Court Opinion

ID: 3407547
Source: CourtListenerOpinion
Date Created: 2016-07-05 19:23:52.14584+00
Date Added: 2024-06-11T13:48:17.181275
License: Public Domain

The Code, § 16-101, does not authorize the charge of more than 8 per cent. straight interest on a note given for the purchase-price of a certificate of indebtedness. The note in this case provides for the payment of $78 interest in any event, and 8 per cent. interest in the event of default in the payment of any installment. The loan company was authorized to issue 4 per cent. certificates of indebtedness. The presumption is, until shown to have been otherwise authorized by law, that the certificates should bear interest at 4 per cent. per annum from the date of their issuance. A note, well secured, was taken for the so-called purchase-price of the certificate in this case, and it was treated as fully paid for by the borrower even though it was not paid for in money, and was accepted by the company as collateral for a loan. A provision in the certificate sold was that it was not *Page 823 
to bear interest until paid for. The maturity date as set out in the certificate was two years from its date, if the installments were paid promptly, and sooner if there was a default in the payment of any of the installments. In no event except in case of default and forced payment before normal maturity could the borrower draw interest on the certificate, because the loan became due in two years and the certificate provided that its proceeds must be applied on the loan note, which means that the loan note is paid by cancellation of the certificate. My view of this is that the certificate was fully paid for when the company took a note for the purchase-price thereof, regardless of the fact that the note was payable in installments. That this is true is further evidenced by the fact that the company accepted such certificate as collateral security for a loan made to the purchaser of the certificate. The purchaser, under these circumstances, was entitled to the interest provided by the certificate from the date of its issue at the rate of 4 per cent., and the deprivation of the borrower of the interest on the certificate increases the interest on the "certificate purchase note" to a rate in excess of 8 per cent., which is unlawful, as a result of which the lender forfeits all interest due under the contract. I am further of the opinion that the note for the purchase-price of the certificate was without any legal consideration. "Purchase-price" implies that something is bought and sold. If a thing is bought and sold the seller at some time must part with his rights in it and the purchaser at some time acquires his unconditional right, if the contract of purchase is carried out. There was no sale of the certificate in this case because the purchaser never had the right to pay for his certificate and put it in his pocket and carry it home or put it in the bank in his lock-box. Under its terms the certificate had to be applied to the payment of the loan note when it became due. The loan note became due at the same time the certificate note became fully paid up if the payments were made when due.
Giving the act the construction the majority opinion gives it simply means, to my mind, that the legislature has authorized the sale of a worthless piece of paper, bearing no interest, which no one but the company could own, and has authorized an interest charge on the installments paid on the purchase-price of this worthless paper. When a transaction like this takes place, either the *Page 824 
certificate is bought and sold and paid for by a note well secured, in which the right and title thereto passes to the buyer to such an extent that it is the only security for a loan made on the value of it, and as a result of which the purchaser is entitled to 4 per cent. interest from the date of the certificate, or, there is no sale of anything of value, and the certificate is not worthy to bear interest, and the whole transaction is a complicated framework of camouflage to authorize the charge of 20 to 30 per cent. interest. To say that it is ingenious is to put it mildly. Here is the transaction: A borrows $1200 and gives his note therefor, due in two years. To this note the interest at 8 per cent. is added, and the note is in the sum of $1392. At the same time A is required to purchase a certificate of indebtedness (4%). This certificate is in the sum of $1392, and for the purchase-price thereof A gives his note for $1392, and this note bears interest in a sum certain of $78, and in the event of default in any payment, interest at 8 per cent. from the date of the note. The certificate provides that it is to bear interest from the date its purchase-price is fully paid at 4 per cent. All of the installment payments made to the company are credited on the certificate note, and when that note is finally paid it extinguishes the loan note and the certificate. It will be seen here that, going no further, a charge of more than 8 per cent. has been made, because the borrower has been forced to pay the certificate note to which has been added the 8 per cent. interest on the amount of the loan for two years, and which note itself bears interest at the rate of 8 per cent. from date in the case of a default in even the last installment, and $78 interest if the installments are paid as they become due. But this transaction goes further. The company does not treat the giving of the note for the purchase-price of the certificate as payment, but treats each installment as being a payment thereon, and in this way deprives the borrower of the interest on his certificate at the rate of 4 per cent. for two years. A little simple calculation shows us that in this way interest in excess of 20 per cent. can very easily be charged in the transaction. I do not think the legislature has to resort to obstruse mechanics and higher mathematics to authorize a charge of more than 8 per cent. interest. It may do so in plain words and without apology. I can ascribe to the legislature no intention to permit what was done in this case. At the most, I think it authorized the lending *Page 825 
of money secured by certificates lawfully owned by borrowers, whether they were paid for fully in cash or by note for installments. I think "installment certificates" are fully paid certificates under the circumstances of this case. In this case the certificate itself shows that it has not been sold, and that the transaction is simply a device to charge more than 8 per cent. on money borrowed, for the reason that the certificate provides that "when due, said company shall apply the proceeds hereof to the payment of the note given for said loan." It has been held by this court that the words, "and the installment payments, if any, made on such hypothecated stock or certificates of indebtedness during the time the loan is of force may or may not bear interest, at the option of the association," refer to the installments paid into the loan companies by the purchasers of the certificates (Gore v. Industrial Loan  Savings Co.,52 Ga. App. 401, supra), and therefore do not authorize the withholding by the companies of the interest to be paid on the certificates. I am of the opinion that there is no liability on the note sued on, for the reason that it is wholly without valid consideration, because it was given under an unauthorized scheme to charge an excessive interest rate.