Moran v. Kenai Towing and Salvage, Inc.

Kenai Towing and Salvage (Kanai) (plaintiff) owned real property with an improved structure. In September 1968, Kanai faced financial hardship and sought a loan from Jack Moran (defendant). As security for the loan, Kanai conveyed title of the property to Moran. Moran and Kanai then entered into a lease-purchase agreement. The agreement established that at the conclusion of the lease term and upon the fulfillment of the lease obligations, Kanai would be entitled to reobtain the property. In October 1968, Moran loaned Kenai additional funds, and the parties entered into a new lease-purchase agreement, which contained a provision requiring Moran to unconditionally convey title to Kenai upon the conclusion of repayment. The total amount secured by the loan was $19,767.26. Moran estimated the value of the property to be between $75,000 and $100,000. At the time, the maximum allowable interest rate was 8 percent. There were no negotiations contemplating the absolute sale of the property to Moran, nor did Moran express interest in acquiring the property outright and becoming its permanent owner. In July 1969, a fire destroyed the structure on the property. Moran and Kenai disputed their respective entitlements to the insurance proceeds. Moran alleged that as owner, he was entitled to the full amount of the insurance proceeds. Kenai disagreed, filing a declaratory action asserting that Moran was only entitled to the proceeds in an amount not to exceed the total amount of the funds loaned, less a reduction for usury. The trial court found in favor of Kenai, but did not apply a usury reduction. Moran appealed. Kenai filed a cross-appeal based on the trial court’s failure to apply usury.