Court Opinion

ID: 7942278
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:16:16.569433+00
Date Added: 2024-06-11T16:33:46.527507
License: Public Domain

Hooker, C. J.
(dissenting). The question raised by ■this record is whether an agreement by a mortgagor of land to pay 5 per cent, interest upon the amount secured by note and mortgage, and, in addition, “all taxes and assessments which shall be levied upon the said lands, or upon or on account of this mortgage or the indebtedness secured hereby, or upon the interest or estate in said lands •created or represented by this mortgage or by said indebtedness, whether levied against the said mortgagor, her legal representatives or assigns, or otherwise,”is usurious.
Inasmuch as the highest lawful rate of interest in this State was then 7 per cent., the contract was not usurious per se. If a promissory note or bond should stipulate that the payee’s or obligee’s taxes thereon should be paid by the maker or obligor in addition to the highest lawful rate of interest, there can be no question that the contract would be usurious. Counsel do not seem to question this, but insist that an agreement by a mortgagor to pay taxes does not fall within the rule, basing their contention upon some cases which they cite. The first of these is the case of Banks v. McClellan, 24 Md. 62 (87 Am. Dec. 594). All that was there said upon the subject was that:
*470“We consider that the charges for taxes on the mortgage, with simple interest on each item from the time it was paid, are allowable, Mr. McClellan having agreed to-pay them, and the law authorizing such payments without incurring usury.”
Whether there was or was not a statute authorizing it does not appear. Perhaps an inference that there was. such is proper; but, if not, there is nothing to show that such taxes were not taxes which were assessed against the-mortgagor upon his property, and which he should of' right pay. There is not an intimation that the mortgagee, profited by such payment, and, if not, there was not usury..
The next case is Dubose v. Parker, 13 Ala. 779, where an agreement by the maker of a note to pay the highest rate of interest allowed by law, and taxes assessed to the payee, was held not usurious. It is a case in point, supporting complainants’ claim, but based upon such fallacious reasons, and so at variance with principle, that we cannot follow it.
The other case is one of our own, — Common Council of Detroit v. Board of Assessors, 91 Mich. 78 (51 N. W. 787, 16 L. R. A. 59), — -where it was held that an; agreement to pay all taxes assessed against all interests in. the real property owned by the mortgagor, including the-interest granted to the mortgagee, was not usurious. Under our law a mortgagee takes only a lien by way of security, leaving the legal title in the mortgagor. It was-said that:
“ Such an agreement does not amount to a reservation, of interest, but is in the nature of an agreement to preserve the estate which constitutes the security, and is no more unlawful than an agreement to keep the property insured with a similar purpose.”
It is manifest that, if the debtor should pay his debt according to agreement, the creditor would get no benefit for the tax paid by him upon the land; nor would he if he-did not, because on foreclosure he could recover only his-debt and lawful interest through sale. His interest in the. *471land would then be gone, as would the money paid for taxes upon it. The case of Kidder v. Vandersloot, 114 Ill. 133 (28 N. E. 460), is in point on that proposition.
On the other hand, an agreement to pay 6 per cent, on a bond, and to save the obligee harmless from State taxes, was held to be usurious. Meem v. Dulaney, 88 Va. 674 (14 S. E. 363).
There are many instances where a contract is not per se usurious. That could be said in this case, for the contract does not indicate that the taxes will swell the interest to more than a 7 per cent. rate. Many cases hold that an agreement to pay premiums upon life insurance as a part consideration for a loan already drawing the highest rate of interest is usurious, but the better opinion is that it is not necessarily so per se, but may be shown to be. See Webb, Usury, § 326, and notes. In Boone, Mortg. § 81, it is said that an agreement to pay taxes on a mortgage is not necessarily usurious; citing Banks v. McClellan, 24 Md. 62 (87 Am. Dec. 594), which indicates the author’s understanding of that case. It goes without saying that it may not be usurious per se, for the aggregate of the interest reserved and the taxes promised to be paid or afterwards levied may not exceed lawful interest.
In the present case the contract plainly requires the maker of the note and mortgage to pay 5 per cent., and taxes which may be assessed thereon as a credit against the payee. If it could be said that it was a certainty that the taxes, etc., would not exceed 2 per cent., it could not be said to be a usurious contract. If it could be said from the contract that they would, it would be as clearly usurious ; but, as it could not be known what the taxes would be when the contract was made, it cannot be said to be usurious per se. The sequel has proved that the taxes were 2$ per cent., and it is now insisted that the complainants must suffer a forfeiture because they have not discharged the mortgage; and upon the same principle it might also be claimed that all unpaid interest should be forfeited.
*472Without expressing an opinion as to whether or not such would be the necessary result in any case, it need not be in this, for I think this contract is susceptible of a construction which will make it valid. It is a rule of construction that contracts shall be so interpreted as to make them valid, rather than illegal, where the language will permit. Thus, in Merrill v. Melchior, 30 Miss. 516, it is said, “Every presumption of law is in favor of the legality of a contract;” and in Crittenden v. French, 21 Ill. 598, that “the law will not so construe a contract as to make it illegal when it will bear a different construction making it legal.” In Ormes v. Dauchy, 82 N. Y. 443 (37 Am. Rep. 583), it was said, “ The law will not presume a contract illegal, or against public policy, and so void, when it is capable of a construction which will make it lawful and valid.” In Archibald v. Thomas, 3 Cow. 284, this rule was applied in a usury case, where it was said, “When a contract admits of two significations, that should be adopted which renders it operative, rather than that which renders it void;” and again, “ If a contract is susceptible of two constructions, one of which will bring it within and the other without the statute of usury, the latter construction should be adopted.” See, also, Standard Oil Co. v. Scofield, 16 Abb. N. Cas. 379. In Lorillard v. Clyde, 86 N. Y. 384, it was said, “An agreement will not be adjudged to be illegal when it is capable of a construction which will uphold and make it valid.” Powers v. Clarke, 127 N. Y. 417 (28 N. E. 402). The federal courts hold the same doctrine. In Hobbs v. McLean, 117 U. S. 567 (6 Sup. Ct. 870), it is said, ‘When a contract is fairly open to two constructions, the one lawful and the other unlawful, the former must be adopted;” citing 2 Whart. Ev. (2d Ed.) § 1250; 2 Best, Ev. (6th Eng. Ed., 1st Am. Ed.) §§ 346, 347; Shore v. Wilson, 9 Cl. & F. 355; Moss v. Bainbrigge, 18 Beav. 478; Mandal v. Mandal's Heirs, 28 La. Ann. 556. This case was approved and followed in U. S. v. Railroad Co., 118 U. S. 235 (6 Sup. Ct. 1038).
*473We have already said that this contract is not usurious •on its face, and we should not asssume that the parties intended it to be an illegal thing when we can legitimately infer the contrary; and, while the strict letter of the contract would cover taxes in excess of 2- per cent., it is not unreasonable to suppose that the parties designed to include taxes only to an amount which, with the interest, would not be usurious.
It is suggested that an unlawful intent — i. e., an intent to take more than the legal rate of interest- — is necessary to make the contract usurious. It may be conceded that there are cases where such a rule may apply, but if we say that in this case, and affirm the judgment, we not only relieve the mortgagee from a forfeiture of the lawful interest, but give him a judgment for the excess over 7 per cent., which the record shows that he recovered in the circuit court, and is claiming here. There is a class of cases where this question of intent is important; e. g., where one agrees to pay 5 per cent, and give the mortgagee a horse. There, if a jury can say that the value of the horse and the rate reserved so far exceed the legal rate as to show an intent to pay and take more than the legal interest, it is a usurious transaction, while, if they approximate the legal rate, the jury may be able to find that the parties treated the horse as of a value low enough to show an intention not to exceed the legal rate, and that there was no intent to evade the statute, in which case there would not only be no penalty imposed, but the contract might be enforced. This can hardly be true of a case where the entire payment consists of money. If the contract shows a reservation of, or the party receives, money to an amount exceeding the legal rate, such excess is usury, regardless of the intent, if it must be treated as interest; i. e., compensation for the use of money. The Maryland cases cited are cases where a small excess had been actually paid.
It follows that, as the decree includes all of the taxes, it is erroneous. As the briefs do not discuss the amount of usury upon this theory, the amount due can be deter*474mined upon the settlement of the decree, if counsel cannot agree upon it, at which time the question of costs can be settled.