Spence v. Erwin

• Decision Date: 05 April 1944
• Docket Number: 14786.
• Citation: 30 S.E.2d 50,197 Ga. 635
• Parties: SPENCE et al. v. ERWIN et al.
• Court: Georgia Supreme Court

30 S.E.2d 50

197 Ga. 635

SPENCE et al. v. ERWIN et al.

No. 14786.

Supreme Court of Georgia

April 5, 1944

Rehearing Denied May 5, 1944.

Syllabus by the Court.

1. Where a transaction in the form of a written contract for the sale of shares of stock with an option to repurchase within a given time for a named consideration, and apparently lawful in all respects, is alleged to have been not a sale but a loan secured by the stock, at an usurious rate of interest it is incumbent upon the person attacking to affirmatively show that the transaction was in fact a loan tainted with usury.

2. If, construing the petition, as amended, most strongly against the petitioners, it is fairly inferable that the transaction was in fact a sale and not an usurious loan as contended, such construction must prevail, although there is a definite allegation that the transaction was a loan and not a sale.

3. Thus, in such a transaction and attack in the instant case the sustaining of a general demurrer and dismissal of the petition will not be disturbed, where the allegations of the petition are equivocal, conflicting, and do not clearly establish the transaction as a loan and definitely negative it as a sale.

Spence & Spence, a partnership composed of George C. Spence Sr., and George Cleland Spence, Jr., filed an equitable petition against Mrs. Thomas C. Erwin, Sr., Thomas C. Erwin, Jr., and Albert Boylston. The petition was several times amended, and in its final form alleged substantially as follows: On June 9, 1941, Thomas C. Erwin entered into a written contract with Spence & Spence, a firm composed of George C. Spence and Nathaniel C. Spence. This contract recited that Spence & Spence have an option from Hewlett & Dennis to purchase 3,000 shares of preferred stock and 628 shares of common stock of the Atlanta Biltmore Hotel Corporation; and that Erwin, for the consideration of one dollar and other valuable consideration, purchased this stock from Spence & Spence with the provision 'that the said Spence & Spence shall have an option to repurchase all of said stock within six months from this date for the sum of $10,500 cash; and the further option to repurchase said stock from Thomas C. Erwin after expiration of six months option but within twelve months from this date, for the sum of $12,000 cash; and said Thomas C. Erwin covenants that he will keep and hold said stock from any limitation or contract otherwise than is herein mentioned, so that the said stock may be delivered at any time during the next year at and for the option prices as mentioned herein. But the said Thomas C. Erwin may have the privilege of pledging said stock to secure a loan for $8,000 upon the security of said stock.' It was averred that the $8,000 received by petitioners from T. C. Erwin, Jr., as described in the contract, was in fact a loan from Erwin and his mother, Mrs. Thomas C. Erwin, Sr., with the stock pledged as collateral, and did not represent the consideration for the sale of the stock as outlined in the purported contract; that the transaction was clothed in the form of an option contract for the purpose of giving the loan the appearance of a legal transaction in the form of a sale with an option to repurchase. For the use of the $8,000 loan the petitioners were to pay $2500 if repaid within six months, or $4,000 if repaid within twelve months, whereas at the legal rate of 8 per cent., the interest would have been $320 for the use of the loan for six months, or $640 for twelve months. Erwin, Jr., who was a real estate agent, had been conducting extensive negotiations for the sale of the Atlanta Biltmore Hotel property, for which, if consummated, he would have received a large commission, and the principal inducement which led Erwin to make the loan to petitioners was 'because of the fact that petitioners had been counsel for the owners of the hotel property in a very extensive litigation, and were in a position to facilitate the negotiations looking to the sale of said property.' A part of the money so borrowed was to be used for paying Hewlett & Dennis for the stock, and for the purpose of consummating the closing of the transaction, T. C. Erwin, Jr., who was acting in the matter for himself and his mother, Mrs. Thomas C. Erwin, on June 9, 1941, delivered the money to the trust officer of the Citizens & Southern National Bank, who at the same time, received the stock from the Atlanta Biltmore Hotel Corporation. In accordance with the agreement of the petitioners and the defendants Erwin, the trust officer distributed the $8,000 as follows: $6,400 to Hewlett & Dennis, which was owing to them by the petitioners on the purchase price of the stock; $850 to the Atlanta Biltmore Hotel Corporation, which Hewlett & Dennis owed to that company on the stock, and the remaining $750 to the petitioners. The stock was then delivered to T. C. Erwin to be held by him, or his mother, as collateral security for the loan. During Erwin's efforts to effect a sale of the hotel property, there was an understanding between the plaintiffs and the defendant T. C.

Erwin that the loan should be carried until the sale of the hotel, or until negotiations for such sale were terminated. The defendants have not until recently disputed the fact that the transaction was a loan, but on July 27 they refused to accept $14,604 which was then offered, whereas the loan plus lawful interest at 8 per cent. thereon at that time was $9,363.04.

About this time, the petitioners, for the sum of $7,000 purchased and received from the Bank of Atlanta, and had transferred to them in blank and without recourse, two notes of T. C. Erwin aggregating $7,000, together with all of said shares of Atlanta Biltmore Hotel Corporation, described in the contract of sale, which had been pledged by Erwin as security for the notes. The petitioners borrowed from the defendant Albert Boylston the $7,000 with which to purchase said notes, and then delivered to Boylston the two notes with the stock to secure payment of the $7,000 borrowed as well as to secure the repayment of certain other indebtedness owing by George C. Spence to Boylston. The petitioners alleged that they are the owners of the stock subject to the $8,000 loan, and tendered to the defendant Erwin the two notes signed by T. C Erwin for $7,000 and $1,000, making a total of $8,000 principal, and $1,363.04 interest at 8 per cent. on $8,000 from June 9, 1941, to July 27, 1943, although claiming no necessity of tender since the defendants were claiming the stock adversely and had refused to accept an offer to pay them for its release. On August 4, 1943, T. C. Erwin, Jr., and Madison Richardson, as attorney for the defendant Erwin, presented a letter to the defendant Boylston, setting forth their claim to the stock in question and tendering to him a...