Krause v. Griffis

Marilyn Kelly, J. Defendants appeal as of right from the circuit court’s order granting summary disposition to plaintiffs pursuant to MCR 2.116(0(10). At issue is the interest rate applicable to a land contract. *113 Plaintiffs are holders of a title interest in property sold to defendants on land contract. They filed suit seeking a declaration that the fifteen percent interest rate provided in the land contract was not usurious, because the "business entity” exception applied. The circuit court agreed. It concluded that the sworn statement of business purpose required for the business entity exception was satisfied by the wording of the land contract itself. Defendants appeal as of right. We affirm. Prior to March, 1983, defendants, Ray and Gayle Griffis, were the operators of an adult foster care facility owned by Vera Darbee. Darbee had executed a codicil to her will in 1980 granting the Griffises an option to purchase the facility, including a detached rental unit on the premises. The codicil provided that the option was to be exercised within six months of her death and that the purchase would be by land contract. The interest rate was to be one percent less than the rate being charged by banks for residential mortgages on the date of her death. Darbee died in 1983. Within six months, defendants exercised their option and entered into a land contract following the requirements of the codicil. The contract provided that the purchase price was to be allocated as follows: $52,000 for real estate, $36,000 for income potential (foster home), and $5,000 for personal property. The annual rate of interest was fifteen percent. On the day the contract was executed, interest rates charged for mortgages and land contracts by nonregulated, nonbank lenders such as plaintiffs could not exceed eleven percent. MCL 438.31c(6); MSA 19.15(lc)(6). However, the following day MCL 438.61; MSA 19.15(71) was amended to permit nonregulated lenders to charge interest rates not exceeding fifteen percent. To qualify, the borrower *114 had to be a business entity. MCL 438.61(1); MSA 19.15(71)(1). A controversy arose between the parties in this case as to whether the land contract was usurious. Defendants refused to sign a sworn statement of business interest when asked to do so. Plaintiffs therefore filed for declaratory relief asserting that the interest rate recited in the land contract was not usurious, because the business entity exception applied. Initially we note that defendants cannot argue that the rate is usurious because MCL 438.61; MSA 19.15(71) was not amended until the day after the contract was executed. The defense of usury is not a vested right. It may be extinguished by subsequent legislative action. Paul v US Mutual Financial Corp, 150 Mich App 773, 784; 389 NW2d 487 (1986). The business entity exception of MCL 438.61; MSA 19.15(71) provides in pertinent part: (1) As used in this act "business entity” means: (a) A corporation, trust, estate, partnership, cooperative, or association; or (b) A natural person who furnishes to the extender of the credit a sworn statement in writing specifying the type of business and business purpose for which the proceeds of the loan or other extension of credit will be used, but the exemption provided by this act does not apply if the extender of credit has notice that the person signing the sworn statement was not engaged in the business indicated. ♦ * * (3) Notwithstanding the provisions of Act No. 326 of the Public Acts of 1966, it is lawful in connection with an extension of credit to a business entity by any person other than a state or nationally chartered bank, insurance carrier, or finance subsidiary of a manufacturing corporation *115 for the parties to agree in writing to any rate of interest not exceeding 15% per year. Defendants contend that the failure of plaintiffs to obtain an affidavit from them precluded the land contract from falling under the business entity exception. Plaintiffs maintain that the land contract itself was a sufficient sworn statement for the purposes of the exception. They contend that defendants are a business entity, as they operate the foster care facility as a partnership. 1 When determining whether the exception is applicable, we look beyond the form to the true nature of the transaction. Paul, supra, p 783; Holland v Michigan Nat’l Bank, 166 Mich App 245, 255; 420 NW2d 173 (1988). All the evidence indicates that the property involved is being operated as a business. Defendants admit that they continue to operate the foster care facility. Mrs. Griffis testified that her husband is her business partner. The land contract, signed by defendants and notarized, makes reference to the facility as "income potential” property. The situation presented in this case is not one in which a business purpose affidavit is being used to evade the usury statute. The overall policy of the business entity exception statute is to allow business entities to contract for loans without the entangling restrictions of the usury statute, which may make it difficult for the business to obtain credit. We believe that the purpose of the exception to the exception, that is where the lender is aware that the person signing the sworn statement was not engaged in the business indicated, is designed to prevent the fraudulent use of the business entity exception where the *116 parties are aware that there is not business or business purpose involved in the loan. We conclude that the exception does not apply where, as here, all parties to the loan know that the proceeds of the loan would be applied to a business purpose. [Holland, supra, p 256.] In this case there is no question that the parties involved knew that the property was being used for business purposes and that defendants operated the business as a partnership. We find that the trial court properly concluded that the business entity exception is applicable. Defendants also argue that, if plaintiffs are entitled to a business entity exception, then it applies only to that part of the proceeds allocated to the income potential property. However defendants have failed to cite any supporting authority for their position. Consequently we treat this issue as abandoned and do not address it further. Branch Co Bd of Comm’rs v Local 586, 168 Mich App 340, 346; 423 NW2d 658 (1988). Also, defendants failed to present this issue to the trial court. Thus it is unpreserved and need not be addressed absent manifest injustice. Providence Hospital v Nat'l Labor Union Health & Welfare Fund, 162 Mich App 191, 194; 412 NW2d 690 (1987). The record reveals that the price was allocated to several portions of the property, not because some of it was intended to be applied to nonbusiness purposes but simply for tax purposes. There is no manifest injustice. Affirmed. Footnotes [1] The parties do not argue that the foster care facility qualified as a business entity under § 1(a). Therefore we do not address this issue.