 Ga. 26, 29, 165 S.E.2d 727 (1969). Where a note calls for a usurious rate of interest on its face, a usurious intent will be implied, although the lender may negate it. See Holt v. Rickett, 143 Ga.App. 337, 340, 238 S.E.2d 706 (1977). Similarly, "where the facts show without dispute a device to extract more than the legal rate of interest for the use of money such question need not be submitted to the jury." Cook v. Young, supra, 225 Ga. at 29, 165 S.E.2d at 729. Accord Harrison v. Arrendale, 113 Ga.App. 118, 123, 147 S.E.2d 356 (1966).

In Credithrift of America v. Morris, 147 Ga.App. 827, 250 S.E.2d 565 (1978), this court held that an installment note which provides for use of the Rule of 78's to rebate unearned interest on acceleration is usurious if application of the provision would permit collection of interest beyond the statutory limit. Accord, Cook v. First Nat. Bank of Atlanta, 130 Ga.App. 587 (2), 203 S.E.2d 870 (1974); Goodwin v. Trust Co. of Columbus, 144 Ga.App. 787, 790 (3), 242 S.E.2d 302 (1978). As indicated previously, the note under consideration in this case did not specify how interest was to be rebated in the event of default and acceleration. However, the evidence shows without dispute that the bank used the Rule of 78's to compute the amount of its claim, and the evidence also shows without dispute that this was done not by mistake or inadvertence but as the result of the bank's official policy. Indeed, the bank continues to urge on appeal that it is entitled to rebate unearned interest in accordance with the Rule of 78's, despite the note's silence on the issue. 1 Therefore, we must conclude that the bank acted with usurious intent, if in fact the accelerated balance sued for includes more interest than the law allowed.

That the claim does in fact include an excessive amount of interest may be seen as follows: The bank represented to the jury that the total of the remaining payments and the past-due payments on the date of acceleration was $51,446. Applying the Rule of 78's, it determined that $7,163 of this amount represented unearned interest and gave the appellants a credit for it. However, interest actually comprised about 28.6 percent of each payment (calculated by dividing the total stated interest charge of $24,322 by the total of payments of...

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