Court Opinion

ID: 9712670
Source: CourtListenerOpinion
Date Created: 2023-08-26 04:58:16.671041+00
Date Added: 2024-06-11T18:23:13.670915
License: Public Domain

Thomas Gallagher, Justice
(dissenting).
I am of the opinion that the defense of usury, while not available to Industrial Credit Company,1 is available to plaintiffs, whose liability *36for the corporate indebtedness was direct and primary rather than secondary. In states where, by statute, a plea of usury is not available to a corporation, it is well settled that an individual secondarily liable for the corporate debt likewise may not invoke the plea in litigation relative thereto.2 The basis for the rule is that since the debt was valid when contracted by the corporation, it could not become invalidated by the subsequent creation of an individual’s secondary liability for its payment.3 The rule has been applied to endorsers, guarantors, and accommodation signers of corporate obligations4 except where evidence of surrounding circumstances clearly indicated an intent that the liability should be primary.5 Where the individual’s liability for the corporate debt is direct and primary such as that of the comaker of a note or the co-obligor of an indebtedness or is direct and primary because the agreement creating the liability makes it so, the plea of usury may be invoked by the individual. In such cases,6 the individual’s liability arises by virtue of an undertaking or agreement in which he is in privity with the obligee so that if the debt involved is usurious it is invalid as to such individual at the time of its creation.7 Thus as stated in Amity Finance Corp. v. Crock, 15 Ohio L. Abs. 243, 245:
«* * * The theory of the decisions is that the contract of the corporation to pay in excess of the lawful rate of interest is valid and the *37sureties are Hable because assuring compHance with a vaHd contract. But in the instant case * * * [the comakers] were joint makers * * * of the note .sued upon and were primarily Hable. * * *
* * * * *
“The obHgation * * * was several as weH as joint and * * * [the individual defendants] did not assume an obHgation or contract of the * * * [corporation] but contracted a HabiHty of their own.
“Upon an action to require the individuals to pay * * * the note, they are entitled to assert any defense which the law accords them * *
Here the nature of plaintiffs’ HabiHty must be gathered from the terms of their September 9, 1957, agreement with defendant. The corporate indebtedness which plaintiffs claim is usurious arose subsequent thereto. The chaUenged notes and the mortgages on their homestead by which .such notes were secured served only as coHateral security for such indebtedness. But by the terms of the September 9, 1957, agreement, such HabiHty was made “direct and unconditional” and enforceable without requiring defendant “first to resort to any other right, remedy or security.” Such provisions firmly establish that plaintiffs’ HabiHty to defendant for the corporate indebtedness was direct and primary and that the latter might look directly to plaintiffs for its payment without first resorting to any right or remedy it had against Northwest.
My conclusion as above is supported by numerous decisions construing agreements of a similar nature, both within and without the field of negotiable instruments.8 The fact that such an agreement is designated a “guaranty” cannot alter the clear intent of the parties expressed therein that it was intended to and did impose a “direct and unconditional” and hence primary HabiHty upon plaintiffs for Northwest’s future indebtedness to defendant. Thus, it has been said that if an obHgation appears to express a primary or unconditional promise the conclusion is that it is not a contract of guaranty;9 that use of the term *38“guaranty” is not conclusive — that nevertheless the writing may be shown not to import a collateral obligation;10 that the word “guaranty” is frequently employed in business transactions to describe not the securing of a debt but an intention to be bound by a primary or individual obligation;11 and that when the liability of a guarantor is expressed in unambiguous language, it cannot be limited by judicial construction.12 In Dr. Ward’s Medical Co. v. Kallio, 173 Minn. 462, 463, 217 N. W. 369, which involved construction of a guaranty, the court stated that it is—
“* * * necessary to look to the whole agreement for the intention of the parties and. * * * not * * * to ignore or read out of it any language expressive of definite intent, * *
See, also, Marquette Trust Co. v. Doyle, 176 Minn. 529, 224 N. W. 149.
It would follow that under the authorities above cited the plea of usury was available to plaintiffs as primary co-obligors of Northwest’s indebtedness to defendant which was incurred subsequent to September 9, 1957, and which is involved in these proceedings. Since it is conceded that such indebtedness required interest at a rate in excess of 8 percent per annum, it seems clear that the trial court correctly determined that it was usurious;13 and that in consequence *39the collateral notes and mortgages given by plaintiffs to secure it as well as the foreclosure proceedings relative thereto were null and void.14 By the same token, defendant’s counterclaim for $20,102.11, the balance of such usurious indebtedness, was properly disallowed.
With reference to the $2,695.84 advanced by defendant to maintain the first mortgage and to preserve the homestead premises from its foreclosure; and to the $3,325.75 advanced by defendant to prevent loss of title through a mechanics lien foreclosure on the homestead premises, I feel that in equity and justice defendant is entitled to reimbursement therefor. These payments had nothing to do with the question of usury and, had they not been made, plaintiffs would have lost title to the real estate either through foreclosure of the first mortgage or expiration of the year of redemption in connection with the mechanics lien foreclosure. Thus, in Becker v. Olkon, 176 Minn. 427, 431, 223 N. W. 777, 778, where the mortgagee in two usurious mortgages had included in the indebtedness secured thereby the amount of two valid prior mortgages, which such mortgagee had owned and had then satisfied without payment otherwise, the court stated:
“* * * It is true that, this being a statutory action to cancel the notes and mortgages * * * if usury is found the whole instrument is vitiated. But on the facts alleged in the answer and as to which the trial revealed no controversy, defendant [mortgagee] is entitled to the equitable relief of having his valid liens reinstated * * * as between him and plaintiff, * *
There the court with approval quoted the syllabus from Patterson v. Birdsall, 64 N. Y. 294, 21 Am. R. 609 (176 Minn. 431, 223 N. W. 778):
“A valid and subsisting obligation is not destroyed because included in a security or made the subject of a contract void for usury; although *40formally satisfied and discharged it may be revived and enforced in case the new .security or contract is invalidated.”
So here, based on such principles, it is my opinion that defendant should be reimbursed for the sums described, with legal interest thereon, and that the amount thereof should be adjudged a lien upon plaintiffs’ premises covered by the mortgages found to be invalid, and subject to prior valid encumbrances thereon. See, 55 Am. Jur., Usury, § 95.
As the majority now construe Minn. St. 334.021 in conjunction with § 334.01, the aftermath can only be the end of statutory protection against usury for individual owners of small corporate business enterprises in Minnesota. Thereunder it is a certainty that in most cases only to such corporate enterprises will business loans be made. That such loans will bear interest in excess of 8 percent per annum is likewise quite certain. The process by which such higher rates can be safely attained will no longer be complex or hazardous under the decision here. When an individual business owner is compelled by economic conditions or otherwise to seek financing, it will be then revealed to him by prospective lenders that only corporate loans at excessive rates of interest are considered; that such loans must be secured by all corporate assets and, in addition, by pledge of such individual’s assets otherwise exempt and protected against usury; and that direct and primary liability therefor must be assumed by the individual owner.
Quite often, as in the instant case, the inevitable result is the financial doom of both the corporation and the individual, preceded, of course, by a vain and valiant effort to pay off an extortionate debt, seldom resulting in more than payment of the excessive interest thereon.15 A default therein, of course, is usually followed by prompt foreclosure of all corporate and individual assets and often, as here, by claims for deficiency judgments against the individual owner for- any unpaid balance on the corporate debt after the various foreclosure sales.

Minn. St. 334.021 provides in part: “No corporation shall hereafter interpose the defense of usury in any action.”

For compilation of cases on this, see Annotation, 63 A. L. R. (2d) 950.

Amity Finance Corp. v. Crock, 15 Ohio L. Abs. 243.

Winkle v. Scott (8 Cir.) 99 F. (2d) 299; Carozza v. Federal Finance & Credit Co. 149 Md. 223, 131 A. 332, 43 A. L. R. 1; Rockmore v. Epstein, 127 Misc. 526, 217 N. Y. S. 76; Salvin v. Myles Realty Co. 227 N.Y. 51, 124 N. E. 94, 6 A. L. R. 581; General Motors Acceptance Corp. v. Larson, 110 N. J. Eq. 305, 159 A. 819.

Pink v. L. Kaplan, Inc. 252 App. Div. 490, 300 N. Y. S. 45; Schwartz v. Fifty Greenwich St. Realty Corp. 265 N. Y. 443, 193 N. E. 263.

Pink v. L. Kaplan, Inc. 252 App. Div. 490, 300 N. Y. S. 45; Cabrera v. Olsen, 165 Misc. 374, 300 N. Y. S. 524; Schwartz v. Fifty Greenwich St. Realty Corp. 265 N. Y. 443, 193 N. E. 263; Astra Pictures, Inc. v. Schapiro, 182 Misc. 19, 48 N. Y. S. (2d) 858; Amity Finance Corp. v. Crock, 15 Ohio L. Abs. 243.

Amity Finance Corp. v. Crock, 15 Ohio L. Abs. 243.

State ex rel. First Minneapolis Trust Co. v. Fosseen, 192 Minn. 108, 255 N. W. 816, 94 A. L. R. 1149; Merritt v. Haas, 113 Minn. 219, 129 N. W. 379.

Merritt v. Haas, 113 Minn. 219, 129 N. W. 379; Yangtsze Rapid S. S. *38Co. v. Deutsch-Asiatische Bank (9 Cir.) 59 F. (2d) 8; City of Aurora v. Krauss, 99 Colo. 12, 59 P. (2d) 79; Cobb v. Vaughan & Co. 141 Va. 100, 126 S. E. 77, 43 A. L. R. 177.

Merritt v. Haas, 113 Minn. 219, 129 N. W. 379; Packer v. Benton, 35 Conn. 343, 95 Am. D. 246; Mahler Textiles, Inc. v. Woodka, 251 Ill. App. 177; Nading v. McGregor, 121 Ind. 465, 23 N. E. 283, 6 L. R. A. 686.

Border Nat. Bank v. American Nat. Bank (5 Cir.) 282 F. 73, 78, certiorari denied, 260 U. S. 701, 43 S. Ct. 96, 67 L. ed. 471; Bridge v. Welda State Bank, 222 Mo. App. 586, 292 S. W. 1079.

Clark v. Otto B. Ashbach & Sons, Inc. 241 Minn. 267, 64 N. W. (2d) 517; Dr. Ward’s Medical Co. v. Kallio, 173 Minn. 462, 217 N. W. 369; Donlin v. Wamsley, 176 Minn. 234, 223 N. W. 98.

Minn. St. 334.01 provides: “* * * no person shall directly or indirectly take or receive in money * * * any greater sum * * * for the loan * * * of money, goods, or things in action, than $8 on $100 for one year; * *

Minn. St. 334.03 provides: “All * * * notes, mortgages, and all other contracts * * * or any other thing, whereupon or whereby there shall be reserved, secured, or taken any greater sum or value for the loan or forbearance of any money, goods, or things in action than hereinbefore prescribed, shall be void except as to bona fide purchasers of negotiable paper, * * See, 55 Am. Jur., Usury, § 90.

The trial court found that defendant had collected interest on its loans to the corporation of approximately 20 percent per annum.