Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

تمرين 12

FACTS Defendant (Louis Dunnam) and Steve Oualline jointly borrowed $35,000 from plaintiff (Ken Burns) and agreed to repay the principal plus $5,000 six months later. After defendant defaulted on the loan, plaintiff sued to recover. Dunnam defended by claiming the loan was usurious. The trial court ruled in favor of the plaintiff, and defendant appealed.
DECISION Judgment for defendant.
OPINION Barajas, J. Appellant claims the trial court erred by refusing to submit his usury defense to the jury. Usury is interest in excess of the amount permitted by law. [Citation.] Interest is compensation for the use or forbearance of money. [Citation.] For most transactions between private persons, the maximum allowable rate of interest is 18 percent if the parties agree on a rate of interest [citation], and 6 percent if they do not, [citation]. Usurious contracts are against public policy, [citation] and persons who contract for or collect usurious interest are subject to penalties that may exceed the total value of the contract. [Citation].
We must initially determine whether the $5,000 additional sum contained in the promissory note constitutes interest. Interest need not be denominated interest. [Citation.] When money is advanced in exchange for an obligation to repay the advance plus an additional amount, the added amount is interest that may not exceed the statutory maximum. [Citations.] The foregoing principles instruct that Appellant's absolute obligation to pay $5,000 in addition to the principal renders the additional amount interest.
Appellee [Burns] does not contest that the $5,000 is interest. Neither does he claim that the amount of interest was not usurious, although we note that the promissory note effectively charges a 28.57 percent interest rate, which exceeds even the highest rate permitted by statute [citation] (permitting 28 percent interest on certain transactions). He argues, rather, that he did not ''charge'' such interest because the instrument was drafted by Appellant and because Appellee was actually interested in collecting only the principal amount. In so arguing, Appellee misapprehends the significance of his intent and of the identity of the drafter of the promissory note.
A document that contains an absolute obligation to repay a loan together with interest in excess of the amount permitted by statute is usurious on its face. [Citations.] ''It is not the lender's subjective intent to charge usury that makes a loan usurious, but rather his intent to make the bargain that was made.'' [Citations.] The specific intent of the lender is immaterial because it is presumed to be reflected in the document he signs. [Citations.] Further, ''once the agreed terms have been reduced to writing in the form of a compulsory contract, the test of alleged usury is not concerned with which party might have originated the alleged[ly] usurious provisions.'' [Citations.]
*** The drafter of the usurious promissory note is simply irrelevant. *** The instrument embodies a usurious transaction, and Appellee, as the lender, contracted for usurious interest.
INTERPRETATION Usury statutes establish a maximum rate of interest for which a lender may charge a borrower.
CRITICAL THINKING QUESTION Should the law establish maximum rates of interest? If so, in what situations?