Opinion ID: 2612211
Heading Depth: 3
Heading Rank: 7

Heading: Interest on Undisbursed Funds.

Text: Appellant contends that the trial court erred in determining, as a matter of law, that the amount of interest charged may be computed against a principal sum which has not been disbursed to the borrower. The general rule precludes charging interest on such sums. See, e.g., Carson Meadows, Inc. v. Pease, 91 Nev. 187, 533 P.2d 458 (1975); accord Tri-County Federal Savings and Loan Ass'n of Waldorf v. Lyle, 280 Md. 69, 371 A.2d 424 (Md. App. 1977); Miller v. First State Bank, 551 S.W.2d 89 (Tex.Civ.App. 1977), modified, 563 S.W.2d 572 (Tex. 1978); 92 A.L.R.3d 769 § 8 (1979). A loan is disbursed if the borrower has control over the proceeds. See American Acceptance Corp. v. Schoenthaler, 391 F.2d 64 (5th Cir.1968), cert. denied, 392 U.S. 928, 88 S.Ct. 2287, 20 L.Ed.2d 1387 (1968); Williamson v. Clark, 120 So.2d 637 (Fla.App. 1960); Knight v. First Federal Savings & Loan Ass'n, 151 Ga. App. 447, 260 S.E.2d 511 (Ga. App. 1979); Tri-County, supra . In the instant case, the material issue of fact is whether Collins had control over the loan proceeds deposited in the LIP account. We conclude that a genuine issue exists concerning that material question of fact. The Building Loan Agreement attached to respondents' motion for summary judgment is the only evidence which addresses the issue of control of the funds deposited in the LIP account. [7] The Agreement provided that the proceeds deposited in the LIP account would be disbursed only to provide funds for the construction of the Reef Hotel and in accordance with either the Five Payment Plan or the Loan Order Plan. The Five Payment Plan stated that funds would be disbursed from the LIP account, subject to First Federal's approval, when the contractor submitted a request for payment based upon actual work completed which was approved by owner. The Loan Order Plan provided that either Collins or the contractor or both of them could obtain funds for construction by presenting to First Federal a written loan disbursement warrant drawn upon the monies in the LIP account. The warrant constituted a representation that the funds withdrawn would be used in the construction. Although this method of disbursement was not subject to First Federal's approval, the Association did have the power to require Collins and the contractor to produce receipted bills and releases of lien rights concerning the construction of the Reef Hotel prior to disbursement of funds. The question confronting this court is whether the above-mentioned agreement vested sufficient control over the LIP account in appellant so that the loan proceeds were disbursed, allowing First Federal to charge interest on the full amount of the loan from its outset and without regard to the actual disbursement of funds to appellant. The Maryland Court of Appeals considered a similar issue in Tri-County, supra . There, the Maryland court found that although the lender had charged interest on the full amount of the construction loan, 75% of the principal had never been subject to the borrower's control, rendering the loan usurious. In Tri-County, however, the funds held in reserve for later payment to materialmen were deposited in the lender's general account with a different bank. The account was used for payment of employees' salaries and other monthly expenses of the lender. Id. at 425. See also American Acceptance Corp. v. Schoenthaler, 391 F.2d 64 (5th Cir.1968), cert. denied, 392 U.S. 928, 88 S.Ct. 2287, 20 L.Ed.2d 1387 (1968); Williamson v. Clark, 120 So.2d 637 (Fla.App. 1960). In Knight v. First Federal Savings & Loan Ass'n, 151 Ga. App. 447, 260 S.E.2d 511 (Ga. App. 1979), the borrower contended that an escrow account into which he was obligated to tender $100,000 on a $2,000,000 loan created an accumulation of undisbursed funds upon which interest was improperly charged. Additionally, the borrower asserted that because the lender's approval of withdrawals was required, it had full use of the fund. The Georgia court, however, ruled that the borrower's later allegation was not supported by the record. Since both lender and borrower were permitted to use the fund only for the replacement and maintenance of the collateral (a college dormitory and furnishings and appliances located therein), the court held that the escrow fund did not create a usurious loan. Id. at 515. See also Deposit Guaranty National Bank v. Shipp, 205 So.2d 101 (La. App. 1967). In the present case, the record does not reveal whether the loan proceeds were in fact deposited into the LIP account or retained in First Federal's general account. Additionally, no evidence was presented to the lower court that established which of the two disbursement plans the parties utilized. Our review of the materials submitted in support of and in opposition to the cross motions for summary judgment demonstrates that a genuine issue as to the material fact of control exists. See Mullis v. Nevada National Bank, 98 Nev. 510, 654 P.2d 533 (1982).