Southern Building and Loan Association v. Harris
| Decision Date | 01 October 1895 |
| Parties | Southern Building and Loan Association v. Harris. |
| Court | Kentucky Court of Appeals |
APPEAL FROM FAYETTE CIRCUIT COURT.
GEO. C. WEBB FOR APPELLANT.
J. R. MORTON FOR APPELLEE.
The appellant is a foreign corporation, created by the law of Tennessee, located and doing business at Knoxville, Tennessee, but permitted to do business in Kentucky, having complied with the laws of the State in reference thereto.
This controversy arises upon a transaction between appellant and M. L. Harris, appellee (the latter a resident of Lexington, Kentucky), whereby Harris secured from appellant a loan of two thousand dollars. This loan, however, was made not directly and in a straightforward business manner, but with much circumlocution, and was inaugurated by the subscription of Harris for forty shares of stock in the corporation, and for which appellee paid as initiation fee, one dollar per share, after which, and only upon the payment of which, would his application for a loan be considered. So after this subscription for the forty shares of stock, and for which appellee agreed to pay sixty cents per month on each share, being twenty-four dollars per month on the forty shares, for the period of eighty-four months, then the loan was negotiated of $2,000, upon which appellee was to pay interest at the rate of 6 per cent. per annum, on the whole amount, until by applying his payments of the twenty-four dollars per month on his forty shares of stock to his debt, the principal should be repaid.
Interest is conceived to be a certain sum of money paid annually for the use or loan of other and a greater sum, regulated by contract of the parties within the limits of the law of the place or country where made, and is supposed in theory to represent the earning capacity of the sum borrowed, until such time as same may be repaid. When the principal is repaid the interest, of course, ceases, and this principle is applicable to partial payments as well as to the final payment of the whole.
The error that lies concealed in this cunningly devised scheme consists in the payment by the borrower of interest at the rate of one hundred and twenty dollars per year upon the entire sum of $2,000 during the entire period of eighty-four months, when in truth and in fact never after the payment of the first twenty-four dollars at the end of the first month, did the borrower owe the $2,000.
Under the terms of the contract as interpreted by appellant in the light of the charter and by-laws of the association, the matter practically works out this way:
At the end of twenty-one months, being one-fourth the time it is contemplated the debt will run, appellee by his monthly payments of $24.00 per month (in addition to the $10.00 per month interest) on the principal of his debt, will have paid $500.00 of the principal, leaving due only the sum of $1,500, and yet on this sum he still pays the $120 per year interest, being then at the rate of eight per cent. per annum.
And when at the expiration of forty-two months he shall in like manner, in addition to his interest, have paid $1,000 on the principal of his debt, leaving only $1,000 due, he yet pays on the $1,000, one hundred and twenty dollars per annum interest, being at the rate of twelve per cent.
In like manner at the end of sixty-three months continuing his interest and his payment of $24.00 per month on the principal he will have paid $1,500 of the principal of his loan, leaving but $500 unpaid, and yet he continues to pay on this sum the $120 per year interest, being at the rate of twenty-four per cent. per annum, until finally we reach the last month of the eighty four, when but $24.00 of the principal is due. On this he pays the $10.00 per month, being at the rate of $120 per year, and being at the rate of five hundred per cent. interest per annum charged and collected by this association. And yet in the face of these figures, which are incontrovertible, appellant insists that its contract is all legitimate and fair, that there is no fraud, no deception, and stranger still, no usury. And this last proposition he upholds by an elaborate brief and by the citation of many...
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