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Usury and the Viruliferous Acceleration Clause in Florida Ralph E View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by University of Miami School of Law University of Miami Law School Institutional Repository University of Miami Law Review 10-1-1966 Usury and the Viruliferous Acceleration Clause in Florida Ralph E. Boyer Paul S. Berger Follow this and additional works at: http://repository.law.miami.edu/umlr Recommended Citation Ralph E. Boyer and Paul S. Berger, Usury and the Viruliferous Acceleration Clause in Florida, 21 U. Miami L. Rev. 215 (1966) Available at: http://repository.law.miami.edu/umlr/vol21/iss1/10 This Article is brought to you for free and open access by Institutional Repository. It has been accepted for inclusion in University of Miami Law Review by an authorized administrator of Institutional Repository. For more information, please contact [email protected]. USURY AND THE VIRULIFEROUS ACCELERATION CLAUSE IN FLORIDA* RALPH E. BOYER** AND PAUL S. BERGER*** I. INTRODUCTION ............................................................ 215 A. Possibilities and Actualities ............................................ 215 B. General Nature and Characteristics of Acceleration Clauses ................ 216 II. ACCELERATION AND USURY: HISTORICAL DEVELOPMENT ............................ 218 A. The Element of Intent Generally ........................................ 218 B. The Less Recent Cases ................................................. 219 C. The Ayvas Rule ...................................................... 223 D . A Brief Resum i ...................................................... 223 E. The More Recent Cases: Doctrine Extended ............................. 224 F. A Critique ............................................................ 227 III. STATUTORY CONSTITUENTS .................................................. 231 A. The Disappearance of the Intent Element ................................ 231 B. W hat is a Reservation of Interest? ...................................... 233 C. W hat Penalty? ........................................................ 235 IV. CONCLUSION .............................................................. 237 I. INTRODUCTION A. Possibilities and Actualities Several decisions' in the state of Florida have been directed to the usurious effect that an acceleration clause may have on a transaction in- volving a loan of money evidenced by a promissory note and mortgage. Owing to the esoteric nature of money lending transactions in general, and more particularly to the result reached in the latest expression of the courts, this paper is directed to an examination and exposition of Florida's self labeled "sui generis" position.2 This position is exemplified by First * Acknowledgment is gratefully accorded the Lawyers' Title Guaranty Fund, Orlando, Florida, for its annual grant to the University of Miami School of Law. This contribution is used at the University of Miami to encourage student research in property law and to aid professors in the research and preparation of articles. The preparation of this paper was aided by the fund's contribution. ** Professor of Law, University of Miami. *** Attorney at Law, Miami, Florida; formerly Associate Editor, University of Miami Law Review; Student Instructor for Freshman Research and Writing. 1. Home Credit Co. v. Brown, 148 So.2d 257 (Fla. 1962); Ayvas v. Green, 57 So.2d 30 (Fla. 1952); Smith v. Midcoast Inv. Co., 114 Fla. 469, 154 So. 211 (1934); Benson v. First Trust & Sav. Bank, 105 Fla 135, 134 So. 493 (1931), modified, 105 Fla. 135, 142 So. 887 (1932), adhered to, 105 Fla. 135, 145 So. 182 (1932); Maxwell v. Jacksonville Loan & Im- prov. Co., 45 Fla. 425, 34 So. 255 (1903); Gordon v. West Fla. Enterprises of Pensacola, Inc., 177 So.2d 859 (Fla. 1st Dist. 1965); First Mortgage Co. v. Stellmon, 170 So.2d 302 (Fla. 2d Dist. 1964), cert. denied, 174 So.2d 32 (Fla. 1965). 2. In First Mortgage Co. v. Stellmon, supra note 1, the court stated in 170 So.2d, at p. 304: The Courts of our sister states have held, for the most part, that an acceleration clause does not, of itself, render the contract usurious, even though the amount of the interest that may become due by reason of the acceleration exceeds the law- ful rate, the excess being treated as a penalty that can neither be collected nor re- tained. The Courts of this state have declined to follow the general rule with respect to the effect of an acceleration clause, and have adopted one which ap- pears to be sui generis. (Emphasis added.) UNIVERSITY OF MIAMI LAW REVIEW [VOL.. XXI Mortgage Corp. v. Stellmon,8 wherein the Second District Court of Appeal held that the existence of an acceleration clause which did not preclude the mortgagee from recovering unearned interest upon default rendered the note usurious. The rationale was that since the mortgagee could have foreclosed on the face amount of the note, the note was usurious although the mortgagee did not seek to accelerate but sought instead to foreclose only for past due installments. B. General Nature and Characteristics of Acceleration Clauses An acceleration clause is a contractual device whereby the date for performance is hastened upon a contingency.' Although not limited to contracts involving money lending,5 acceleration clauses have widespread application in the area. Where a borrower is required to make periodic payments at stated intervals in the future, it is generally recognized that a default in any one payment will not cause a breach of any payment that has not yet matured.6 Accordingly, absent an acceleration clause, the lender is relegated to a suit at law, or to equitable enforcement, upon only those sums which are in default. Thus the acceleration clause is a distinct advantage to the lender.7 The clause may be written so that it will become operative in one of two ways. Its activation can be upon the express option of the lender, or it can be absolute in form, thereby becoming operative upon a stated contingency notwithstanding the lender's conduct. Where the clause creates an option in the lender, acceleration becomes operative only at the affirmative election of the lender.' Where the clause is automatic in 3. 170 So.2d 302 (Fla. 2d Dist. 1964), cert. denied, 174 So.2d 32 (Fla. 1965). See also infra text following note 53 for further discussion. 4. Any number of contingencies may hasten the maturity, the more common of which are default in the payment of taxes, insurance, or installment payments either of interest or principal or interest and principal combined. OSBORNE, MORTGAGES § 326 (1951). 5. Acceleration clauses are also common in leases. The relationship between a clause accelerating future rent and other remedies of the landlord on breach of lease covenants by tenant is discussed in 2 BOYER, FLORIDA REAL ESTATE TRANSACTIONS § 36.16. (1965). 6. At early common law as well as today, it is a general rule of contracts that the breach of that contract only gives rise to one cause of action. A well settled exception to this general rule is that employed in contracts for the payment of money in installments. In these cases it is generally recognized that such contracts are divisible by their very nature and a cause of action will lie for each breach as it occurs. I R.C.L. § 31 (1929). The rule has also been well settled in Florida to the effect that a foreclosure will lie for past due install- ments only, subject to remaining unmatured installments. E.g., Wordinger v. Wirt, 112 Fla. 822, 151 So. 47 (1933) ; Miami Mortgage & Guar. Co. v. Drawdy, 99 Fla. 1092, 127 So. 323 (1930). 7. It is generally held that an acceleration clause is inserted for the benefit of the lender. Such a clause gives the lender an option to foreclose on the security before the stipulated maturity of the debt. OSBORNE, MORTGAGES, § 326 (1951). 8. See Baader v. Walker, 153 So.2d 51 (Fla. 2d Dist. 1963) and text following note 14 infra. 9. Annor., 159 A.L.R. 1077, at 1091 (1945). In Florida unless the note or mortgage requires otherwise, acceleration does not depend upon notice being given to the mortgagor. Corlett v. Wood, 81 Fla. 510, 88 So. 268 (1921). The institution of the suit itself operates as an exercise of the option. Meredith v. Long, 96 Fla. 719, 119 So. 114 (1928). 1966] USURY form, there is a split of authority as to whether the clause is to be con- strued as self-executing or as optional with the creditor. 10 The reason for the latter construction is that the clause is inserted for the lender's benefit 1' and not for that of the borrower. Thus it should create no rights in the borrower." The reason for this position is clear. The courts have refused to allow a clause to become self-executing where the result would enable the borrower to take advantage of his own breach." This is patently evident in an era of declining interest rates. If the clause were to become self-executing upon the borrower's default, he would have a built in prepayment option predicated upon his own breach, and could thus deprive the creditor of a favorable high return investment in order to refinance at a lower rate. The most recent Florida expression favors enforcing an acceleration clause according to its express provisions, so that if clearly automatic in form, the provision will not be treated as optional with the lender. In Baader v. Walker,'4 the Second District Court of Appeal was faced with an absolute clause. Upon default, the borrowers paid the lender's 5 collec- tion agent'" the entire indebtedness. Before remitting the funds to his principal, the agent went into receivership. The lender then sought to foreclose the mortgage against the original borrowers, taking the position that the clause, although absolute on its face, actually created an option in favor of the lender. Therefore, since the option remained unexercised by the lender, the borrowers had no right to pay the entire indebtedness. 10. The conflict of authorities is reviewed in Baader v. Walker, supra note 8. 11. Citations for this and the contrary viewpoint can be found in Baader v.
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