Case Name: JERSEY PALM-GROSS, INC., Appellant, v. Henry PAPER and Anthony V. Pugliese, III, Appellees
Court: Florida District Court of Appeal
Jurisdiction: Florida
Decision Date: 1994-07-06
Citations: 639 So. 2d 664
Docket Number: No. 93-0732
Parties: JERSEY PALM-GROSS, INC., Appellant, v. Henry PAPER and Anthony V. Pugliese, III, Appellees.
Judges: GLICKSTEIN, J., concurs.
Reporter: Southern Reporter, Second Series
Volume: 639
Pages: 664–676

Head Matter:
JERSEY PALM-GROSS, INC., Appellant, v. Henry PAPER and Anthony V. Pugliese, III, Appellees.
No. 93-0732.
District Court of Appeal of Florida, Fourth District.
July 6, 1994.
Daniel S. Pearson and Lucinda A. Hof-mann, Holland & Knight, Miami, for appellant.
Robert M. Weinberger, Cohen, Chernay, Norris, Morid, Weinberger & Harris, North Palm Beach, for appellee Pugliese.

Opinion:
PARIENTE, Judge.
The plaintiff (lender) appeals the trial court's determination of usury in connection with a loan of $200,000 to defendants' (borrowers') real estate partnership. The lender limits its challenge to the trial court's finding of usurious intent. From our review of the record, the trial court's order entered after a non-jury trial is supported by substantial competent evidence. The existence of a "usury savings clause" did not preclude, as a matter of law, a finding of usury. We affirm.
The borrowers were partners in a real estate partnership which required capital to build a multi-tenant office building. The partnership owned land consisting of three prime lots in West Palm Beach worth $1,700,000, subject to a purchase money mortgage of $1,100,000 that was due shortly. To satisfy the purchase money mortgage and construct an office building on the land, the borrowers went to a bank to secure a loan. After obtaining an appraisal of the partnership assets and the project, the bank agreed to lend the partnership most of the needed capital. The loan amount, however, was $200,000 short of the estimated partnership needs. The borrowers needed a "bridge-the-gap loan."
The borrowers approached Walter Gross (Gross), a real estate developer, and suggested that he become an equity partner in the partnership for an investment of $200,000. Gross reviewed the partnership assets and appraisal. Fully aware of the partnership's financial picture and needs, he refused to become an investor, but agreed to lend the partnership $200,000 and charge an interest rate of 15% for eighteen months, amounting to $45,000 in interest charges. By the time of closing, Gross had formed the appellant corporation, Jersey Palm-Gross, Inc., for the purpose of making the loan.
Shortly before closing, Gross presented the borrowers with loan documents which included a demand for a 15% equity interest in the partnership as additional consideration for making the loan. Gross did not attempt to hide his motives for exacting an interest in the partnership. He testified that the partnership interest was an inducement to make the loan, even though he had previously agreed to loan the money at a 15% interest rate. Gross knew the value of the partnership based on the borrowers' disclosures and was aware of the borrowers' urgent need for funds. The borrowers were in desperate financial straits. With closing imminent, they were in no position to bargain or to seek another source of the money.
The lender brought suit when the borrowers failed to repay the loan. The borrowers' defense was that the loan was usurious from its inception, and therefore, an unenforceable debt because the consideration for the loan, which included the partnership interest and the 15% interest rate, totaled 45% per annum in interest.
The four requirements necessary to establish a usurious transaction are:
1. A loan, either express or implied.
2. Air understanding that the money must be repaid.
3. In consideration of the loan, a greater rate of interest than is allowed by law is paid or agreed to be paid by the borrower.
4. Intent to charge a usurious rate, sometimes referred to as corrupt intent.
Dixon v. Sharp, 276 So.2d 817 (Fla.1973); Rollins v. Odom, 519 So.2d 652 (Fla. 1st DCA 1988), rev. denied, 529 So.2d 695 (Fla.1988); Rebman v. Flagship First Nat'l Bank, 472 So.2d 1360 (Fla. 2d DCA 1985).
Under Florida law, sections 687.04 and 687.071, Florida Statutes (1993) provide statutory causes of action which allow a borrower to seek affirmative relief against a lender who has made a usurious loan. Civil usury involves loans of $500,000 or less and an interest rate of greater than 18% and less than 25%. See § 687.03, Fla.Stat. (1993). Criminal usury involves any loan amount with a rate of interest greater than 25% but not in excess of 45%. See § 687.071, Fla. Stat. (1993). The penalties for civil usury include forfeiture of all interest charged; the civil penalties for criminal usury are forfeiture of the right to collect the debt. See § 687.04, Fla.Stat. (1993). In the case of either criminal or civil usury, the lender's willfulness to charge an excessive interest rate is determined by considering all of the circumstances surrounding the transaction. Dixon; Rollins. This might involve looking beyond the terms of the loan documents. Antonelli v. Neumann, 537 So.2d 1027 (Fla. 3d DCA 1988). If a borrower promises or is otherwise required to pay a bonus or other consideration as an inducement to the lender to make the loan, such added obligations may be considered interest and can render a loan usurious. See Cooper v. Rothman, 63 Fla. 394, 57 So. 985 (1912).
The trial court here m'ade factual findings, on the evidence presented, that the net equity value of the partnership at the time the loan was made, based on partnership assets of $1,700,000 and debts of $1,100,-000, was $600,000. The lender does not challenge those findings on appeal. -The lender also does not dispute the trial court's finding that the lender. charged usurious interest when it exacted a 15% interest in the partnership as an additional condition of making the loan. The trial court correctly calculated the effective interest rate at 45% per annum over the eighteen month loan period, with the partnership interest of $90,000 (15% interest in partnership valued at $600,000) added to the $45,000 in interest charges (15% interest rate on loan of $200,000). The cost of the loan totaled $135,000, which was an effective interest rate of 45% on a loan of $200,000 for the eighteen month period of the loan.
While the lender does not dispute the mathematical calculations on appeal, it contends it lacked the requisite intent. It asserts that knowledge of the amount received as consideration for the loan does not equate with corrupt intent to receive more than a legal rate of interest. The lender points to the trial court's findings of fact as negating the element of intent, partly because of the inclusion of the following statement:
Though the court does not believe that Jersey Palm-Gross, Inc. harbored ill will or malevolent intent in making the loan to Jersey Palm Associated in consideration of receiving both a 15% interest in the partnership and payments of interest at the rate of 15% per annum on the principal amount of the loan, the court finds that plaintiff was aware of the value of the consideration which it was receiving or had a right to receive pursuant to the Loan Documents, and that the value of this consideration, when spread over the 18 month term of the loan exceeded 25% of the amount of the loan (emphasis added).
Within the same written order the court also made the additional finding:
As Plaintiff knew the value of the consideration which it received in consideration for making the $200,000.00 loan and further, the Plaintiff knowingly and willingly charged and accepted this consideration, the Court concludes that Plaintiff possessed the requisite intent to render the $200,000.00 loan transaction usurious.
The determination of intent is the responsibility of the trier of fact. Szenay v. Schaub, 496 So.2d 883 (Fla. 2d DCA 1986); Bebman. The trial court clearly found that the lender purposefully charged a usurious interest rate, and therefore, possessed the requisite intent. Its statement that "the lender did not harbor ill will or malevolent intent" is not inconsistent with its finding of willfulness. The criminal usury statute uses the terms willfully and knowingly, not "ill will or malevolent intent." The supreme court in Dixon cited with approval the definition of willfully and knowingly set forth in Chandler v. Kendrick, 108 Fla. 450, 146 So. 551, 552 (1933):
A thing is willfully done when it proceeds from a conscious motion of the will, intending the result which actually comes to pass. It must be designed or intentional, and may be malicious, though not necessarily so.
We agree that mathematical calculations alone do not equate with usurious intent. Dixon. However, here the lender knew at the outset the total value of the amount he was receiving in consideration for making the loan. Gross, the lender's president and sole stockholder, is a developer with 40 years experience and not an unsophisticated lender. He knew that the borrowers had an urgent need for the money. He dictated the terms of the loan. The fact that the borrowers were "in distress" or "necessitous" when the loan was made is as significant as the fact that the lender dictated the terms of the loan. Compare Dixon, 276 So.2d at 819. Our supreme court explained the purpose of Florida's usury statute:
The very purpose of statutes prohibiting usury is to bind the power of creditors over necessitous debtors and prevent them from extorting harsh and undue terms in the making of the loans.
Dixon, 276 So.2d at 820, citing Chandler, 146 So. at 551.
The lender's claimed ignorance of the specifics of Florida's usury laws does not preclude a finding of intent. Shorr v. Skafte, 90 So.2d 604, 607 (Fla.1956); Rollins; Ross v. Whitman, 181 So.2d 701 (Fla. 3d DCA), cert. denied, 194 So.2d 624 (Fla.1966). Gross' testimony that he did not intend to charge an unlawful rate of interest is also not determinative. Rollins. Obviously, such testimony is self-serving.
Despite the lender's assertions to the contrary, the requisite intent was established by proving the lender's knowledge of the amount of interest to be received and intent to receive the amount charged. North American Mortg. Investors v. Cape San Blas Joint Venture, 378 So.2d 287, 291 (Fla.1979); Dixon; Shorr; Rollins; Curtiss Nat'l Bank of Miami Springs v. Solomon, 243 So.2d 475, 477 (Fla. 3d DCA 1971); River Hills, Inc. v. Edwards, 190 So.2d 415, 424 (Fla. 2d DCA 1966). The evidence thus fully supports the trial court's conclusion that the lending scheme resulted in interest in excess of 25% per annum and that such result was intended by the lender.
A more troublesome question is whether the existence of a contractual disclaimer of intent to violate the usury laws commonly known as a "usury savings clause" in the loan documents in this case removes the determination of usurious intent from a factual inquiry and conclusively proves as a matter of law that the lender could not have "willfully" or knowingly charged or accepted an excessive interest rate. The trial court held that "the exculpatory language [usury savings clause] inserted into the $200,000.00 Promissory Note does not negate Plaintiffs knowledge that it was charging and intended to charge consideration for making the loan in excess of 25% of the value thereof.".
The lender relies on Forest Creek Dev. Co. v. Liberty Savings & Loan Ass'n, 531 So.2d 356 (Fla. 5th DCA 1988), rev. denied, 541 So.2d 1172 (Fla.1989), which affirmed the trial court's dismissal of a usury count where the mortgage note contained a savings clause providing that interest would not exceed the maximum rate allowable by law. If it did exceed the maximum rate, the provision added that the excess sum would be credited as a payment of interest. The fifth district does not discuss the underlying facts concerning the loan transaction, including whether the mortgage note was an adjustable mortgage rate. Forest Creek cites no authority for holding that the usury count was properly dismissed because of the usury savings clause. No other Florida case goes as far, and we expressly disagree with the blanket holding in Forest Creek. We note, however, that there is a distinction between transactions which are usurious at the outset as in the case before us and transactions which over the course of the loan may become usurious as a result of a variable interest rate.
In Szenay v. Schaub, 496 So.2d at 885, the second district approved the trial court's application of the usury savings clause in the mortgage note and the trial court's conclusion that "even though the mortgage and the note called for a usurious rate of interest, appellees had no intent to charge appellants such a rate." Thus, the court found no abuse of discretion on the part of the trial judge in making a factual finding of no usury. The opinion does not discuss whether any other facts influenced the trial court's decision, but treats the issue of the usury savings clause as evidence relating to the issue of intent. Similarly, the trial court here considered the usury savings clause on the factual issue of intent.
First American Bank and Trust v. International Medical Ctrs., Inc., 565 So.2d 1369 (Fla. 1st DCA 1990), rev. denied, 576 So.2d 286 (Fla.1991) discusses usury savings clauses, but only in dicta. The first district had reversed the trial court's finding of usury on other grounds, and therefore, stated that it was unnecessary to review the sufficiency of the record supporting the trial court's ruling. In commenting on the usury savings clause in the loan document, the court noted:
In a case such as this, where the effective interest rate found to be usurious is so near the allowable maximum depending on disputed legal principles of valuation, a strong showing indeed must be made to invalidate such provisions in the loan document.
Id. at 1374. Certainly, this statement is a tacit acknowledgment that the determination of usury by the finder of fact would not be legally precluded merely by the insertion of a usury savings clause. Indeed, the court's comments could be interpreted as authority for the proposition that where the interest rate charged is far in excess of the legal rate (versus close to the allowable maximum), such clauses need not be given effect. The appellate court's role is limited to a sufficiency of the evidence under review.
In the most recent Florida case to discuss usury savings provisions, the second district expressly rejected the notion that a disclaimer clause in a promissory note precluded a finding of usury and held that a factual dis pute remained whether the alleged illegal interest was usurious. Plantation Village Ltd. v. Aycock, 617 So.2d 729 (Fla. 2d DCA 1993). The lender argued that the disclaimer clause was credible evidence of lack of corrupt intent. The second district also questioned, but did not decide, whether a disclaimer clause can ever save the lender from criminal usury pursuant to section 687.01, because the "savings" provisions of Florida's usury laws, section 687.04(2), apply only to civil usury.
Section 687.04(2) allows a lender a complete defense to civil usury if prior to the institution of an action by a borrower or the filing of a defense, the lender notifies the borrowers of any allegedly usurious overcharge and refunds the amount of any overcharge. Thus, Florida's usury law affords lenders a method to avoid a claim of usury by taking the affirmative action of notification and refund before the borrower raises the claim of usury in litigation. On the other hand, a usury savings clause is an expression of the lender's intent to refund the usurious charges only after a claim of usury is raised and challenged by the borrower. We find the blanket application of a usury savings clause to defeat a usury claim as a matter of law to be inconsistent with section 687.04(2). The fact that the legislature has created certain exceptions to the application of the usury laws and a procedure for avoiding a claim of usury does not in our view require us to interpret usury savings clauses to grant commercial lenders automatic immunity from the reach of our state's usury statute so as to nullify its effect.
A review of the decisions nationwide reveals that only North Carolina, Texas and Connecticut have discussed the effect of usury savings clauses on otherwise usurious transactions. The North Carolina Supreme Court has invalidated usury savings clauses as against the public policy of the state. The North Carolina Supreme Court explained its rationale in Swindell v. Federal Nat'l Mortg. Ass'n, 330 N.C. 153, 160, 409 S.E.2d 892, 896 (1991):
The [usury] statute relieves the borrower of the necessity for expertise and vigilance regarding the legality of rates he must pay. That onus is placed instead on the lender, whose business it is to lend money for profit and who is thus in a better position than the borrower to know the law. A 'usury savings clause,' if valid, would shift the onus back onto the borrower, contravening statutory policy and depriving the borrower of the benefit of the statute's protection and penalties.... A lender cannot charge usurious rates with impunity by making that rate conditional upon its legality and relying upon the illegal rate's automatic rescission when discovered and challenged by the borrower.
Texas courts since 1937 have repeatedly acknowledged the validity of the usury savings clauses, but still hold that a usury savings clause will not necessarily relieve the lender from the consequences of the usury laws when the transaction is clearly usurious at the outset. Nevels v. Harris, 129 Tex. 190, 102 S.W.2d 1046 (1937); Woodcrest Assocs., Ltd. v. Commonwealth Mortg. Corp., 775 S.W.2d 434 (Tex.Ct.App.1989). In Nevels, the Texas Supreme Court, in acknowledging the validity of usury savings clauses, gave the following strongly worded caveat:
Of course we do not mean to hold that a person may exact from a borrower a contract that is usurious under its terms, and then 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.
102 S.W.2d at 1050. In explaining this caveat, the Texas appellate court in First State Bank v. Dorst, 843 S.W.2d 790 (Tex.Ct.App.1992) gave the following example:
As a simple example, a creditor may not specifically contract for a 30% interest rate and then avoid the imposition of usury penalties by relying on a savings clause that declares an intention not to collect usurious interest.
Id. at 793. In contrast, "a savings clause may cure an open-ended contingency provision the operation of which may or may not result in a charge of usurious interest." Smart v. Tower Land & Inv. Co., 597 S.W.2d 333, 340-41 (Tex.1980); First State Bank. Despite acknowledging the validity of usury savings clauses, the Texas courts are quick to point out that:
The effect of such clauses in a particular' case is largely a question of construing the terms of the savings clauses as a whole and in light of the circumstances surrounding the transaction.
Woodcrest, 775 S.W.2d at 438; Novels, 129 Tex. at 197-98, 102 S.W.2d at 1049-50. The inquiry is thus fact based.
While we are unwilling to hold that usury savings clauses are unenforceable as against this state's public policy, neither are we willing to hold that the insertion of a usury savings clause in one of several documents to a loan transaction will shield the lender from the reach of Florida's usury laws as a matter of law. 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. Where the actual interest charged is close to the legal rate, or where the transaction is not clearly usurious at the outset but only becomes usurious upon the happening of a future contingency, the clause may be determinative on the issue of intent.
Here, the amount charged for the loan exceeded the lawful rate of interest by 27%. The usurious amount was exacted at the outset, and did not depend on the oeeur-rence of a future contingency, which might or might not have made the loan usurious. The borrowers were in desperate need of money. The lender had full knowledge of the borrower's financial situation and took full advantage of the situation by overreaching. The usurious charges did not occur by happenstance, but through the lender's purposeful actions. We find that the insertion of a usury savings clause in a single document does not save this lender under these circumstances from the usury penalties, nor preclude the trial court's finding of usurious intent. We will not substitute our judgment for that of the trial court.
Accordingly, the judgment of the trial court is affirmed. We certify conflict with Forest Creek.
GLICKSTEIN, J., concurs.
FARMER, J., dissents with opinion.
. The dissent asserts the trial court and this court engaged in creative accounting in the calculations of the partnership's value because it did not consider the effect that the newly acquired loans from the bank and the lender would have on the partnership balance sheet. We note that the lender does not on appeal question the trial court's calculations in valuing the partnership interest or in arriving at an usurious interest rate. It is clear from the record that the appraisal of the land at $1,700,000 was based on the unimproved land.
The dissent engages in speculation outside the record as to what effect the receipt of the loan amount from the bank would have on the net value of the partnership interest. However, part of the loan proceeds were to be used to pay off the existing liability of $1,100,000. The remaining proceeds were to be used to construct an office building which would enhance the value of the partnership by a comparable asset. Therefore, the loan monies received would most likely be offset by the reductions in preexisting liabilities and increases in assets.
. "Malevolent is defined as 1: having, showing or indicative of intense often vicious ill will: filled with or marked by deep-seated spite or rancor or hatred . 2: productive of harm or evil...." Webster's Third New International Dictionary (unabridged) 1367 (3d 1986).
. The "usury savings clause" contained in the promissory note states:
Nothing herein contained, nor in any instrument or transaction related hereto, shall be construed or so operate as to require the maker, or any person liable for the payment of the loan made pursuant to this note, to pay interest in an amount or at a rate greater than the highest rate permissible under applicable law. Should any interest or other charges paid by the maker, or any parties liable for the payment of the loan made pursuant to this note, result in the computation or earning of interest in excess of the highest rate permissible under applicable law, then any and all such excess shall be and the same is hereby waived by the holder hereof, and all such excess shall be automatically credited against and in reduction of the principal balance, and any portion of said excess which exceeds the principal balance shall be paid by the holder hereof to the maker and any parties liable for the payment of the loan made pursuant to this note, it being the intent of the parties hereto that under no circumstances shall the maker, or any parties liable for the payment of the loan hereunder, be required to pay interest in excess of the highest rate permissible under applicable law.
. Without discussing the law concerning usury savings clauses, in the case of In re Concrete Express, Inc., 87 B.R. 718, 719 (S.D.Fla.1988), the bankruptcy court held that while a usury savings provision "by itself is insufficient to avoid an adjudication of usury, it is credible evidence of the parties' intention that usurious interest not be present in the agreement."
. Thirty-nine states have usury laws, including Florida.
. A Connecticut appellate court recently followed the North Carolina rationale. Countrywide Funding v. Kapinos, Case No. 91-0504817, 1993 WL 118070 (Conn.Super.Ct. April 2, 1993) (unpublished).