Summary
In Lewis the court specifically held that " the election to exercise such a provision as a means of collecting unearned interest plus other interest thereon constitutes usury..." 124 Ga. App. p. 507.
Summary of this case from Bell v. Loosier of Albany, Inc.Opinion
46502.
ARGUED SEPTEMBER 8, 1971.
DECIDED OCTOBER 1, 1971.
Action on note. Fulton Civil Court. Before Judge Camp.
Larry D. Woods, David G. Crockett, David A. Webster, for appellant.
Richard V. Karlberg, Jr., for appellee.
Where 24 monthly instalment payments are figured at maximum charge and interest rates to pay out a note purportedly drawn under the provisions of the Industrial Loan Act, which note authorizes acceleration maturity of all "instalments" upon default in payment, and provides for 8% interest on the liquidated amount from maturity, the election to exercise such a provision as a means of collecting unearned interest plus other interest thereon constitutes usury and renders the instrument void.
ARGUED SEPTEMBER 8, 1971 — DECIDED OCTOBER 1, 1971.
On June 24, 1969, the defendant executed a secured note to the plaintiff small loan agency in the face amount of $480 repayable in 24 equal instalments of $20, beginning July 5, 1969. Defendant received $264.89 after deductions of $66.21 interest, $38.40 investigation fee, $3.50 recording fee and $107 insurance. Defendant made 8 payments, all late, and was credited with $157 after deduction of late charges totaling $8.00. Suit was filed on October 20, 1970, seeking a principal balance on the note of $328 principal and $26.24 interest (for one year at 8%) under the following provisions of the instrument: "Failure to pay any instalment . . . when due hereunder shall at the option of the holder and without notice render all instalments due and payable at once" and "interest from maturity at the rate of 8% per annum."
Plaintiff secured a default judgment and initiated garnishment proceedings. The defendant's subsequent motion to vacate the judgment and garnishment execution were granted for reasons not germane to this discussion, and defendant then moved for summary judgment based on a usury defense. The denial of this motion forms the subject matter of the appeal.
It is noted that the face amount of the instrument sued on was figured, as to principal, interest, fees and insurance, according to the method approved in McDonald v. G. A. C. Finance Corp., 115 Ga. App. 361 (1) ( 154 S.E.2d 825). The judgment in that case, however, did not, as here, include the added-in interest but only that part of the balance reflecting principal indebtedness.
This plaintiff sought and obtained a judgment which, judged alone by the terms of the instrument, was valid. It claims that all payments were late. The interest sought was $26.24, or 8% of $328, which would seem to indicate plaintiff attempted to rely on the acceleration clause maturing the debt from October 5, 1969, one year prior to filing suit, although it also contends the interest should run from April 5, 1970. Eight delinquency fees of 5% were collected, so although we give the plaintiff the benefit of this doubt and apply the $26.24 interest for the period from March 5, 1970, through February 5, 1970 (the date of judgment being January 13, 1970), the interest is still usurious. Code Ann. § 25-315 (d) is clear that a 5% delinquency charge may be made only once as to any instalment and this is all that may be made. But the real difficulty is that the maximum interest for a 24-month note had already been calculated and included and could not, under Code Ann. § 25-315 (a) be discounted in advance, for which reason when the plaintiff opted to accelerate and claim unearned interest on the otherwise unmatured instalments of November 5, 1970, through June 5, 1971, this amount was usurious and the instrument authorizing its collection is void under Code Ann. § 25-9903. In fact, it is doubly usurious because the judgment sought and obtained included not only unaccrued interest for the period beyond October 10, 1970, through June 1971, when the loan would have been paid out under its terms.
The Industrial Loan Act makes certain financial transactions legal which would otherwise be usurious under Code § 57-101. The statute does not deal with the effect of acceleration clauses and, as seen above, there may be a valid exercise of acceleration provisions where only the principal balance is sought, but to attempt to accelerate the payment of that part of the instalments including unearned interest, even without the attempt to charge additional interest thereon from the date of acceleration, obviously gives a higher interest return on the use of the money than is authorized under the statute, and therefore nullifies the entire transaction. Some foreign cases dealing with this question are collected in 100 ALR, Anno., Usury as Affected by Acceleration Clause, p. 1431 et seq. Some of them have considered the language of the instrument non-usurious in intent where it provided for acceleration of the "indebtedness," the court holding that this meant the legal indebtedness consisting of the principal balance after deducting unearned interest, but we cannot apply this reasoning to an instrument which provides for acceleration of all "instalments," and the instalment necessarily includes interest. Other cases have treated the unearned interest as collectible on the basis that it is not at the time to be considered as interest but as a penalty for nonpayment. We cannot apply this reasoning because Code Ann. § 25-315 (d) specifies the only penalty which may be collected for late payment. Under another statute it was held in South Ga. Mercantile Co. v. Lance, 143 Ga. 530, 537 ( 85 S.E. 749) that one may elect after acceleration following default to proceed for the outstanding principal balance plus whatever interest is in fact lawful regardless of the specific terms of the instrument. Unaccrued interest otherwise usurious was permitted to be collected in Massell Realty Co. v. Hagan, 47 Ga. App. 532 ( 171 S.E. 239) where only the interest and not the principal balance was subject to an acceleration clause, but that rationale would not apply here because it would constitute a collection of interest in advance prohibited to a note running over 18 months in violation of Code Ann. § 25-315 (d). The plaintiff here did knowingly charge, contract for, and obtain a judgment authorizing collection of charges in excess of those permitted under Code Ann. Ch. 25-3. In fact, even Code § 57-105, providing that interest from date, if so stipulated, may be recovered if the debt is not punctually paid at maturity, is applicable only where "interest has not already been included in the principal amount." "Without showing a full compliance with the terms of the Act the transaction is null and void. Code Ann. § 25-9903. While the burden of proof was on the defendants in fi. fa. to prove the allegations of the affidavit of illegality, when the evidence disclosed that the interest charged on the loan exceeded 8% per annum the burden of evidence shifted to the plaintiff in fi. fa. to prove that the loan was not usurious." Colter v. Consolidated Credit Corp., 116 Ga. App. 520 (2) ( 157 S.E.2d 812). And see Haire v. Allied Finance Co., 99 Ga. App. 649, 651 ( 109 S.E.2d 291); Securities Inv. Co. v. Pearson, 111 Ga. App. 761 ( 143 S.E.2d 36).
The denial of the defendant's motion for summary judgment was error.
Judgment reversed. Bell, C. J., and Pannell, J., concur.