Continental Mortg. Investors v. Sailboat Key, Inc.
395 So. 2d 507 (1981)
Rule of Law:
In an interstate commercial loan transaction, courts will honor a contractual choice of law provision, even if the chosen law permits an interest rate that would be usurious in the forum state, so long as the chosen jurisdiction has a normal and substantial relationship to the transaction.
Facts:
- Continental Mortgage Investors (Continental) is a Massachusetts business trust with its sole office and principal place of business in Boston.
- Sailboat Key, Inc. (Sailboat Key) is a Florida-based real estate development corporation.
- In late 1969, Sailboat Key applied for a $3.5 million loan from Continental through a Florida-based loan originator.
- Continental's trustees approved the loan in Boston and sent a commitment letter to Sailboat Key.
- The loan documents were executed by the parties in Boston, Massachusetts on January 22, 1970.
- The loan agreement, note, and mortgage all contained a choice of law provision specifying that Massachusetts law would govern the transaction.
- The note was made payable at Continental's office in Boston.
- The loan's effective interest rate was permissible under Massachusetts law but would be considered criminally usurious under Florida law.
Procedural Posture:
- Fidelity Mortgage Investors sued Sailboat Key and Continental in a Florida trial court to foreclose on a first mortgage.
- Sailboat Key filed a cross-claim against Continental, alleging Continental's loan violated Florida's usury laws.
- The trial court, applying Florida law, found the loan usurious and entered a judgment against Continental for twice the amount of interest charged.
- Continental, as appellant, appealed to the District Court of Appeal, Third District of Florida.
- The District Court of Appeal affirmed the trial court's judgment, holding that Florida's public policy against usury required the application of Florida law.
- Continental, as petitioner, sought a writ of certiorari from the Supreme Court of Florida to review the appellate court's decision.
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Issue:
In an interstate loan agreement, does a contractual choice of law provision selecting the law of a foreign state govern the issue of usury, even if the interest rate violates the forum state's usury laws, when the selected state has a normal relationship to the transaction?
Opinions:
Majority - Sundberg, Chief Justice
Yes. In a commercial interstate loan transaction, a choice of law provision will be honored if the chosen jurisdiction has a normal relationship to the transaction, even if its laws validate an interest rate that would be usurious under Florida law. The court rejected the argument that Florida's usury statutes represent a strong public policy that must override the parties' contractual choice. It noted that the usury laws are filled with exceptions, suggesting the policy is not fundamental, particularly in a commercial setting. The court adopted the traditional rule of validation from Seeman v. Philadelphia Warehouse Co., which prioritizes upholding the parties' justified expectations and promoting commercial stability. The 'good faith' of the parties is not a separate inquiry but is satisfied by the existence of a 'normal relation' between the transaction and the chosen jurisdiction. Here, Continental's status as a Massachusetts trust, its Boston domicile and principal place of business, the execution of the loan in Boston, and the place of payment in Boston all established a vital, natural, and normal relationship with Massachusetts, validating the parties' choice of Massachusetts law.
Analysis:
This decision aligns Florida with the overwhelming majority of jurisdictions by adopting the 'rule of validation' for usury in conflict of laws cases. It strongly favors party autonomy and commercial predictability in multistate transactions over the parochial application of the forum state's regulatory policies. The court's clarification that 'good faith' is effectively subsumed into the 'normal relationship' test provides a more objective and workable standard, reducing uncertainty for lenders and borrowers contracting across state lines. This holding signals that Florida courts will not use public policy as a pretext to invalidate freely-bargained commercial agreements with significant out-of-state connections.
