Farley v. Fischer

137 Mich. App. 668 (1984) 358 N.W.2d 34

FARLEY
v.
FISCHER

Docket No. 74962.

Michigan Court of Appeals.

Decided September 18, 1984.

Justine A. Orris and Jerald R. Lovell, of counsel, for plaintiff.

James D. Wines, for defendant.

Before: M.J. KELLY, P.J., and BRONSON and C.W. SIMON,^[*] JJ.

PER CURIAM.

Defendant appeals as of right from an order granting plaintiff 8% interest on the principal sum of $20,000 owed plaintiff by defendant under the property settlement provisions of a divorce decree. Defendant also appeals the imposition of 12% judgment interest. We reverse in part and affirm in part.

The parties to this action were divorced on January 29, 1981. According to the provisions of a property settlement agreement negotiated between the parties and approved by the trial court, plaintiff (defendant in the divorce action) quit-claimed to defendant his interest in the marital property. In return, defendant was required to pay plaintiff $20,000 within two years of the date of the divorce judgment:

"It is further ordered and adjudged that the defendant, Clay Farley, shall convey, by quit claim deed to the plaintiff, Shirley J. Farley, his interest in and to the marital home of the parties hereto * * *. * * * and the plaintiff, Shirley Farley, shall, upon entry of this judgment, be liable for the unpaid balance of the first mortgage on said property, and shall indemnify and hold defendant harmless for said indebtedness.

"It is further ordered and adjudged that defendant, Clay Farley, at the time of conveyance by him, be granted a lien interest in the marital home, in the amount of twenty thousand dollars ($20,000.00), which amount represents his interest in the equity of said premises, payable within two (2) years from entry of judgment of divorce and that said equitable interest shall bear interest at the rate of eight percent (8%) per annum until paid in full."

Defendant failed to pay plaintiff $20,000 by January 29, 1983, and plaintiff filed a post-divorce complaint seeking a judgment in that amount and seeking 8% interest per annum from January 29, 1981, to the date of judgment. Defendant answered with a confession of judgment as to the principal but contested the interest rate imposed, arguing that an 8% rate violated the Michigan usury statute, MCL 438.31; MSA 19.15(1). The trial court eventually granted summary judgment in favor of plaintiff both as to the principal owed and as to the rate of interest imposed.

On appeal, we are asked to determine whether the agreement between defendant and plaintiff regarding the $20,000 debt is subject to the usury statute. MCL 438.31; MSA 19.15(1) provides in relevant 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 7% per annum."

Defendant argues on appeal, as she did at trial, that plaintiff's $20,000 lien interest constitutes a second mortgage and is therefore subject to the 7% interest limitation of the usury law. See Bebee v Grettenberger, 82 Mich. App. 416; 266 NW2d 829 (1978). The trial court rejected this argument, as do we, on the ground that there is no evidence in the record from which to infer that the lien granted plaintiff was intended to be a second mortgage.

We nevertheless conclude that payment of 8% interest is usurious under the circumstances and is thus unenforceable. Michigan's usury statute has been broadly construed to apply not only to simple loans of money but to the forbearance of money as well as to the extension of all pre-existing debts, contracts, and assurances. Hillman's v Em ``N Al's, 345 Mich. 644, 651; 77 NW2d 96 (1956); Attorney General v Contract Purchase Corp, 327 Mich. 636, 642-643; 42 NW2d 768 (1950). We thus reject the trial court's determination that the usury statute was intended to apply only to "lenders, borrowers, mortgage loan associations and banks which were operating in the ordinary course of business".

In looking at the nature and substance of the parties' settlement agreement in this case, as is required under Wilcox v Moore, 354 Mich. 499, 504; 93 NW2d 288 (1958), it is clear to us that plaintiff intended to transfer or sell his interest in the marital property to the defendant for payment of $20,000. Deferred payment was apparently negotiated in order that defendant would have the opportunity to sell or refinance the home and thus obtain the money to pay plaintiff. In consideration for plaintiff's acceptance of a deferred payment arrangement, he was to receive 8% interest on the debt owed. We conclude that because plaintiff forbore the payment of money and did so in writing, this transaction is subject to the usury statute and corresponding interest rate limitation of 7%. The fact that the debt owed was secured by a lien on the property does not matter. Under MCL 438.32; MSA 19.15(2), plaintiff is now barred from the recovery of any interest on the original debt. See also Abeloff v Ohio Finance Co, 313 Mich. 568, 579; 21 NW2d 856 (1946).

Plaintiff is, however, entitled to judgment interest at 12% under MCL 600.6013; MSA 27A.6013. The judgment interest statute evidences a legislative intent to encourage prompt compliance with court orders. Absent the imposition of judgment interest, defendant has little incentive to comply with the trial court's order requiring payment of the principal. The usury statute bar against recovery of interest, on the other hand, discourages the imposition of usurious rates on original debts by disallowing the recovery of the legal rate of interest once a rate has been determined usurious. We see no conflict between these two statutes and conclude that while MCL 438.32; MSA 19.15(2) precludes recovery of interest on the original debt, MCL 600.6013; MSA 27A.6013 allows recovery on the judgment.

Reversed in part and affirmed in part.

NOTES

[*] Circuit judge, sitting on the Court of Appeals by assignment.