386 N.W.2d 185 | Mich. Ct. App. | 1986
VISIONEERING INCORPORATED PROFIT SHARING TRUST
v.
BELLE RIVER JOINT VENTURE
Michigan Court of Appeals.
Breskin & Gunsberg, P.C. (by Lawrence J. Breskin), for plaintiffs.
Robert H. Golden, for defendant.
Before: D.E. HOLBROOK, JR., P.J., and R.B. BURNS and K.B. GLASER,[*] JJ.
R.B. BURNS, J.
Defendant appeals from a judgment of the trial court awarding plaintiffs $107,397.01, plus interest and cost. This dispute concerns various notes executed by defendant in favor of plaintiffs. On June 10, 1970, defendant executed a mortgage in favor of plaintiff Profit Sharing Trust in the principal sum of $35,000, securing and incorporating four previous mortgage notes. On December 20, 1971, defendant executed a mortgage and mortgage note in favor of plaintiff Retirement Trust for the principal amount of $10,000. Finally, on February 6, 1979, Joseph P. Ciaramitaro executed a mortgage note for $5,000 in favor of the Retirement Trust. Although there is no indication that Ciaramitaro was signing this note in a representative capacity for defendant, a check for $5,000 was issued on the same day by the Retirement Trust to the order of defendant.
Ciaramitaro was a partner in Belle River, a *331 trustee of the Profit Sharing Trust and the Retirement Trust, and an officer of Visioneering, Inc. Apparently, Ciaramitaro exercised virtual control over both the trusts and Belle River. When Ciaramitaro died in 1980, defendant had not made any payments on either principal or interest for the above listed loans and mortgages. On January 8, 1982, plaintiffs filed a complaint in St. Clair County Circuit Court seeking to recover past due principal and interest payments. Judgment was entered in favor of plaintiffs following a bench trial.
Defendant raises a number of issues on appeal, which we have consolidated and restate as follows:
I. Whether defendant's motion to dismiss following plaintiffs' opening statement was erroneously denied.
II. Whether the trial court erroneously denied defendant's motion to dismiss at the close of plaintiffs' proofs.
III. Whether the statute of limitations bars recovery in part.
IV. Whether the notes and mortgages provide for usurious interest rates.
V. Whether the mortgages were rendered nullities by a lack of mutuality of obligation and/or by the statute of frauds.
VI. Whether defendant is liable on the note of February 6, 1979.
VII. Whether the failure to apportion damages between plaintiffs presents reversible error.
We first consider whether defendant's motion to dismiss following plaintiffs' opening statement should have been granted. In Bell v Merritt, 118 Mich App 414, 418; 325 NW2d 443 (1982), this Court stated:
"A directed verdict after opening statement is proper *332 only when the opening statement plus the pleadings fail to establish plaintiff's right to recover. Ambros v Detroit Edison Co, 380 Mich 445, 453-455, 459-460; 157 NW2d 232 (1968)." (Emphasis added.)
Defendant maintains that plaintiffs allegedly failed in their opening statement (1) to specify the cause of action alleging breach of covenants in a mortgage and (2) to set forth the elements to support such a claim. However, plaintiffs' complaint clearly establishes that they were suing on promises to pay contained in the mortgages as well as the promissory notes. Since the pleadings adequately establish plaintiffs' right to recover, the granting of a directed verdict for lack of particularity in the opening statement would have been improper. Bell, supra. Accordingly, defendant's argument is without merit.
We next consider whether the trial court improperly declined to grant defendant's motion to dismiss at the close of plaintiffs' proofs. At the close of plaintiffs' proofs, defendant moved to dismiss for failure to show a right to relief under GCR 1963, 504.2. The trial court declined to grant the motion. GCR 1963, 504.2, by its own terms, authorizes a trial judge sitting as the trier of fact to defer consideration of such a motion until the close of all the evidence. Thus, we conclude that the trial judge could properly insist on waiting until the close of all proofs before rendering judgment.
We turn our attention next to the question of whether the period of limitation had run with respect to any portion of plaintiffs' claims. MCL 600.5807; MSA 27A.5807 provides that the period of limitation for actions founded upon covenants in mortgages is ten years, while the limitation period for actions arising out of promissory or mortgage *333 notes is six years. Each of the two mortgages which were used to secure the underlying notes herein contained the following covenant:
"[T]he mortgagor covenants with the mortgagee, while this mortgage remains in force, as follows:
"1. To pay said indebtedness and the interest thereon in the time and in the manner above provided."
The trial judge correctly held that these covenants were subject to the ten-year period of limitation.
Furthermore, "claims on an installment contract do not ordinarily accrue until the installment becomes due in the absence of an acceleration clause in the contract". Petovello v Murray, 139 Mich App 639, 645; 362 NW2d 857 (1984), citing MCL 600.5836; MSA 27A.5836. Thus, the statutory period of limitation runs separately as to each installment as it becomes due. Collateral Liquidation, Inc v Renshaw, 301 Mich 437, 444; 3 NW2d 834 (1942).
Plaintiffs filed their complaint on January 8, 1982. The June 10, 1970, mortgage provided that the first interest payment, totaling $2,800, was due on June 10, 1971. All other payments of interest and principal became due within ten years of the filing of the complaint. Thus, we limit our discussion to whether the statutory period of limitation was tolled as to the June 10, 1971, interest payment.
We first consider whether the period of limitation was tolled because of a fraudulent concealment. MCL 600.5855; MSA 27A.5855 provides as follows:
"If a person who is or may be liable for any claim fraudulently conceals the existence of the claim or the identity of any person who is liable for the claim from *334 the knowledge of the person entitled to sue on the claim, the action may be commenced at any time within 2 years after the person who is entitled to bring the action discovers, or should have discovered, the existence of the claim or the identity of the person who is liable for the claim, although the action would otherwise be barred by the period of limitations."
We do not believe that this statute is applicable as the testimony indicates that there was no concealment of the fact that the loans were in default. At trial, William Alexander testified that he had been a trustee of both trusts since 1975, had kept records for the trusts prior to 1975, and is a partner in Belle River. He further testified that he was aware that the loans were in default and discussed payment with Ciaramitaro.[1] Thus, at *335 least two of plaintiffs' trustees, Ciaramitaro and Alexander, were aware of the existence of the cause of action. Although their inaction may constitute a breach of their fiduciary duties, we do not believe it constitutes a fraudulent concealment since the cause of action was always known to plaintiffs and was never concealed.
However, plaintiffs, both at trial and on appeal, advance a second theory for the tolling of the period of limitation, namely the principles of estoppel. Plaintiffs rely on Nahikian v Mattingly, 265 Mich 128; 251 NW 421 (1933). In that case, the defendant occupied the positions of president, director, and general manager, and had various patents placed in his name when those patents rightfully belonged to the corporation. The defendant raised a statute of limitations defense, but the Supreme Court ruled he was estopped from raising it:
"Considering the dominance of defendant, the trust relation under which the patents were taken in his name, the evident understanding that the patents belonged to the company, at least until the royalty contract was made in 1929, estops defendant from invoking the statute of limitations." 265 Mich 133.
We recognize that Nahikian arose under a different set of facts and involved a corporation suing its fiduciary directly, while in the case at bar defendant was not a fiduciary of plaintiffs. However, we believe that the principle of estoppel nevertheless applies.
*336 As indicated by the testimony of Alexander quoted in footnote 1, supra, Ciaramitaro was able to use his position and influence in controlling plaintiffs to prevent plaintiffs from bringing suit on the defaulted mortgages. At the same time, Ciaramitaro was defendant's agent and, according to Alexander, possessed the largest interest in defendant, approximately 20%. Thus defendant was able to benefit by virtue of the actions, or inactions, of its agent who possessed a fiduciary relationship with plaintiffs and, it appears, had de facto control over plaintiffs. We agree with the trial court that the facts surrounding Ciaramitaro's involvement are sufficient to justify applying the doctrine of estoppel.
We, therefore, conclude that defendant is estopped from raising the statute of limitations as a defense to the June 10, 1971, interest payment and affirm the trial court's disposition of this issue.
We now turn to the issue of whether the loans carried usurious interest rates and, if so, whether federal law preempts our state usury statutes in this case. The learned trial judge concluded that the Employee Retirement Income Security Act (ERISA), 29 USC 1001 et seq., preempts state usury laws when applied to employee benefit plans subject to ERISA. We disagree and reverse.
Before considering whether the state usury statutes are preempted, we must answer the more basic question of whether the loans in question violate those statutes. MCL 438.32; MSA 19.15(2) provides:
"Any seller or lender or his assigns who enters into any contract or agreement which does not comply with the provisions of this act or charges interest in excess of that allowed by this act is barred from the recovery of any interest, any official fees, delinquency or collection *337 charge, attorney fees or court costs and the borrower or buyer shall be entitled to recover his attorney fees and court costs from the seller, lender or assigns."
MCL 438.31; MSA 19.15(1) limits the rate of interest on these mortgages to seven percent per annum. MCL 438.101; MSA 19.21 permits the computing of interest at a rate not exceeding ten percent (or the amount specified in the mortgage) on any due and unpaid installments of interest, but not principal.
The December 20, 1971, mortgage provided for interest at a rate of seven percent per annum on the unpaid principal, and interest at eight percent per annum on any overdue principal and interest. To the extent that this instrument provided for interest at eight percent per annum on overdue principal, it was usurious. The June 10, 1970, mortgage provided for interest at eight percent per annum on the unpaid principal and for interest at the rate of seven percent per annum on all overdue principal and interest. To the extent that this instrument set the interest at eight percent per annum on principal and provided for interest on overdue principal, it violated the usury statute.[2]
Having concluded that MCL 438.32; MSA 19.15(2) bars recovery of part of the interest payments, we must now determine whether that statute is preempted by ERISA. 29 USC 1144 provides in pertinent part as follows:
*338 "(a) Except as provided in subsection (b) of the section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title. This section shall take effect on January 1, 1975.
"(b)(1) This section shall not apply with respect to any cause of action which arose, or any act or omission which occurred, before January 1, 1975.
* * *
"(c) For purposes of this section:
"(1) The term `State law' includes all laws, decisions, rules, regulations, or other State action having the effect of law, of any State. A law of the United States applicable only to the District of Columbia shall be treated as a State law rather than a law of the United States.
"(2) The term `State' includes a State, any political subdivisions thereof, or any agency or instrumentality of either, which purports to regulate, directly or indirectly, the terms and conditions of employee benefit plans covered by this subchapter."
Our research has failed to reveal any decision in any jurisdiction which construes this preemption provision as applied to state usuary laws. However, the United States Supreme Court, in Shaw v Delta Air Lines, Inc, 463 US 85, 98; 103 S Ct 2890; 77 L Ed 2d 490 (1983), concluded that the preemption provisions were to be given broad applicability:
"In fact, however, Congress used the words `relate to' in § 514(a) in their broad sense. To interpret § 514(a) to preempt only state laws specifically designed to affect employee benefit plans would be to ignore the remainder of § 514. It would have been unnecessary to exempt generally applicable state criminal statutes from preemption *339 in § 514(b), for example, if § 514(a) applied only to state laws dealing specifically with ERISA plans."[[3]]
However, the Court in Shaw was considering a statute very much different than the usury statute involved in the present case. The statute in Shaw was a New York statute which prohibited discrimination in employee benefit plans on the basis of pregnancy. Although the Court explicitly stated that state statutes would be preempted even if they dealt with subjects not directly covered by ERISA, 463 US 98, the Court did note that some state statutes would not be sufficiently related to a benefit plan to warrant preemption:
"Some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law `relates to' the plan. Cf. American Telephone and Telegraph Co v Merry, 592 F2d 118, 121 (CA 2, 1979) (state garnishment of a spouse's pension income to enforce alimony and support orders is not preempted). The present litigation plainly does not present a borderline question, and we express no views about where it would be appropriate to draw the line." 463 US 100, fn 21.
Although the Supreme Court declined to offer a view on which state statutes would be outside the scope of the ERISA preemption provisions, a district court has concluded that ERISA does not preempt general state contract law:
"Regulation of contract falls within the realm of state law. The involvement of a pension plan is a remote rather than a central consideration in this case. The central factor is the contract negotiated at arms-length by Sonotone, Pindyck, Gould and the Union. Thus, this Court concludes that ERISA does not apply in the instant case because relevant state laws only in the *340 most remote and peripheral manner touch upon pension plans." Gould, Inc v Pension Benefit Guaranty Corp, 589 F Supp 164, 168 (SD NY, 1984).
In Gould, Sonotone Corporation (the contributing employer) entered into a settlement agreement, whereby it agreed to pay the pension fund $188,000. The plaintiff guaranteed this obligation to the extent of $100,000. When Sonotone defaulted, the plaintiff commenced an interpleader action, as there was a dispute as to whether the pension fund or individual claimants should receive the money. The pension fund counterclaimed for interest and contended that New York law precluding prejudgment interest unless a guaranty agreement was breached was preempted by 29 USC 1144. the court found no breach of the guaranty agreement and that ERISA did not preempt state law and, therefore, the surety was not liable for interest.
We believe that the Gould decision is in accord with the Supreme Court decisions and properly interprets ERISA. We, therefore, apply the Gould reasoning to the case at bar and conclude that ERISA preemption provisions are not applicable to the case at bar.
Any connections between the usury statute and ERISA is very tenuous. ERISA was designed to protect the interests of employee benefit plan beneficiaries. 29 USC 1001(b) and 1001(c). Usury laws, on the other hand, do not specifically concern benefit plans. They are general commercial laws designed to "protect the necessitous borrower from extortion". Wilcox v Moore, 354 Mich 499, 504; 93 NW2d 288 (1958).
We recognize that usury laws do affect benefit plans, in some cases, by limiting the investment options of the plans' trustees. That is, a prudent investor might choose not to make certain investments *341 even at the maximum interest rate permitted under the usury laws. However, we cannot conclude that Congress intended to permit benefit plans to escape the control of our usury laws. If plans subject to ERISA are exempted from state usury laws, then those usury laws are rendered meaningless as a borrower unable to obtain a loan at the maximum legal rate could approach a trust fund subject to ERISA and negotiate a loan which would otherwise be usurious.[4]
If the footnote in the Shaw, supra, opinion, which was quoted above, has any applicability, then it surely applies to the case at bar. We, therefore, conclude that the trial court erred in determining that ERISA preempted state usury laws where the lender was an employee benefit plan subject to ERISA.
Defendant's next claim is that the mortgages were rendered nullities due to a failure to comply with the statute of frauds and/or for a lack of mutuality of obligation.
It is unclear from defendant's brief whether it is raising the statute of frauds defense as to the June 10, 1970, mortgage only or as to both mortgages. For purposes of our discussion, we will assume that both mortgages are being challenged.
MCL 566.132; MSA 26.922 provides in pertinent part:
"In the following cases an agreement, contract or promise shall be void, unless that agreement, contract, or promise, or a note or memorandum thereof is in writing and signed by the party to be charged therewith, or by a person authorized by him:
"(a) An agreement that, by its terms, is not to be performed within 1 year from the making thereof."
*342 Defendant erroneously claims that plaintiffs are "the [parties] to be charged". Since plaintiffs are seeking to enforce the mortgages, defendant is the party being charged. Furthermore, both mortgages were signed by representatives of defendant. There is no violation of the statute of frauds.
Defendant also maintains that these mortgages lacked mutuality of obligation. This argument was never raised in the trial court and, therefore, has not been preserved for appeal. In any event, these mortgages were not illusory and did not lack consideration.
Defendant next argues that it cannot be held liable on the February 6, 1979, note. On February 6, 1979, Ciaramitaro, in his individual capacity, executed a mortgage note for $5,000 in favor of the Retirement Trust. On the same day, the Retirement Trust issued a check to Belle River for $5,000. Alexander, defendant's accountant, testified that Ciaramitaro took out the loan in order to cover defendant's overdrawn checking account. The Retirement Trust's accounting records apparently showed that this loan was made to defendant. Moreover, defendant entered the transaction as a loan in its books on February 6, 1979, and its bulk sales affidavit dated November 30, 1981, indicated that the $5,000 was an outstanding loan from the Retirement Trust.
Defendant argues that the note signed by Ciaramitaro evinces only an obligation of Ciaramitaro in his individual capacity to pay the Retirement Trust $5,000. This note certainly evinces such an obligation. However, the mere existence of this note does not necessarily bar a finding that an oral contract existed between defendant and the Retirement Trust, whereby the Retirement Trust loaned defendant $5,000.
In our opinion, the check to defendant from the *343 Retirement Trust, coupled with Alexander's testimony that this was intended as a loan to defendant, provided sufficient evidence to find that an oral contract did exist between defendant and the Retirement Trust. However, the only evidence of this contract, independent of Ciaramitaro's separate obligation, was that defendant promised to pay the Retirement Trust $5,000. There is no evidence of any additional terms, i.e., there is no indication that defendant agreed to pay interest on this amount. The Retirement Trust is not seeking to enforce the note against Ciaramitaro and the only evidence of the oral contract between defendant and the Retirement Trust is the check, the bulk sales agreement, and Alexander's testimony. Since this evidence only shows an obligation to repay $5,000, we conclude that the contract can only be enforced to the extent of $5,000. The trial court's award of interest is vacated.
Finally, defendant argues that the trial court should have apportioned damages as to each plaintiff rather than alloting a lump sum to both plaintiffs. We find this issue to be so frivolous as not to merit discussion.
Affirmed in part and reversed in part. This case is remanded to the trial court for entry of an amended judgment consistent with this opinion. We do not retain jurisdiction. No costs, neither party having prevailed in full.
NOTES
[*] Circuit judge, sitting on the Court of Appeals by assignment.
[1] Alexander testified as follows:
"Q. Mr. Alexander, did you, as financial officer of Visioneering and a trustee of these trusts since 1975, attempt to bring a lawsuit for the collection of any of these?
"A. I was not a financial officer of Visioneering, only after Joe's death in 1980.
"Q. I apologize, I will rephrase the question.
"Since you are a trustee of both of the trusts since 1975, have you attempted to bring a lawsuit for the collection of these funds?
"A. No.
"Q. Why not?
"A. Because it was controlled by Joseph Ciaramitaro.
"Q. How was it controlled by him?
"A. Well, he was the one that run the whole thing.
"Q. You were a trustee?
"A. I worked for him.
"Q. Did you talk to him about it?
"A. Yes, we discussed the payment.
"Q. Did you ever demand payment on these notes?
"A. No.
"Q. Now, there was no payment on any of these notes at any time?
"A. No.
"Q. Did you treat that in your financial records in any way?
"A. As far as whose records?
"Q. As far as those records of the trust that you were creating, from time to time did you in any way docket, book, journalize, or otherwise retrieve the fact there had been no payment on these transations and some cases fifteen years?
"A. It was a matter of record, it shows on the books it was not paid.
"Q. Did you ever write them off the books?
"A. No.
"Q. Why not?
"A. I was told by Mr. Ciaramitaro they were going to be paid. He gave me the assurance they were going to be paid."
[2] The trial court relied on Michigan Mobile Homeowners Ass'n v Bank of the Commonwealth, 56 Mich App 206; 223 NW2d 725 (1974), for the proposition that the usurious nature of a contract will be determined at the time that the usury defense is asserted rather than as of the time the contract is made. The trial court further concluded that the interest rates in the mortgages, although usurious when written, are now permissable. Although the trial court cites to no statutory authority, we presume that it relied upon MCL 438.31c(2); MSA 19.15(1c)(2). In any event, we do not read Michigan Mobile Homeowners as standing for that proposition. Rather, we believe that if a loan is usurious at the time of its creation, it remains usurious.
[3] Section 514 of ERISA is complied at 29 USC 1144.
[4] We note that the criminal usury law, MCL 438.41; MSA 19.15(51), rendering felonious interest rates in excess of 25% per annum, would likely be enforceable under 29 USC 1114(b)(4).