Court Opinion

ID: 9736745
Source: CourtListenerOpinion
Date Created: 2023-08-26 19:05:10.171815+00
Date Added: 2024-06-11T18:27:08.626208
License: Public Domain

D. C. Riley, J.
(dissenting). Plaintiff and defendants entered into a land contract for the purchase of a home on March 20, 1974. The contract contained a clause allowing the defendants to vary the interest rate at five-year intervals. The provision in issue provided:
"Every 5 years sellers may change interest to no more than 1% [percent] under average mortgage interest (FHA, VA, or Standard) is so elect.”
Neither party to the contract was an approved lender under any federal or state banking laws. The contract called for payment of $25,000 at the *347rate of $200 per month at seven percent interest for 18-3/4 years.
Defendants sought to increase the interest rate from seven percent to nine percent effective April 1, 1979, and demanded an increase in payments. Plaintiff refused to pay the increase, contending that the contract provision concerning defendants’ right to unilaterally increase the interest rate was usurious and therefore illegal. When defendants threatened foreclosure, plaintiff filed the instant lawsuit seeking declaratory and injunctive relief.
The trial court concluded that under MCL 438.31c(2) and (6); MSA 19.15(lc)(2) and (6), "the provision in the contract providing for an increase of the rate of interest initially agreed upon is invalid, usurious and unenforceable”. The trial judge granted summary judgment pursuant to GCR 1963, 117.2(2), failure to state a valid defense. Defendants appeal as of right from the order granting summary judgment and from an injunction entered May 9, 1980.
Defendants did not deny that the provision in issue was in the contract nor did they deny its terms. The trial court, therefore, was not faced with any factual questions but, rather, had only to decide whether the contract provision was legally valid. If the clause is usurious, then defendants have failed to state a valid defense and the grant of summary judgment was proper.
The proper application of GCR 1963, 117.2(2) was recently stated by this Court in Hanon v Barber, 99 Mich App 851, 854-855; 298 NW2d 866 (1980):
"A motion for summary judgment based on the failure to state a valid defense tests the legal sufficiency of the pleaded defense. Such motion is tested by reference to the pleadings alone, Durant v Stahlin, 375 Mich 628, *348644; 135 NW2d 392 (1965), Todd v Biglow, 51 Mich App 346, 349; 214 NW2d 733 (1974), lv den 391 Mich 816 (1974), with all well-pleaded allegations accepted as true, Minor Dietiker v Mary Jane Stores of Michigan, Inc, 2 Mich App 585, 588; 141 NW2d 342 (1966). The proper test for such a motion is whether defendant’s defenses are so clearly untenable as a matter of law that no factual development could possibly deny plaintiff’s right to recovery. Crowther v Ross Chemical & Mfg Co, 42 Mich App 426, 431; 202 NW2d 577 (1972), Bob v Holmes, 78 Mich App 205, 211; 259 NW2d 427 (1977), Michigan National Bank of Detroit v Dunbar, 91 Mich App 385, 387; 283 NW2d 747 (1979).”
In the present case, if the trial court properly found the provision to be invalid as a matter of law, then "no factual development could possibly deny plaintiffs right to recovery” and summary judgment would be proper.
The statutory provisions involved provide in pertinent part:
"The interest of money shall be at the rate of $5.00 upon $100.00 for a year, and at the same rate for a greater or less sum, and for a longer or shorter time, except that in all cases it shall be lawful for the parties to stipulate in writing for the payment of any rate of interest, not exceeding 1% per annum.” MCL 438.31; MSA 19.15(1).
"(2) For the period ending on December 31, 1981, it is lawful for the parties to a note, bond, or other evidence of indebtedness, executed after August 11, 1969, the bona fide primary security for which is a first lien against real property, or a land lease if the tenant owns a majority interest in the improvements thereon, or the parties to a land contract, to agree in writing for the payment of any rate of interest, but the note, mortgage, contract, or other evidence of indebtedness shall not provide that the rate of interest initially effective may be increased for any reason whatsoever.
*349"(3) Subsection (2) shall not impair the validity of a transaction or rate of interest lawful without regard to subsection (2).
"(5) The provisions of subsection (2) shall apply only to loans made by lenders approved as a mortgagee under the national housing act or regulated by the state, or by a federal agency, who are authorized by state or federal law to make such loans.
"(6) Notwithstanding subsection (5), lenders or vendors not qualified to make loans under subsection (5) may make, or may have made, mortgage loans and land contracts specified in subsection (2) on or after August 16, 1971, which mortgage loans and land contracts provide for a rate of interest not to exceed 11% per annum, which interest shall be inclusive of all amounts defined as the 'finance charge’ in the truth in lending act, Public Law 90-321, and the regulations promulgated thereunder.” MCL 438.31c; MSA 19.15(lc). (Emphasis added.)
Under § 438.31, the parties may stipulate in writing to an interest rate not greater than seven percent. Exceptions to the seven percent limitation are codified in subsections (2), (5) and (6) of § 1(c). Under subsection (2), the parties to a land contract executed after August 11, 1969, but before December 31, 1981, may agree in writing to any rate of interest (subject to criminal usury, MCL 438.41; MSA 19.15[51]), subject to the limitations that the contract "shall not provide that the rate of interest initially effective may be increased for any reason whatsoever”. Subsection (5) states that the provisions of subsection (2) shall apply only to loans made by specified approved lenders.
The key to the present case, I believe, is found in subsection (6). That section provides that "notwithstanding subsection (5)”, a lender such as the present defendants "may make, or may have *350made, * * * land contracts speciñed in subsection (2) * * * which * * * provide for a rate of interest not to exceed 11%”. (Emphasis added.)
Defendants, therefore, could have initially made the land contract with a rate of interest up to 11 percent. However, subsection (6) is applicable only to land contracts specified in subsection (2). Such contracts shall not provide that the initially effective rate of interest be increased. The provision in the present case provides for an increase in the initial rate upon defendants’ election and, therefore, is invalid as a matter of law. The remaining portions of the contract, providing for seven percent interest, remain valid pursuant to subsection (3) . See Bebee v Grettenberger, 82 Mich App 416, 421; 266 NW2d 829 (1978).
Therefore, I would affirm the trial court.