Court: Court of Appeals of Washington; April 11, 1994; Washington; State Appellate Court
Henry Paulman filed a lawsuit against Filtercorp to recover funds owed under a promissory note. The trial court granted partial summary judgment to Filtercorp, ruling that the note was usurious. On appeal, Paulman argued that usury defenses are not applicable in commercial transactions. Filtercorp cross-appealed, challenging the denial of setoffs against the note. The appellate court determined that Filtercorp could not assert usury as a defense due to its corporate status and the commercial nature of the loan, leading to the reversal of the summary judgment.
Filtercorp, a corporation engaged in designing and manufacturing restaurant equipment, borrowed $200,000 from Paulman in November 1991, with a promissory note signed by its president, Robin Bernard, and officer, John Gardner, carrying a 2% monthly interest rate. Following partial payments, a new note for $225,000 was issued in February 1992, again at 2% interest, which included a carryover amount from the previous loan. Paulman charged additional consulting fees during extensions of the loan’s due dates. By June 30, 1992, a third note for $210,000 was signed, reflecting accumulated fees and the principal balance owed.
The trial court later found that the June note did not incorporate previous notes, denying Filtercorp setoffs for prior interest payments. The court certified the issues under CR 54(b). The relevant statutes, RCW 19.52.080 and RCW 19.52.030, prohibit corporations and certain entities from pleading usury defenses in commercial transactions, confirming the appellate court's ruling against Filtercorp's usury claim.
Consumer transactions refer to those primarily intended for personal, family, or household purposes, as defined by law. Usury laws are specifically limited to protect borrowers in dire economic circumstances, allowing for the potential of charging higher interest rates in certain situations to facilitate capital availability. Under RCW 19.52.030, creditors engaging in usurious transactions face penalties but the contracts remain valid and enforceable. If a contract is deemed usurious, the creditor is entitled only to the principal minus excessive interest payments, and debtors may recover costs and fees if they've overpaid. However, debtors cannot initiate actions under this statute if the loan involves a corporation unless there is personal liability exceeding the principal plus allowable interest. The interpretation of statutory language indicates that neither corporations nor individuals can assert a usury defense in business transactions. The proviso in RCW 19.52.030(1) does not permit a usury claim in corporate transactions; therefore, Filtercorp is prohibited from raising a usury defense in this case.
Interpretation aligns with Filtercorp’s primary case authority, *Topline Equip. Inc. v. Stan Witty Land, Inc.*, where a creditor sought to collect a contract balance plus 12% interest not documented in writing. The statutory limit for interest without a written agreement was 6%. The debtor's usury defense failed as the writing requirement under RCW 19.52.010 was unmet, limiting the creditor's recovery to the balance plus the 6% statutory interest. The court rejected the debtor's cross claim for additional damages under RCW 19.52.030(1) since it only applies if a transaction creates liability exceeding the principal plus allowable interest, which was not the case here. Although *Topline* addressed penalties, it did not determine the availability of a usury defense in corporate transactions, suggesting that such penalties are recoverable separately from the collection of the note. The ruling underscores that RCW 19.52.080 bars the usury defense in corporate commercial actions. Paulman is awarded attorney fees for trial and appeal due to a contractual clause stipulating that Filtercorp would cover collection costs, with amounts to be determined on remand. The court noted legislative intent may support a separate cause of action for penalties but refrained from interpreting the proviso's meaning as it was unnecessary for this case's outcome, thus not addressing Filtercorp's cross appeal.
