German Sav. Bldg. & Loan Ass'n v. Leavens

• Decision Date: 05 January 1916
• Docket Number: 12771.
• Citation: 89 Wash. 78,153 P. 1092
• Court: Washington Supreme Court
• Parties: GERMAN SAVINGS, BUILDING & LOAN ASS'N v. LEAVENS et al.

153 P. 1092

89 Wash. 78

GERMAN SAVINGS, BUILDING & LOAN ASS'N v. LEAVENS et al.

No. 12771.

Supreme Court of Washington

January 5, 1916

Department 1. Appeal from Superior Court, King County; R. B. Albertson Judge.

Suit by the German Savings, Building & Loan Association against Melvin Leavens and others. From an adverse judgment defendants appeal. Affirmed.

Edward Judd and O. E. Sauter, both of Seattle, for appellants.

Edward Von Tobel, of Seattle, for respondent.

MORRIS C.J.

Suit to foreclose a mortgage securing the payment of a note in the sum of $5,572. Two defenses were interposed first, that the respondent falsely represented the interest on the loan to be at the rate of 6 1/2 per cent. per annum and, second, that the note was usurious. The lower court sustained the first defense, awarding respondent judgment for $3,377, the sum loaned, plus interest at 6 1/2 per cent., less payments made, but denied the plea of usury. The appeal is taken from the denial of the second defense.

The only question submitted to us is whether or not the contract is tainted with usury. The material portions of the note are as follows:

'5,572.00. Seattle, Wash., June 15, 1909.

'For value received, I promise to pay to the German Savings, Building & Loan Association the sum of fifty-five hundred seventy-two 00/100 dollars in 120 equal monthly installments of forty-six and 43/100 dollars. The first installment payable on the 15th day of July, 1909, and one installment on the 15th day of each and every month thereafter until the whole sum is paid. These payments are on account of a loan obtained from said German Savings, Building & Loan Association of the principal sum of thirty-three hundred and seventy-seven dallars with interest, computed upon unpaid monthly balances.'

It will be observed that the amount to be repaid is $5,572, and the sum loaned is $3,377. The difference between these two sums, $2,195, represents the interest to be paid for the use of the money for 10 years, the life of the loan. The question then is, Is the payment of $2,195, as interest upon a loan of $3,377 for 10 years, in excess of 12 per cent. per annum?

Appellant contends in support of the usury plea that $2,195 payable as interest amounts to 65 per cent. of $3,377, the amount loaned, or 6 1/2 per cent. for 10 years, but inasmuch as the borrower begins repaying one month after receiving the loan, and continues such payments in equal amounts and at equal periods until the whole amount has been repaid, he would have the use of the first installment for only one month, the second installment for only two months, and so on until the last installment, of which he would have the use for the full term of 10 years. This would result, it is said, in the borrower having the use of the loan for an average period of 5 years, which, upon the basis of 6 1/2 per cent. for the whole use for the 10 years, would mean a rate of 13 per cent. and establish the usury. In order to reach this result appellant proceeds upon the theory that the proportion of the $46.43 monthly payment to be applied upon the principal and interest never varies, or, using the language of the brief:

'If the gross sum of $5,572 thus divided consisted of principal and interest in the proportion of 100 to 65, then each one of the smaller payments into which it was divided must necessarily have been composed or principal and interest in the proportion of 100 to 65, so that each installment of $46.43 contained $28.14 principal and $18.29 interest.'

If we accept appellants' premise, their conclusion is mathematically correct. The error of the premise is found in assuming that the respective proportion of principal and interest in the monthly payments never varies. The correct rule adopted by this court is found in Equitable Savings & Loan Ass'n v. Bowes, 70 Wash. 169, 126 P. 436, where it was held, in considering a like contention upon a like contract, that the true rule in computing monthly payments is to compute the interest for the first month, apply the monthly payment to the same, and if the payment exceeds the interest, the remainder should be applied in payment of the principal, treating the remainder as a new principal, thus decreasing the interest each month while increasing the sum to be applied in payment of the principal. Computing the interest at 12 per cent. per annum, since such rate is permissible under the statute, and applying this rule to the note for the first three months for the purpose of illustration (assuming our figures are correct), the result would be:

First month principal ........ $3,377 00

Payment...