Court Opinion

ID: 3390940
Source: CourtListenerOpinion
Date Created: 2016-07-05 18:51:37.600101+00
Date Added: 2024-06-11T14:02:49.756435
License: Public Domain

Pursuant to argument on rehearing granted after entry of our judgment herein on November 16, 1938, the majority of the Court are of the opinion that the decree should be reversed, The complainant in the court below, defendant in error here, alleged in his bill of complaint, inter alia, the following:
"On or about the 20th day of November, 1928, the defendants, Julian J. Beach and Margaret F. Beach, approached the plaintiffs and to them represented that the Liquidator of Dade County Security had agreed (subject to the approval of this Court) to accept in full settlement of said mortgage indebtedness, amounting to $14,174.06, one-half of said amount in cash and one-half in stock of Dade County Security Company, which stock at the time aforesaid, could be purchased at a price considerably less than the par value thereof. The defendants further represented that they were able to finance neither the cash payment required, nor the purchase of the stock necessary to effect a settlement of said mortgage indebtedness upon the basis aforesaid, and they offered to give to the plaintiffs their promissory note for $11,500.00 secured by a mortgage which would be a first lien upon the property covered by the aforesaid three mortgages, which is the same property described in Item 1 in Paragraph 2 above, and also upon a tract of land consisting of 15 acres, which is described in Item 2 in Paragraph 2 above, provided, that the plaintiffs would deliver to the Liquidator the amount of cash and stock required to procure a satisfaction of the aforesaid three mortgages held by said Liquidator.
"Your Orators accepted the offer of said defendants and, thereafter, on December 11, 1928, said Liquidator was authorized by order of this Court in proceeding No. 22244-B *Page 87 
in Chancery, to accept in settlement and full payment of the aforesaid three mortgages, one-half of the aggregate amount thereof in cash, and one-half thereof in stock of said Dade County Security Company. Thereupon, your Orators purchased the requisite amount of stock and thereafter, to-wit: on December 27, 1928, your Orators delivered said stock and cash to said Liquidator and received therefor duly executed satisfactions of said mortgages together with the notes of said defendants secured thereby, which notes were duly cancelled and marked paid by said Liquidator. Your Orators thereupon delivered said cancelled notes and mortgage satisfactions to said defendants and in return received from said defendants their duly executed promissory note dated December 20, 1928, in the sum of $11,500.00. A true and correct copy of said promissory note is attached hereto, made a part hereof, and marked Exhibit No. 1. At the same time, in order to secure the payment of said $11,500.00 note, said defendants delivered to your Orators their mortgage deed which encumbered the property described in Paragraph 2 above. In and by said mortgage, said defendants covenanted with your Orators that they were the owners and in possession of said property; that they were indefeasibly seized of said real estate in fee simple and they warranted the title to same. A true and correct copy of said mortgage deed is attached hereto, made a part hereof, and marked Exhibit No. 2."
These allegations, in effect, alleged that Beach had the opportunity to settle an indebtedness of $14,174.06 for one-half of that amount, to-wit: $7,087.03 in cash, plus a like amount in capital stock of Dade County Security Company, and that Kirk agreed to furnish the money to Beach to make this settlement under condition that Beach execute and deliver this note and mortgage securing the same to *Page 88 
Kirk for the sum of $11,500.00; that the deal was carried through; the indebtedness to the Dade County Security Company paid off and discharged; that note was made to Kirk for the sum of $11,500.00 and secured by a mortgage embracing the same property that had been embraced in the Dade County Security Company mortgage, with an additional 15 acres of land.
The record shows conclusively that the amount of money furnished by Kirk to pay off the indebtedness to Dade County Security Company was the sum of $10,096.22 and that Kirk received from Beach his note and mortgage for $11,500.00 with interest from date at the rate of 8%. This note and mortgage clearly embraces the obligation on the part of Beach to pay Kirk a surplus or bonus of $1,403.78 which tainted and infected the transaction with usury as denounced by Section 4851 R. G. S., 6938 C. G. L.
On the trial Mr. Kirk testified in part as follows:
"Q. Mr. Kirk, what was the agreement you had relative to this mortgage and the three mortgages that Mr. and Mrs. Beach owed to the Dade County Security Company?
"A. That I was to furnish the cash.
"By Judge Evans: We object to it unless there was an agreement had with Mr. Beach.
'By the Master: Ruling reserved. Let him answer.
"A. That I was to furnish the cash to take care of Dade County Security Company's mortgage and in return for that I was to get a note and mortgage on some property.
"Q. You testified that two of these checks were for the purchase of stock in the Dade County Security Company; were you to furnish the stock or was it to be all cash?
"A. Stock and cash. They said 50/50, they could settle on a discount of about 50/50.
"Q. Did you purchase the stock?
  "A. Yes. *Page 89
"Q. And advanced the cash necessary to whom?
"A. My recollection is that that check was made to me and endorsed to Dade County Security Company.
"Q. Are you referring to the check for $7,097.03?
"A. I believe that is the check, yes.
"Q. And was that used for cash to the Dade County Security Company or for the purchase of stock?
"A. That was cash.
"Q. Then there was one check for $2,406.07 and another for $603.12; were those checks for cash or for stock?
"A. I believe for stock $2,406,07 and $603.12 were for Dade County stock.
"Q. In return for this stock and this cash, what were you to get?
"A. A mortgage on some property held by Mr. and Mrs. Beach and a note for $11,500.
"Q. That is the note and mortgage being foreclosed in this transaction?
"A. Yes.
Mr. Kirk also testified as follows:
"Q. Mr. Kirk, did you not state to Mr. Beach that you would loan him $10,000, but that you would require him to give you a mortgage and a note for $11,500?
"A. No sir.
"Q. How did you arrive at the figure for $11,500?
"A. That was the amount that was stated if I would buy this stock, Mr. Chase's statement that he would give $11,500 if I would buy this stock and settle up the Dade County Security Company.
"Q. You and Mr. Beach then in your conversation agreed that it would require $11,500 to buy up the Dade County Security Company stock?
"A. No sir.
  "Q. How did you arrive at this amount? *Page 90
"A. About $10,000 the stock was fluctuating every day.
"Q. Why was the $1,500 added to the note?
"A. Merely dividing tip the profits I suppose, discharging a $14,000 debt.
"Q. You were to profit $1,500 by the transaction?
"A. Yes, if the note had been paid.
"Q. Only $10,000 was to be used to pay to Dade County?
"A. It was $10,096.
"Q. All right, the balance of it represented a profit to you of the difference between $11,500 and $10,096.00 represented profit you were to make on the transaction?
"A. Understand I didn't want to go through with the deal. In fact I had to borrow the money to go through with it.
"Q. You borrowed the money you say to make the loan?
"A. Yes sir, I did.
"Q. $10,000?
"A. Yes, from Atlantic National Bank of Boston.
"Q. You borrowed $10,000 to go through with the deal?
"A. Yes.
"Q. The reason you borrowed it, you saw an opportunity to make $1,500?
"A. No, I had given my word that I would.
"Q. Given who your word?
"A. Mr. Chase, which I suppose he conveyed to Mr. Beach.
"Q. Now Mr. Beach came to you and was alone, not accompanied by Mr. Chase?
"A. I don't think so. I think Mr. Chase was there at any interview.
"Q. Now, Mr. Kirk, didn't you testify at the time of the conversation between you and Mr. Beach that Mr. Chase was not present? *Page 91 
"A. I don't think so.
"Q. Did you say that?
"A. No.
"Q. What do you say now; was Mr. Chase present or not?
"A. My recollection is not clear about that.
"Q. Now at the time you had the conversation with Mr. Beach, did you tell him that you would loan him more than $10,000?
"A. No sir.
"Q. How much did you tell him you would loan?
"A. The conversation came from Mr. Chase as to that.
"Q. I am talking about the conversation with Mr. Beach.
"A. I don't recall that.
"Q. But you do recall that Mr. Beach told you he wanted to borrow $10,000?
"A. I don't recall that conversation. I do recall the amount was about $10,000 needed to take care of Dade County Security deal.
"Q. On the 26th of December, that it the very day that this transaction was closed up, wasn't it?
"A. I think so.
"Q. And you can't remember whether you were present or not?
"A. No, I can't.
"Q. When did you give this check to the Dade County Security Company?
"A. I couldn't tell you that.
"Q. It is dated December 26th; did you give it on that same day?
"A. I couldn't say. I told you my recollection is not very clear. *Page 92 
"Q. When did you turn over this certified check for $2,406.07 to the Dade County Security Company?
"A. I think the transaction all occurred on the same day.
"Q. And that is the same day that the mortgages were satisfied, isn't it? To refresh your memory, I will show you one of them.
"A. December 26th, yes sir."
The record shows that both Beach and Kirk were men of wide business experience. They both understood that the transaction contemplated that Kirk should receive from Beach in addition to the money advanced and interest thereon the sum of $1,403.78, which represented that much of what Beach would save by making the compromise settlement with Dade Security Company. That Kirk understood this is clearly shown from his testimony above quoted. It is, therefore, indisputable that Kirk knew that under the agreement that by the "contract, contrivance or devise * * *" the debtor is required or obliged to pay a sum of money greater than the actual principal sum received together with interest at the rate of 10%."
The record also shows that this was not only the intention of Kirk at the time, the contract was made but that intention was pressed and pursued in the bill for foreclosure and throughout the trial of the case.
In 51 A.L.R. 522 the text says: "It is well settled that a loan of money or property, to be repaid under all conditions and to be compensated for by a share in earnings, income or profits, in lieu of or in addition to interest, is usurious if it clearly is contemplated that an amount exceeding legal interest is to be paid."
In Weaver v. Burnett, et al., 101 Iowa 567, 81 N.W. 771, it was said: "Even if we adopt plaintiff's theory of the case, there was a loan of $1,200 to the defendant, which he *Page 93 
(defendant) agreed to repay at a certain time and without contingencies, together with the highest rate of interest which the law permits. But he says that in addition thereto, he was to have one-half the profits that defendant might make in the use of the money so loaned. Is such a transaction usurious? We are quite willing to agree that if there was a consideration entirely separate and distinct from the loan or forbearance for the defendant's promise to pay plaintiff one-half the discount he received in taking up the $1,400 in notes, such agreement would not make the transaction usurious. See Neefus v. Vanderveer, 3 Sanf. Ch. 268. But such is not the fact. Plaintiff was to have one-half the discount, in addition to the legal rate of interest, in consideration of the use of his money, and nothing less. If there was any other thing that he did or agreed to do, in consideration of the defendant's promise to pay this additional compensation we have failed to find it. Plaintiff did nothing more than loan the defendant $1,200. True, the defendant agreed to pay that amount on a particular debt, and in so doing he made something over $380; but his agreement to pay plaintiff half of that sum was in consideration of the loan, and as compensation for the use of the money. The transaction, even from plaintiff's standpoint, will bear no other interpretation. We are also ready to agree With plaintiff's counsel when they say that a loan is free from usury where in lieu of interest a share of the profits expected to be realized by the borrower is agreed bona fide to be given to the lender as compensation for the loan. Johnston v. Ferris, 14 Daly 302; Goodrich v. Rogers, 101 Ill. 523. But it is also true that a stipulation for a share of the profits in addition to the principal and legal interest is usurious. Sweet v. Spence, 35 Barb. (N.Y.) 44. The rule is well stated by Chancellor WALWORTH in Colton v. Duncan, 2 Paige 269, as follows: *Page 94 
" 'Whenever, by the agreement of the parties, a premium of profit beyond the legal rate of interest, for a loan or advance of money, is, either directly or indirectly, secured to the lendor, it is a violation of the statute, unless the loan or advance is attended with some contingent circumstances by which the principal is put in evident hazard. A contingency merely nominal, with little or no hazard to the principal of the money loaned or advanced, cannot alter the legal effect of the transaction. * * *
" 'Where there is a negotiation for a loan or advance of money, and the borrower agrees to return the amount advanced at all events, it is a contract of lending; * * * and whatever shape or disguise the transaction may assume, if a profit beyond the legal rate of interest is intended to be made out of the necessities or improvidence of the borrower, or otherwise, the contract is usurious.' See also Brakely v. Tuttle, 3 W. Va. 133, Cleveland v. Loder, 7 Paige 557; Leavitt v. De Launy,4 N.Y. 363; Browne v. Vredenburg, 43 N.Y. 195; Barnard v. Young, 17 Ves. 44; Clift v. Barrow, 108 N.Y. 187, 15 N.E. 327
— which illustrate the exception stated by Chancellor WALWORTH. See also Canal Co. v. Vallette, 21 How. 414,16 L.Ed. 154. The case is not ruled by Comstock v. Wilder, 61 Iowa 274,  16 N.W. 108, relied upon by plaintiff."
The cases cited in the opinion above quoted amply sustain the holding there enunciated.
In the Master's Report we find the following language: "However, under the road provisions of Section 6937, C. G. L. where usurious contracts are defined to be: 'All contracts for the, payment of interest upon loan, advance of money or forebearance to enforce the collection of any debt, or upon anycontract whatever at a higher rate of interest than ten per cent per annum, are hereby declared *Page 95 
usurious,' (underscoring by the Master), the mortgage contract in this case was, and is, technically usurious."
The Chancellor approved this finding of the Master.
The Master fixed a penalty upon the lender which he thought met the exigencies of the case and this was approved by the Chancellor. Were it not for the mandatory provisions of the usury statute, supra, we would look with approval upon the conclusion reached, but it is not our province to suspend valid ctatutes. If we did so we would invade the province of the legislature and thereby violate organic law.
Beach entirely fails to arouse our sympathies. It may be that be designedly entered into this contract which he knew was tainted with usury and which, therefore, could not be fully enforced if the law of usury should be invoked against it. But that fact cannot change or modify the force and effect of the statutes, supra, denouncing usury in this State. While the application of the law in this case is harsh, the Court is bound to follow the, law as it is found to, be, although its application in isolated cases may work a hardship.
It follows that the decree must be reversed and the cause remanded for the entry of a decree not inconsistent with the views herein expressed.
So ordered.
Reversed.
TERRELL, C. J., an WHITFIELD and THOMAS, J. J., concur.
BROWN and CHAPMAN, J. J., dissent.
                          ON REHEARING