501 F.2d 662
SECURITIES INVESTMENT COMPANY OF ST. LOUIS, Plaintiff-Appellee,
v.
INDIAN WATERS DEVELOPMENT CORPORATION, Edith A. Whitcraft
and Thomas M. Harris, as Administrator C.T.A. of
the Estate of S. Maurice Whitcraft,
Deceased, Defendants-Appellants.
No. 73-2919.
United States Court of Appeals, Fifth Circuit.
Sept. 27, 1974, Rehearing Denied Oct. 22, 1974.
Michael B. Piper, St. Petersburg, Fla., Carleton L. Weidemeyer, Clearwater, Fla., Thomas M. Harris, St. Petersburg, Fla., for defendants-appellants.
Marcus A. Wilkinson, III, Tampa, Fla., John S. White, Jr., Baton Rouge, La., for plaintiff-appellee.
Before BROWN, Chief judge, and RIVES and DYER, Circuit Judges.
JOHN R. BROWN, Chief Judge:
In this diversity action Lender, Securities Investment Company of St. Louis (Securities), sued Borrowers, Indian Waters Development Corporation (Indian Waters), on a note guaranteed by co-defendants Maurice and Edith Whitcraft. The lower court entered judgment for Lender on a jury verdict directed by the Court on certain issues. We hold the District Court was correct and affirm in all respects.
Demand Accounting When Interest's Mounting
Borrowers first contend Lenders' failure to respond to Borrowers' letter-demands for an accounting of payments (as reducing interest and as reducing principal) on the note resulted in a forfeiture of all rights to interest under F.S.A. 687.08. Borrowers' demands were all made after this lawsuit was filed. No payment or tender of payment accompanied any of these demands.
The statute plainly shows its purpose is to provide a debtor with a receipt for payment(s) made. The section is not meant to entitle a debtor to an account-status report whenever debtor feels inclined to demand one. Part of the Florida scheme for protecting debtors against illegal interest rates is to require creditors to supply paying debtors with receipts showing reduction of interest and principal. This helps the debtor to be informed of the amount of interest he is paying and just what debt, principal, interest, or both, remains unpaid. It is not part of the Florida scheme to permit debtors to avoid paying otherwise legitimate interest by making purposeless demands for accounting unaccompanied by payment once suit is brought to collect a delinquent debt.
Is The Veil To Any Avail?
Interest on the note was 6% 'add-on'. Both parties agree that for Florida usury statute, F.S.A. 687.03, purposes, that converts to a simple rate of 10.85%. The Florida statute permits a creditor to charge up to 15% Interest on corporate loans. However, if as now claimed by Borrowers this is a loan to the guarantors, the interest charged is above the legal maximum (10%) on loans to individuals.
Borrowers claim the loan to the corporate debtor Indian Waters is a sham-- a 'front' for a personal loan to the guarantors. Borrowers claim the money was borrowed for the purpose of improving real property owned by the guarantors individually. Because the interest rate Lender wanted to charge was higher than 10%, it refused to loan directly to the individuals. Therefore, the loan was made to the corporation even though the borrowed money was for the ultimate use and benefit of the individual shareholder-guarantors.
Florida does not permit its usury statutes to be evaded by using a corporation to disguise a loan to an individual. Gilbert v. Doris R. Corp., Fla.App., 1959, 111 So.2d 682. Correctly stating the rule, however, does not mean the District Court erred, for the corporate-v.-individual loan question is one of fact to be determined in each case. Id. Indeed, a corporation formed for the sole purpose of borrowing money at an interest rate higher than 10% Is not, without more, grounds in Florida for holding the loan usurious. Holland v. Gross, Fla., 1956, 89 So.2d 255. Whatever doubts there might have been about what the 'something more' apparently found in Gilbert v. Doris R. Corp., supra, to exist was cleared up in 1969 when the Florida Supreme Court did discuss the elements to be considered in deciding when a corporate loan is a sham. Tel Service Co. v. General Capital Corp., Fla., 1969, 227 So.2d 667.
On the trial evidence, a fact-finder might well have been justified in finding this either a bona fide corporate loan or a sham corporate loan. Thus, the question was properly put to the jury under instruction which we find to have been correct. Borrowers' demand for an instructed verdict on this issue was properly denied.
Optional Usury
The only other substantial issue raised by Borrowers is the manner in which interest should be calculated, the hope being of course to get it above the permissible 15%. Borrowers first maintain the interest should be calculated by including certain payments made outside the normal payment schedule pursuant to a provision in the agreement which permitted parcels of land to be released from the real estate expressly included in the mortgage given as security for the individual guaranties. These payments were to be applied solely to reduce principal. Tehrefore, they effectively served to increase the interest rate on the loan as a whole. If these payments, as were actually made, are included in the interest calculation, the effective rate exceeds 15%, the maximum interest rate permitted on corporate loans under F.S.A. 687.03.
The Borrowers' second claim, which we dispose of quickly, is that Lender in the allocation of funds disbursed in effect required payments to creditors of the indivdual guarantors. If a creditor requires a debtor to repay a loan for which debtor is not obligated (i.e. someone else's debt), Florida holds such payments are to be included in the amount of interest charged for usury calculation purposes. Curtiss National Bank of Miami Springs v. Solomon, Fla.App. 1971, 243 So.2d 475. That is because such amounts must be repaid to the creditor, without being 'used' by the debtor. Contrariwise, a corporate borrower would 'use' money the lender required it to spend on repaying loans the borrower was legally obligated to pay, because the repayment would correspondingly reduce the corporation's liabilities. In this case the District Court, after examining all of the evidence, had ample basis for concluding that this did not constitute exacting payment of a debt of another.
Little need be said as to the first contention that mortgage prepayment privileges served to increase interest charges. Of most importance 687.03 prescribes the standard of determining usury on the basis of the instruments. Additionally, the promissory note
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501 F.2d 662
SECURITIES INVESTMENT COMPANY OF ST. LOUIS, Plaintiff-Appellee,
v.
INDIAN WATERS DEVELOPMENT CORPORATION, Edith A. Whitcraft
and Thomas M. Harris, as Administrator C.T.A. of
the Estate of S. Maurice Whitcraft,
Deceased, Defendants-Appellants.
No. 73-2919.
United States Court of Appeals, Fifth Circuit.
Sept. 27, 1974, Rehearing Denied Oct. 22, 1974.
Michael B. Piper, St. Petersburg, Fla., Carleton L. Weidemeyer, Clearwater, Fla., Thomas M. Harris, St. Petersburg, Fla., for defendants-appellants.
Marcus A. Wilkinson, III, Tampa, Fla., John S. White, Jr., Baton Rouge, La., for plaintiff-appellee.
Before BROWN, Chief judge, and RIVES and DYER, Circuit Judges.
JOHN R. BROWN, Chief Judge:
In this diversity action Lender, Securities Investment Company of St. Louis (Securities), sued Borrowers, Indian Waters Development Corporation (Indian Waters), on a note guaranteed by co-defendants Maurice and Edith Whitcraft. The lower court entered judgment for Lender on a jury verdict directed by the Court on certain issues. We hold the District Court was correct and affirm in all respects.
Demand Accounting When Interest's Mounting
Borrowers first contend Lenders' failure to respond to Borrowers' letter-demands for an accounting of payments (as reducing interest and as reducing principal) on the note resulted in a forfeiture of all rights to interest under F.S.A. 687.08. Borrowers' demands were all made after this lawsuit was filed. No payment or tender of payment accompanied any of these demands.
The statute plainly shows its purpose is to provide a debtor with a receipt for payment(s) made. The section is not meant to entitle a debtor to an account-status report whenever debtor feels inclined to demand one. Part of the Florida scheme for protecting debtors against illegal interest rates is to require creditors to supply paying debtors with receipts showing reduction of interest and principal. This helps the debtor to be informed of the amount of interest he is paying and just what debt, principal, interest, or both, remains unpaid. It is not part of the Florida scheme to permit debtors to avoid paying otherwise legitimate interest by making purposeless demands for accounting unaccompanied by payment once suit is brought to collect a delinquent debt.
Is The Veil To Any Avail?
Interest on the note was 6% 'add-on'. Both parties agree that for Florida usury statute, F.S.A. 687.03, purposes, that converts to a simple rate of 10.85%. The Florida statute permits a creditor to charge up to 15% Interest on corporate loans. However, if as now claimed by Borrowers this is a loan to the guarantors, the interest charged is above the legal maximum (10%) on loans to individuals.
Borrowers claim the loan to the corporate debtor Indian Waters is a sham-- a 'front' for a personal loan to the guarantors. Borrowers claim the money was borrowed for the purpose of improving real property owned by the guarantors individually. Because the interest rate Lender wanted to charge was higher than 10%, it refused to loan directly to the individuals. Therefore, the loan was made to the corporation even though the borrowed money was for the ultimate use and benefit of the individual shareholder-guarantors.
Florida does not permit its usury statutes to be evaded by using a corporation to disguise a loan to an individual. Gilbert v. Doris R. Corp., Fla.App., 1959, 111 So.2d 682. Correctly stating the rule, however, does not mean the District Court erred, for the corporate-v.-individual loan question is one of fact to be determined in each case. Id. Indeed, a corporation formed for the sole purpose of borrowing money at an interest rate higher than 10% Is not, without more, grounds in Florida for holding the loan usurious. Holland v. Gross, Fla., 1956, 89 So.2d 255. Whatever doubts there might have been about what the 'something more' apparently found in Gilbert v. Doris R. Corp., supra, to exist was cleared up in 1969 when the Florida Supreme Court did discuss the elements to be considered in deciding when a corporate loan is a sham. Tel Service Co. v. General Capital Corp., Fla., 1969, 227 So.2d 667.
On the trial evidence, a fact-finder might well have been justified in finding this either a bona fide corporate loan or a sham corporate loan. Thus, the question was properly put to the jury under instruction which we find to have been correct. Borrowers' demand for an instructed verdict on this issue was properly denied.
Optional Usury
The only other substantial issue raised by Borrowers is the manner in which interest should be calculated, the hope being of course to get it above the permissible 15%. Borrowers first maintain the interest should be calculated by including certain payments made outside the normal payment schedule pursuant to a provision in the agreement which permitted parcels of land to be released from the real estate expressly included in the mortgage given as security for the individual guaranties. These payments were to be applied solely to reduce principal. Tehrefore, they effectively served to increase the interest rate on the loan as a whole. If these payments, as were actually made, are included in the interest calculation, the effective rate exceeds 15%, the maximum interest rate permitted on corporate loans under F.S.A. 687.03.
The Borrowers' second claim, which we dispose of quickly, is that Lender in the allocation of funds disbursed in effect required payments to creditors of the indivdual guarantors. If a creditor requires a debtor to repay a loan for which debtor is not obligated (i.e. someone else's debt), Florida holds such payments are to be included in the amount of interest charged for usury calculation purposes. Curtiss National Bank of Miami Springs v. Solomon, Fla.App. 1971, 243 So.2d 475. That is because such amounts must be repaid to the creditor, without being 'used' by the debtor. Contrariwise, a corporate borrower would 'use' money the lender required it to spend on repaying loans the borrower was legally obligated to pay, because the repayment would correspondingly reduce the corporation's liabilities. In this case the District Court, after examining all of the evidence, had ample basis for concluding that this did not constitute exacting payment of a debt of another.
Little need be said as to the first contention that mortgage prepayment privileges served to increase interest charges. Of most importance 687.03 prescribes the standard of determining usury on the basis of the instruments. Additionally, the promissory note found by the jury to be the bona fide obligation of the corporate debtor, not the individual guarantors, expressly provided for adjustment of the ultimate interest charges in the event of prepayment, which in a sense, is the function of the mortgage release payments.
The debt represented by the note did not require any mortgage release. On the face of the loan agreement the simple interest rate was 10.85%. The mortgage release clause in the mortgage given solely by guarantors ran solely in their favor to release security given by them in guaranty of the debt. This affected the security which guarantors had committed but it had no effect on the debt due by the corporate debtor, the calculation of principal, interest, or both (as originally enforceable), payment of which had been guaranteed.
Nothing in Home Credit Co. v. Brown, Fla.1962, 148 So.2d 257, dealing with the treatment of usury under accelerated maturities compels any different result. After all, it was never in the power of the lending agency to trigger these payments for Lender never had, does not now, and never will have a right under this agreement to force release payments.
Tag Ends
The District Court did not permit Borrower to examine, as an adverse witness, a former employee of Lender who negotiated the loan. Without detracting from Degelos v. Fidelity and Casualty Co. of N.Y., 5 Cir., 1963, 313 F.2d 809, or Fall v. Esso Standard Oil Co., 5 Cir., 1961, 297 F.2d 411, we decline to analyze or balance in any detail the trial judge's discretion in this matter against the liberal-construction policies of the Federal Rules because Borrowers have wholly failed to show how they were prejudiced by the District Court's ruling. Nowhere do Borrowers attempt to show what could have been accomplished or shown had they been permitted to examine this witness as an adverse one.
Finally, we have considered Borrowers' assertions the District Court erred in its award of attorney fees to Securities and in its form of judgment. These claims are without merit.
Affirmed.