Court Opinion

ID: 5585814
Source: CourtListenerOpinion
Date Created: 2022-01-11 01:53:09.811132+00
Date Added: 2024-06-11T08:36:14.531790
License: Public Domain

Bussell, C. J.,
dissenting. In this case the exception is to the appointment of a receiver. The subject-matter of the litigation, the nature of the proceeding, the legal contentions of the adverse parties, and the material facts disclosed by the evidence will hereinafter be more fully pointed out. At the conclusion of the hearing upon the application for a receiver to take charge of an apartment house in the City of Atlanta, which had been *928conveyed under a deec^of trust to secure an issue of bonds amounting to.$112,000, the court passed the following order: “The argument on the rule nisi having been heard, and the evidence having been heard and considered by the court, it is hereby ordered and decreed that W. S. Dillon be appointed receiver to take possession of the described premises, to collect all the rents, profits, and income from the said property; and the said receiver is directed to make no disbursements from said rents, income, and profits, except to supply heat, water, and janitor service for said premises, without a further order from the court. The said receiver shall give bond for the sum of $5000 for the faithful performance of his duties as such receiver.”
On July 23, 1923, James A. Stewart (designated as owner) executed a deed to G. L. Miller & Company Inc. (designated as trustee), a corporation of the State of Delaware, having a place of business in Atlanta, Georgia, conveying certain premises described in the deed, known as number 91 East 14th Street. The expressed consideration is “for and in consideration of the premises and the sum of $1.00.” The “premises” referred to as part of the consideration as set forth in the deed of trust are contained in a previous recital in the' instrument, to the effect that the owner has issued 279 bonds aggregating $112,000 (specifying the denomination of each of the bonds), bearing interest at the rate of six and one-half per cent, per annum, payable semi-annually on the 23rd day of January and July and maturing $2000 on July 23, 1925, $2500 July 23, 1926, $3500 July 23, 1927, $4500 July 23, 1928, $6000 July 23, 1929, $7500 July 23, 1930, $86,000 July 23, 1931, being the final payment, with coupons attached, to each bond evidencing the semi-annual payments of interest thereon. In accordance with one of the provisions of the deed of trust and upon an allegation a default in payment of interest, insurance, taxes, etc., in violation of the agreement, the trustee declared the entire debt evidenced by the bonds to be due, and, basing its prayer upon the contract known as the “underwriting agreement,” asked that a receiver be appointed to collect and hold the rentals accruing from the property for the protection of the bondholders. The defendants contested the appointment, upon the ground that there had been no default, and for that reason the stipulation with reference to a *929receiver was not operative. They set up that no interest is due, because, under the provisions of the act of 1916 (Acts 1916, p. 48), all interest upon the sum of money advanced by G. L. Miller & Company Inc. has been forfeited under the penalty imposed by the act of 1916, supra, providing a forfeiture of all interest where a higher rate of interest is charged for the use of money than eight per cent. The paramount question in this case, therefore, is whether the contract between the parties is usurious. In order to determine this question we must inquire into the nature of the contract and correctly classify it. What was the intention of the parties in making the contract? The first rule in the construction of contracts requires that the intention of the parties be ascertained. Then, does the contract between the parties in this case bespeak a sale of Stewart’s bonds to G. L. Miller & Company Inc., or a loan of $89,930.02 by Miller to Stewart; or can the underwriting contract be treated as evidencing only an agreement between the parties that G. L. Miller & Company Inc. was to act as agent in behalf of Stewart, receiving for its services as such agent in the sale of the bonds and the supervision of the construction of the building such compensation as is specified in the paper called the underwriting agreement ?
Section 3436 of the Civil Code of 1910 refers especially to devices or subterfuges by which a higher rate of interest than that prescribed by law is obtained, and denounces each and all of them. For this reason nomenclature is unimportant in the consideration of a transaction, when the existence or nonexistence of usury is the subject of legal investigation. It is not a question of what disguise may be attempted to conceal the usury, or what device may be used as a cover. If the nature of the transaction is such that it is apparent from the stipulations, conditions, or requirements of the agreement that usury is being disguised, the law makes it the duty of the courts to tear away the mask, and, disregarding outward appearances, to declare that usury is present though it be cloaked in the livery of an apparently legal contract. Any agreement the practical effect of which is to charge or collect a profit for the use of money greater than 8% is usurious. Bank of Lumpkin v. Farmers State Bank, *930ante, 801 (132 S. E. 221). There can be underwriting agreements in which a deduction for services to be rendered by the underwriter in disposing of stocks or bonds can properly be made by way of service charges or commissions for the specific service or services. But charges for services in obtaining money for a borrower, whether upon notes or bonds, can not be charged or collected where the so-called agent or underwriter himself furnishes the money. Beach v. Lattner, 101 Ga. 357 (28 S. E. 110). In the Beach case it was held that “Where a deed, executed as security for the payment of a promissory note, is assailed as usurious, the usury alleged to have been taken consisting of a certain bonus paid by the maker to the payee of the note in excess of the lawful rate of interest, and a third person to whom the note and security deed are transferred seeks to uphold the transaction by showing that such third person was the real lender, and that the payee of the note was a mere intermediary, the bonus exacted being by way of compensation to the latter [the payee], and in no manner participated in by the former [the purchaser of the note]; the question of usury depends upon whether such third person was in fact the real lender. . . A grantee in a security deed tainted with usury can not, as against the .maker thereof, convey a good title even to a third person who takes bona fide, before maturity, for value, and without notice of the fact of usury.” The act of 1916, supra, changed the penalty inflicted upon an usurious lender from avoidance of the title purported to be conveyed by the security deed to a penalty'subjecting him to loss of- all interest; and upon the same principle which underlies the decision in the Beach case, where the penalty which avoided the deed given to secure the debt was imposed although there had been a transfer of the deed to an innocent purchaser, it would seem that where one who purchased a note purporting to bear a stipulated rate of interest, but which is in fact usurious, would suffer the same legally imposed penalty as the original payee of the note. To paraphrase the language in the Beach case, if the lender had no right to interest, “his grantee [transferee] could take none.” There is no difference in the principle of the two supposed cases, though in the one usury avoided the title which secured the debt, and in the latter all interest is forfeited as a penalty for the taking of usury. But in *931discussing one of the minor points we have stepped aside from, the consideration of the main question as to usury, and in the Beach case it was held to be usury where a sum of money in excess of eight per centum was withheld from the borrower, regardless of the penalty affixed to the usury.
Then was G. L. Miller & Company Inc. the lender of the money from which it was agreed that $22,069.98 should be deducted, —$14,000 as “discount,” and $6250 as “yield premium,” besides other minor deductions? We think the evidence compels the conclusion that Miller advanced the money, for the statement given to Stewart stated the sum of money advanced as $98,000, and, after deducting the charges to which we have referred, contained only two items paid by' Miller to Stewart, amounting together to $88,930.02. No witness representative of G. L. Miller & Company Inc. was produced to explain the circumstances appearing from the contract, which unexplained inevitably compel the conclusion that that company as purchaser of the bonds itself advanced the money for the so-called loan. The language of the 5th and 6th paragraphs of the underwriting agreement indicates a purchase, in that it is provided that for the $112,000 of bonds Miller shall in no event be required» to account to Stewart for more than $98,000, and that it can do with the bonds just as it pleases, either sell them or keep them. An ostensible purchase of the bonds by the Miller Co., with the provision that although it had bought them it should be thereafter permitted to make charges for yield service and attorney’s fees, would be a device so transparent as to disclose a mere contrivance to conceal usury under the guise of purchase. If Miller had really purchased the bonds for $98,000, there would have rested upon Stewart no duty or obligation of any kind to make such a discount in the selling price of the bonds below par as would enable purchasers from Miller to net seven and one-half per centum interest. Owning no further interest in the bonds which had been sold to Miller, it would certainly not concern Stewart whether the bonds were sold or Miller remained the owner. Stewart’s only possible obligation, duty, or interest would have been to pay the interest and principal upon the issue of bonds in accordance with the contract. So I conclude that the contract is usurious. This being true, it was error to *932appoint a receiver, because the contention of the plaintiffs in error that they had made sufficient payments to discharge all the obligations under the contract except the interest, and that by reason of usury no interest was due, was demanded. Even under the contract a receiver could not be appointed unless there had been a default; and it having been shown that all interest had been forfeited on account of usury, and that payments had been made sufficient to cover the other provisions of the contract with reference to insurance, taxes, payments upon the sinking-fund, and payments upon the principal for the purpose of accumulating a sinking-fund, no ground existed authorizing the defendants to be deprived in this drastic manner of the control of the property pledged to secure the debt. There is no allegation that either Stewart or Jeter is insolvent; and though Stewart had contracted that a receiver might be appointed, regardless of the question of insolvency, if there was a default in the payment of interest, as well as default in complying with any of the other requirements referred to, a default as to some of these must' have been shown before the appointment of a receiver would have been authorized even under the .contract. •Under the general principles of equity a receiver could not properly have been appointed to take in charge the property of a debtor whose solvency is not questioned,'in the absence of a showing that the borrower had defaulted in some of the- duties which he imposed upon himself by entering the contract.
Does usury affect a purchaser who buys in good faith negotiable securities with no knowledge that there was any usury in the transaction? It is earnestly insisted by learned counsel for the defendant in error that upon principle an innocent purchaser should be protected; and that it appears from the record in the first case in which this court ruled that usury could be pleaded against the purchaser of an usurious obligation that the paper was past clue when purchased by the holder. This was also adverted to in Bank of Lumpkin v. Farmers State Bank. We are asked to review and overrule decisions contrary to the reasoning of Mr. Justice Lamar in the case of Weed v. Gainesville Railroad Co., 119 Ga. 576, 593 (46 S. E. 885), to the effect that the law merchant protects the innocent holder of negotiable paper bought before due and for value; and it is insisted that *933it must appear that the consideration of the negotiable paper was both illegal and immoral, before the plea of usury can be asserted against an innocent purchaser. It is to be noticed that what was said by Mr. Justice Lamar in the Weed case was merely the expression of his personal opinion. This, as the member of the court delivering the opinion, he had a perfect right to express, but no member of the court concurred in this view. The principle that the plea of usury is available even against a bona fide purchaser who has no notice of the existence of usury, and even though the .paper be purchased before its maturity, is so well settled in this State, and, as I think, is based upon such solid grounds, that we shall not review or overrule the long line of decisions in which the rule has been steadfastly adhered to. Though in Bailey’s case, 1 Ga. 392, it appears that the paper purchased was past due, an examination of the record in nearly all subsequent cases, so far as we have been able to discover, discloses that the paper claimed to be usurious was purchased before it was due; and yet, rvithout a single exception, the court has held that it was at least more immoral to permit usury to be originally extorted from a borrower than to compel one who was absolutely ignorant of this moral taint to lose money which he had spent in the utmost good faith. Among a multitude of cases which could be cited we refer to Bailey v. Lumpkin, 1 Ga. 392; Laramore v. Bank of Americus, 69 Ga. 722; Pottle v. Lowe, 99 Ga. 576 (27 S. E. 145, 59 Am. St. R. 246); Angier v. Smith, 101 Ga. 844 (28 S. E. 167); Atlanta Savings Bank v. Spencer, 107 Ga. 629 (33 S. E. 878); Clarke v. Havard, 111 Ga. 242 (36 S. E. 837, 51 L. R. A. 499), s. c. 115 Ga. 882 (42 S. E. 664); Wacasie v. Radford, 142 Ga. 113 (82 S. E. 442); Strickland v. Wilson, 145 Ga. 218 (88 S. E. 921).
We agree with the learned counsel for the defendant in error that perhaps immorality must join with illegality to constitute usury; but from the earliest time the taking of usury has been deemed to be immoral. The taking of usury may be malum prohibitum. Eor long eras of history it was not, but usury has always been malum in se. The fact that commercial usage and innumerable transactions have arisen which did not exist in biblical times, and have authorized legislation to permit a reasonable *934charge for the use of money, certainly does not make moral the extortion of a rate based upon the necessity of the borrower and the- cupidity of the lender, which even human law does not sanction, but on the contrary recognizes to be unconscionable and therefore immoral. Among the defenses which may be interposed to the claim of even an innocent purchaser before maturity, section 4286 provides as one available against the innocent holder of commercial paper the avoidance of a paper based upon “illegal and immoral consideration.” In numerous rulings of this court touching the subject of usury it will be found that usury is treated as a claim based not only upon an illegal but also an immoral consideration. For the clarity of Mr. Justice Lamar’s intellect, for his magnificent ability as a lawyer, and for his fearless sense of justice, we entertain the highest regard. His career is one of the proudest monuments to mark and preserve the fame of Georgia’s bench and bar. But as Homer sometimes nods, it is plain that the remarks of Justice Lamar in the Weed case, supra, were based upon a misapprehension that at the time Bailey v. Lumpkin was decided the law made the entire contract void when usurious. As matter of fact this was not the case. Under the provisions of the act of 1845 the law at the time the decision in Bailey v. Lumpkin was made was precisely as it has now been made by the passage of the act of 1916, supra.