Kessing v. National Mortg. Corp., 64

• Court: United States State Supreme Court of North Carolina
• Citation: 180 S.E.2d 823,278 N.C. 523
• Docket Number: No. 64,64
• Parties: Jonas W. KESSING, Individually, Alice H. Kessing, Jonas W. Kessing Company, Jonas W. Kessing as General Partner of Village Associates of Chapel Hill Limited Partnership, Jonas W. Kessing as Limited Partner of Village Associates of Chapel Hill Limited Partnership v. NATIONAL MORTGAGE CORORATION, Individually, National Mortgage Corporation as Limited Partner of Village Associates of Chapel Hill Limited Partnership.
• Decision Date: 12 May 1971

Page 823

180 S.E.2d 823 278 N.C. 523 Jonas W. KESSING, Individually, Alice H. Kessing, Jonas W.
Kessing Company, Jonas W. Kessing as General Partner of
Village Associates of Chapel Hill Limited Partnership, Jonas
W. Kessing as Limited Partner of Village Associates of
Chapel Hill Limited Partnership
v.
NATIONAL MORTGAGE CORORATION, Individually, National
Mortgage Corporation as Limited Partner of Village
Associates of Chapel Hill Limited Partnership. No. 64. Supreme Court of North Carolina. May 12, 1971.

Page 826

Manning, Allen & Hudson by James Allen, Jr., and Bryant, Lipton, Bryant & Battle by F. Gordon Battle, Chapel Hill, for defendant appellant.

Newsom, Graham, Strayhorn, Hedrick & Murray by Josiah S. Murray, III, Durham, for plaintiff appellees.

MOORE, Justice.

Defendant first contends that the court erred in ruling that G.S. § 24--8 as amended was applicable to the loan in question.

Prior to its amendment on 2 July 1969, G.S. § 24--8 provided that on loans of $30,000 or more to corporations the legal rate of interest was 8%.

By amendment effective 2 July 1969, G.S. § 24--8 was rewritten to read, in pertinent part, as follows:

'Loans not in excess of $300,000; what interest, fees and charges permitted.--No lender shall charge of receive from any borrower or require in connection with a loan any borrower, directly or indirectly, to pay, deliver, transfer or convey or otherwise confer upon or for the benefit of the lender or any other person, firm or corporation [278 N.C. 528] any sum of money, thing of value or other consideration other than that which is pledged as security or collateral to secure the repayment of the full principal of the loan, together with fees and interest provided for in chapter 24 or chapter 53 of the North Carolina General Statutes, where the principal amount of a loan is not in excess of three hundred thousand dollars ($300,000.00); * * *.'

This amendment further provided that it did not apply to any loan made prior to 2 July 1969.

It is conceded by all the parties that the loan in question was actually closed on 9 July 1969. The question posed by this assignment is: Was the loan made on 9 July 1969, the date closed, or at a prior date when the application for the loan was approved?

The parties agree that for several months prior to 14 May 1969 Kessing Company had been negotiating with defendant for a loan in the amount of $250,000. On 14 May 1969 defendant wrote Kessing as follows:

'Mr. Jonas W. Kessing

201 East Rosemary Street

Chapel Hill, North Carolina 27514

'Dear Mr. Kessing:

'Your request for a loan in the amount of $250,000 was approved by our Executive Committee on May 6, 1969.

'The terms and conditions of said loan will remain as we discussed in our meeting May 13, 1969.

'Funding will take place, in the increments previously agreed upon, As soon as the formal loan agreement is completed and executed by all parties. (Emphasis added.)

Very truly yours,

/s/ Richard F. Downham'

All parties also agree that the terms for the loan were agreed upon prior to 30 June 1969 but that no loan agreement was executed prior to 9 July 1969. On 9 July 1969 the note for $250,000, endorsed by Kessing and his wife, and the deed of trust securing the note were executed by Kessing Company [278 N.C. 529] and delivered to defendant. On the same date defendant's check for $250,000, dated 8 July 1969, was delivered and disbursed. Other documents in connection with the loan, including the partnership agreement between Kessing and defendant and a deed from Kessing Company to the Partnership conveying to the Partnership the same lands as described in the deed of trust securing the loan, were executed. On these uncontroverted facts, the trial court held that the loan was made on 9 July 1969. We agree.

Page 827

The concept and elements of a 'loan' are well understood in both the popular and legal usage of the term. 'A loan of money has been defined as a contract by which one delivers a sum of money to another and the latter agrees to return at a future time a sum equivalent to that which he borrows.' 54 C.J.S. Loan, p. 654. Accord, United States v. Neifert-White Co., 247 F.Supp. 878 (D.Mont.1965), aff'd 372 F.2d 372 (9th Cir. 1967), revd. on oth. grds, 390 U.S. 228, 88 S.Ct. 959, 19 L.Ed.2d 1061 (1968); National Bank of Paulding v. Fidelity & Cas. Co., 131 F.Supp. 121 (S.D.Ohio 1954); Keystone Mortgage Co. v. MacDonald, 254 Cal.App.2d 808, 62 Cal.Rptr. 562; Wayne Pump Co. v. Department of Treasury, 232 Ind. 147, 110 N.E.2d 284. It has been held that a loan has been made upon 'the deliver by one party and the receipt by the other party of a given sum of money, on an agreement, express or implied, to repay the sum lent, with or without interest.' 54 C.J.S., supra. Accord, National Bank of Paulding v. Fidelity & Cas. Co., supra; Isaacson v. House, 216 Ga. 698, 119 S.E.2d 113; Wayne Pump Co. v. Department of Treasury, supra; Cartney v. Olson, 154 Neb. 546, 48 N.W.2d 653. These definitions require that there be a delivery of money on the one hand and an understanding to repay on the other for a loan to have been made. Accord, 54 C.J.S., supra, p. 656; 9 C.J.S. Banks and Banking § 383.

At most, the negotiations carried on between the parties in the present case prior to 9 July 1969 constituted an executory contract to make a loan. This Court in considering the contractual commitment of a defendant to make a loan has declared that an action for specific performance of such a commitment would not lie, that the transaction was a contract to lend money upon a certain security, and that upon breach of such an agreement the action is to recover damages. Norwood v. Crowder, 177 N.C. 469, 99 S.E. 345; Elks v. North State Insurance Co., 159 N.C. [278 N.C. 530] 619, 75 S.E. 808; Coles and Sons Co. v. Standard Lumber Co., 150 N.C. 183, 63 S.E. 736. Implicit in these decisions is the recognition by this Court of the executory contract to lend and the distinction between such a contract and that of a loan made.

Conceding Arguendo that the court erred in finding that the loan was made 9 July 1969, the error, if any, would be harmless. For the reasons stated later in the opinion, the loan would be usurious under G.S. § 24--8 either before or after the amendment of 2 July 1969.

Defendant next contends that the trial court erred in the penalty imposed upon the defendant--that first the court erred in adjudging that the plaintiff Kessing Company recover of defendant the sum of $50,000 as twice the amount of usurious interest paid.

In an action for usury plaintiff must show (1) that there was a loan, (2) that there was an understanding that the money lent would be returned, (3) that for the loan a greater rate of interest and allowed by law was paid, and (4) that there was corrupt intent to take more than the legal rate for the use of the money. Henderson v. Security Mortgage & Finance Co., 273 N.C. 253, 263, 160 S.E.2d 39, 47; Carolina Industrial Bank v. Merrimon, 260 N.C. 335, 132 S.E.2d 692; Preyer v. Parker, 257 N.C. 440, 125 S.E.2d 916; Doster v. English, 152 N.C. 339, 67 S.E. 754; 7 Strong's N.C. Index 2d, Usury § 1, p. 447; 45 Am.Jur.2d, Interest and Usury § 111 (1969); Comment, Usury Law in North Carolina, 47 N.C.L.Rev. 761 (1969). The corrupt intent required to constitute usury is simply the intentional charging of more for money lent than the law allows. Associated Stores, Inc. v. Industrial Loan & Invest. Co., 202 F.Supp. 251 (E.D.N.C.1962). Where the lender intentionally charges the borrower a greater rate of interest than the law allows and his purpose is clearly revealed on the face of the instrument, a corrupt intent to violate the usury law on the part of the lender is shown. Planters' National Bank of Virginia v. Wysong &

Page 828

Miles Co., 177 N.C. 380, 99 S.E. 199, 12 A.L.R. 1412; MacRackan v. Bank of Columbus, 164 N.C. 24, 80 S.E. 184; Riley Co. v. W. T. Sears & Co., 154 N.C. 509, 70 S.E. 997. And where there is no dispute as to the facts, the court may declare a transaction usurious as a matter of law. Doster v. English, supra.

Under G.S. § 24--8 prior to the 1969 amendment, the legal interest allowed on the loan in question was 8%. The president [278 N.C. 531] of defendant corporation testified that the loan of $250,000 was secured by a deed of trust which had full warranty, and the loan was repayable to defendant under any circumstances. Defendant's president further testified that defendant would not have made this loan at the simple rate of 8% But that the added equity participation provided for by the creation of the Partnership and the conveyances to it were...