Busk v. Hoard, 36940

• Decision Date: 29 October 1964
• Docket Number: No. 36940,36940
• Citation: 65 Wn.2d 126,396 P.2d 171
• Parties: Hans M. BUSK, Respondent, v. Maurice A. HOARD and Clara Hoard, his wife, Appellants. Brazier Construction Company and Connelly Acceptance Corporation, Defendants.
• Court: Washington Supreme Court

Page 126

65 Wn.2d 126

396 P.2d 171

Hans M. BUSK, Respondent, v. Maurice A. HOARD and Clara Hoard, his wife, Appellants Brazier Construction Company and Connelly Acceptance Corporation, Defendants.

No. 36940.

Supreme Court of Washington, En Banc.

Oct. 29, 1964.

Rehearing Denied Jan. 4, 1965.

Culp, Dwyer, Guterson & Edwards, Malcolm L. Edwards, George L. Grader, Seattle, for appellants.

Flanders, Flanders & Trolson, Seattle, for respondent.

HALE, Judge.

Usury has long been recognized as a social and economic evil affecting not only the parties to the transaction but society in general. Being widely regarded thus and condemned by law as well, it is frequently hidden by legalistic devices and cloaked in dissimulation. When, therefore, usury is claimed as a defense, the courts must, after looking beneath the surface of a transaction, examine it in all its ramifications to see if the defense is valid. In this suit to foreclose a real-estate mortgage, the answer sets up usury as a defense, but the basic problem is one of agency.

Maurice A. and Clara Hoard, defendants, borrowed money on their real estate through the Stevens-Norton Company of Seattle, a company said to be a mortgage brokerage. The borrowed money came from Hans M. Busk, plaintiff, who made the investment through the Stevens-Norton Company. If Stevens-Norton Company acted as agent for Busk, the lender, as well as for Hoards, the borrowers, the arithmetic of the transaction, coupled with the express statutory policy on agency, makes it usurious under RCW 19.52.030, which provides:

'If a greater rate of interest than is hereinbefore allowed shall be contracted for or received or reserved, the contract shall not, therefore, be void; but if in any action on such contract proof be made that greater rate of interest has been directly or indirectly contracted for or taken or reserved, the plaintiff shall only recover the principal, less the amount of interest accruing thereon at the rate contracted for, and the defendant shall recover costs; and if interest shall have been paid, judgment shall be for the principal less twice the amount of the interest paid, and less the amount of all accrued and unpaid interest; and the acts and dealings of an agent in loaning money shall bind the principal, and in all cases where there is illegal interest contracted for by the transaction of any agent the principal shall be held thereby to the same extent as though he had acted in person. And where the same person acts as agent of the borrower and lender, he shall be deemed the agent of the lender for the purposes of this act.' (Italics ours.)

Authority to look behind the outer facade of the transaction and into the details of the arrangement (Clausing v. Virginia Lee Homes, Inc., 62 Wash.2d 771, 384 P.2d 644) is found in the statute fixing the maximum lawful rate of interest at 12 per cent in RCW 19.52.020:

'Any rate of interest not exceeding twelve percent per annum agreed to in writing by the parties to the contract, shall be legal, and no person shall directly or indirectly take or receive in money, goods or thing in action, or in any other way, any greater interest, sum or value for the loan or forbearance of any money, goods or thing in action than twelve percent per annum.'

Both Busk, the lender, and Stevens-Norton Company, the go-between, categorically denied the existence of any agency relationship between them, and the trial court entered a judgment of foreclosure for the full amount of the mortgage, specifically finding no agency in its finding of fact No. 2, which reads, in part:

'That the aforesaid Stevens Norton, Inc., was not acting as the agent of the plaintiff at any time prior, during, or subsequent to the transaction between the plaintiff and the defendants Hoard as hereinbefore set forth.'

Since agency is largely a legal concept and describes a legal relationship between the parties to it, we perceive the finding of nonagency to be largely a conclusion of law, though recognizing it may also be said to be a mixture of law and fact. Thus, though the concept or idea of agency be one of law, its existence depends upon factual elements. Restatement, Agency (2d) § 1 Comment 1(b). The Restatement declares this principle when it says:

'Agency is a legal concept which depends upon the existence of required factual elements: * * * The relation which the law calls agency does not depend upon the intent of the parties to create it, nor their belief that they have done so. To constitute the relation, there must be an agreement, but not necessarily a contract, between the parties; if the agreement results in the factual relation between them to which are attached the legal consequences of agency, An agency exists although the parties did not call it agency and did not intend the legal consequences of the relation to follow. Thus, when one who asks a friend to do a slight service for him, such as to return for credit goods recently purchased from a store, neither one may have any realization that they are creating an agency relation or be aware of the legal obligations which would result from performance of the service. * * *' (Italics ours.)

This court said much the same thing in Moore v. Blackburn, 67 Wash. 117, 120 P. 875:

'* * * Agency is a fact to be determined by the peculiar circumstances of each case, so that there are many cases holding that the broker who acts as intermediary between the parties is, under some conditions, the agent of one party, and, under other conditions, the agent of the other party. It seems to us, however, that the problem must be solved by determining under whose direction the broker was acting. * * *' In Edmonds v. Altman, 89 Wash. 4, 153 P. 1082, we extended this idea to an untenable extreme in holding that, when lender and borrower had mere contact through a loan broker, without more, the broker became the agent of each as a matter of law. But Clemson v. Best, 174 Wash. 601, 25 P.2d 1032, overruled Edmonds v. Altman, supra, and reverted to the rule in Moore v. Blackburn, supra. It prefaced McCall v. Smith, 184 Wash. 615, 52 P.2d 338, which says:

'* * * Whether a broker is to be regarded as acting for the borrower, for the lender, or for both, depends on all the facts and circumstances of the particular case, and no one fact, seized from its setting, can be said to be conclusive or controlling under any and all circumstances.'

Although the findings of fact are held to be verities when supported by substantial evidence, and the conclusions of law drawn therefrom by the learned trial judge are worthy of the greatest consideration, we have noted a number of events established from undisputed evidence which warrant a detailed examination of the facts. From this unconflicting evidence, we see what happened.

Defendants urgently needed money; they were willing to pay higher than the prevailing rate of interest for it. On other occasions they had borrowed money through the Stevens-Norton Company, a firm whose officers describe its operations as that of a mortgage broker. They expected to pay the broker a commission for its service, having done so in the past. April 14, 1960, Clara Hoard, acting for her husband under a power of attorney--he was an invalid--signed a written application to Stevens-Norton Company for a $7,500 loan, payable at $200 per month, in which they agreed to pay the company a 20 per cent commission, a $50 appraisal fee, and to pay for title insurance for a first lien mortgage.

The facts, upon which appellants urge that an agency between lender and broker depends, come, as we have said, from undisputed evidence. Mr. Busk read the Stevens-Norton advertisements running in the Seattle Times offering investments in real-estate mortgages and contracts. He was a carpenter and had never before invested in real-estate mortgages or liens or engaged in other real-estate transactions. He had little or no knowledge of mortgage paper or the language essential to create a binding foreclosable contract. He had never traded in stocks, bonds, or other securities, and had no prior acquaintance with the Stevens-Norton Company or with the defendants Hoard. Prompted by the advertisement and in the hope of making an investment, Busk went to the Stevens-Norton Company offices in the Dexter Horton Building, Seattle.

Larry Stevens, vice-president of the company, showed Busk the papers pertaining to a number of mortgages and contracts, referred to as 'listings,' and exhibited some photographs of real estate concerning them. Larry Stevens told Busk that his company would, without charge, collect the mortgage payments, keep records of principal and interest, and make remittances, and, prior to making the investment, would check to see that the title was free of liens and procure title insurance. He told Busk that the Hoards owned their own home, operated a business and were responsible people, and he appraised the property to be mortgaged at $12,500. On this occasion, Busk agreed to make a $7,500 loan to the Hoards on a note and mortgage and thereupon handed to Mr. Stevens his check for $100. He returned to the Stevens-Norton Company office one week later, on April 21st, and delivered the remaining $7,400.

Coincident with receipt of the $7,400, the Stevens-Norton Company made a formal business record of this transaction by opening an eleven-column ledger card on which to record payments, interest, taxes and other pertinent information, and subsequently entered in it four separte rows of entries relating to payments on July 1st and July 28th.

Mr. Busk, the lender, never saw the property on which he was lending his money, nor met his debtors, the Hoards. Stevens-Norton Company exercised dominion over the mortgage paper, placing a message on it to the county auditor directing its return after recordation to their offices in the Dexter Horton Building; and there the instruments were kept. Noteworthy, too, on the question of...