Court Opinion

ID: 6544302
Source: CourtListenerOpinion
Date Created: 2022-07-19 22:18:19.499233+00
Date Added: 2024-06-11T15:55:55.418241
License: Public Domain

Riddick, J., (after stating the facts.) We are of the opinion that the defense of usury has not been established by the evidence. Our law visits on a lender who contracts for usurious interest,'however small, a forfeiture of his entire loan and the interest thereon. It follows from the plainest principles of justice that such a defensa should be clearly shown before the forfeiture is declared. For this reason, usury will not be inferred where, from the circumstances, the opposite conclusion can be reasonably and fairly reached. Berdan v. Trustees, 47 N. J. Eq. 8, 21 Atl. 40; Webb, Usury, p. 481. In this case it is claimed that Pettit acted as agent of Leonhard in making the loan, and that the Floods agreed to pay him for his services, in addition to the interest reserved .in the note, and this made the loan usurious. The evidence shows that Pettit had been acting generally as the agent of Leonhard, assisting him to loan money and looking after his other interests. We must take it as true that he acted for Leonhard to a certain extent in making this loan to the Floods, for it is so stated in the complaint; but it is clearly shown that he also acted for the Floods. This is shown by his conduct when Leonhard, not being satisfied with the security offered by the Floods, refused to make the loan. Pettit then, in order to obtain the loan for the Floods, signed the note for the Floods, and also induced Swanson to sign it. Pettit and Swanson thereby became liable with the Floods for the payment of the note. This indisputable fact conclusively shows that Pettit did not act altogether as the agent of Leonhard in procuring the loan. He certainly did not sign the note as agent of Leonhard; for this would, in effect, be Leonhard becoming surety on a note to himself. The contract by which the Floods agreed to pay Pettit for his services recites that Pettit had negotiated a loan for them, secured in part by his indorsement of their note, for which services the contract states they were to pay him a specified sum, but they have paid nothing. They did not agree to pay him for services performed for Leonhard, but for services performed for them. The circumstances do not satisfy us that there was usury in the loan, and we are of the opinion that such defense should be overruled. The complaint states, and the evidence shows, that the mortgage was made mainly to protect the sureties on the note of the Floods. Leonhard declined to make the loan on the mortgage security offered by the Floods. He made the loan on the credit of the sureties, Pettit and Swanson, and the mortgage was executed and delivered to him to protect the sureties. The pleadings of both parties state this to be true. Under these cmcumstances, Pettit was directly interested in the mortgage given for his benefit, and the acknowledgment taken before him was void. This being so, the mortgage could not legally be recorded, and the record thereof was without effect. Penn v. Garvin, 56 Ark. 511. But, though the acknowledgment was void, the mortgage was good between the parties, and valid against a voluntary conveyance; for, while an unrecorded mortgage, in this state, constitutes no lien as to third parties, still the mortgagor cannot relieve his property of a valid lien which exists on the property as to him by giving it away. As to one holding the property by a conveyance entirely voluntary, it would be presumed that the conveyance was made subject to the mortgage. Now, plaintiffs allege that the conveyance made by Henry and Catherine Flood to the Flood Brick & Tile Company and to Harry Flood were without consideration, and made to defraud the creditors of the Floods. A consideration is recited in each of these conveyances, but there is no other evidence thereof; and the question presented is whether the burden rested on the grantees to show a consideration for such conveyances, and, if so, whether the recitals in the deed, to which neither of the plaintiffs was a party, can be used as evidence against them. It has been several times decided by this .court that when the creditors of a vendor attack his conveyance as fraudulent, and introduce proof making out a prima facie case of fraud against the vendor, the burden of showing a consideration is on the vendee, and that in such a ease the recital in the deed is regarded as only res inter alios aeta, and not competent to prove a consideration as against the creditor of the vendor. Valley Distilling Co. v. Atkins, 50 Ark. 289; Foster v. Haglin, 64 Ark. 505, 43 S. W. 763. An examination of these cases will show that, as to the vendor, in each of them a prima facie case of fraud had been made out by the evidence. The court, applying the law to the case in hand, held that the burden of showing a consideration was on the vendee. It was not called on to consider whether evidence tending to cast suspicion on the conveyance, though not sufficient to establish fraud on the part of the vendor, would not put the burden on the vendee to show that there was some consideration for the conveyance. The court cannot be said to have expressed an opinion on that matter, for the question was not before it. Now, in this case it was not shown that Mood or his wife was insolvent at the time of the conveyances; but it was shown that they were in debt, and that there were many unpaid judgments against Flood. He and his wife could not borrow money on their own notes or on the mortgage offered by them, but were compelled to hire third parties to become sureties on their note in order to obtain a loan. After obtaining this loan, they sold the property mortgaged as security for the loan, in part to their son, and in part to a corporation of which Flood was president, and of which the only stockholders were himself, wife, and three sons. They have not paid the loan, but they and their vendees are now seeking to defeat the collection thereof on various grounds. The circumstances surrounding these conveyances to his son, and to a corporation owned and controlled by himself and family, are certainly sufficient to arouse suspicion and throw doubt upon them as legitimate transactions. We therefore think that the burden was on these vendees to show that their conveyances were based on a sufficient consideration. Whether or not there was such a consideration was a matter peculiarly within their knowledge, and when, under such circumstances, they offer no proof, the presumption arises that there was no consideration. There are cases that go further, and hold that, as against creditors of a grantor, his deed is regarded as voluntary until the payment of a consideration is shown. The rule of these courts is that a prima facie case is made for the party attacking the conveyance by showing that he was a creditor of the grantor at the time the deed was made, and the burden of showing a consideration is then cast upon party holding under the deed. “These decisions,” says Mr. Jones in his work on Real Property, “tend to the suppression of fraud.” Prescott v. Hayes, 43 N. H. 593; Lipscomb v. McClellan, 72 Ala. 151; Jones, Real Prop. § 310, and cases cited. We are not required to go so far as these cases go, but we do hold that, where the evidence not only shows that the plaintiff was a creditor at the time of the conveyance, but the circumstances are such as to raise a suspicion of fraud, and cast doubt upon the legality of the transaction, the burden is on him holding under the deed to show a consideration. Leaving out the question of fraud, our conclusion is supported in this case by another reason. Leonhard, by the note and mortgage, showed that he had a valid lien on the property as against Henry and Catherine Flood. The defendants, who claim as purchasers from them after the execution of the mortgage, must, in order to sustain their claim, show facts making such purchase superior to the rights of Leonhard, and to do this they must show a consideration for such purchase. The case of Challis v. German National Bank, 56 Ark. 88, is not in conflict with this ruling, for in that case the party claiming against the mortgagee proved a consideration, and there was no dispute on that point. As no proof was offered in this case tending to show a consideration for these conveyances except deeds, the recitals in which are not evidence against plaintiffs, we must presume that these conveyances were voluntary, and the grantee therein held subject to the lien of the mortgage. As to the claim against Searan, we think the chancellor rightly held that plaintiffs have no lien on the bi’icks sold by the Floods to him. The judgment as to him is affirmed. In other respects it is reversed and remanded, with an order to enter a decree forelosing the mortgage, and for other proceedings not inconsistent with this opinion.