Hall v. Mortgage Sec. Corp. of America
| Decision Date | 22 June 1937 |
| Docket Number | 8400. |
| Citation | 192 S.E. 145,119 W.Va. 140 |
| Parties | HALL et al. v. MORTGAGE SECURITY CORPORATION OF AMERICA et al. |
| Court | West Virginia Supreme Court |
Submitted April 27, 1937.
Syllabus by the Court.
1. "A contract is usurious when any premium, profit, bonus or charge is exacted or required by the lender in excess of the money actually loaned, which in addition to the interest stipulated, renders the return to the lender greater than the lawful rate of interest." Syllabus 3, Janes v Felton, 99 W.Va. 407, 129 S.E. 482.
2. Where a deed of trust securing notes representing a valid loan also secures notes covering usurious charges for the rendition of services in obtaining the loan and negotiating the notes representing the loan, the two series of notes are not severable, the transaction is a single transaction, and both series of notes are tainted with usury, which notwithstanding the negotiable instruments law (Code 1931 46-1-1 et seq.), will follow them into the hands of purchasers for value without notice.
3. A usurious contract cannot be validated by a contract of ratification or estoppel executed contemporaneously therewith.
4. "Laches" is a delay in the assertion of a right which works disadvantage to another.
5. The plaintiffs are the makers of two series of notes, one representing the face of the loan and bearing 6 per cent. interest, and the other, usurious charges exacted by the lender. Six years after the payment of the last of the usurious series, which fell due prior to first of the principal series of sixteen notes, the plaintiffs brought this suit in equity to restrain the apprehended enforcement of a deed of trust securing both series; the lender of the money and the guarantors of said principal series having become insolvent between the time plaintiffs had defaulted in the payment of the eleventh note and the institution of said suit. Held, that the notes of the principal series were tainted with usury, nevertheless the plaintiffs, by virtue of their delay, and the insolvency of the lender and guarantors, are prevented by laches from charging the last six of the principal series, now in the hands of purchasers for value without notice, with the usurious part of the transaction.
Appeal from Circuit Court, Kanawha County.
Suit by Lace Hall and wife against the Mortgage Security Corporation of America and others. From an adverse decree, plaintiffs appeal.
Affirmed.
KENNA, P., dissenting in part.
R. Paul Holland, of Logan, T. C. Townsend, and E. S. Bock, of Charleston, for appellants.
Brown, Jackson & Knight and Price, Smith & Spilman, all of Charleston, for appellees Union Trust Co. of Maryland et al.
John N. Charnock, of Charleston, for appellee Mortgage Security Corporation of America.
Staige Davis and Frank Lively, both of Charleston, amici curiæ.
This is a suit in equity of Lace Hall and Lilly Hall, his wife, against Mortgage Security Corporation of America, a corporation, Union Trust Company of Maryland, a corporation, trustee, Kanawha Banking & Trust Company, a corporation, trustee, and the unknown holders, if any, of the notes described in a certain deed of trust made by plaintiffs to defendant trustees. Its purpose is to enjoin an apprehended sale of real estate under said deed of trust; to adjudicate the correct balance owing upon the notes secured thereby; and to purge the loan of alleged usurious charges. From a decree which, among other things, dismissed the bill of complaint as to the holders of six outstanding 6 per cent. "Real Estate Trust Deed Notes," the plaintiffs appeal.
Lace Hall, the owner of certain unimproved real estate in the city of Logan, applied to Williams-Redden & Co., of Charleston, for a loan to cover the cost of the construction of an apartment house thereon. The said loan was to be effective as of completion date. Upon the application (which was made on forms prepared by Mortgage Security Corporation of America) he agreed to pay certain charges out of the proceeds of the requested loan, which loan was to be evidenced by a series of first lien 6 per cent. deed of trust notes, and to execute a second and subordinate lien series of noninterest-bearing notes to cover certain additional items. The application, which provided for the purchase of the proposed notes by the Mortgage Security Corporation of America, was forwarded to said corporation by Williams-Redden & Co. Upon notification of the commitment, Hall proceeded to make the proposed improvements.
On September 15, 1925, the apartment having been completed, Lace Hall and Lilly Hall, in accordance with the plan theretofore agreed upon, executed a deed of trust to Union Trust Company of Maryland (Baltimore, Md.) and Kanawha Banking & Trust Company (Charleston, W.Va., trustees, on the property, to secure the holder or holders of the two series of notes, heretofore mentioned, bearing even date. The first series was made up of promissory, negotiable 6 per cent. notes, numbered consecutively from 1 to 16, inclusive, aggregating the sum of $10,000; the first note falling due two years after date, i. e., September 15, 1927. Each of the notes in this series was executed on special registered forms, resembling bonds and other marketable securities, prepared by the lender, and carried interest coupon notes, falling due every six months. The principal notes of this series, as well as each of the attached interest coupon notes, were signed by Lace Hall and Lilly Hall, and were made payable to bearer "in gold coin of the United States of America, of the present weight and fineness," at the office of the lender, or Union Trust Company of Maryland. The second and subordinate lien series was composed of seven noninterest-bearing notes (aggregating $1,610) payable to bearer, at offices of the lender, at three months' intervals; the first falling due on December 15, 1925, and the last on June 15, 1927. The purpose of this second series, which was retained by the lender, was, according to the terms of the application, to cover (a) amounts charged by the National Surety Company and the lender corporation for their guaranties of the sixteen principal notes; (b) the trustees' fees; and (c) the payment of all other costs and expenses incurred by the lender corporation in connection with the loan.
The trust deed provided for monthly payments of $130 for one hundred twenty months to one of the trustees, to be applied to the payment of principal and interest on the notes of the first, and principal on the second series, as the same came due.
At the time the foregoing notes and deed of trust were executed, Hall and wife signed an estoppel certificate, in which it is stated: "The undersigned having been requested to execute this instrument, in order that it may be exhibited to prospective purchasers of the notes or bonds evidencing said debt to induce a purchase of the same do hereby represent and certify that there are no defenses available to the undersigned or any of them against the payment of said notes or bonds, nor any off-sets between the undersigned and -------, and that the instrument securing said notes or bonds is truly a first lien upon the real estate conveyed thereby."
Deductions were made out of the proceeds of the loan of $10,000 in accordance with the agreement in the application, for a survey of the property, attorney's fee for examining and perfecting title, appraisal fee, recording fees, premium on title insurance, expense of policy of title insurance, and services of Williams-Redden & Co. in procuring the loan. It was stipulated of record that these were valid and proper charges.
The first series of notes, upon being turned over to the lender corporation, was guaranteed by it and National Surety Company, and originally delivered to Union Trust Company of Maryland, trustee, under a collateral agreement as collateral constituting security for certain bonds issued by the lender corporation. Later, other collateral was substituted and eleven of the sixteen notes withdrawn and sold by the lender corporation to various purchasers and investors through investment dealers or brokers, at face value.
The plaintiffs made eighty-seven of the one hundred twenty payments, the eighty-seventh on in December, 1932. On March 15, 1933, they failed to pay the semiannual interest installment, and have since failed to pay either principal or interest. Becoming apprehensive that the property covered by the trust deed would be sold under the provisions thereof, they brought this suit.
Some time between Hall's default and the bringing of this suit (the process of which was returnable to August Rules, 1933), the Mortgage Security Corporation of America and the National Surety Company became insolvent and were placed in the hands of a receiver and the Insurance Commissioner of the State of New York, respectively, and their guaranties became of little, if any, value.
The circuit court decreed that the amount of $1,610, represented by the second series of notes, except as to three items totaling $302.75, i.e., $284.75 paid to the National Surety Company for guaranteeing, and $10 and $8, paid the Kanawha Banking & Trust Company, trustee, and the Union Trust Company of Maryland, trustee, respectively, for certifying the principal notes, represented usurious charges on behalf of the Mortgage Security Corporation, and entered judgment against the latter for the $1,307.25 which represented the usury, together with interest, $699.41, making an aggregate of $2,006.66. It also decreed that all of the first series noteholders (Mortgage Security Corporation of America not being one of them) were innocent holders of such notes in due course of business; that because of the circumstances alleged and...
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