American Inv. Co. v. Lyons

CourtSupreme Court of New Mexico
Citation218 P. 183,29 N.M. 1,1923 -NMSC- 065
Docket Number2830.
Decision Date30 June 1923

Syllabus by the Court.

Where the interest charged upon a loan does not exceed what the interest thereon would total at the rate of 10 per cent. per annum, computed upon the basis of the time such loan is to extend, it is not usurious, even though the payments thereof are so divided that during the first 4 years of a 10-year loan each annual sum required exceeds 10 per cent. of the face of such loan.

An intent to charge or exact interest at a prohibited rate is necessary to constitute usury.

Parties cannot, upon appeal, change their contentions, shift their positions, nor advance new and different theories from those made and advanced in the trial court.

Appeal from District Court, Union County; Leib, Judge.

Action by the American Investment Company against Samuel W. Lyons. From a judgment for defendant, plaintiff appeals. Affirmed.

O. T Toombs, of Clayton, for appellant.

O. P Easterwood, of Clayton, for appellee.


The appellee, the American Investment Company, instituted this suit against the appellant, Samuel W. Lyons, seeking to recover judgment upon four certain promissory notes in the sum of $600 each, dated September 2, 1919, and due on September 1, 1920, 1921, 1922, and 1923, respectively, with interest thereon from and after maturity at the rate of 10 per cent. per annum. Foreclosure of a mortgage deed covering certain described premises securing the payment of said notes was also sought. Appellant admitted the execution of the notes and mortgage deed. He pleaded that on September 2 1919, he executed his certain promissory note in the sum of $6,000, payable to the order of appellee, due 10 years from date, bearing interest from date until paid at the rate of 6 per cent. per annum, payable semiannually; that to secure the payment of such note he executed his first mortgage deed upon the premises involved; that the $6,000 note, with the mortgage deed securing the same, and the four notes sued upon with the second mortgage deed upon the same land securing them, constitute a single transaction; the four notes being given to evidence additional interest upon the $6,000 note above the 6 per cent. per annum recited in such note. He contended that the interest thus charged is usurious. This question commands our first consideration.

The maximum rate of interest permitted under the laws of this state is 10 per cent. per annum. Section 1, c. 162, Laws 1919, provides:

"Any rate of interest not exeeding ten per centum per annum agreed to by the parties to the contract, shall be legal, and no person shall directly or indirectly take or receive any money, goods or things in action or in any other way, any greater interest, sum or value for the loan or forbearance of any money, goods or things in action than ten per centum per annum; provided that a minimum charge of one dollar ($1.00) may be made for interest where the said rate fails to aggregate said sum."

The $6,000 note provides that interest thereon shall be paid at the rate of 6 per cent. per annum, payable semiannually. Mathematical computation readily discloses that 20 payments of $180 each are thus required, which aggregate $3,600. This sum, added to the $2,400 evidenced by the four notes of $600 each sued upon herein, reveal that the total aggregate sum which will be paid by the borrower as and for interest upon the loan in question is $6,000. This would be equal to interest on $6,000 for 10 years at 10 per cent. per annum, and would not be violative of the statute governing such transactions. The only question which need be seriously considered is whether the arrangement entered into between the contracting parties, whereby the payments to be made during the first 4 years of the loan, each of which included one of the $600 notes, as well as $360, being interest at 6 per cent. upon the $6,000 note, thereby aggregating $960, renders the transaction objectionable. Had the loan been for 4 years and these payments had been required, it would clearly be usurious, but the loan is not for 4 years only. It is for 10 years; and if the contract is fulfilled according to its terms, the appellant will have paid at the end of that time a total sum which will equal interest at the rate of 10 per cent. per annum on the principal for the full term of the loan. The contracting parties had the right to make this interest mature in such sums and at such times as they might agree upon. The fact that sums exceeding 10 per cent. of the principal were required during the first 4 years does not render the contract objectionable. This exact question has been considered by numerous courts, and they have uniformly held such contracts valid and free from usury. The facts shown in Metz et al. v. Winne, 15 Okl. 1, 79 P. 223, were that on August 27, 1901, $600 was loaned. A note in that sum, due 10 years after date, bearing interest at the rate of 7 per cent. per annum was executed. In addition, a note of $150 and one of $30 due on September 1, 1902, were executed, which were secured by a second mortgage upon the same land. It was contended that, because during the first two years of the loan, interest which exceeded 12 per cent. per annum was required, the loan was tainted with usury. In disapproving this contention, the court said:

"The facts specially pleaded in the answer are that the defendants borrowed from Winne, $600, payable in 10 years, with interest at 7 per cent., and that they executed one note for $600, and ten notes for $42 each, representing the interest for the 10 respective years; that they also executed the note for $150, which was for additional interest, and aver that such sum was usurious and excessive. A mere matter of mathematical calculation is sufficient to refute the conclusion of the pleader. Parties may contract for a rate of interest not to exceed 12 per cent. The interest on $600 for 10 years at 12 per cent. is $720. The interest contracted for as shown by these notes is as follows: Ten notes, $42 each, $420, one note $30, and one note $150; total, $600--which is $120 less than the maximum interest the mortgagee was entitled under the law to deduct."

And in Garland et al. v. Union Trust Co. et al., 63 Okl. 243, 165 P. 197, the Supreme Court of Oklahoma further said:

"We are therefore of opinion that there is no merit in defendants' contention, in effect, that the $2,325 deducted as interest in advance, together with the exaction of a note for $2,750, with interest thereon at 8 per cent. for a year, and the further exaction of $1,572.22 as interest on the loan up to December 21, 1912, or in all, $6,822.22, was the exaction of usury at the rate of some 27 per cent. for a loan of $50,000 from the date of the mortgage up to that time. This for the reason that, although such rate seems excessive, computed, as it is, for a part only of the time the loan had to run, the same is not excessive when those payments are spread out over the entire time the contract, if performed, had to run, as we have seen."

For additional expressions from that court declaring this rule, see Covington et al. v. Fisher et al., 22 Okl. 207, 97 P. 615; Baker et al. v. Pittsburg Mortgage Inv. Co., 67 Okl. 310, 171 P. 23; Deming Inv. Co. v. Reed et ux. (Okl. Sup.) 179 P. 35; and Clement Mortgage Co. v. Johnston, 83 Okl. 153, 201 P. 247.

A similar transaction was considered by the Supreme Court of Arkansas in Eldred et al. v. Hart et al., 87 Ark....

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