Bank of Lumpkin v. Farmers' State Bank
| Decision Date | 15 February 1926 |
| Docket Number | 4637. |
| Citation | 132 S.E. 221,161 Ga. 801 |
| Parties | BANK OF LUMPKIN et al. v. FARMERS' STATE BANK. |
| Court | Georgia Supreme Court |
Syllabus by the Court.
Under the laws of Georgia the exaction of a higher rate of interest for the use of money than 8 per cent. per annum is unlawful and prevents the collection of any interest whatever. The ingenuity of man has not devised a contrivance by which usury can be legalized, if it appears that the purpose of the scheme was to exact a larger profit for the use of the money actually advanced than 8 per cent. per annum. In determining whether the contract is usurious, the substance of the transaction will be critically inspected and analyzed, for the name by which the transaction is denominated is altogether immaterial, if it appears that a loan of money was the foundation and basis of the agreement which is under consideration.
The question as to whether one intends to exact usury by a contrivance or device, or whether the alleged charge is bona fide for actual services, is for the determination of the jury; and consequently, under the facts pleaded in this case the court erred in sustaining the demurrers, thereby adjudging that there was no usury in manner and form, as insisted by the defendants.
The Court of Appeals did not err in affirming the judgment of the lower court in sustaining the demurrer to the amendments alleging a scheme or device on the part of the Farmers' Bank in contracting to reserve 10 per cent. as attorney's fees, when in fact the bank had contracted to pay its attorney only a portion of said attorney's fees so reserved.
The nature of the contract between an attorney and a proposing client and the amount of compensation are not privileged since the relation of attorney and client does not exist until the contract of employment has been made.
Certiorari from Court of Appeals.
Suit by the Farmers' State Bank against the Bank of Lumpkin and others. Judgment for plaintiff was affirmed by the Court of Appeals (126 S.E. 280, 33 Ga.App. 117), and defendants bring certiorari. Reversed.
Nature of contract between attorney and proposing client and amount of compensation are not privileged, since relation of attorney and client does not exist until contract of employment is made. Civ.Code 1910, § 5785, subd. 2.
The Farmers' State Bank, a corporation, brought suit in two counts against the Bank of Lumpkin, a corporation, T. T James, D. G. Bland, G. W. Pugh, W. B. Perkins, E. L. Harvey, J. S. Morton, Mrs. Cora R. Thompson, Mrs. S. A. Hillman, O. S. Morton, E. E. Humber, and E. E. Humber as administrator of the estate of John N. Davis, and alleged that the parties defendant were indebted to the plaintiff on nine certain promissory notes aggregating $66,000 principal, less credits of $2,500, leaving a balance due of $63,500, besides interest thereon at 8 per cent. per annum from July 1, 1923, as provided in said notes, all of which notes bear date of January 6, 1922. The petition was filed on September 25, 1923. The plaintiff asked judgment for the amount of principal and interest and $6,350 attorney's fees as provided in said notes. In the second count of the petition the plaintiff set forth that the Bank of Lumpkin was placed in the hands of the state superintendent of banks on February 9, 1921, by the board of directors of said bank, constituted at that time of the above-named parties defendant. Said board of directors, on or about February 22, 1921, by appropriate resolution of the Bank of Lumpkin, and the approval of the banking department of the state, and also by appropriate resolution and approval of the stockholders of the Bank of Lumpkin, induced the petitioner to enter into liquidation of the affairs of the Bank of Lumpkin by turning over to petitioner the assets of the bank of Lumpkin, petitioner in turn assuming the liabilities of said bank, amounting to $206,057.57, less $9,736.47 cash in bank which was credited upon said amount, leaving a balance of $196,321.60, which petitioner has paid off. The assets of the bank of Lumpkin, turned over to petitioner, have partially liquidated the amount of the liability aforesaid, leaving the balance on January 6, 1922, of $66,000, for which sum the defendants executed their several notes, nine in number, dated January 6, 1922, bearing 8 per cent. interest from date, and 10 per cent. attorney's fees, which notes, deducting a credit upon the first note of $2,500, amount to $63,500. The proceeds secured from the Farmers' State Bank under the arrangement as aforesaid, by the execution of said notes, were for the purpose of discharging, and did discharge, the liabilities of the Bank of Lumpkin and the defendants. Petitioner has given notice of intention to claim attorney's fees as provided by law, and claims $6,350 judgment as attorney's fees, besides principal and interest on said sum.
The answer of the defendants, so far as the same is material to the questions raised in this court, set up that on February 22, 1921, the Bank of Lumpkin, desiring to go out of business and liquidate its affairs, applied to the plaintiff bank for a loan sufficient to pay off all its indebtedness $196,321.60, to wit, the sum of $206,057.57, less $9,736.47 cash on hand, leaving a balance of $196,321.60, which said plaintiff bank loaned to said defendant bank. The items composing said liabilities are set forth. On February 22, 1921, the assets of the Bank of Lumpkin were of the book value of $239,682.08, which were received by the Farmers' State Bank from the Bank of Lumpkin on February 22, 1921, as collateral security for the above-stated loan. Plaintiff bank took said assets, and undertook to collect the same and convert the same into money and apply the same to the liquidation of the said loan. Interest at the rate of 8 per cent. was charged on the $196,321.60 from the date of the contract. The money was retained by the Farmers' Bank; said bank merely assuming the liabilities of the Lumpkin Bank. These liabilities included $74,383.34 of time certificates not subject to check, most of which were not to become due for many months afterwards, as shown by an itemized list of said certificates of deposit attached to the answer as an exhibit. The Farmers' Bank could not be called upon to pay these certificates for 6, 8, or more months, some coming due in 1922. These certificates bore interest at the rate of 5 per cent. The Farmers' Bank knew these facts on February 22, 1921, and knew that it would have on deposit all through the year 1921 and into the year 1922 from $10,000 to $25,000 of time deposits. In making said loan the plaintiff bank required of the defendant bank that the collection of the assets of the defendant bank be undertaken by the plaintiff bank and applied as credits on said notes as collected, the collections to be held by the plaintiff bank, and not applied as credits until such collections amounted to one or more even thousand dollars. In operation, this requirement resulted in defendant keeping on hand with said bank approximately $900 all the time, which was not applied on said notes, which the plaintiff bank got the benefit of, and on which defendant had to pay 8 per cent. interest, and said requirement was a scheme, device, and contrivance on the part of the plaintiff to evade the usury laws and to collect interest on the total liability of the defendant bank, and at the same time have in its possession money that should be applied in reduction of said liability. As a further condition of making said loan the plaintiff bank required of the defendant bank that it furnish it a man to look after collections due said bank of Lumpkin, and also to assist plaintiff in its general banking business, and defendant bank furnished a man, E. E. Humber, and paid him $125 per month from February 22, 1921, to the filing of the plea, and during said time the larger part of the time and work of said Humber has been used for the plaintiff bank. Plaintiff also required the defendant bank to furnish clerical help, or pay $50 per month for this purpose, which amount was paid by defendant in addition to the other amounts set out, and the work done by the person which this sum paid has been largely for the interest and work of the plaintiff bank; and these requirements were schemes and contrivances to evade the usury laws of Georgia, and to enable the plaintiff to collect for the loan of said sum of money other amounts above the highest legal rate of interest. Said loan is infected with usury, and contains large usury, for the reasons above set out, and because the defendant bank was required to pay interest at the highest legal rate on large sums not paid out by the plaintiff bank for a long period, was required to pay interest at the highest rate after payments made, because not promptly credited, and, in addition to being charged the highest legal rate on money that it had not received and on money that had been repaid, was required to pay $175 per month as a bonus or other excessive charge. The Farmers' Bank has taken and charged $22,869.55 paid it in cash as interest from February 22, 1921, to October, 1923, this being 8 per cent. per annum flat charge on $196,321.60, less payments made thereon during said time, and in addition has charged and taken the $175 per month referred to; also has reserved the use of money not needed for unmatured time deposits; and also reserved the use of the average uncredited deposit of $900; all of the above being usurious and done with knowledge of the plaintiff bank that the same was usury. The sums reserved and taken by the plaintiff bank amount to $27,500, and defendants charge that the plaintiff charged, reserved, and received $5,000 as usury over and above the legal rate of interest; said sum being composed...
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