Zimmerman v. Brown

Decision Date12 July 1917
Citation30 Idaho 640,166 P. 924
PartiesJOHN ZIMMERMAN, Respondent, v. C. W. BROWN and W. S. WOOD, Appellants
CourtIdaho Supreme Court

USURY - CONFLICT OF LAWS - CONTRACT IN VIOLATION OF STATUTES - VALIDITY.

1. When a contract is usurious by the laws of the state wherein it was made, but not according to those of the state wherein it is to be performed, the parties will be presumed to have contracted with reference to the laws of the latter state unless it appears that in fixing the place of payment there was bad faith or an intention to evade the usury laws of the former.

2. Where a statute prescribes a license, or certificate, as a requisite to engaging in business, and where such is required for public protection or is a police regulation and not for revenue purposes only, a contract made in violation thereof is invalid and no recovery can be based thereon.

3. The law of 1909 (Sess. Laws 1909, p. 211, as amended by Sess Laws 1913, p. 550) regulating the use and sale of stallions was not passed for the purpose of raising revenue, but is a police regulation designed to protect those who purchase the services of or buy stallions.

[As to what transactions are usurious, see notes in 81 Am.Dec. 736; 46 Am.St. 178]

APPEAL from the District Court of the Second Judicial District, for Latah County. Hon. Edgar C. Steele, Judge.

Action on promissory note. Judgment for plaintiff. Reversed.

Reversed and remanded, with directions. costs awarded to appellants.

Roy O. Johnson and James H. Forney, for Appellants.

A contract for services rendered, or goods sold, in violation of a statute which forbids, under penalty or otherwise, the carrying on of the particular business without a license, is void. (Harrison v. Jones, 80 Ala. 412; Dudley v. Collier, 87 Ala. 431, 13 Am. St. 55, 6 So. 304; Hill v. Mitchell, 25 Ga. 704; Buckley v. Humason, 50 Minn. 195, 36 Am. St. 637, 52 N.W. 385, 16 L. R. A. 423.)

When a statute requires persons engaging in a particular business to be licensed for the protection of the public, and not for public revenue only, the imposition of a penalty amounts to a positive prohibition of contracts made contrary to the statute. (Taliaferro v. Moffert, 54 Ga. 150; Randall v. Tuell, 89 Me. 443, 36 A. 910, 38 L. R. A. 143.)

Where a statute imposes a penalty for a failure to comply with its provisions, it is to be construed as prohibitory, and contracts made in direct contravention of its requirements are unlawful and void. (Miller v. Post, 1 Allen (Mass.), 434; Sawyer v. Smith, 109 Mass. 220; Prescott v. Battersby, 119 Mass. 285; Johnson v. Hulings, 103 Pa. 498, 49 Am. Rep. 131; Hustis v. Pickands, 27 Ill. 270; Tedrick v. Hiner, 61 Ill. 189; Gardner v. Tatum, 81 Cal. 370, 22 P. 880; Stevenson v. Ewing, 87 Tenn. 46, 9 S.W. 230.)

The validity of promissory notes is controlled by the law of the place where the notes are executed, and not where they are payable. (Orr's Admr. v. Orr, 157 Ky. 570, 163 S.W. 757; Joslin v. Miller, 14 Neb. 91, 15 N.W. 214; Sheldon v. Haxtun, 91 N.Y. 124; Kilgore v. Dempsey, 25 Ohio St. 413, 18 Am. Rep. 306.)

If a note is void for usury where made it will be void everywhere, although it may have been made payable elsewhere as a cover for the usury. (Vermont Loan & Trust Co. v. Hoffman, 5 Idaho 376, 95 Am. St. 186, 49 P. 314, 37 L. R. A. 509; Ocobock v. Nixon, 6 Idaho 552, 57 P. 309; Cleveland v. Western Loan etc. Co., 7 Idaho 477, 63 P. 885; State v. Eves, 6 Idaho 144, 53 P. 543.)

A. H. Oversmith, for Respondent.

"When a statutory prohibition is found in a statute enacted for the purpose of raising revenue or the regulation of traffic or business, unless it is manifestly the intention of the statute to make the contract void, the court will hold the contract as valid." (Vermont Loan & Trust Co. v. Hoffman, 5 Idaho 376, 95 Am. St. 186, 49 P. 314, 37 L. R. A. 509; Sutherland on Statutory Construction, sec. 366; Hughes v. Snell, 28 Okla. 828, Ann. Cas. 1912D, 374, 115 P. 1105, 34 L. R. A., N. S., 1133; Dinkelspeel v. O'Day, 47 Utah 18, 151 P. 344; Lane v. Henry, 80 Wash. 172, 141 P. 365; Larned v. Andrews, 106 Mass. 435, 437, 8 Am. Rep. 346; Mandlebaum v. Gregovich, 17 Nev. 87, 45 Am. Rep. 433, 28 P. 121; Harris v. Runnels, 12 How. 79, 13 L.Ed. 901; Kern v. Feller, 70 Ore. 140, 140 P. 735.)

"Where a note made in one jurisdiction is payable in another, it bears interest according to the lawful rate in the place where it is payable, unless a different rate is specified in the contract." (8 Cyc. 312, and cases cited under footnote 84; Randolph on Com. Paper, par. 31; 2 Parsons on Bills and Notes, p. 324; Daniels on Neg. Inst., par. 879; Sykes v. Citizens' Nat. Bank, 78 Kan. 688, 98 P. 206, 19 L. R. A., N. S., 665.)

The problem of determining what law shall govern in deciding whether or not the contract is usurious is largely one of ascertaining what law the parties had in mind as fixing their rights under the contract. The intent of the parties is therefore usually the cardinal factor. (39 Cyc. 891-898; Baxter v. Beckwith, 25 Colo. App. 322, 137 P. 901.)

Unless there is an intent to evade the usury laws, the law of the state where the note is payable will govern. (Crawford v. Seattle R. & S. Ry. Co., 86 Wash. 628, 150 P. 1155, L. R. A. 1916D, 732.)

Parties in their contracts will be presumed to have used language effectuating a lawful rather than an unlawful purpose. (Beasley v. Aberdeen & R. R. Co., 145 N.C. 272, 59 S.E. 60.)

MORGAN, J. Budge, C. J., and Rice, J., concur.

OPINION

MORGAN, J.

This action was instituted by respondent upon a promissory note made, executed and delivered to him by appellants for the sum of $ 425. The note provided for interest at the rate of 8% per annum, was payable at Wilbur, Washington, and further provided that "if not paid when due the interest to be added to and become a part of the principal, and the whole sum of both principal and interest to bear interest thereafter at 12% per annum." In an affirmative answer and cross-complaint appellants alleged an agreement between themselves and respondent to purchase a stallion, and that in consideration of the sale and delivery of it they executed and delivered the note above set forth; that at the time of the sale respondent had never procured any license to sell or dispose of the animal; that he had never had it passed upon by the state veterinary surgeon and had failed to post, in a conspicuous place on the main door leading into the stable where it was kept, or offered, for sale any certificate, or license, as provided by the laws of this state, and that therefore the contract was void. They prayed for judgment in the sum of $ 875, claimed by them to have been expended in the feeding and upkeep of the stallion. Respondent filed a demurrer to the affirmative answer and cross-complaint, which was sustained.

It is contended by appellants that the note is usurious. The parties stipulated that it was given at Lewiston, Idaho, and that the negotiations leading up to the sale were also made at that place; that the laws of the state of Washington permit the recovery of compound interest and that under such laws the note is not usurious.

The court made and entered findings and rendered judgment in favor of respondent, as prayed for in his complaint. This appeal is from that judgment. The order sustaining the demurrer to the answer and cross-complaint is assigned as error, as is also the action of the court in entering the judgment and in failing to adjudge the note to be usurious.

Sec. 1539, Rev. Codes, prohibits compound interest, and if the note in question is to be governed by the laws of Idaho, it is clearly usurious, but the statutes of the state of Washington permit the collection of such interest. The question then arises: Under the statutes of which state must we test the note?

By the great weight of authority it is held that, in a case like the present one, every presumption is against an intention to violate the law, so that where notes are executed in one state and payable in another, the parties will be presumed to have contracted with reference to the law of the place where the transaction would be valid rather than in view of the law by which it would be illegal, provided, however, that there is no evidence of bad faith or of an intention to evade the usury law of the latter state. Therefore, when a contract is usurious by the law of the state wherein it was made, but not according to that of the state wherein it is to be performed, the parties will be presumed to have contracted with reference to the law of the latter state and the contract will be upheld, subject to the conditions of good faith just set forth. (39 Cyc. 899, 900; Green v. Northwestern Trust Co., 128 Minn. 30, 150 N.W. 229, L. R. A. 1916D, 739; Campbell v. Hunt, 60 Pa. Super. 332; Brownell v. Freese, 35 N.J.L. 285, 10 Am. Rep. 239; Baxter v. Beckwith, 25 Colo. App. 322, 137 P. 901; Dickinson v. Edwards, 77 N.Y. 573, 33 Am. Rep. 671; Brown v. Gates, 120 Wis. 349, 1 Ann. Cas. 85, 97 N.W. 221, 98 N.W. 205; British & American Mtg. Co. v. Bates, 58 S.C. 551, 36 S.E. 917; Crawford v. Seattle R. & S. R. Co., 86 Wash. 628, 150 P. 1155, L. R. A. 1916D, 732.)

The note in question, although made and executed in Idaho, was made payable in the state of Washington, and the fact that it purported to be dated at Wilbur, Washington, shows an intention of ...

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