Case Title: Jersey Palm-Gross, Inc. v. Paper

Citation: 658 So. 2d 531

Docket Number: 84158

State: florida

Court: Florida Supreme Court

Date: 1995-07-20T00:00:00Z

Document:
658 So. 2d 531 (1995)
JERSEY PALM-GROSS, INC., Petitioner,
v.
Henry PAPER, et al., Respondents.
No. 84158.

Supreme Court of Florida.
July 20, 1995.
*532 Daniel S. Pearson and Lucinda A. Hofmann of Holland & Knight, Miami, for petitioner.
Robert W. Weinberger of Cohen, Chernay, Norris, Morici, Weinberger & Harris, North Palm Beach, for respondents.
ANSTEAD, Justice.
We have for review Jersey Palm-Gross, Inc. v. Paper, 639 So. 2d 664 (Fla. 4th DCA 1994), in which the Fourth District certified conflict with Forest Creek Development Co. v. Liberty Savings & Loan Ass'n, 531 So. 2d 356 (Fla. 5th DCA 1988), review denied, 541 So. 2d 1172 (Fla. 1989). We have jurisdiction. Art. V, § 3(b)(3), Fla. Const. We approve the decision below, and disapprove Forest Creek insofar as it holds that a usury savings clause precludes, as a matter of law, a finding of usury.
We quote the following relevant facts from the Fourth District opinion below:
639 So. 2d  at 666. After a non-jury trial, the trial court concluded that Gross had "knowingly and willingly" charged and accepted a usurious consideration in exchange for making the $200,000 loan transaction. Consequently, the trial court found the promissory note and guarantee unenforceable as usurious and ordered that Gross forfeit the entire principal amount of the loan pursuant to section 687.071(7), Florida Statutes (1991).
On appeal, Gross argued that the trial court had failed to properly consider a usury savings clause contained in the promissory note in determining the issue of intent. The Fourth District upheld the trial court's finding of usury and, in its analysis, posed the following question:
639 So. 2d  at 668. In answering this question in the negative, the Fourth District held that "[a] usury savings clause is one factor to which the finder of fact should look in determining whether all of the circumstances surrounding the transaction support a finding of intent on the part of the lender to take more than the legal rate of interest for the use of the money loaned." Id. at 671.
The Florida Legislature enacted Chapter 687, Florida Statutes (1993), to protect borrowers from paying unfair and excessive interest to overreaching creditors. This chapter sets limits on interest rates and prescribes penalties for the violation of those limits. Section 687.071(2), Florida Statutes (1993), defines criminal usury as the willful and knowing charge or receipt of interest in excess of 25% per annum. Id. The civil penalty for violating this statute is forfeiture of the entire principal amount. § 687.071(7), Fla. Stat. (1993).
In Chandler v. Kendrick, we defined "willful" in the following manner:
108 Fla. 450, 452, 146 So. 551, 552 (1933). We also explained the purpose and meaning of the usury statute:
Id. Subsequently, in Dixon v. Sharp, 276 So. 2d 817, 820 (Fla. 1973), we noted that: "[U]sury is largely a matter of intent, and is not fully determined by the fact that the lender actually receives more than law permits, but is determined by existence of a corrupt purpose in the lender's mind to get more than legal interest for the money lent." Id. Moreover, "the question of intent is to be gathered from the circumstances surrounding the entire transaction." Id. at 821 (quoting River Hills, Inc. v. Edwards, 190 So. 2d 415, 423-24 (Fla. 2d DCA 1966)). Consequently, the ultimate arbiter on the issue of intent is the trial court because "the question of intent is one of fact." Rebman v. Flagship First Nat'l Bank, 472 So. 2d 1360, 1364 (Fla. 2d DCA 1985).
A usury savings clause is a provision in a loan agreement that attempts to negate any other provisions in the agreement that might result in the extraction of an illegal rate of interest. The effect of a usury savings clause on a claim of usury has been addressed by several of our appellate courts. In Forest Creek, the Fifth District affirmed, without discussion, the dismissal of a count based on usury where the mortgage note contained a usury savings clause which provided:
531 So. 2d  at 357.
The Second District has approved of the trial court's consideration of a similar savings clause in determining whether a lender intended to charge excessive interest. In Szenay v. Schaub, 496 So. 2d 883, 884 (Fla. 2d DCA 1986), the lenders contended that a genuine error had been made in calculating the amount of interest in the promissory note. Pursuant to the provisions of a usury savings clause, the trial court denied a usury claim and made an adjustment to the parties' agreement to bring the interest charged within legal limits. The district court held that although the agreement may have technically *535 provided for a usurious rate of interest, the trial court acted within its fact-finding authority in relying upon the savings clause to determine that the lender had no intent to charge such an amount. 496 So. 2d  at 884. Similarly, in First American Bank & Trust v. International Medical Centers, Inc., 565 So. 2d 1369, 1374 (Fla. 1st DCA 1990), review denied, 576 So. 2d 286 (Fla. 1991), the First District, while not directly addressing the effect of a savings clause, made the following observation:
Id. (citation omitted).
Because of the lack of extensive discussion, we cannot be certain of the circumstances present in Forest Creek. However, contrary to any implied holding in that case, we conclude that a usury savings clause cannot, by itself, absolutely insulate a lender from a finding of usury. Rather, we approve and adopt the Fourth District's holding, that a usury savings clause is one factor to be considered in the overall determination of whether the lender intended to exact a usurious interest rate. Such a standard strikes a balance between the legislative policy of protecting borrowers from overreaching creditors and the need to preserve otherwise good faith, albeit complex, transactions which may inadvertently exact an unlawful interest rate.
In rejecting the use of a savings clause as an absolute bar to a usury claim, we note, as have other courts, that a contrary holding would permit a lender to "relieve himself of the pains and penalties visited by law upon such an act by merely writing into the contract a disclaimer of any intention to do that which under his contract he has plainly done." First State Bank v. Dorst, 843 S.W.2d 790, 792 (Tex. Ct. App. 1992) (quoting Nevels v. Harris, 129 Tex. 190, 102 S.W.2d 1046, 1050 (1937)). If approved, we believe this practice would undermine public policy as set by the legislature and defeat the purpose of Florida's usury statute. Indeed, such a practice might encourage lenders to charge excessive interest, since, even if caught, the only penalty would be the loss of the excess interest.
However, we also believe that savings clauses serve a legitimate function in commercial loan transactions and should be enforced in appropriate circumstances. For instance, we agree with Judge Pariente's illustration, in the majority opinion below, of the proper utilization of a savings clause:
Jersey Palm-Gross, 639 So. 2d  at 671. While not exhaustive, this illustration captures the essence of the legitimate use of a savings clause. This illustration is also consistent with the way savings clauses were discussed or applied in Szenay and First American Bank & Trust.
We agree with the district court that there is no indication that the trial court in this case failed to apply the correct legal standard for determining usury or erred in its treatment of the savings clause. There is substantial competent evidence in the record to support the court's finding of usury. For example, there is evidence that the lender directly sought and received a 15% interest in the partnership, in addition to the 15% interest on the loan as initially agreed. The lender also knew "that the borrowers had an urgent need for the money." Jersey Palm-Gross, 639 So. 2d  at 668. These circumstances support the trial court's finding of an intent on the part of the lender to extract an *536 excessive rate of interest, and this finding, in view of those circumstances, is consistent with the law set out in Chandler and Dixon.
In addition, we note that there is no complex loan transaction involved here or any claim of a mistake in the mathematical calculations like that seen in Szenay; neither is the interest charged close to the legal limit as discussed in First American Bank & Trust. In short, unlike Szenay and First American Bank & Trust, there are no circumstances present that would require the trial court to apply the usury savings clause to avoid the excessive interest. Further, the entire additional consideration of the 15% interest in the venture would have to be stricken to avoid the excessive interest charged. As noted in First State Bank, that would clearly be giving effect to a lender's "disclaimer of any intention to do that which under his contract he has plainly done." We decline to mandate such an outcome here.
It is also noteworthy that the usury savings clause in this case was not included in the agreement granting the lender a 15% interest in the partnership. Rather, the savings clause was contained only in the promissory note which, of course, contained a provision for lawful interest of 15%, and contained no reference to the additional consideration demanded by the lender. Under such circumstances, it is questionable whether the savings clause was even intended to apply to the separate agreement for an interest in the venture.
Jersey Palm-Gross, Inc. also asserts that the trial court should have concluded that the instant transaction, while arguably providing for an excessive interest rate on the date of closing, was reduced to nothing more than a speculative hope for profit after the partnership incurred a debt of approximately $2,000,000 to finance its development project. We disagree.
First, it is important to note that at the same time the venture incurred a debt of $2,000,000, it received an asset of $2,000,000 in the form of proceeds of the development loan. Second, and more importantly, however, section 687.03(3), Florida Statutes (1993), in pertinent part instructs that:
Pursuant to this section, the trial court was required to value the partnership interest as of the date received, which was March 27, 1990. The evidence presented at trial fully supports the trial court's valuation of the venture's worth on this date.
Lastly, if a trial court accepted the lender's position, it would be speculating as to the real estate development venture's chances of success at the time the lender joined the venture. That speculation, of course, could result in the lender's interest in the venture being set at an estimated value ranging from worthless to one many times its initial value. While there may be instances that might permit or require such speculation, we find no error in the trial court's failure to do so under the circumstances presented here. There is a sound and substantial basis in the evidence for the trial court's valuation, and for its ultimate finding on the usury issue.
Accordingly, we approve the Fourth District decision below and disapprove Forest Creek insofar as it is inconsistent with this opinion.
It is so ordered.
GRIMES, C.J., and SHAW, KOGAN, HARDING and WELLS, JJ., concur.
OVERTON, J., concurs with an opinion, in which WELLS, J., concurs.
OVERTON, Justice, concurring.
I concur because I believe that the trial judge, under the state of this record, could believe that the lender in this instance, at the time of making the loan, intended to charge a usurious rate of interest irrespective of the *537 savings clause in the loan documents. I write to emphasize that a savings clause is still a valid factor  but not the exclusive factor  in determining the intent of the lender at the time of making the loan. A savings clause should have the purpose of assuring that usurious interest is not charged. The borrower, as the movant or claimant, has the burden of proof to establish the usurious intent of the lender.
WELLS, J., concurs.