GREGLON INDUSTRIES, INC.
A. Hunter BOWMAN et al.
Argued Jan. 17, 1990.
Certification Denied May 10, 1990.
[21 Conn.App. 132] A. Hunter Bowman and Carolyn R. Bowman, pro se.
Myra L. Graubard, Stamford, for appellee-appellant (plaintiff).
Before BORDEN, DALY and EDWARD Y. O'CONNELL, JJ.
The plaintiff brought this action against the defendants, A. Hunter Bowman (Bowman) and his wife, Carolyn R. Bowman, to recover money loaned on a promissory note. In their answer, the defendants alleged several special defenses, including that the interest rate charged on the promissory note was usurious. [21 Conn.App. 133] The defendants appeal from the judgment of the trial court accepting an attorney trial referee's recommendation that a $50,000 judgment, the face amount of the challenged promissory note, be rendered for the plaintiff.  The defendants claim that, with respect to their special defense of usury, the trial court erred (1) in considering whether the plaintiff intended to violate General Statutes § 37-4,  and (2) in finding an absence of such intent by the plaintiff. We find no error.
The referee found the following facts. In April, 1982, W. Patric Gregory, president of the plaintiff corporation, advanced $50,000 to Bowman. This advance was evidenced by a promissory note in the face amount of $50,000, executed and delivered by both defendants, and payable to Gregory or his assigns. The note was prepared by a third party who was not instructed as to the interest rate. Gregory assigned the note to the plaintiff. The maturity date of the note was fifteen days from the date of execution, and its stated interest rate was 18 percent per annum. Shortly after the due date, Bowman wrote a check to the plaintiff for $50,000, which would have been accepted in full payment of the loan. Payment on this check was stopped, however, and the loan has not been repaid. At no time was there any discussion of interest between Gregory and the defendants. The plaintiff was not seeking interest on the loan, and Gregory had no intent to exact a usurious rate of interest.
[21 Conn.App. 134] I
The defendants first claim that the trial court erred in denying their special defense under General Statutes § 37-8.  They argue that under General Statutes § 37-4; see footnote 2, supra; a stated interest rate of more than 12 percent is per se usurious, and a lack of intent by the lender to charge in excess of the lawful rate of interest is irrelevant. The defendants contend that a lender's intent to exact more than the legal rate of interest is
applicable only for violations of General Statutes § 37-5.  We disagree.
Connecticut's usury statutes provide a particularly severe penalty. Stelco Industries, Inc. v. Zander, 3 Conn.App. 306, 308-309, 487 A.2d 574 (1985); see also Scientific Products v. Cyto Medical Laboratory, 457 F.Supp. 1373, 1377-78 (D.Conn.1978). Under General Statutes § 37-8, a lender who loans money at an illegal rate of interest is barred from recovering both interest and principal. Because of the penal nature of this forfeiture, the statute has been strictly construed; see Stelco Industries, Inc. v. Zander, supra, 3 Conn.App. at 309, 487 A.2d 574 (usury statutes do not apply to sale of goods on credit); and our cases have made the issue of the lender's intent a relevant inquiry. "[A] lender can evade the usury bar by showing that he had no intent to extract more than the lawful rate of interest." Maresca v. DeMatteo, 6 Conn.App. 691, 696, 506 A.2d 1096 (1986).
The relevance of intent in transactions involving usurious noninterest-bearing notes, where the illegal interest[21 Conn.App. 135] is embedded in the face amount of the note, is well-settled. A showing of lack of intent has been considered in various lending arrangements otherwise violative of § 37-5, including notes with no stated rate of interest; see, e.g., Wesley v. DeFonce Contracting Corporation, 153 Conn. 400, 405-406, 216 A.2d 811 (1966); Atlas Realty Corporation v. House, 123 Conn. 94, 100-102, 192 A. 564 (1937); notes in which the stated interest is at or below the legal rate; see, e.g., Bochicchio v. Petrocelli, 126 Conn. 336, 339, 11 A.2d 356 (1940); Mutual Protective Corporation v. Palatnick, 118 Conn. 1, 4-5, 169 A. 917 (1934); and notes that include payments characterized by the lender as something other than interest. See, e.g., Community Credit Union, Inc. v. Connors, 141 Conn. 301, 307, 105 A.2d 772 (1954) (interest described as a fine); Douglass v. Boulevard Co., 91 Conn. 601, 604-605, 100 A. 1067 (1917) (interest described as a commission).
The defendants argue that this line of cases does not extend to violations under § 37-4. They claim that because § 37-4 applies to notes that are clear and unambiguous on their faces, the lender's intent in these circumstances is irrelevant. We are not persuaded.
Section 37-4 is a blanket prohibition against lending money at a rate in excess of 12 percent.  Section 37-5 prohibits a lender from circumventing the § 37-4 interest cap by accepting either a noninterest-bearing note or a low interest-bearing note whose actual rate of interest is greater than 12 percent. These statutes read together, therefore, operate to prohibit usurious loans no matter what their form. Under our usury laws, it is of no import whether the illegal rate is explicit on the face of the note or included in its face value.
[21 Conn.App. 136] Because of the relation between these provisions, a violation of § 37-5 is also a violation of § 37-4. As a result, cases addressing noninterest-bearing notes in violation of § 37-5 have referred to both §§ 37-4 and 37-5; see Wesley v. DeFonce Contracting Corporation, supra; Mutual Protective Corporation v. Palatnick, supra; Contino v. Turello, 101 Conn. 555, 126 A. 725 (1924); and solely to § 37-4. See Atlas Realty Corporation v. House, supra.
A particularly instructive case on the relevance of intent under § 37-4 is Golden v. Lyons, 151 Conn. 21, 193 A.2d 487 (1963). In Golden, a note evidencing a $13,970 loan had a face value of $20,000. Id., at 23, 193 A.2d 487. The note called for monthly payments of interest at 12 percent per annum and ...