Unity Plan Finance Co., Inc. v. Green

• Decision Date: 21 May 1934
• Docket Number: 32693
• Citation: 155 So. 900,179 La. 1070
• Court: Louisiana Supreme Court
• Parties: UNITY PLAN FINANCE CO., Inc., v. GREEN et al

155 So. 900

179 La. 1070

UNITY PLAN FINANCE CO., Inc., v. GREEN et al

No. 32693

Supreme Court of Louisiana

May 21, 1934

Reversed and rendered.

Friedrichs Connolly & Simoneaux, Sanders, Baldwin, Haspel & Molony Robert Weinstein, Prowell, McBride & Ray, Frymire & Ramos and Frank B. Twomey, all of New Orleans, for applicant.

John T. Charbonnet, of New Orleans, for respondents.

O'NIELL Chief Justice. LAND and BRUNOT, JJ., dissent.

OPINION

O'NIELL, Chief Justice.

This is a suit on three promissory notes, representing loans made by the plaintiff, a finance company, licensed to do business under the provisions of Act No. 7 of the Extra Session of 1928, known as the Small Loan Law.

One of the notes is dated the 29th of April, 1931, is for $ 125, payable in 50 weekly installments of $ 2.50 each, and represents a loan made to William Green, at 10 per cent. discount, and for which he received $ 112.50. The second note is dated the 29th of July, 1931, is for $ 100, payable in 50 weekly installments of $ 2 each, and represents a loan made to Ernest Briscoe, at 10 per cent. discount, and for which he received $ 90. The third note is dated the 16th of September, 1931, is for $ 150, payable in 50 weekly installments of $ 3 each, and represents a loan made to Rita Green, at 10 per cent. discount, and for which she received $ 135. Each of the three borrowers signed the notes of the others as surety, so that all became liable in solido as makers of the three notes. They bore interest at 8 per cent. per annum after maturity, and the stipulation that in the event of a failure to pay promptly any installment the makers should pay to the finance company, as liquidated damages, 5 cents for each dollar in arrears, to "cover the cost of collection without employment of an attorney." The notes bore also the stipulation that a failure to pay promptlyany installment would mature all remaining installments, together with the interest, costs, and attorney's fees, as stipulated. The stipulation in that respect was that, should the note be not paid when due, and should it be placed into the hands of an attorney for collection, the makers of the note would pay the attorney's fee, fixed at 20 per cent. on the balance due, the fee to be not less than $ 15 in any case.

Rita Green died on the 8th of October, 1931, leaving as her heirs her son, William Green, and two daughters, Senora Green Briscoe, the wife of Ernest Briscoe, and Lolita A. Green. The three heirs accepted the succession of their mother unconditionally, and went into possession of her estate under an order of court. Senora Green Briscoe and Lolita A. Green, therefore, became liable, each for a third of the solidary obligation of the deceased, Rita Green, on the three notes. William Green, as we have said, was already liable in solido as one of the makers of the three notes. This suit therefore was brought against William Green and Ernest Briscoe as makers of the notes, and against Senora Green Briscoe and Lolita A. Green as heirs and legal representatives of Rita Green.

The note for $ 125 was reduced to $ 49, the note for $ 100 was reduced to $ 60, and the note for $ 150 was reduced to $ 115, by payments of the installments up to a date near the 30th of December, 1931; on which date, several installments being in arrears on each note, the finance company declared the whole balance due, and placed the notes into the hands of the attorneys for collection. They sued for the balance due on each note, with interest at 8 per cent. per annum from the 30th of December, 1931, and 20 per cent. attorney's fee on the balance due on the larger note, and the minimum fee on each of the two smaller notes.

The defendants pleaded that the contracts were violative of the provisions of the Small Loan Law, and particularly (1) the provision against charging or contracting for a higher rate of interest than 3 1/2 per cent. per month, and (2) the provision against collecting interest in advance, which the defendants contend forbids the discounting of a note; and (3) the provision against compounding of interest.

The case was submitted on an agreement as to the facts, and was dismissed by the judge of the first city court, on the ground that the contracts were violative of the statute. On appeal the Court of Appeal for the parish of Orleans, with one judge dissenting, reversed the decision, and gave judgment for the plaintiff for the balance due on the notes; but, instead of allowing the 10 per cent. discount, the court allowed interest at that rate per annum, on the net amount received on each loan, from the date of the note to the 30th day of December, 1931, and allowed interest at 8 per cent. per annum from that date on the balance due on each note. At that time, the Court of Appeal had decided, in Automobile Security Corporation v. Randazza, 17 La.App. 489, 135 So. 45, and in Heymann v. Mathes, 18 La.App. 403, 137 So. 871, that a stipulation for the payment of attorneys' fees was not forbidden by the Small Loan Law, even where the lender charged the maximum rate of interest allowed by the statute; and we had affirmed the ruling in both cases. But, before the decision of the Court of Appeal in the present case became final, that court, in the case of Foundation Finance Co. v. Robbins, 149 So. 166, overruled its decision in the Randazza Case and in the Heymann Case, and then held that the stipulation for attorneys' fees, in a note for a loan of $ 300 or less, was to be regarded as charging interest, and that if the total amount of the interest so charged exceeded 42 per cent. per annum, the note was invalid. The Court of Appeal, therefore, granted a rehearing in the present case, because the defendants, relying upon the ruling in the Randazza Case and in the Heymann Case, had refrained from arguing in the present case that the stipulation for attorneys' fees should be regarded as an interest charge.

On rehearing, in the present case, the Court of Appeal calculated that the 10 per cent. discount which was deducted from the loans was equivalent to a rate of 22 2/9 per cent. interest per annum, and the court considered the stipulation for 20 per cent. attorneys' fees as an additional charge of 20 per cent. interest per annum, making a total charge of 42 2/9 per cent. interest per annum, being 2/9 of 1 per cent. more than the statute allowed. For that reason the Court of Appeal set aside the decree which it had rendered in this case, and affirmed the decision of the first city court, declaring the contracts illegal, and rejecting the plaintiff's demand.

This court reversed the ruling of the Court of Appeal in the case of Foundation Finance Co. v. Robbins, 179 La. 259, 153 So. 833, and reinstated the ruling which had been made in Automobile Security Corporation v. Randazza, and in Heymann v. Mathes, that the stipulation in a note for $ 300 or less, for the payment of an attorney's fee in the event of its being necessary to employ an attorney to collect the note after maturity, was not a charge of interest, and did not invalidate the note, even where the lender charged the maximum rate of interest allowed by the statute. Even if a stipulation in a promissory note for the payment of a certain percentage of the amount as an attorney's fee in the event of its being necessary to employ an attorney to collect the note should be regarded as a disguised method of charging interest, or as a charge for the use of the money, the charge would not be a percentage per annum. There would be no reason, therefore, why this flat charge of 20 per cent. should be added to the annual rate of interest charged, in this case, even if the flat charge of 20 per cent. should be regarded as a charge of that much interest. It is sufficient, however, to say, on the subject of the 20 per cent. attorney's fee, that we adhere to the opinion rendered in Foundation Finance Co. v. Robbins, 179 La. 259, 153 So. 833, that such a stipulation, for the payment of a certain percentage as an attorney's fee, in a promissory note given for a loan made under the provisions of the Small Loan Law, is not to be considered as a disguised method of charging interest, and does not invalidate the note, even where the rate of interest actually charged is the maximum rate allowed by the statute.

Aside from the stipulation for the payment of an attorney's fee, the contention of the defendants in this case, that the plaintiff charged a higher rate of interest than 3 1/2 per cent. per month, is based upon two separate and independent propositions, viz., first, that the stipulation for the payment of 5 per cent. "as liquidated damages," or to "cover the cost of collection without employment of an attorney," in the event of a failure to pay promptly any one of the stipulated installments, was in reality a stipulation for the payment of excessive interest; and, second, that the stipulation that a failure to pay promptly any installment would mature all remaining installments was a stipulation to shorten the term of payment, which would have the effect of increasing the rate of the interest which was deducted as discount.

The thirteenth section of the Small Loan Law allows a licensee to make loans for sums not exceeding $ 300 at a rate of interest not exceeding 3 1/2 per cent. per month, and declares:

"Interest, discount or charges in excess of those permitted by this Act shall not be charged, contracted for or received, and if any such shall be charged, contracted for or received, the contract of loan shall be void and the licensee shall have no right to collect or receive any principal, interest or charges whatsoever."

In the eighteenth section of the statute it is declared:

"No loan for which a greater rate of interest, discount, or charge...