Missouri Trust Co v. Krumseig

• Citation: 172 U.S. 351,43 L.Ed. 474,19 S.Ct. 179
• Decision Date: 03 January 1899
• Docket Number: No. 66,66
• Parties: MISSOURI, K. & T. TRUST CO. v. KRUMSEIG et al
• Court: United States Supreme Court

172 U.S. 351

19 S.Ct. 179

43 L.Ed. 474

MISSOURI, K. & T. TRUST CO.

v KRUMSEIG et al.

No. 66.

January 3, 1899.

In May, 1894, Theodore M. Krumseig and Louise Krumseig filed in the district court of the Eleventh judicial district of Minnesota a bill of complaint against the Missouri, Kansas & Texas Trust Company, a corporation of the state of Missouri, praying that, for reasons alleged in the bill, a certain mortgage made by complainants on the 5th day of September, 1890, and delivered to the defendant, and by it recorded, and certain notes therein mentioned, might be canceled, and the defendant be permanently enjoined from enforcing the same. The defendant thereupon, by due proceedings, removed the cause to the circuit court of the United States for the district of Minnesota, where the Union Trust Company of Philadelphia was made a co-defendant, and the case was so proceeded in that, on October 22, 1895, a final decree was entered, granting the prayers of the complainants, declaring the said mortgage and notes to be void, and enjoining the defendants from ever taking any action or proceeding for their enforcement. 71 Fed. 350.

From this decree an appeal was taken to the circuit court of appeals for the Eighth circuit, where, on November 5, 1896, the decree of the circuit court was affirmed. 23 C. C. A. 1, 77 Fed. 32. On March 20, 1897, on petition of the Missouri, Kansas & Texas Trust Company, a writ of certiorari was awarded, whereby the record and proceedings in said cause were brought for review into this court.

Wm. C. White, for petitioner.

J. B. Richards, for respondent.

Mr. Justice SHIRAS, after stating the facts in the foregoing language, delivered the opinion of the court.

The bill of complaint alleged that on July 27, 1890, Theodore M. Krumseig, one of the complainants, made a written application to defendant, a corporation of the state of Missouri, for a loan of $2,000, to be secured upon real estate in the city of Duluth, minn., and among the conditions in the said application was the following:

'In consideration of the above premises, I agree to execute and deliver to the said company ten promissory notes, each of the sum of $360, payable in monthly installments of $30, commencing at date of signing contract. The said notes aver principal sum loaned, interest and cost of guaranty to cancel debt in case of death, and shall be secured by good and sufficient deed of trust or mortgage executed by myself and wife on said ground and improvements. The contract hereafter to be entered into, if my application shall be accepted and contract entered into in writing between myself and said company, shall provide that the mortgage or deed of trust given to secure the above notes shall contain a clause guarantying, in case of my death before payment of any unpaid installments, a release of unpaid portion of debt, if I shall have promptly paid previous installments and kept other conditions. As part of foregoing condition, I agree, before acceptance of this application and the execution of said contract, to pass such medical examination as may be required by said company, and to pay said company the usual $3 fee therefor, and to pay all fees for recording deed of trust or mortgage.'

The bill further alleged that thereupon Krumseig passed the medical examination required, paid the fee demanded, and complainants then executed 10 certain promissory notes, each for the sum of $360, dated September 5, 1890, payable in monthly installments of $30, with interest at 10 per cent. after due, 41 of which installments, amounting to $1,230, have been paid. On the same day, in order to secure these notes, they executed and delivered to the defendant a mortgage on the premises, with the usual covenants of warranty and defeasance, reciting the indebtedness of $3,600, in manner and form aforesaid, and containing the following clause:

'And it is further understood and agreed by and between the said parties of the first part, their executors, administrators, or assigns, and the said party of the second part, the Missouri Kansas and Texas Trust Company, that in case the said Theodore M. Krumseig, one of the parties of the first part, should die after the execution and delivery of the said notes and this mortgage, and within ten years thereafter, each and every of the said notes remaining unpaid at the said date shall be surrendered to the executors or administrators of the said Theodore M. Krumseig, one of the parties of the first part, and this mortgage shall be canceled and satisfied: provided, however, that said parties of the first part shall have promptly paid each monthly installment that shall have become due prior to his death according to the terms of the notes hereinbefore mentioned, and that he has not committed suicide within two years, and has not without written consent of the party of the second part visited the torrid zone, or personally engaged in the business of blasting, mining, or submarine operations, or in the manufacture, handling, or transportation of explosives, or entered into the service of any railroad train, or on a steam or sailing vessel, for two years.'

The bill further alleged that the sole consideration for the notes and mortgage was (1) the sum of $1,970, together with the interest thereon from date until maturity of the installment notes; and (2) the clause in the mortgage last referred to, which latter was in fact an arrangement between the respondent and the Prudential Life Insurance Company of Newark, N. J., to save the former harmless from any loss that might occur to it in case of the death of the complainant Theodore M. Krumseig during the term covered by the mortgage. It was also alleged that the defendant company had not complied with the laws of the state of Minnesota governing life insurance companies, and that the contract was therefore void. The bill prayed that the mortgage be canceled of record and the remaining notes should be delivered up to them.

The answer denied that the contract was usurious, and alleged that the sum of $1,970 received by complainants, with the legal interest thereon and the cost of the guaranty of defendant to cancel the loan in case of the death of Theodore M. Krumseig during the continuance of the contract, consti- tuted a full and ample consideration for the notes and mortgage in question, and that the same was so understood and agreed to by complainants at the time of the execution of the contract.

The circuit court did not consider it necessary to pass upon the question whether the contract was one of life insurance, and hence void, for the admitted fact that the defendant company had not complied with the laws of Minnesota respecting life insurance companies; but regarded the contract as one for the security and payment of borrowed money, and, under the facts, as usurious and void, under the statute of Minnesota, and granted the relief prayed for in the bill. 71 Fed. 350.

The circuit court of appeals affirmed the decree of the circuit court. Two of the judges concurred in holding that the contract was usurious, and that the complainants were therefore entitled to the relief prayed for. One of the two judges so holding construed the contract as one of life insurance, and hence also void under the Minnesota laws. The third judge, while apparently concurring in the view that the contract was usurious, thought that the complainants were not entitled to a remedy for a reason which we shall presently consider. 40 U. S. App. 620, 23 C. C. A. 1, and 77 Fed. 32.

Usury is, of course, merely a statutory offense, and federal courts in dealing with such a question must look to the laws of the state where the transaction took place, and follow the construction put upon such laws by the state courts. De Wolf v. Johnson, 10 Wheat. 367; Scudder v. Bank, 91 U. S. 406.

Section 2212, Gen. St. Minn. 1894, provides that upon the loan of money any charge above 10 per cent. shall be usurious; and section 2217 provides that 'whenever it satisfactorily appears to a court that any bond, will, note, assurance, pledge, conveyance, contract, security, or evidence of debt has been taken or received in violation of the provisions of this act, the court shall declare the same to be void, and enjoin any proceedings thereon, and shall order the same to be canceled and given up.'

As was said in De Wolf v. Johnson, above cited, it does not in general, comport with a negotiation for a loan of money that anything should enter into the views of the parties but money, or those substitutes which, from their approximation to money, circulate with corresponding, if not equal, facility. Still, however, like every other case, it is open to explanation, and the question always is whether it was or was not a subterfuge to evade the laws against usury. The books contain many cases where artful...