McCullough v. Snow

• Court: New Mexico Supreme Court
• Writing for the Court: PER CURIAM; MOISE; CHAVEZ, C.J., and HENSLEY, Jr.
• Citation: McCullough v. Snow, 78 N.M. 455, 432 P.2d 811, 1967 NMSC 247 (N.M. 1967)
• Decision Date: 30 October 1967
• Docket Number: No. 8176,8176
• Parties: , 31 A.L.R.3d 754 Margaret McCULLOUGH and Broadway Lumber Company, Plaintiffs-Appellees, v. Edward H. SNOW and Frances M. Snow, his wife, Donald F. Matheson and Mary E. Matheson, his wife, and Elmer T. Lewis and Dorothy R. Lewis, his wife, Defendants-Appellants.

Page 811

432 P.2d 811

78 N.M. 455, 31 A.L.R.3d 754

Margaret McCULLOUGH and Broadway Lumber Company Plaintiffs-Appellees, v. Edward H. SNOW and Frances M. Snow, his wife, Donald F Matheson and Mary E. Matheson, his wife, and Elmer T. Lewis and Dorothy R. Lewis, his wife Defendants-Appellants.

No. 8176.

Supreme Court of New Mexico.

Oct. 30, 1967.

Marron & Houk, Dan A. McKinnon III, Albuquerque, for appellants.

William J. Sullivan, Lawson K. Stiff, Albuquerque, for appellees.

OPINION ON MOTION FOR PEHEARING

PER CURIAM:

Upon consideration of motion for rehearing, the opinion heretofore filed is withdrawn and the following substituted therefor:

OPINION

MOISE, Justice.

This appeal is from a judgment entered on two notes and an open account in two cases consolidated for trial in the lower court. One action was brought by appellee Margaret McCullough, and the other by appellee Broadway Lumber Company. The transactions forming the basis for the litigation were between Broadway Lumber Company and appellant-defendants. Hereinafter, the appellees will be referred to collectively as 'Broadway,' and the appellants will be referred to as 'Snow.'

The dealings between the parties covered a considerable period of time and involved, not only Broadway and Snow, but one Jack Stagner and a number of companies owned by him, hereinafter collectively referred to as 'Stagner.' The record discloses and the court found that Stagner was purchasing building materials from Broadway, a part of which were in turn incorporated in homes being built for Snow. On February 27, 1960, Stagner was indebted to Broadway in an amount in excess of $45,000.00, and on that date Broadway had a right to file mechanics' lien claim in the amount of $150,327.60 against the Snow houses. By letter from Snow to Broadway, dated February 27, 1960, in consideration of Broadway's agreement not to file liens against Snow's property, Snow agreed to indemnify Broadway against loss on account of the indebtedness in the amount of $150,327.60, and agreed to a payment schedule of the same; in addition, Snow agreed to make purchases of all building materials from Broadway until Broadway had realized a profit thereon equal to an amount owing by Stagner of approximately $100,000.00 for which Snow was not otherwise responsible. At the time of the agreement, Stagner's financial statements reflected a considerable net worth.

Some time after February 27, 1960, by arrangement with Stagner, Snow undertook the liquidation of Stagner's assets, applying the proceeds therefrom to the payment of Stagner's debts, but paying no part thereof to Broadway. Neither did Snow make the payments agreed to be made in the February 27, 1960 agreement. Accordingly, on October 6, 1960, a new agreement was made by Broadway, Snow and Stagner wherein, except for certain items therein specifically reserved, the parties released each other and Snow agreed to pay Broadway $51,532.65, $130,715.10, and $101,192.02, represented by notes, and which amounts were arrived at through negotiation, and represented the balances owing under the February 27, 1960 agreement and additional amounts owed by Stagner and assumed by Snow. Broadway, in return, among other things, assigned its claim against Stagner in the amount of $317,705.93, and agreed to join with Snow in guaranteeing performance of a real estate contract on certain property in Grants, New Mexico, which had belonged to Stagner and which had been sold to one George T. Koran. The trial court found, concerning the agreement, as follows:

'17. That on October 6, 1960, Snow and Broadway entered into a written agreement whereby the obligations that Snow assumed under the February 27, 1960 agreement were reduced to promissory notes and extension of the time of payment given, and Snow agreed to assume additional obligations that Stagner owed Broadway and Broadway agreed to forbear collection of the obligations evidenced by the February 27, 1960 agreement and to forbear suit against Stagner which had been assumed by Snow, and further, Broadway agreed to change the trustee of Stagner's assets.'

Upon Snow's defaulting in the payments on the three notes executed on or about October 6, 1960, still another agreement was made under date of October 23, 1961, by the terms of which Snow executed and delivered to Broadway three notes for $25,000.00, $200,000.00, and $100,000.00, respectively due 60 days from date, 30 days from date and 18 months from date, all with interest at 6%. In consideration of the execution of the three notes by Snow, Broadway assigned to Snow without recourse the two notes previously executed of $130,715.10 and $101,191.02; acknowledged payment in full of the $51,532.65 note; transferred to Snow all of Broadway's interest in obligations endorsed over to Snow; conveyed to Snow all of Broadway's interest in a certain real estate contract; released Snow from any claims which Broadway might have on account of any and all transactions between them.

Finally, on February 16, 1962, Snow again having defaulted on the obligations undertaken on October 23, 1961, another agreement was entered into between the parties.

The trial court made the following finding in connection therewith:

'That on February 16, 1962, Snow and Broadway entered into a written agreement whereby the obligations of Snow under the October 23, 1961 agreement were extended, and Snow agreed to assume additional obligations that Stagner owed Broadway and to pay other obligations incurred by him, and did execute and deliver to the First National Bank in Albuquerque (held in its name on behalf of Broadway, and since transferred to it) a promissory note in the amount of $327,500.00, a promissory note to Broadway Lumber Company, a corporation, in the amount of $25,000.00, and did pay $7,520.89 as interest on the promissory notes executed by Snow under the October 23, 1961 agreement. That Broadway, in consideration therefor, did forego the right of suit against Snow for the notes delivered under the October 23, 1961 agreement.'

The trial court also found that Snow paid $175,000.00 on the note of $327,500.00 but nothing more, and that a balance of $194,728.16 principal, together with $46,572.26 interest and $24,130.00 attorney fees were due and owing. In addition, the court found the $25,000.00 note past due and unpaid, and that Broadway was entitled to judgment for the principal amount plus $9,071.58 interest and $3,407.00 attorney fees.

Judgment was entered pursuant to the above findings and for $7,215.64 additional, representing an open account found to be owing, together with interest.

This appeal raises only the question of whether the notes sued upon were supported by valid consideration, independent of agreements to forbear to sue on notes being renewed, and whether they were violative of our statutes against usury. No complaint is made of the judgment on the open account. Neither is any issue made concerning the computations by which the various amounts found to be due and owing were arrived at, except as those amounts include assumption by Snow of ever increasing amounts of Stagner's debts, and assertedly without additional consideration to Snow. Admittedly, each of the renewal notes included assumption of additional amounts owing by Stagner, and were for amounts greater than would result from adding the maximum of legally permitted interest, provided in § 50--6--16, N.M.S.A.1953. In these circumstances, Snow argues that the additional amounts assumed by him over and above the original amount plus interest, were exacted as a premium for granting forbearance and were accordingly usurious.

Our usury statute is § 50--6--15, N.M.S.A.1953, which reads as follows:

'No person, corporation or association, directly or indirectly, shall take, reserve, receive or charge any interest, discount or other advantage for the loan of money or credit or the forbearance or postponement of the right to receive money or credit except at the rates permitted in this act (50--6--15 to 50--6--19).'

It is Snow's position that the applicable rule of law is that set forth in Restatement, Contracts, § 528, which reads:

'A bargain accompanying and collateral to a bargain for a loan of money or for extending the maturity of a pecuniary debt, if providing for only a fair equivalent to the creditor for the consideration that he gives, is not taken into account in computing the creditor's profit in order to determine whether the bargain for a loan or an extension is usurious, unless his intention is to secure a greater profit for the loan or extension than is allowed by law.'

and that the situation here comes directly within the same, as is illustrated by Comment (a) and Illustration (5) thereunder. They read:

'a. The facts that a collateral bargain involves some profit to the lender and that the loan or extension would not have been made without the collateral bargain are not alone enough to make the transaction usurious. The advantage that the creditor derives from the collateral bargain must be greater than would be normally derived therefrom if it were an independent transaction, or his intent must otherwise appear to derive an excessive profit from the loan or extension.

'Illustrations:

'* * *

'5. A lends B $5000 for a year at the highest permissible rate of interest and as part of the bargain B guarantees payment of an antecedent debt of B's son to A. The transaction is usurious, since A derives an advantage...