Scruggs v. Scottish Mortgage Co.

• Decision Date: 13 June 1891
• Parties: SCRUGGS v. SCOTTISH MORTGAGE CO
• Court: Arkansas Supreme Court

16 S.W. 563

54 Ark. 566

SCRUGGS v. SCOTTISH MORTGAGE CO

Supreme Court of Arkansas

June 13, 1891

APPEAL from Lee Circuit Court in chancery, MATTHEW T. SANDERS Judge.

James P. Brown for appellants.

1. The proof shows that Granger was the general agent of Smith & Co. in procuring loans, and that such general agency affects the mortgage company because Smith & Co. are confessedly the general agents of the mortgage company. 33 Ark. 251; 25 Am Rep., 487; 29 id., 69; 32 F. 113; 23 id., 636; 1 N.W. 197; 9 id., 650; 10 id., 916; 15 id., 214; 16 id., 841; 29 id., 154; 21 id., 698; 18 id., 76; Tyler on Usury, 274-363; 51 Ark 534; ib., 546.

2. The mortgages are void on their face by reason of the usurious interest agreed to be paid on the first interest note. If they were void for usury, a subsequent indorsement does not validate the securities. 35 Ark. 217; Byles on Bills (7th ed.), note 1, p. 314.

3. The mortgage company was a foreign corporation, and had not complied with our laws. Art. 12, sec. 11, Const. 1874. Hence it was entitled to no affirmative relief. 8 Wall., 168; 13 Pet., 519; 10 Wall., 410; 104 U.S. 11; 113 U.S. 727; 7 So 200; ib., 201. The mortgage was void as the company had not complied with our laws. 4 Col. 369; 20 Ind. 520; 55 Ill. 85; 10 Allen, 232; 1 Allen, 441; 80 Penn. St, 15; 3 Sawy., 218. The act of 1887, p. 234, could not validate contracts prohibited by the constitution.

John M. Judah and Eben W. Kimball for appellees.

1. The evidence fails to show that Granger was the agent of the mortgage company or of Smith & Co. He was an independent broker and acted as the agent of the borrower, and no commissions or fees charged by him could make the loan usurious. 66 Miss. 365; 7 S.E. 265.

2. The mortgages were not usurious. There was no agreement for more than 10 per cent. interest; the notes were not delivered until June 17, and they were properly credited so as to leave them representing interest only from that day.

3. The mortgages were not void, under art. 12, sec. 11, because:

a. The transaction was a Mississippi transaction--the business was not done in Arkansas. 43 Ark. 353; 46 id. 50; 7 Biss., 315, 372; 41 F. 653.

b. The section does not make the contracts void, as does art. 19, sec. 13; 132 U.S. 282; 98 U.S. 621-627; 35 La. An., 1184; 83 Ala. 315.

c. The act of 1887 (Acts 1887, p. 234), cured the defect, and it is constitutional. 44 Ark. 365; 27 Ark. 26; 93 Ill. 483; 108 U.S. 488; 63 Miss. 641.

d. One transaction does not fall within the prohibition. 113 U.S. 727.

OPINION

HEMINGWAY, J.

This is a suit brought by the appellant Scruggs to cancel his certain notes and mortgages, and to enjoin a sale of his land about to be made under the powers in said mortgages; one of the mortgages was executed by him to the Scottish-American Mortgage Company to secure a loan from it, and the other to Francis Smith & Co. to secure an indebtedness to them. The claim for relief was rested upon a charge of usury in the debts secured. The mortgagees answered separately, denying the charge of usury, and by cross-complaints sought the foreclosure of their several mortgages. At the final hearing, the original bill was dismissed, and a decree of foreclosure rendered upon the cross-bills.

The mortgage company was organized under the laws of Great Britain, for the purpose of lending money in the United States upon the security of real estate, having its principal office in Edinburg. In 1884 Francis Smith & Co., a firm of brokers in Vicksburg, were its agents to money on land in this State. They were not authorized to appoint sub-agents, and were instructed to lend money at the rate of 10 per cent. The plan upon which they did business was to take a mortgage to their principal for the amount of the loan and interest at 8 per cent., evidenced by several notes payable annually on the first day of January of each year, during the term of the loan; and to take another mortgage to themselves for 2 per cent. per annum on the loan, it being evidenced by several notes payable as the interest notes in the former mortgage. The interest notes first to mature were written for the amount of a full year's interest, with the purpose of crediting upon them, before their acceptance, the interest accrued up to the date of acceptance. Such was the course pursued in this case. The mortgage to Smith & Co. was designed by the lender as a means of compensating its agent out of the interest contracted for. The origin of this particular transaction was as follows: Scruggs applied to Merwin & Daggett, brokers of Marianna, for a loan of money; they had previously arranged with Granger, a broker in Memphis, to receive applications for loans, and present the same to Francis Smith & Co. An application for a loan was prepared by them and signed and sworn to by Scruggs, in substantially the same form and upon the same general plan as the one described in Banks v. Flint, ante, p. 40. Merwin & Daggett presented the application to Granger at Memphis, and he forwarded it to Smith & Co. at Vicksburg, with his statement that he had examined the land and "recommended" (but did not solicit) that a loan of $ 800 be made upon terms indicated by him. They indorsed their approval upon the application, and thereupon Granger prepared the notes and mortgages and transmitted them to Merwin & Daggett. They were executed in due form, and returned to Granger with a power of attorney from Scruggs, authorizing Granger to receive and receipt for the loan. The power solemnly recites that Granger is the agent of the borrower and not of the lender, and is verified by affidavit; it contains no express reference to the capacity in which Granger acted in recommending to Smith & Co. the action they should take. Granger sent the securities and power of attorney to Smith & Co. at Vicksburg, and they returned him the amount of the loan. He retained $ 60 for his commissions and other sums for matters not explained, and forwarded the balance to Merwin & Daggett. The mortgage provided that it should be governed by the laws of Arkansas. The mortgage company made no loan on land in Arkansas until 1884, and made few, if any, prior to the one under consideration. It does not appear that Granger had previously participated in loans made by it. Francis Smith & Co. were engaged in a general brokerage business in Vicksburg, and loaned money for different persons and companies. Up to the time of taking the proof they had made nineteen loans in Lee county in which Granger assisted, four for the mortgage company and fifteen for other parties. The proof is that when Granger made his arrangement with Merwin & Daggett, he represented himself as acting for Smith & Co., that he employed a land examiner who reported directly to Smith & Co., and that a member of the latter firm several times asserted that he was their agent. The application for a loan was addressed to no one, but recited a desire to borrow money, and empowered Granger, as the applicant's agent, to negotiate for it. That he conducted any negotiations does not appear, except as it may be inferred from his recommendation to the lender's agent. That he was mistaken as to the party whom he represented, and that he was in fact the agent of Smith & Co., may be accepted as a fact in the. case. That he retained from the money lent $ 60 as his commission, is conceded. If this act can be charged to the lender, it is plain that the transaction was usurious, and that the notes and mortgages are void. The question is, Was the lender chargeable with it?

The evidence is direct and unshaken that the company did not authorize the employment of sub-agents, and that it had no knowledge of such employment. The agency was not of such a character as that its execution demanded the service of sub-agents, for it appears from the proof that it has been more recently executed without any; the agent therefore had no implied authority to constitute sub-agents. Mechem on Agency, secs. 194-7. Upon the proof we can only hold that he was not the agent of the company, and that his charge of a commission was his individual act, and not the act of the company. What he charged was therefore not a part of the lender's charge, nor to be computed in calculating the amount paid for the use of money. Call v. Palmer, 116 U.S. 98, 29 L.Ed. 559, 6 S.Ct. 301; Baldwin v. Doying, ...