Case Name: STEWART et al. v. MILLER & COMPANY INC.
Court: Supreme Court of Georgia
Jurisdiction: Georgia
Decision Date: 1926-02-26
Citations: 161 Ga. 919
Docket Number: Nos. 4829, 4830
Parties: STEWART et al. v. MILLER & COMPANY INC.
Judges: All the Justices concur, except Russell, O. J., and Hines, J., dissenting.
Reporter: Georgia Reports
Volume: 161
Pages: 919–934

Head Matter:
STEWART et al. v. MILLER & COMPANY INC.
Nos. 4829, 4830.
February 26, 1926.
Rehearing denied February 27, 1926.
Little, Powell, Smith & Goldstein, King, Spalding, MacDougald & Sibley, and Troutman & Troutman, for Stewart et al.
Anderson, Rountree & Crenshaw and W. H. Mewbourne, contra.

Opinion:
Per Curiam.
(After stating the foregoing facts.) The controlling question in this case is, was the transaction between the parties, as disclosed by the evidence, usurious? It is contended on the part of the plaintiffs in error that the transaction was usurious. This contention is denied by the defendant in error. It is therefore necessary to examine the evidence and to determine whether or not as a matter of law the contract or agreement between the parties is infected with usury. Under the law of Georgia, where a transaction is usurious all interest is forfeited, but no other forfeiture shall be occasioned. Acts 1916, p. 48, 9 Park's Code Supp. 1922, § 3438. The Georgia law on the subject of what interest can be lawfully charged is contained in the Civil Code of 1910, § 3436, as follows: "It shall not be lawful for any person, company, or corporation to reserve, charge, or take for any loan or advance of money, or forbearance to enforce the collection of any sum of money, any rate of interest greater than eight per centum per annum, either directly or indirectly by way of commission for advances, discount, exchange, or by any contract or contrivance or device whatever." The question to be determined is whether the transaction in the present case was a loan by G. L. Miller & Co. Inc. to James A. Stewart, and whether, if a loan, it was infected with usury on account of the discounts and deductions made from the amount loaned; or whether, as contended by the defendant in error, the agreement between the parties in writing, the substance of which is set out in the statement of facts, was merely an "underwriting" agreement by which the defendant in error, for a certain consideration, was to perform certain services, and to advance a certain amount of money to the plaintiff in error. Of course, if the agreement was a mere device or subterfuge by which the defendant in error was permitted to charge a higher than the lawful rate of interest allowed in this State for a loan of money, the agreement would be usurious, and the company could collect no interest at all. But its insistence is that this is an underwriting agreements and therefore it becomes necessary, in the view we take of the case, to consider what an underwriting agreement is. "Underwriting means an agreement made before the shares are brought before the public, that, in the event of the public not taking all the shares or the number mentioned in the agreement, the underwriter will take the shares which the public do not take." 1 Cook on Corp. (7th ed.) 74, § 14; 3 Bouv. Law Diet. (Rawle's ed.) 3352; Machen's Mod. Law of Corp. § 419. Underwriting of corporate bonds has been defined "an agreement by the subscriber, based on a consideration, to insure the sale of the bonds subscribed at a stipulated price." 1 Fletcher's Cyc. Corp. § 442. "An underwriting agreement is to be distinguished from a subscription agreement whereby the subscribers themselves become the owners of the stock." Id. § 444. This same author declares that it is usual under an underwriting agreement to pay a commission to the underwriter for his services in selling the bonds. Ib. § 452. "Where an agreement provides .for the underwriting of shares at a discount of a certain per cent., the word 'discount' is.to be construed as equivalent to the term 'commission.' " Ib. § 453, and note. In the case of Busch v. Stromberg-Carlson Tel. Mfg. Co., 217 Fed. 328, 331 (133 C. C. A. 244), it was held that an underwriting contract is not a contract to make a loan, but is one to insure the sale of bonds. "It is a contract to insure the sale of the bonds subscribed; and in case they are not sold before the installments fall due, then to purchase and pay for them at par. It is an underwriting, and not an agreement to loan money."
From a careful reading of the agreement or contract between the parties in this case it will be observed that the defendant in error is referred to throughout the agreement as the . "underwriter," and not as a lender. In the agreement it is provided: "In order that the underwriter may oiler said bonds on a basis to yield 7-1/2 per cent., it is hereby agreed by the owner that said underwriter shall deduct $6250 from the proceeds of said bond issue for the provision of such additional yield. . . In consideration of the discount received on said bonds by the underwriter, the underwriter assumes full responsibility for the sale of said bonds, and for the paying over and depositing, in the bank or banks selected, the $98,000 which the owner is to receive for said bonds, and agrees to supervise the progress of the construction of the building and make disbursements and payment of the proceeds of the bonds from time to time on vouchers for materialmen, contractors, subcontractors, laborers, or others, on the orders of the owner upon the receipt of the necessary waivers of liens, and affidavits which have the effect of waivers of liens, satisfactory to the underwriter, and shall generally supervise the erection of the building and the disbursement of the moneys employed in said building, to the end that this contract shall be carried out so as to fully protect the purchasers and holders of said bonds. The underwriter shall have the privilege of entering in and upon the premises of the building during the construction, for the purpose of examining the progress made and the material used, and shall have the privilege of having its engineers, architects, or contractors make periodical examination if such appears to it as necessary during the period of construction, provided such examination or inspections do not interfere with the workmen or construction progress," etc.
We are of the opinion, under the facts in this case, that it can not be said as a matter of law that this agreement was a mere device or subterfuge for charging more interest than that allowed by the laws of this State for a loan of money. On the contrary, it appears that under the agreement the underwriter was to perform certain services to the owner of the building, which if preformed were valuable; and it can not be said as a matter of law that the amount deducted from the total amount of the bonds was an unreasonable amount for the services to be performed. Under the evidence in the case the judge was authorized to appoint a receiver.
As the judgment of the court below is affirmed on the main bill of exceptions, the cross-bill of exceptions will be dismissed.
Judgment affirmed on the main hill of exceptions; cróss-hill dismissed.
All the Justices concur, except Russell, O. J., and Hines, J., dissenting.