Court Opinion

ID: 3946624
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:09:23.330701+00
Date Added: 2024-06-11T13:54:52.369541
License: Public Domain

I am constrained to dissent from the conclusion of the majority of the court in this case. Leaving out any question as to risk incurred by plaintiff in error in making the contract to build the house, and treating it as a naked loan of money, I am of opinion that no more was charged for the use of the money than the 10 per cent per annum allowed by law. The opinion of the majority gives a full and accurate statement of the case in so far as is necessary to the determination of the question, save that the testimony of the parties to the negotiation which led to the consummation of the contract is not set out. The majority were evidently of the opinion that this was not material, and I am inclined to the same view. The negotiations which result in the execution of a written contract are merged in the writing and the contents of the instrument (or instruments) must be construed by its language, viewed in the light of the circumstances which surround the transaction.
Our statute prohibits contracts for interest at "a greater rate than 10 per cent per annum." Under such a statute, it is clear that it is lawful to lend money for one or more years and stipulate for the payment of the interest at the highest rate allowed by law at frequently recurring intervals of less than a year. Barnes v. Worlech, 3 Croke, 25; Myer v. Muscatine, 1 Wall., 384; Tallman v. Truesdell, 3 Wis. 391; Mowry v. Shurnway,44 Conn. 493; Hawley v. Howell, 60 Iowa 79; Goodrich v. Reynold,31 Ill. 490; Cook v. Cartwright, 40 Ohio St. 248; Mowry v. Bishop, 5 Paige Ch., 98. Therefore, it would have been lawful for plaintiff in error to have lent the money to the defendant in error for ten years at the highest rate allowed by law and to have stipulated that the interest upon the entire amount of the principal should be paid at the end of each month. So it would have been lawful to have contracted for the payment of the interest upon the whole sum and also for the payment of a part of the principal at the end of the first month, and *Page 616 
for a like payment of interest on the balance of the principal and another installment of the principal at the end of the second month, and so on until the entire debt was discharged. So much we understand the majority opinion to concede. But such is not their construction of the contract. I understand their view to be that the contract for the loan stipulates that the monthly payments were not to be applied first to the interest for the month upon the unpaid principal and then the balance to the principal; but that only such proportion of the payment was to be appropriated to the interest as the interest upon the entire sum for ten years bore to the sum itself. I can not concur in this construction of the contract. If such was the intention of the parties, that intention is not clearly expressed. The language upon which stress is laid as leading to this conclusion will be hereinafter set out.
But to construe this language as indicating a proposal to stipulate that the payments should not be applied to the interest upon the whole of the principal due at their respective dates but only to a proportionate part thereof, as held in the majority opinion, is, as I think, with all due deference to my associates, to confuse a method of calculation with the terms of the contract itself. The testimony discloses nothing that was said during the negotiation between the parties, nor do I find anything in the contract itself, in which the negotiations were necessarily merged, which expressly declares the rule by which the payments should be applied. It is true the contract says that "the said thirty or fifty-five per cent per annum represents the interest on said deferred payments and all costs, trouble and expense incurred by the company and the risk during the same." The majority hold, and I am inclined to think correctly, that there was no cost, trouble, expense, etc., other than the mere loan of the money. Let it be treated therefore as if the contract read that the "thirty or fifty-five per cent represents the interest on the deferred payments." What the parties meant by "interest on the deferred payments" is not clear, but it seems to me that they intended merely to say that it represented the interest upon the money to be lent, and that they had no reference to the times at which the interest was to be paid. If they had meant that only upon payment of each installment the appropriation should be made first to the interest upon that installment only, the balance to the principal, they could easily have so expressed themselves. What the parties had in view was a loan of money for a long period of time, payable, principal and interest, in monthly installments, the plaintiff proposing to charge the highest rate of interest allowed by law, and the defendant agreeing to pay such interest. It was stated by the one and acquiesced in by the other that 55 per cent added to the principal and the sum divided by 120 would give the proper amount of each monthly payment under such a contract. Nothing was said as to the application of the payments, nor was it necessary that anything should be stipulated with reference thereto. By applying each monthly payment to the interest upon the whole of the principal then due, the contract was a legal one, and I think it should be so construed. *Page 617 
But there is another consideration to be weighed in the determination of this question. Let us, for illustration, suppose two cases. A lends C a sum of money to be repaid in equal monthly installments extending over a period of ten years and agrees that the interest, at the highest rate allowed by law, upon the amount of principal due at the end of each month, shall be then paid. A calculation is made upon this basis and notes are given for the monthly installments in such sum as upon the payment of all the notes will extinguish the debt under the contract agreed upon. I understand the majority to hold that this contract would be lawful. B lends C the same sum of money to be repaid in monthly installments running for the same period, the parties agreeing that the highest rate of interest allowed by law shall be charged upon the loan, but that only such proportion of the monthly installments shall be applied to the interest as the interest for the whole period bears to the principal; but in executing the notes for the several installments, each is given for the same amount, as in the case of the first supposed loan. I understand the majority to hold that the second contract, as evidenced by the several notes, is usurious. Now, as we have seen, interest is the compensation which the law allows to be charged for the use of money. Yet A and B each lend C the same sum of money and C gives each of them 120 notes for precisely the same amount for the payment of the loan with interest. A's loan is lawful, B's is usurious. If interest is compensation for the use of money, can it be that this first contract is legal and the second illegal as to the interest, when the same sum of money is lent in each case and is contracted to be repaid in 120 installments each of the same amount? The law looks to the substance of contracts and not to their form, and this principle is frequently applied in dealing with contracts claimed to be usurious. In determining the question of usury all devices are disregarded, and whenever the courts are satisfied that there is a charge contracted for merely for the use of money in excess of that allowed by law as interest, they treat it as usurious, although it may be covered under the guise of some additional and different consideration. If the substance of the contract is to be looked to, I do not see how it can be held that the contract in the first case supposed is lawful, while that in the second is unlawful.
But I would not be misunderstood about this matter. In the second case, I think C would not be without a remedy. If he could show that the contract was that the interest upon the entire principal was not to be paid at the end of each month but that only a proportionate part thereof was to be then so paid, and that either by fraud or mistake the notes were drawn for a larger amount than was contracted for upon a proper calculation, he would be entitled, upon proper pleading and proof, to have the contract reformed and to be relieved of the payment of so much of the sum represented by the notes as was not properly chargeable under the original contract. *Page 618 
                    ON MOTION FOR REHEARING.               Opinion Delivered October 21, 1901.