Smith v. Parsons

• Decision Date: 18 December 1893
• Docket Number: 8419
• Citation: 57 N.W. 311,55 Minn. 520
• Parties: John T. Smith et al. v. James S. Parsons et al
• Court: Minnesota Supreme Court

57 N.W. 311

55 Minn. 520

John T. Smith et al. v. James S. Parsons et al

No. 8419

Supreme Court of Minnesota

December 18, 1893

Argued November 13, 1893.

Appeal by defendants, James S. Parsons and others, from an order of the District Court of Cottonwood County, P. E. Brown, J made August 14, 1893, denying their motion for a new trial.

The plaintiffs, John T. Smith and Jennie Smith his wife, made their promissory notes, ten for $ 1,000 each, and twenty for $ 500 each, all dated October 1, 1883, due five years thereafter, and bearing interest at the rate of seven per cent. a year payable semiannually. They also made a mortgage on lands in Cottonwood, Jackson and Murray Counties, securing payment of the notes. They sent these notes and the mortgage with abstracts of title to defendant, James S. Parsons of Hartford, Conn., for approval. He accepted the securities and agreed on February 21, 1884, to make the loan. He advanced portions of the money from time to time and it was used to pay off prior incumbrances on the mortgaged property. Parsons sold a part at least of the notes, but never assigned the mortgage or any interest in it. On December 13, 1883, James S. Morgan purchased from Smith four of the notes of $ 1,000 each, and paid in good faith $ 4,000 for them. Smith paid interest on all the notes to October 1, 1890. In August 1891, Parsons commenced foreclosure by advertizement, under a power of sale in the mortgage. Smith and wife then brought this action to restrain the sale, claiming the mortgage to be usurious. The trial Court found upon the evidence adduced at the trial:

"That it was agreed between Parsons and Smith on February 21, 1884 that Parsons would then accept said mortgage and notes and make to the said plaintiff, John T. Smith, thereon, as of that date, a loan of twenty thousand dollars; that the payment of said sum should be deferred, and that the same should be paid over to said Smith in installments convenient to the defendant Parsons at times to be thereafter fixed by him, and as a consideration for said loan, in addition to the interest on said notes according to their terms, said Smith agreed to pay to said Parsons a commission of $ 1,000 and perform services of the value of $ 500 in soliciting life insurance, and that said Smith should pay interest on said notes from their date at the rate of seven per cent. per annum according to their terms. That thereafter on November 4, 1884, Smith paid to Parsons the commission of $ 1,000, and that between April, 1883, and the fall of the same year Smith performed services concerning the obtaining of insurance risks of the value of $ 500. That the agreement to defer the payment on the loan, to pay the bonus of $ 1,000, to perform services in obtaining life insurance risks, to pay interest on money before received, and not received, were devices entered into to evade the usury laws of this State, and were mere covers for usury. That the mortgage described in the complaint and herein described is usurious, and void."

The defendants made a case containing all the evidence and it was settled, signed and filed. On it and the pleadings, findings and files, the defendants moved for a new trial on the ground that the findings were not supported by the evidence and that the conclusions of law were not supported by the facts found. This motion was denied and defendants appealed. The discussion here was mainly upon the evidence, whether or not it supported the facts found in the Court below.

Order affirmed.

J. G Redding and Charles C. Willson, for appellants.

By the sale of four of the notes to Morgan December 13, 1883, Smith accepted the securities and agreed to make the loan. This was before there was any negotiation for a bonus. Immediately after Morgan bought his notes, that mortgage had existance as a contract, and Morgan had a right to look to it for his security. The contract to pay $ 1,000 commission was made February 21, 1884. This was at least two months after the mortgage had become a valid security. And if the agreement made February 21, 1884, was void for usury, it did not invalidate the previous contract made by Parsons' acceptance and sale of the notes to Morgan and others. A contract not usurious at its inception cannot be rendered invalid by any subsequent usurious negotiation. Avery v. Creigh, 35 Minn. 456; Stein v. Swenson, 44 Minn. 218; Drury v. Morse, 3 Allen 445; Nichols v. Fearson, 7 Pet. 103; New York Fire Ins. Co. v. Ely, 2 Cow. 678.

Usury, being a defense highly penal in character, must be set forth in the answer and strictly proved at the trial. No inferences will be indulged to sustain the defense. It will not avail the party if the usury proved is not that set up in the answer; nor will it avail him to make out a case which leaves the question in conjecture, and does not certainly show that usury was contracted for at the time the loan was made. Manning v. Tyler, 21 N.Y. 567; Vroom v. Ditmas, 4 Paige, 525; Frank v. Morris, 57 Ill. 138; Sujette v. Wilson, 13 Ore. 514; Ewing v. Howard, 7 Wall. 499; Chase v. New York M. L. Co., 49 Minn. 118; Thomas v. Murry, 32 N.Y. 605.

If the full amount of interest reserved and commission exacted at the time the contract for the loan was made, spread over the whole term of five years, do not exceed ten per cent. a year, payable yearly, and in advance each year, then the contract is not corrupt or usurious within our statute. Laws 1879, ch. 66. The bonus will be spread over the entire five years. Upton v. Donahue, 32 Neb. 565; McGovern v. Union M. L. Ins. Co., 109 Ill. 151; Chase v. New York M. L. Co., 49 Minn. 111; Brown v. Scottish-American Mortg. Co., 110 Ill. 235.

Parsons is a trustee and holds the title to the mortgage with power to foreclose for the benefit of the other defendants who hold the notes. Parsons was the proper person to foreclose the mortgage by advertizement. Burke v. Backus, 51 Minn. 174; Brown v. Delaney, 22 Minn. 349; Bottineau v. AEtna Life Ins. Co., 31 Minn. 125; Solberg v. Wright, 33 Minn. 224.

The notes having been delivered in Connecticut and being payable in that State are governed as to usury by the laws of that State, and as the burden of showing usury was upon the plaintiffs, they should have shown the statute of that State in evidence. There is in fact no usury law in Connecticut. 1 Jones, Mortg. §§ 656, 657; Story, Conflict Laws, §§ 291, 292, 293, 294; Bishop, Contracts, §§ 1374, 1390; Wane County Sav. Bank v. Low, 81 N.Y. 566. But there is a clause in the notes that they are made under, and are to be construed by, the laws of Minnesota. Will this clause import our usury laws into the contract. 1 Jones, Mortg. §§ 658, 660, 661, 663; Townsend v. Riley, 46 N.H. 300; Dugan v. Lewis, 79 Tex. 246; Mott v. Rowland, 85 Mich. 561; Kilcrease v. Johnson, 85 Ga. 600.

This bonus of $ 1,000 was part of the compensation for the loan and was so applied. It cannot be taken out of the principal; certainly not before the bonus was paid on November 4, 1884, nor can it be taken out then, without making a new contract between the parties, and making it, too, for the purpose of destroying the contract they did make, and forfeiting the money loaned. Leonard v. Cox, 10 Neb. 541; Mathews v. Toogood, 25 Neb. 99; Tepoel v. Saunders Co. Bank, 24 Neb. 815; Upton v. O'Donahue, 32 Neb. 565; Chase v. New York M. L. Co., 49 Minn. 111.

Wilson Borst and Loren Cray, for respondents.

In order to determine the character of the transaction between the parties and dispose of the question of usury, two aggregate sums must be arrived at: First, the amount actually received with interest thereon from the time when received, at the highest rate known to law. Second, the amount they contracted to pay of both principal and interest. If the latter sum is greater than the former then there is usury. In view of the fact that it was contracted that Smith should not receive the money at the date of the notes, the most that defendants can claim is that interest should be cast on the amounts received from the time they were received, at ten per cent., until the maturity of the contract, viz: October 1, 1888. If Smith has contracted to pay more than this, it is surely usury. Where a portion of the money loaned is withheld, the borrower paying interest from the time the transaction took place, it is usury, at least if the result was the receipt of unlawful interest. East River Bank v. Hoyt, 29 How. Pr. 280; s. c. 32 N.Y. 119.

Now what did plaintiffs contract to pay? First, $ 20,000 of principal, as per his notes; five years' interest at seven per cent., $ 7,000; bonus, $ 1,000; services in procuring insurance, $ 500; total, twenty eight thousand five hundred dollars ($ 28,500). This exceeds by $ 1,157.64 the total amount of money received with ten per cent. interest on it from the time received until the expiration of the loan.

Returning to the lender a part of the sum on which interest is reserved, reduces the contract to a loan of the residue, and the money returned is a discount. Oyster v. Longnecker, 16 Pa. 269; Collamer v. Goodrich, 30 Vt. 628; Landis v. Saxton, 89 Mo. 375; Blymyer v. Colvin, 127 Pa. 114.

Where the rate of interest in the State in which the contract is made, and in the State in which it is to be performed, differ, the parties may contract for the rate of interest at either place. Note in 6 Am. Dec. 193; Martin v. Johnson, 84 Ga. 481; Mott v. Rowland, 85 Mich. 561.

OPINION

Gilfillan, C. J.

Action to enjoin the foreclosure under the power of a mortgage upon real estate alleged to have been usurious. Smith executed to Parsons thirty promissory notes, aggregating in amount $ 20,000, and he and wife executed a mortgage upon real estate situated in this state to secure the same, all...