Owens v. Conelly

• Court: Arizona Supreme Court
• Writing for the Court: STANFORD; PHELPS
• Citation: Owens v. Conelly, 272 P.2d 345, 77 Ariz. 349 (Ariz. 1954)
• Decision Date: 29 June 1954
• Docket Number: No. 5821,5821
• Parties: OWENS v. CONELLY.

Page 345

272 P.2d 345

77 Ariz. 349

OWENS v. CONELLY.

No. 5821.

Supreme Court of Arizona.

June 29, 1954.

Rehearing Denied Sept. 21, 1954.

Fickett & Dunipace, and Robert D. Stauffer, Tucson, for appellant.

E. T. Cusick, Tucson, Francis J. Ryley and George R. Carlock, Phoenix, for appellee.

STANFORD, Justice.

This action was brought by appellee Conelly against appellant Owens for the payment of a promissory note with interest and attorney's fees. The case was tried before the court without a jury.

The note was dated January 20, 1951, and was for the principal sum of $8,500, carrying interest at six per cent per annum and ten per cent attorney's fees. The record shows that previously Owens and Conelly entered into an agreement evidenced by a letter which reads as follows:

'Dec. 20, 1950

'Mr. W. F. Conelly

'415 E. Speedway

'Tucson, Ariz.

'Dear Mr. Conelly:

'Confirming our agreement in which you agree to loan me the sum of Eight Thousand Five Hundred ($8500.00) Dollars for a period of time not in excess of One Year from date, I hereby agree as follows:

'The use of this money enables me to carry on development and operational progress at the Abril Mine, Dragoon Mining District, Cochise County, Arizona, which same is owned in fee by Shattuck-Denn Mining Corporation and leased to me on usual ten percent royalty mining contract for a period of five years.

'I do, therefore, hereby covenant and agree that I will pay to you as interest on the said above mentioned loan, the sum of twelve and one half (12 1/2%) percent of the net profits derived from the operation of the Abril Mine by me.

'In the event of a sale on the Abril Mine, you will receive the same stated proportion of all net profits realized from the sale of the property.

'If this is your understanding of our agreement, please sign and return the enclosed copy and this letter will evidence our agreement.

'Yours very truly,

'Sherwood B. Owens

'Accepted:

'W. F. Conelly'

As we view this agreement, Conelly agreed to loan $8,500 in the Abril mine, in return for one-eighth of the profits resulting from the operation or sale thereof during the term of Owens' lease, the $8,500 to be returned within one year. The $8,500 was advanced during January and February, 1950. The record further shows that up to the month of May, 1952, the lender had received no payment on the principal, nor had there been any net profits from the operation of the mine, and no sale thereof was made. On May 20, 1952, Owens willingly gave the note here sued upon, and the letter contract dated December 20, 1950, was returned to and accepted by him.

At trial, Owens' defense was that there was no consideration for the execution of the note, that it was usurious, and that Conelly, even if entitled to recover his principal, could not recover interest or attorney's fees. The trial court made findings of fact and conclusions of law and rendered judgment in favor of Conelly for the principal sum of $8,500, with interest at the rate of six per cent per annum from January 20, 1951, to date of judgment in the amount of $1,147.50, and for attorney's fees in the sum of $964.75.

From the judgment and from the denial of the motion for a new trial appellant Owens has taken his appeal and has made some 29 assignments of error. We need consider only three thereof:

'I.

'The Court erred in entering judgment for Conelly because there was no consideration for the note sued upon.

'II.

'The Court erred in including in the judgment any recovery for interest because the note was usurious.

'III.

'The Court erred in including in the judgment any recovery for attorney's fees because:

'a. There is no evidence in the case as to the value of the attorney's fees rendered;

'b. The provision in the note for a fixed fee is void and against public policy;

'c. Since the note is usurious, Conelly is barred from recovering attorney's fees.'

The first assignment is clarified by appellant's first proposition of law, namely:

'The promise of a person to carry out a subsisting contract with the promissee is no consideration for another contract.'

Supporting this, appellant quotes from the case of Dover Copper Mining Co. v. Doenges, 40 Ariz. 349, 356, 12 P.2d 288, 291, as follows:

'We have held in the case of Pleasant v. Arizona Storage & Distributing Co., supra [34 Ariz. 68, 267 P. 794], as follows: 'It is the almost universal rule that the promise of a person to carry out a subsisting contract with the promissee is no consideration for another contract, as the party is doing no more than he is already obliged to do. (Citing cases.) The only thing plaintiff agreed to do in the new contract, according to the complaint, was to perform the work described in the written contract. This he was already obligated to do. No consideration being pleaded for the alleged oral contract, it was on its face void, and the first cause of action was bad for that reason, as well as for the one previously stated' * * *.'

We consider this case not in point, as the testimony shows that at the time the note in question was given the letter contract referred to was returned to Owens by the attorney for Conelly. Conelly surrendered to Owens his legal rights under the letter agreement and received in return simple interest on the money advanced from the date of the original transaction. It is apparent that Owens was relieved of the legal duty to perform under the terms of the letter agreement and took instead the legal duty to perform under the terms of the note, and the release of the obligation to perform the one legal duty furnishes the consideration for the undertaking to perform the other legal duty.

As to Assignment No. 2, appellant advances an interesting legal theory. He points out that the lender, Conelly, had the legal right to receive 12 1/2% of the net profits of the operation of the Abril mine for the period January, 1951, to May, 1952. Owens contends that Conelly did receive interest on the money loaned (that interest consisting in the legal right to receive profits) and that the right was by its nature speculative (in this case it so happening that no profits accrued). Owens contends that having received this interest for the period January, 1951, to May, 1952, it is a violation of our usury statute for Conelly to receive in addition thereto the six per cent agreed upon in the note.

Appellee cites us to a note in 42 Cal.L.R. 198, 'Usury Laws: Loans for a Share of the Profits', wherein is discussed the problem of lending money to finance a sole proprietorship or a partnership, the lender receiving a share in the profits of the business in lieu of interest. After examining the cases and text authorities the author concludes such a transaction is a desirable business practice and is not usurious because there is a contingency that the 'interest' will never be paid, subject to the qualification that there must be no corrupt intent to use the device as a cloak for usury.

We are further cited to the annotations, 'Usury-Waiver-Renewal', found in 13 A.L.R. 1213, 1220-1226, pt. VII, and 74 A.L.R. 1184, 1187-1188, pt. VII, wherein dozens of authorities are cited in support of the proposition that though a contract be tainted with usury, the abandonment thereof and the execution of a new obligation for the amount of the actual...