Court Opinion

ID: 3494457
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:02:26.974983+00
Date Added: 2024-06-11T14:05:11.342372
License: Public Domain

For some time prior to the facts hereinafter related, the Louis Sultan Chevrolet Company, a corporation, had been purchasing a parcel of real estate located on Grand River avenue in the city of Detroit from the Gemmer Manufacturing Company. The Chevrolet Company was engaged in the automobile sales business and Louis Sultan, one of the plaintiffs herein who conducted the affairs of said company, desired to erect a modern building on the premises to be used for this purpose.
In 1936, he contacted one William Hordes, an agent of defendant in Detroit, to determine if he might secure a loan with which to make the improvements in question. Nothing was done at this time toward consummation of a loan. However, in the late summer of 1937, Mr. Sultan again discussed the question with Hordes, and after some negotiation, received information that he could borrow funds from defendant, providing he was willing to purchase some other property from defendant which it owned in Detroit and desired to sell.
Sultan testified that he was not interested in purchasing any additional real estate and that he so informed Hordes; and that the latter stated that if he wanted to obtain the loan it was essential that he agree to purchase a piece of property from defendant. He further testified that because it was necessary that he obtain the money, demolition having been started on his old building, he agreed to the arrangement. The property he agreed to purchase will be referred to herein as the Virginia Park property, that being the name of the street upon which it was located. *Page 429 
Hordes informed Sultan that the purchase price of the property was $19,000 and, according to Sultan, after examining the same he told Hordes that it was not worth half that much. Thereafter, the two went to Chicago where the entire matter was discussed with Mr. McArthur, president of the defendant company.
At this meeting, Sultan again protested that he did not want to purchase the Virginia Park property and that in any event it was not worth the price demanded. It appears, however, that defendant refused to make the loan unless the sale was consummated as a condition thereof, although the price of the Virginia Park property was reduced to $18,800.
Mr. Sultan finally consented and at that point it was understood that he was to obtain a loan of $35,000, out of which was to be deducted $7,500 as the down payment on the Virginia Park property, leaving the balance available to Sultan.
Mr. Sultan was informed that the funds would be sent to defendant's attorney in Detroit, Mr. Putnam, who would prepare the necessary papers to be executed by plaintiffs. Thereafter, and before completion of the deal, it was agreed that plaintiff could borrow an additional $7,500 to be used for improvement of a parcel of land he had purchased adjacent to the garage property on Grand River avenue. Consequently, the total amount of the loan became $42,500.
On April 21, 1938, the necessary papers to close the loan were executed by plaintiffs, the same consisting of a note in the principal amount of $42,500, with interest at five per cent. per annum, secured by a mortgage covering the Grand River avenue property, and a note in the amount of $11,300, with interest at four per cent. per annum, secured by a *Page 430 
mortgage on the Virginia Park property, which principal amount represented the balance of the purchase price thereof.
On the same day, plaintiffs were given a check for $7,500, representing the down payment on the Virginia Park property which was immediately indorsed by them and returned to defendant's attorney. The same kind of transaction occurred with reference to another check for $650 which represented a payment on the premium of a $20,000 life insurance policy purchased from defendant by Sultan at the Chicago meeting at the suggestion of Mr. McArthur. In addition to these sums which were deducted from the proceeds of the loan, the mortgage tax in the amount of $212.50 was deducted. At a later date, plaintiffs were required to pay $100 as part of defendants' attorney fee incurred in connection with the loan.
Default occurred in the terms of the mortgage covering the property on Grand River avenue and defendant instituted foreclosure thereof by advertisement. Thereupon, plaintiffs filed the bill of complaint herein to enjoin said foreclosure, and for an accounting, claiming that the mortgage in question was usurious. Defendant answered, denying the charge of usury, and also filed a cross bill praying for an accounting and foreclosure of the mortgage, having abandoned its foreclosure by advertisement.
The cause was referred to a commissioner who made findings of fact and conclusions of law, wherein he held that the transaction was usurious and that all interest on the sum loaned should be declared void, recommending that a decree of foreclosure be entered in favor of defendant and that the amount due be restricted to the balance of principal owed by plaintiffs, plus taxes paid by defendant, or a total of $32,804.38. *Page 431 
The trial court disagreed, holding that the transaction was not usurious, and a decree was entered in favor of defendant, fixing the amount due as $46,533.88, including principal and interest, plus $3,845.08, the taxes paid by defendant. Plaintiffs thereupon appealed.
Plaintiffs claim the transaction was usurious because of certain elements present therein. These are, the claimed excessive price of the Virginia Park property which they were required to purchase as a condition of securing the loan, the premium paid on the life insurance policy in the amount of $650, the $100 paid on defendant's attorney fee, the mortgage tax in the amount of $212.50 and $211.42, termed excessive interest, which represents interest charged from the date of the mortgage to the date all of the funds were disbursed, it appearing that funds were disbursed from time to time subsequent to the execution date in payment of construction bills as they were presented to defendant's attorney.
The maximum legal rate of interest which may be charged in this state is seven per cent. per annum. 2 Comp. Laws 1929, § 9239 (Stat. Ann. § 19.11). And to sustain the claims of plaintiffs it was necessary for them to show by a preponderance of the evidence that there was intent on the part of defendant by the transaction in question to exact a rate of interest in excess of the maximum amount permitted by the cited statutory provision. See Flax v.Mutual Building  Loan Ass'n of Bay County, 198 Mich. 676;Domboorajian v. Woodruff, 239 Mich. 1; Ferguson v. GrandRapids Land Contract Co., 242 Mich. 314 (63 A.L.R. 820);Bankers Trust Co. of Detroit v. Cowhey, 243 Mich. 353;Minnesota Mutual Life Ins. Co. v. Schlanger, 284 Mich. 208. *Page 432 
A leading, and the principal case relied upon by appellants, isE.C. Warner Co. v. W.B. Foshay Co. (C.C.A.),57 F.2d 656, which we have carefully examined, together with other authorities. It is apparent that in all the cases where the courts have been called upon to decide whether a sale of property made contemporaneously with a loan constitutes a usurious transaction, they have had to determine if the intent to exact usury was present. In some instances, it has been found that the necessary element of intent was lacking; in others, it has been found that the sale price of the property was not excessive as compared with its claimed actual value, as the fact that a sale is attached as a condition of the loan is not of itself sufficient to condemn the transaction.
In the case before us, the sale price of the Virginia Park property was $18,800. The commissioner found the value thereof to be $9,200, based upon the testimony of plaintiffs' witnesses; the court found it to be worth $14,820, based upon the testimony of defendant's witnesses. It would, therefore, appear that the price obtained was in excess of the actual value of the property sold.
However, we are of the opinion, as was the trial court, that despite this fact the element of intent to obtain illegal interest does not appear. The record shows that the defendant company had previously held a mortgage on the Virginia Park property which had been foreclosed. The sale price approximated the investment it had in the premises according to the books of the company, and it naturally desired to liquidate the asset with the least possible loss.
In addition, there are other factors which point to the absence of the required intent, without considering the testimony of defendant's officers and agents who participated in the negotiations leading up to *Page 433 
the consummation of the loan. In the first place, the interest rate on the Grand River mortgage was five per cent. per annum, and on the Virginia Park mortgage four per cent. per annum. If defendant had intended to exact a usurious rate of interest, the expected thing would be to find these instruments bearing the maximum legal rate. Furthermore, at the time the deal was closed, defendant required that the land contract from the Gemmer Manufacturing Company, under which the Grand River property was being purchased by the Sultan Chevrolet Corporation, be assigned to plaintiffs individually, who then executed the mortgage and became personally responsible thereunder. This action is not compatible with a claimed usurious intent for had such intent been present defendant undoubtedly would have taken the mortgage from the corporation and the defense of usury would not then have been available. See Act No. 327, § 78, Pub. Acts 1931 (Comp. Laws Supp. 1940, § 10135-78, Stat. Ann. § 21.78).
We are not unmindful that the fact that a sale price in excess of the actual value was obtained should be considered and is important in determining the presence or absence of a usurious intent, and we have done so in this case. However, it is our conclusion that when all the facts and circumstances are considered, as we have outlined, the usurious intent cannot be said to have been present.
This conclusion would warrant complete affirmance of the decree of the trial court were it not for the question concerning plaintiffs' supplemental bill of complaint which we will now discuss.
The decree was presented for settlement on December 12, 1941. On the same day, plaintiffs petitioned for leave to file a supplemental bill of complaint which alleged that on March 22, 1941, three days prior to the filing of the findings of fact and *Page 434 
conclusions of law by the commissioner, a fire occurred at the Grand River avenue premises, the fire insurance policy being issued to plaintiffs and showing the interest of defendant as mortgagee; that after the fire plaintiffs proceeded to repair the premises and adjusted the amount of the loss with the fire insurance company at $16,475.50; that thereafter the fire insurance company issued its check in this amount payable to plaintiffs and defendant and that plaintiffs requested defendant to indorse the check so that they might pay for the cost of the repairs, which defendant arbitrarily refused to do; that on December 5, 1941, plaintiffs' counsel informed defendant's counsel of his intention to file a supplemental bill of complaint with reference to this matter and that thereupon it was agreed that if plaintiffs would present their bills for repairs on December 8, 1941, defendant would endorse the check, provided that if the proceeds thereof exceeded the cost of the repairs, the excess would be applied in payment of taxes which had accrued since the trial of the case; and that after some further negotiations, and on December 11, 1941, defendant's counsel informed plaintiffs' attorney that defendant refused to carry out this agreement and to indorse the check.
The supplemental bill concluded with a prayer that a mandatory injunction issue to compel defendant to indorse the check; that the amount defendant was entitled to receive out of the proceeds be determined, and that the court decree that the retention of such amount as the court might find defendant entitled to retain should cure the default existing under the mortgage.
On the same day the decree was filed, an order was entered denying plaintiffs' motion for leave to file the supplemental bill. *Page 435 
Either plaintiffs or defendant should have the proceeds of this check and we believe the trial court should have granted plaintiffs' motion for leave to file the supplemental bill so that the issue presented could have been determined.
Were it not for this feature, the decree would be affirmed. In view thereof, however, it will be reversed and the case remanded. Plaintiffs may have leave to file their supplemental bill in the court below and the parties can present such proof as they may desire relative to the question raised. Plaintiffs shall recover costs of this appeal.
SHARPE, J., concurred with CHANDLER, C.J.