Hopkins v. Flower

• Decision Date: 09 June 1926
• Citation: 152 N.E. 635,256 Mass. 367
• Parties: HOPKINS v. FLOWER et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

256 Mass. 367

152 N.E. 635

HOPKINS

v.FLOWER et al.

Supreme Judicial Court of Massachusetts, Suffolk.

June 9, 1926.

Appeal from Superior Court, Suffolk County; Hammond, Judge.

Suit in equity by James Hopkins against Albert Flower and others to establish debt due plaintiff by named defendant as guarantor of a debt and to reach and apply certain shares of stock. From a decree for defendants, dismissing the bill, plaintiff appeals. Decree reversed, claim of plaintiff established, and case remanded for further proceedings.J. L. Wilkie, of New York City, and E. R. Dewing, of Boston, for appellant.

C. S. Hill and F. D. Bonner, both of Boston, for appellees.

PIERCE, J.

This is a suit in equity, brought in the superior court under G. L. c. 214, § 3, cl. 8, to establish a debt alleged to be owed and due the plaintiff by the defendant Albert Flower as the guarantor of the payment of $30,000 which was loaned by the plaintiff to one Viola H. P. Brown; and to reach and apply certain shares of stock in the defendant company, Albert Flower, Inc., alleged to be owned by the defendant Albert Flower individually, and standing in his name or in the name of his wife, the defendant Mina Flower, or of both. A commissioner was appointed and the testimony is reported. The case was tried upon the merits before a justice of the superior court sitting in equity, and a decree entered for the defendants dismissing the bill with costs. The case comes before this court on the plaintiff's appeal from the final decree.

In this opinion the plaintiff will hereinafter be called the lender and Mrs. Viola H. P. Brown the borrower. The material facts charged in the bill, admitted by the answer, found by the judge, and supported by the reported testimony of witnesses, are in substance as follows: About June 4, 1921, the borrower contemplated entering into a purchase contract with one Mrs. Orvis, of New York City, for the purchase of all the capital stock of the Equinox Company (a corporation organized under the laws of Vermont), amounting to $2,000 shares, for the sum of $800,000, a part of which was to be paid in cash, a part out of the proceeds of a first mortgage bond issue to be placed upon the property of the corporation, and the balance by a second mortgage upon said property. As she needed $30,000 to carry out her intention, she offered one Niels F. Holch, an employee of the New York banking house of A. B. Leach & Co., a commission for his services if he should obtain such a loan. In furtherance of her wishes, she had a conference with Holch and the defendant Albert Flower at Flower's home in Boston, which was continued between Holch and Flower the next day at Flower's office in Boston. The result of these conferences was that the defendant Flower agreed in writing to guarantee the repayment of such a loan, if made.

Subsequently a written agreement, printed in the record, was drafted in New York in a form advised by the attorney for the lender. The written guaranty was made a part of the instrument of agreement and followed it. The written agreement was signed by the lender and borrower, and was guaranteed by the defendant Flower. Therein the lender agreed to give the borrower a certified check for $28,300 and pay Holch $1,700, ‘which is in payment of commissions to which the said Holch is entitled from the borrower for his services in negotiating said loan, the receipt of which said thirty thousand dollars ($30,000) is hereby acknowledged.’ The written agreement does not stipulate the amount or the nature of the compensation which the lender would receive for making the loan. The sum to be lent ($30,000) was to be repaid within 60 days from the date of the agreement. No interest or other compensation by way of interest for the use of the money loaned was promised or provided for by the agreement, and no note was given. The loan, however, was to be secured by an order executed simultaneously with the execution of the agreement ‘upon the Bankers' Trust Company directing it to pay to the lender thirty thousand dollars ($30,000) out of all that part of the proceeds received by it from the sale of bonds of the Equinox Company, issued under the first mortgage dated May 1, 1921,’ subject to certain conditions relating to the taking up of such bonds by the company.

It appears in evidence, and it is not disputed, that a side agreement was entered into between the lender and Holch before the loan agreement was drawn up, which provided that Holch was to pay over to the lender $1,450 out of the $1,700, as a recompense for lending the $30,000. This side agreement was carried out; the $1,700 check received by Holch was divided by him with the lender, and pursuant thereto the lender received $1,450 and Holch retained $250 for himself.

No testimony of expert or of other witnesses was offered or received by the judge as to the law of New York state upon the subject of usury. The plaintiff offered and the judge received in evidence sections 370, 371, 374, 379, 380 and 381 of chapter 20 of the Consolidated Laws of the state of New York of 1909 (the General Business Law), and 31 judicial decisions of the state of New York. At the same time the defendants offered and the judge received judicial decisions of the state of New York and decisions of the federal court, these decisions in the large part not being of courts of last resort. As the evidence upon the issue of the law of New York on the subject of usury was entirely documentary, this court on appeal receives the evidence and determines the fact and the inference of fact to be drawn therefrom in the same way the judge received it, without weight given to the conclusion of the judge who heard the case below. Harvey-Watts Co. v. Worcester Umbrella Co., 193 Mass. 138, 143, 78 N. E. 886;Hutchins v. Mead, 220 Mass. 348, 108 N. E. 67;Mansfield v. Wiles, 221 Mass. 75, 84, 108 N. E. 901.

Section 370, supra, reads:

‘The rate of interest upon the loan or forbearance of any money, goods, or things in action, except as otherwise provided by law, shall be six dollars upon one hundred dollars, for one year, and at that rate, for a greater or less sum, or for a longer or shorter time.’

Section 371, supra, reads:

‘No person or corporation shall, directly or indirectly, take or receive in money, goods or things in action, or in any other way, any greater sum or greater value, for the loan or forbearance of any money, goods or things in action, than is above prescribed.’

Usury is defined to be an illegal profit required and received by a lender of a sum of money from the borrower. 4 Blackstone, 156. To constitute usury, in contemplation of law, the following essential elements must be present:

‘(1) There must be a loan or forbearance; (2) the loan must be of money or something circulating as money; (3) it must be repayable absolutely and at all events; (4) something must be exacted for the use of the money in excess of and in addition to the interest allowed by law.’

Some decisions are to the effect that there is a fifth element, consisting of the intent of the parties. Clemens v. Crane, 234 Ill. 215, 229, 84 N. E. 884. Williston in Contracts, vol. 3, § 1684, is in accord. The form of the contract is not conclusive of the question, and it is manifest that no device intended to cover up the real character of the transaction can ever avail to defeat the statute. Cooper v. Nock, 27 Ill. 301.

The question presented in the case at bar is, whether the decisions of the New York Court of Appeals have construed the quoted statute to require the fifth element; that is, that to constitute a violation of the statute there must be a mutual agreement on the part of the lender to take and on the part of the borrower to pay more than 6 per cent. per annum for the loan of money and for no other consideration than the mere receipt by the lender for ‘the loan or forbearance of any money, goods or things.’ See Auld v. Caunt, 216 Mass. 381, 384, 103 N. E. 933, 934. The following decisions of the highest court of the state of New York, admitted in evidence in proof of the fact in issue, either by their result or by their dicta, seem to require proof of the intent of the parties:

Condit v. Baldwin, 21 N. Y. 219, 78 Am. Dec. 137, is a decision to the effect that the exaction of a bonus by an agent for himself as the condition of making a loan, without the knowledge or authority of his principal, did not constitute usury in the principal. The court quoted with approval from the opinion of Justice Story in Bank of U. S. v. Waggener, 9 Pet. 399, 9 L. Ed. 163, in which it was said:

‘* * * To constitute usury, within the prohibitions of the law, there must be an intention knowingly to contract for or take usurious interest; for if neither party intend it, but act bona fide and innocently, the law will not infer a corrupt agreement.’

The decision itself is not authority, however, for requiring intent on the part of the borrower.

In Guggenheimer v. Geiszler, 81 N. Y. 293, 296, the court said, speaking of the intent of the borrower:

‘There was no intent on the part of Geiszler to pay usury; no expectation on his part that Seiter should have usury. And I am not able to perceive how, in the absence of such intent, there could have been an agreement or contract for it, or how the transaction can be subjected to the condemnation of the statute against usury. Either the attorney [who obtained the loan for the defendant], without right, or Seiter [the lender], by false pretense, has deprived the defendant Geiszler of the money due to him, but it was by virtue of no agreement, and so there can be no usury.’

In Morton v. Thurber, 85 N. Y. 550, 556, the lender exacted legal interest and a further sum which he falsely represented to be for expenses incurred in securing the money. The borrower did not know that the representation was false. The court, citing the Guggenheimer Case, supra, said:

‘To constitute usury it must be shown that the...