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Small v. Ellis

Supreme Court of Arizona

December 13, 1961

W. J. SMALL, husband of Hazel M. Small, dealing with his sole and separate property, Appellant,
v.
George L. ELLIS and Rachael M. Ellis, his wife, Appellees.

[90 Ariz. 195] Clark & Coker, Phoenix, for appellant.

Evans, Kitchel & Jenckes, Phoenix, for appellees.

PATTERSON, Judge.

This is an appeal by plaintiff from a judgment of the Superior Court of Maricopa County in an action upon a promissory note to which the defense of usury was sustained. The material facts of the case are not in dispute. The plaintiff loaned defendants $210,000 in consideration of which defendants executed a promissory note for $246,750. The promissory note containing an acceleration clause reads as follows:

'Promissory Note

'$246,750.00

Phoenix, Arizona,

May 28, 1952

'As Hereinafter Stated, for value received, we promise to pay to W. J. Small, or order, the sum of Two Hundred Forty-Six Thousand, Seven Hundred Fifty ($246,750.00) Dollars, with interest on the unpaid principal balance at the rate of two and one-half (2 1/2%) per cent per annum, principal and interest payable in lawful money of the United States of America at Kansas City, Missouri.

'This note is payable in six (6) annual principal installments of Forty-One Thousand, One Hundred Twenty-Five ($41,125.00) Dollars each, plus interest on the unpaid principal balance hereof at the rate of two and one-half (2 1/2%) per cent per [90 Ariz. 196] annum, the first payment of principal and interest to be payable on June 1, 1953, and payments of like principal with interest on the lst day of June of each and every year thereafter until said principal sum with interest has been paid in full.

'Should the makers fail to pay the installments of principal hereon as above provided, plus interest, at the time the same become due, the holder may, at his election, declare the full amount then owing on this note, with interest, to be immediately due and payable.

Page 235

'If this note be placed in the hands of an attorney for collection, then the makers agree to pay, in addition to the principal and interest due hereon, an amount as collection fees equal to ten (10%) per cent of the principal and interest then due on this note; in case suit or action is instituted to collect this note or any portion hereof, the makers promise to pay such additional sum as the court may adjudge reasonable as attorney's fees in said suit or action, together with all costs of suit.

'This note is secured by a Realty and Chattel Mortgage of even date herewith.

'George L. Ellis

George L. Ellis

Rachael M. Ellis

Rachael M. Ellis'

The amount appearing upon the face of the note was arrived at by adding to the amount actually loaned in the sum of $210,000 the additional amount of $36,750 which represented capitalized interest at 5% per annum. As a result the note being predicated upon a loan of $210,000 provided for repayment of this amount plus 5% capitalized interest plus 2 1/2% interest on the entire amount. So calculated the note would have produced a total of 7.94% interest per annum average upon the actual amount loaned had there been no default. Defendants defaulted with respect to the 1955 installment and as a consequence the plaintiff exercised his right to accelerate the note. He demanded only the balance due of the amount actually loaned plus interest thereon at 7 1/2%.

It is admitted that upon acceleration before maturity the note provides for payment of interest on the loan at a greater rate than 8% per annum. The trial court found and concluded that the note because of its acceleration clause was usurious and under A.R.S. ยง 44-1203 the court gave plaintiff judgment for only the principal amount loaned and credited all payments made by ...


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