Northway Lanes v. Hackley Union National Bank & Trust Co.

Under the National Bank Act, if a national bank engaged in usury, or charged an excessive interest rate on a loan, the borrower could bring an action for double the amount of interest. Ralph Kuris and Bessie Shull comprised a copartnership, Northway Lanes (plaintiff), a bowling alley. Northway Lanes borrowed $600,000 from Hackley Union National Bank & Trust Company (Hackley) (defendant) for construction and operation of the bowling alley. The loan was split into two notes, a mortgage note and an installment note. The mortgage note was for $350,000 at 7 percent interest to be repaid over seven years. The installment note was for $337,500, which included $87,500 in interest reserved in advance by Hackley to be repaid over five years. The interest for the installment note was calculated at 7 percent of the principal amount multiplied by five years. The maximum rate of interest for commercial real estate loans permitted under Michigan law was 7 percent. Hackley charged Northway Lanes $1,595 to cover the closing costs of the loans. Collecting closing costs on loans was a standard, legal practice for savings-and-loan associations in Michigan. Hackley also imposed a $30,000 prepayment charge to the terms of the notes. Later, Kuris and Shull created Marshull, Incorporated (plaintiff) and conveyed the real estate owned by Northway Lanes to Marshull. Marshull paid both notes in full. Subsequently, Kuris and Shull as Northway Lanes brought an action in the district court, alleging that the interest reserved in advance, the imposition of closing costs, and the prepayment charge each constituted usurious interest in violation of the National Bank Act. The district court entered judgment in favor of Hackley. Northway Lanes and Marshull appealed.