Easton v. Butterfield Live Stock Co.

• Decision Date: 30 July 1929
• Docket Number: 5357
• Citation: 48 Idaho 153,279 P. 716
• Parties: L. F. EASTON, Respondent, v. BUTTERFIELD LIVE STOCK COMPANY, a Corporation, the Charter of Which has Been Forfeited, WILLIAM HOWELL, AUGUST BRODERSON, P. F. RIEGER, F. C. EPPERSON and C. J. SELWYN, the Last Managers and Directors of the BUTTERFIELD LIVE STOCK CO., a Corporation, and as Trustees of the Property and Affairs of Such Corporation, Appellants; HIGH & FRITCHMAN COMPANY, a Corporation, Intervenor
• Court: Idaho Supreme Court

279 P. 716

48 Idaho 153

L. F. EASTON, Respondent, v. BUTTERFIELD LIVE STOCK COMPANY, a Corporation, the Charter of Which has Been Forfeited, WILLIAM HOWELL, AUGUST BRODERSON, P. F. RIEGER, F. C. EPPERSON and C. J. SELWYN, the Last Managers and Directors of the BUTTERFIELD LIVE STOCK CO., a Corporation, and as Trustees of the Property and Affairs of Such Corporation, Appellants; HIGH & FRITCHMAN COMPANY, a Corporation, Intervenor

No. 5357

Supreme Court of Idaho

July 30, 1929

CORPORATIONS-BOND ISSUE-WAIVER OF STREET PERFORMANCE-USURY-EXCESSIVE INTEREST UPON NONPAYMENT AT MATURITY.

1. Where trust deed executed by corporation to secure bond issue provided that no bond should be a valid obligation until certificate was attached providing that bond was one issued under trust deed, and corporation sold bonds for cash and recognized them as valid obligations, by delivering at various times interest payments and payments on principal corporation waived provision requiring certificate to be attached, and was estopped to deny validity of bond issue.

2. In determining whether usurious interest, prohibited by C. S secs. 2552, 2553, 2554, has been charged or collected under particular contract, it is not permissible to consider only portion of term of contract, test being whether lender under contract charged or received profit on investment in excess of maximum rate for full period of loan, mere fact that interest at rate in excess of statutory maximum was allowed for short period not constituting usury.

3. Where, under bonds and trust deed securing them, interest on unpaid principal and interest coupons from maturity to entry of decree exceeded maximum amount allowed by law, but aggregate interest paid and allowed on unpaid principal from time of issue to time of decree did not exceed amount allowed under C. S., secs. 2552, 2553, interest collected was not usurious.

4. C S., secs. 2552, 2553, 2554, prohibiting agreement to pay interest at any rate in excess of ten per cent per annum, applies only to unmatured contracts, where obligation of borrower is definitely fixed.

5. Neither fact that bonds bear higher rate of interest after maturity, whether by expiration of time or declaration following default, nor collection for specified period of greater rate of interest than the maximum allowed under C S., secs. 2552, 2553, 2554, renders contract usurious.

6. Where borrower may by performance of contract avoid liability for payment of additional sum, extra payment is not regarded as interest for use of money, but as a means to enforce punctual payment and as penalty for default.

7. Where a debtor may relieve himself by payment or performance of obligation according to its terms, contract providing for higher and even an excessive rate after maturity or default is not regarded as usurious.

8. Where maturity of bonds issued by corporation was accelerated by declaration following default, interest coupons no longer represented interest to become due, since declaration amounted to surrender of coupons, and rate of interest was thereafter as fixed in bonds.

9. To constitute "usury" under C. S., secs. 2552, 2553, it is necessary that excessive interest be knowingly taken, received, reserved, or charged.

10. Where opportunity for exacting excessive interest under bonds issued by corporation and trust deed securing them was postponed for long period, no effort being made to collect illegal interest, and it was improbable that bondholders would waive defaults for such long period in order to collect excessive interest, and bonds were sold by corporation after it had either prepared or approved contract, bonds and trust deed held not to disclose corrupt intention to knowingly take, receive, reserve, or charge interest at rate in excess of ten per cent per annum allowed by C. S., secs. 2552, 2553.

APPEAL from the District Court of the Seventh Judicial District, for Washington County. Hon. B. S. Varian, Judge.

Action for appointment of receiver. High & Fritchman Company, a corporation, intervened. Decree for intervenor. Affirmed.

Decree affirmed, with costs to respondent.

Fisher & Coffin, for Appellants.

The requirement of this contract to the general effect that the certificate of the trustee duly executed shall be essential to the validity of the bonds must be substantially complied with and the burden of proof is on the claimant to establish the validity of the bonds by the best evidence of certification. (Maas v. Missouri, K & T. R. Co., 83 N.Y. 223; Holland Trust Co. v. Thompson-Houston Electric Co., 170 N.Y. 68, 62 N.E. 1090; Anthony v. County of Jasper, 101 U.S. 693, 25 L.Ed. 1005; Young v. Clarendon Township, 132 U.S. 340, 10 S.Ct. 107, 33 L.Ed. 356; Long Island Loan & Trust Co. v. Columbus, C. & I. C. Ry. Co., 65 F. 455.)

The effect of taking, receiving, reserving or charging a rate of interest that exceeds the rate allowed by law is to destroy the interest-bearing capacity of the note or bond after, as well as before maturity. (National State Bank v. Brainard, 16 N.Y.S. 123; Shunk v. First National Bank, 22 Ohio St. 508, 10 Am. Rep. 762; Guthrie v. Reid, 107 Pa. 251; Danforth v. National State Bank, 48 F. 271, 1 C. C. A. 62, 17 L. R. A. 622.)

A statute may forbid enlarging the rate of interest by means of compounding, whatever may be the rules of the common law, and a contract which violates the statute invokes the penalty prescribed by law. (Citizens' National Bank v. Donnell, 195 U.S. 369, 25 S.Ct. 49, 49 L.Ed. 238.)

Martin & Martin, for Intervenor High & Fritchman Company.

The defendants' answer admits that the Butterfield Live Stock Company sold the bonds in question for cash to various parties. Defendants are therefore estopped to deny the legality of said bonds or the proper execution thereof. (Fremont County v. Warner, 7 Idaho 367, 63 P. 106; Lane v. Pacific & Idaho N. Ry. Co., 8 Idaho 230, 67 P. 656; Seeley v. Security Nat. Bank, 40 Idaho 574, 235 P. 976; Blackwell v. Kercheval, 27 Idaho 537, 149 P. 1060; McCormick v. Unity Co., 239 Ill. 306, 87 N.E. 924.)

A stipulation in a contract that if the debt be not paid at maturity it shall draw interest thereafter at a rate greater than the statutory limit is now generally regarded as a penalty to induce prompt payment, as the debtor has it within his power to avoid paying the penalty by discharging the debt when due. Such agreements are held to be free from usury. (Tipton v. Ellsworth, 18 Idaho 207, 109 P. 134; Blake v. Yount, 42 Wash. 101, 114 Am. St. 106, 7 Ann. Cas. 487, 84 P. 625; Covington v. Fisher, 22 Okla. 207, 97 P. 615; Hovey v. Edmison, 3 Dak. 449, 22 N.W. 594.)

Edwin Snow, for Respondent Easton, files no brief.

BAKER, District Judge. Budge, C. J., Givens and Wm. E. Lee, JJ., and Brinck, D. J., concur.

OPINION

BAKER, District Judge.

The contending parties in this court are the directors and statutory trustees of the Butterfield Live Stock Company, Limited, hereinafter referred to as the "live stock company," a corporation whose charter has been forfeited for failure to file its annual statement and pay its annual license tax, as appellants, and the intervenor, High & Fritchman Company, as respondent. The demands of all other parties have been satisfied.

Under date of October 1, 1922, the live stock company, for the purpose of borrowing money, issued its bonds for the total principal sum of $ 175,000, some maturing each year from 1924 to 1932, all bearing interest until maturity at the rate of seven per cent per annum, payable semi-annually and evidenced by attached interest coupon notes. It was expressly provided that the principal of the bonds and the principal of the coupon notes should bear interest after maturity at the rate of ten per cent per annum. Payment of principal and interest was secured by trust deed upon various tracts of real property in this state. Both bonds and trust deed provided that upon thirty days' continued default in the payment of principal or interest, the trustee might declare the whole sum of both principal and interest to be due and payable. The trust deed also provided that no bond should be a valid, legal or binding obligation of the live stock company until a certificate, attached to each bond to the effect that it was one issued under the trust deed, had been executed by the trustee.

The live stock company made payment of the interest to October 1, 1926, and of the bonds maturing on October 1, 1924. It defaulted in the payment of the bonds thereafter maturing and failed to pay any interest becoming due after October 1, 1926. The intervenor, which had succeeded to the office of trustee, filed its complaint in intervention in which it recited these defaults with others and expressly elected to declare all sums of both principal and interest to be due and payable. It sought judgment for the unpaid principal of the bonds with interest to maturity at the rate of seven per cent per annum and after maturity, whether by lapse of time or by exercise of option, at the rate of ten per cent per annum and the principal of matured and unpaid interest coupons with interest thereon at the rate of ten per cent per annum from their due dates.

The complaint in intervention alleged and the answer of the directors admitted that all of the bonds were sold and delivered to various purchasers for cash by the live stock company. Intervenor alleged and the directors denied for want of information that the certificates were duly executed by the trustee. The directors admitted the payments upon the principal and interest, pleaded payment upon the "indebtedness" of the sum of $ 57,600 and that the interest provisions referred to violated the usury statutes of this state.

Upon the trial no bond was offered in evidence. The...