Ulvilden v. Sorken

• Decision Date: 26 June 1931
• Docket Number: 6787
• Citation: 58 S.D. 466,237 N.W. 565
• Parties: J. O. ULVILDEN, Respondent, v. B. A. SORKEN, et al, Appellants.
• Court: South Dakota Supreme Court

58 S.D. 466

237 N.W. 565

J. O. ULVILDEN, Respondent, v. B. A. SORKEN, et al,

Appellants.

South Dakota Supreme Court

Appeal from Circuit Court, Minnehaha County, SD

Hon. John T. Medin, Judge

# 6787—Reversed

Teigen & Davis, Sioux Falls, SD

Attorneys for Appellants.

B. O. Stordahl, Sioux Falls, SD

Attorney for Respondent.

Opinion filed Jun 26, 1931

ROBERTS, J.

Plaintiff brought this action to secure judgment upon a note for $2,000 and interest and for the foreclosure of a real estate mortgage given as security. The note provided on its face for the payment of 6 per cent interest per annum from date, and further provided in a printed provision that, if any part of the principal should not be paid at maturity, it would bear interest at 12 per cent per annum. Defendants Gilseth and Borgen indorsed the note for the accommodation of defendant Sorken and as security to plaintiff. Execution and indorsement of the note was admitted by the defendants, but they pleaded usury as a defense to the collection of any interest.

Plaintiff testified that he procured a number of blank forms of notes at a bank and supposed that they were all right; that he never intended to charge or collect on the notes more than 6 per cent interest; that he had never at any time asked any of the defendants for more than 6 per cent; that the note represented money loaned to the defendant Sorken and was given in renewal of such obligation; that the former notes were drawn upon the same form as the one upon which this action was brought.

It appears that the original loan was made in the year 1918 or 1919 and at a time when it was lawful for parties to agree to pay interest at a rate not exceeding 12 per cent per annum. The maximum rate of interest which might be contracted for on money loaned was reduced to 10 per cent per annum by the provisions of chapter 211 of the Session Laws of 1923. However, this action is upon the note without reference to the same being a renewal of a loan made prior to this amendment of the statute.

The trial court made findings to the effect that it was not the intention of the plaintiff at any time to ask or receive more than 6 per cent interest; that it was through a mistake or inadvertence that the note provided for interest at the rate of 12 per cent after maturity; and that the note was not in fact usurious. On such findings the plaintiff was awarded judgment for the amount of principal and interest at the rate of 6 per cent per annum, from which judgment and order denying a new trial defendants appeal.

The first question for our determination is whether a note is usurious under the statutes of this state which provides for the payment of a higher rate of interest than 10 per cent per annum after maturity. Section 1040, Rev. Code 1919, as amended by chapter 211, Laws of 1923, above referred to, defines usury as follows:

“The highest rate of interest which it shall be lawful to take, receive, retain or contract for in this state, shall be ten per cent (10%) per annum and at the same rate for a shorter time. ...”

There is abundant authority in support of the doctrine that a provision included in a note in good faith for a higher rate of interest after maturity until paid than permitted by the usury statutes does not render the note usurious. 39 Cyc. 954; Notes, 49 LRA 550, and 7 Ann. Cas. 490. It is reasoned that such provision contemplates prompt payment of the debt at maturity, and that the higher rate after maturity is exacted as a penalty to insure a prompt payment of the obligation, and that the debtor by the terms of the contract can avoid the payment of the higher rate by payment of the obligation at or before maturity.

Requiring the maker of a note to pay a higher rate of interest after maturity for the use of money is likely to be as oppressive as when required to pay a higher rate during the term of the loan. It may not be within the power of the borrower promptly to meet his obligations at maturity. If a borrower is to be protected from the extortion of an excessive rate for the use of money, there is no apparent reason why it should be limited to the term of the loan. As stated in Richardson v. Brown, 68 Tenn. (9 Baxt.) 242:

“What difference can it make in the essence of the transaction that the excessive rate shall be agreed to be paid for one period rather than another? Is it not equally the compensation demanded by the lender or the creditor for the use of his money? We think it is, most certainly. The fact that the party might relieve himself from this payment by payment of the bill at the day agreed upon for its falling due, only prevents other contracts from being enforced against him; but if he for any cause failed to pay, then the interest at the rate contracted becomes due by virtue of the agreement, is paid as interest for the continued use of the money, and is contrary to the requirements of the law.”

See, also, 1 Sutherland on Damages (4th Ed.) § 318; Miller v. Insurance Co., 118 N.C. 612, 54 AmStRep 741.

Interest is defined under section 1037, Rev. Code 1919, as “the compensation allowed for the use, or forbearance, or detention of money or its equivalent.” In construing an identical provision the court, in Parks v. Lubbock, 92 Tex. 635, 323, said:

“According to this article, as we analyze it, the use of money referred to is that which is contracted for when a loan is made. The forbearance occurs when there is a debt due or to become due, and the parties agree to extend the time of its payment. The detention of money arises in a case when a debt has become due, and the debtor withholds its payment, without a new contract giving him a right to do so. ... The conclusion is not to be resisted that...