Leonhard v. Flood

• Decision Date: 28 April 1900
• Citation: 56 S.W. 781
• Parties: LEONHARD et al. v. FLOOD et al.
• Court: Arkansas Supreme Court

56 S.W. 781

LEONHARD et al. v. FLOOD et al.

Supreme Court of Arkansas.

April 28, 1900.

Appeal from Arkansas chancery court; James F. Robinson, Chancellor.

Action by John Leonhard and another against Henry Flood and others for the foreclosure of a mortgage. From a judgment for defendants, plaintiffs appeal. Modified.

Parker & Parker, Norton & Prewett, and John B. Jones, for appellants. Geo. C. Lewis, for appellees.

Henry Flood and his wife, Catherine Flood, borrowed $2,000 from John Leonhard. To secure the payment of this loan, Edwin Pettit and J. F. Swanson signed and indorsed the note given by the Floods to Leonhard. In order to further secure the payment of the note, and to protect their sureties, the Floods executed and delivered to Leonhard a mortgage upon certain real estate owned by Mrs. Flood. This loan was obtained by the Floods for the purpose of equipping and operating a brick plant. The Floods afterwards conveyed a portion of the mortgaged property to the Flood Brick & Tile Company, a corporation, the stockholders of which consisted of Flood, his wife, and three sons. The remainder of the property they conveyed to Harry Flood, one of their sons. This action was brought to foreclose the mortgage, and to enforce a lien which the sureties, Pettit and Swanson, claimed to hold on certain brick manufactured by the Floods and sold to one Searan. The defendants Henry and Catherine Flood set up the defense of usury in the loan. The Flood Brick & Tile Company and Harry Flood, for their answer, alleged that they had purchased the property for a valuable consideration; that the mortgage had never been properly acknowledged and recorded, and was no lien on the property as to them. The defendant Searan denied that plaintiffs had any lien on the brick purchased by him. Plaintiffs replied to the answer and cross complaints of Harry Flood and the Flood Brick & Tile Company, and denied that they or either of them had paid any consideration for the property conveyed to them by the Floods, and alleged that these conveyances were without consideration, and fraudulently made to cheat and defraud the creditors of the Floods, and asked that such conveyances be declared void as to them. The court found that the mortgage had never been properly acknowledged, and that the note and mortgage were usurious and void, and gave judgment in favor of defendants. Plaintiffs appealed.

RIDDICK, J. (after stating the facts).

We are of the opinion that the defense of usury has not been established by the evidence. Our law visits on a lender who contracts for usurious interest, however small, a forfeiture of his entire loan and the interest thereon. It follows from the plainest principles of justice that such a defense should be clearly shown before the forfeiture is declared. For this reason, usury will not be inferred where, from the circumstances, the opposite conclusion can be reasonably and fairly reached. Berdan v. Trustees, 47 N. J. Eq. 8, 21 Atl. 40; Webb, Usury, p. 481. In this case it is claimed that Pettit acted as agent of Leonhard in making the loan, and that the Floods agreed to pay him for his services, in addition to the interest reserved in the note, and this made the loan usurious. The evidence shows that Pettit had been acting generally as the agent of Leonhard, assisting him to loan money and looking after his other interests. We must take it as true that he acted for Leonhard to a certain extent in making this loan to the Floods, for it is so stated in the complaint; but it is clearly shown that he also acted for the Floods. This is shown by his conduct when Leonhard, not being satisfied with the security offered by the Floods, refused to make the loan. Pettit then, in order to obtain the loan for the Floods, signed the note for the Floods, and also induced Swanson to sign it. Pettit and Swanson thereby became liable with the Floods for the payment of the note. This indisputable fact conclusively shows that Pettit did not act altogether as the agent of Leonhard in procuring the loan. He certainly did not sign the note as agent of Leonhard; for this would, in effect, be Leonhard becoming surety on a note to himself. The contract by which the Floods agreed to pay Pettit for his services recites that Pettit had negotiated a loan for them, secured in part by his indorsement of their note, for which services the contract states they were to pay him a specified sum, but they have paid nothing. They did not agree to pay him for services performed for Leonhard, but for services performed for them. The circumstances do not satisfy us that there was usury in the loan, and we are of the opinion that such defense should be overruled. The complaint states, and the evidence shows, that the mortgage was made mainly to protect the sureties on the note of the Floods. Leonhard declined to make the loan on the mortgage security offered by the Floods. He made the loan on the credit of the sureties, Pettit and Swanson, and the mortgage was executed and delivered to him to protect the sureties. The pleadings of both parties state this to be true. Under these circumstances, Pettit was directly interested in the mortgage given for his benefit, and the acknowledgment taken before him was void. This being so, the mortgage could not legally be recorded, and the record thereof was without effect. Penn v. Garvin, 56 Ark. 511, 20 S. W. 410. But, though the acknowledgment was void, the mortgage was good between the parties, and valid against a voluntary conveyance; for while an unrecorded mortgage, in this state, constitutes no lien as to third parties, still the mortgagor cannot relieve his property of a valid lien which exists on the property as to him by giving it away. As to one holding the property by a conveyance entirely voluntary, it would be presumed that the conveyance was made subject to the mortgage.

Now plaintiffs allege that the conveyances made by Henry and Catherine Flood to the Flood Brick & Tile Company and to Harry Flood were without consideration, and made to defraud the creditors of the Floods. A consideration is recited in each of these conveyances, but there is no other evidence thereof; and the question presented is whether the burden rested on the grantees to show a consideration for such conveyances, and, if so, whether the recitals in the deeds, to which neither of the plaintiffs was a party, can be used as evidence against them. It has been several times decided by this court that when the creditors of a vendor attack his conveyance as fraudulent,...